WHO OWNS WHAT? Whether to reduce costs, hire for a unique skill, or remain flexible, outsourcing to subcontractors and freelancers is on the rise worldwide. How is this affecting your ownership? | Legal Legends

WHO OWNS WHAT?

Whether to reduce costs, hire for a unique skill, or remain flexible, outsourcing to subcontractors and freelancers is on the rise worldwide. How is this affecting your ownership?

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A LITTLE-KNOWN FACT is that work outsourced to freelancers, independent contractors or subcontractors, such as software development, the writing of blog content, and the creation of logos and drawings, is owned by the person who authored them — the freelancer or subcontractor. Strictly speaking, the copyright to the work is owned by them.

WHAT DOES THIS MEAN FOR YOUR BUSINESS?

Let’s use John as an example. John has for years worked hard at his entrepreneurial vision of creating a new online peer-to-peer lending platform, and requires his software development and company logo design to be outsourced to professionals. He outsources both tasks to two separate companies: One, a software development company, and the other a graphic design agency.

Two years later, when John’s fledgling company begins to take off, he has the opportunity to franchise his company in the deal of a lifetime.

The franchise deal requires him to licence out the intellectual property of his company to the franchisees. This is common in franchise agreements. However, with nothing to suggest otherwise, John doesn’t actually own the copyright to his own software code and branding. The rights belong to the companies he outsourced the tasks to.

THE GOOD NEWS

Fortunately, the law allows for the copyrights to be assigned, or transferred from the companies to John, but only if a written agreement is signed by each of the companies as well as John. This is an Assignment of Copyright Agreement.

We have a free version of the Assignment of Copyright Agreement which may be downloaded here.

THE BAD NEWS

Over time, John learns that to maintain his growing franchise, he needs to tweak his lending software to accommodate increased demand.

He approaches his old software developer, only for a messy spat to break out with him. John and the software developer part ways.

Ever the hustling entrepreneur, he manages to appoint a new software developer to perform the required tweaks and edits to the software code (this time, with a signed Assignment of Copyright Agreement in place).

But John’s old developer hears of John’s latest recruitment, and kicks up a fuss after discovering that in terms of section 20(1) of the Copyright Act, as the ‘author’ of the software code, he may object to a modification of the software as this, according to him, would prejudice his honour. These are the author’s ‘moral rights’,
and are protected in our Copyright Act.

his is an unfortunate conundrum that may result in the old developer being able to prevent any modification to the software code, and claim damages, despite John owning the copyright.

WHAT YOU CAN DO TO PREVENT THIS OCCURRING IN YOUR BUSINESS

The writing up of an Assignment of Copyright Agreement should prevent this from happening, and should:

  1. Occur prior to the start of any outsourced work.
  2. Include a provision to assign all copyrights that are created by your subcontractor to you.
  3. Include a provision that requires the freelancer to waive all moral rights to such work.

If you haven’t drawn up such an agreement, do so as early as possible and get it signed. Our template Independent Contractor Agreement / Subcontractor Agreement which covers all aspects of the above may be purchased here.

HOW DOES THIS POSITION DIFFER WITH EMPLOYEES?

The law makes a distinction between a ‘Contract of Work’, and a ‘Contract for Service’. Basically, a ‘Contract for Service’ comprises the traditional employment relationship we have always been accustomed to. In this instance, the legal position differs, as any copyright and moral rights to the work created by the employee while working for his employer, will be held by the employer, provided that the work was done within the scope of the employee’s duties.