United States: Can Software Be Created As A Work-For-Hire?

In early February a decision out of the Southern District of New York added another layer of dicta supporting the notion that software created by an independent contractor can qualify as a work-for-hire. In Stanacard, LLC v. Rubard, LLC, 2016 U.S. Dist. LEXIS 15721 (S.D.N.Y. February 3, 2016), the court found in dicta that work performed by an independent contractor in creating a software program for use in a long-distance telephone services business had the potential to meet the statutory definition of a "work for hire" under 17 U.S.C. §101. This is a significant finding because it is far from clear that software falls under the work-for-hire doctrine at all.

It is no great secret that the term "work for hire" is one of the most misused phrases in all of intellectual property licensing. Contracts that are really meant to assign copyrightable material from an independent contractor to a customer routinely recite that the content being assigned is a "work for hire," regardless of whether it can actually be so. Works created by independent contractors can only constitute works-for-hire if: a) the work is specially ordered or commissioned by the customer; b) the parties expressly agreed in a written instrument that the work is a "work for hire"; AND c) the work falls into one of nine categories enumerated within the "work for hire" definition. These nine categories are fairly narrow and idiosyncratic. The work must be: 1) part of a motion picture or other audiovisual work; 2) a translation; 3) a supplementary work (such as a foreward, an afterword, an illustration, or an appendix); 4) an instructional text; 5) a test; 6) answer material for a test; 7) an atlas; 8) a compilation; or 9) a contribution to a collective work. Commonly commissioned works, such as artwork created for an advertising campaign, for example, would not appear to fall under any of these categories.

Software development agreements often recite that the work at issue is being produced as a "work for hire." But is it? As the Stanacard court remarked, "On its face, the [requirement that the work meet one of the nine categories] seems problematic. None of the nine enumerated categories obviously encompasses computer programs, software, or code, and Stanacard (unhelpfully) fails to specify which of the nine categories applies to the Stanacard source code." Id. at *20-21. At least four courts have addressed whether development of a software program can meet the definition of a "work for hire": iXL Inc. v. Adoutlet, 2001 U.S. Dist. LEXIS 3784 (N.D. Ill. March 29, 2001); Logicom Inclusive, Inc. v. W.P. Stewart & Co., 2004 U.S. Dist. LEXIS 15668 (S.D.N.Y. August 9, 2004); Siniouguine v. Mediachase Ltd., 2012 U.S. Dist. LEXIS 87190 (C.D. Cal. June 11, 2012); and now Stanacard. All four courts have concluded that software programs meet the statutory definition because they are both "contributions to collective works" and "compilations."

As the court in Mediachase explained, software can qualify as a "contribution to a collective work" when it consists of "separate and independently protectable works that are intended to be combined with [a] customer's'own programming and content to create a collective whole...." 2012 U.S. Dist. LEXIS 87190 at *16. Software programs can also qualify as a "compilation" because "they include an original selection, arrangement, and organization of nonliteral elements in their code." Id. at *17. The court in Stanacard found that the independent contractor's programming qualified as both a contribution to a collective work and a compilation:

Here, [the independent contractor] created and combined a number of different computer programs to create Stanacard's new software system. This new system was comprised of various elements including an open source framework, compression software, a multi-protocol library written by [an associate], a "referral" program, anti-fraud software, routing algorithms, and code for an entirely new Stanacard website. The system as a whole is properly deemed a compilation of computer programs. Alternatively, the source code for each program can be deemed a contribution to the "collective work" that is Stanacard's system.

The nature of the software program at issue in Stanacard points to an interesting feature of modern computer coding. Rare is the software development project that entails nothing more than a coder creating a single piece of source code from scratch. Rather, programming is generally done by stitching together a patchwork of preexisting code with new code, creating new systems in the offing. However, even when new code is created from scratch, it may still qualify as a "contribution to a collective work" when new code must be written for discrete aspects of a program, but can stand alone as a protectable work. So, for example, in iXL, entirely new code created for a website was deemed to be part of a collective work: "The source code written for each section of the [plaintiff's] website constitutes a separate, independent work and is a contribution to the collective whole – that is, the website." 2001 U.S. Dist. LEXIS 3784 at *27.

Although the Stanacard line of cases would appear to support a belief that most software development projects could qualify for work-for-hire treatment, and although the logic supporting their findings appears solid, the fact remains that most of the cases have very little precedential value. In Stanacard, the court ultimately concluded that work-for-hire did not apply in ruling on a motion for summary judgment because there was insufficient evidence that the parties intended to produce the software as a work-for-hire prior to the creation of the work. Id. at *23. In Logicom, the court found sufficient evidence to support an inference that the work qualified as a compilation to survive a motion to dismiss, but noted that "there may come a time in this case when the components of the computer program will need to be more closely examined and parsed, to remove from consideration any elements which are excluded from protection." In iXL, the court's discussions regarding ownership of the code were in the context of a preliminary injunction hearing filed by the independent contractor against the customer, which was denied. Finally, although the court in Mediachase found that the software qualified as a work-for-hire and granted summary judgment to the customer on this basis, the court also found that the plaintiff independently assigned the work to the customer, and further found that the independent contractor was actually an employee of the purported customer (such that the work did not need to fall into one of the nine work-for-hire categories).

The law regarding whether computer software can qualify as a work-for-hire is accordingly in limbo. The decisions that have found that software does qualify have done so in dicta, and no Circuit Court decision has definitively found that software meets one of the nine work-for-hire categories. However, while practitioners often bemoan the overuse of the "work for hire" recitation in development and other intellectual property vendor agreements, Stanacard and its ilk provide good reason for taking a "belts and suspenders" approach to drafting and including both work-for-hire language and express assignment language. You never know how and when a court might enforce it.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.