“Who Really Owns Your Software?” by J. Craig Preston and Chip Sheppard

In order to maximize profits and to ease the stress of doing business, many business owners are finding it beneficial to have computer programs created and customized for their business or are using very industry specific software. However, many businesses fail to recognize that they may not “own” the software and overlook the potential pitfalls of copyright infringement. Without the ownership label, businesses are exposed to potential liability for copying, modifying, or even simply using software even if customized for their business.
One typically believes, and rightly so, that they are the owner of products they purchase. But, this may not necessarily be the case in the realm of software design. Software development has become a booming business, and there are many companies here in the Ozarks that specialize in the creation of customizable software. But, assuming you hire one of these companies, who owns the copyrights to the software?
Copyright law cares little about an individual’s perception that they are a purchaser and does not necessarily deem the buyer the owner. Rather, in most situations the end user is just a licensee. Initially, before a programmer or designer can claim a copyrightable work, they must first show that their program is original, and that they were
the author of the program or some part thereof. A widespread misconception is that the creator must apply for and receive a copyright prior to enforcing his rights. However, this is not the case, as copyright protection begins immediately upon publication of the creation.
In a customized work, the creator’s or hiring business’ rights in the software generally turn on whether the creator of the software is considered an employee or independent contractor. Among the many factors courts consider to determine a particular person’s status as either an employee or independent contractor are: (1) the hiring
party’s right to control the manner and means by which the product is accomplished; (2) the skill required; (3) the source of the instrumentalities and tools; (4) the location of the work; (5) the duration of the relationship between the parties; (6) whether the hiring party has the right to assign additional projects to the hired party;
(7) the extent of the hired party’s discretion over when and how long to work; (8) the method of payment; (9) the hired party’s role in hiring and paying assistants; (10) whether the work is part of the regular business of the hiring party; (11) whether the hiring party is in business; (12) the provision of employee benefits; and (13) the tax treatment of the hired party.
Generally, an independent contractor owns the copyright for all software they design and fabricate. This is the case even if the item is customized for the businesses’ specific needs. Therefore, they have the ability to regulate its future modification, copying, and potentially even the use. Any copying or modification of the program, especially for sale to others, could lead to a copyright infringement lawsuit allowing for the recovery of additional payments or the lost business revenue.
On the other hand, employers generally own the copyrights to the creations of their employees. But, an employee’s invention must generally fit within his normal job duty or description. An employer would then have the rights to use or modify the program in any way it deems fit.
Like most readers know, there are exceptions to every rule, and prior to assuming you have the copyrights to a program, the facts and circumstances of each transaction must be weighed. An astute program design firm or business will lessen the likelihood of potential liability or the need to clarify each party’s rights at a later court hearing by setting forth the guidelines for the use of the program and having a license agreement executed. But, like in most transactions, the terms of the agreement should be reviewed by an attorney familiar with copyright laws to ensure each party understands their rights especially where they want to guarantee they have the right to copy the item and to guarantee the agreement does not favor one party.