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Own Your Code: The Independent Contractor Trap

Own Your Code: The Independent Contractor Trap
Pat Dickson - Thu Apr 19, 2012 @ 11:10AM
Comments: 0
Brenda, the CEO of a small software company, could barely speak. When the words finally came out of her mouth, I discerned a few of them and put it together:

"I am so fired..."

"Uh, oh."

"What are you doing, right now?"

"Getting ready to go on a nature hike."

"What! I need you down here right away, like an hour ago!"

"You asked."

"Please, get down here as fast as you can! I can't do this over the phone."

"Ok, I'll be right there."

Brenda was waiting for me in the lobby. "What took you so long? Follow me."

We hustled into Conference Room #3 and she slammed the door. Papers were scattered all over the table.

"Here, look at this. This came via registered mail today. I am so gonna get a pink slip when the Board hears about this. Fired for cause, not even any vested stock options or severance for me." 

I read the two page letter and looked up.

"Pretty bad, huh?"

"Maybe. This letter says all the code Jimmy Keyfingers wrote for you during the Knox Project belongs to him because he wrote it while he was an independent contractor. Because he never assigned this code to your company, he owns it. So if you don't pay him a $1 million dollar per year licensing fee, he's going to get a restraining order against you."

"That's exactly it, and we don't have a defense..." Brenda nearly sobbed. "I read all about Copyright Law today, and we can't do anything but pay him the million."

"But I remember putting Jimmy's employment agreement together. He was an employee with full benefits, taxes taken out of his bi-monthly check, 20 vacation days per year, and a 401k with matching. If he wrote any of this code during his employment, you own it. It falls under the works for hire exception."

"Nope," Brenda sighed, grabbed a document off the cluttered table and handed it to me. It was titled 'Independent Contractor Agreement.' "You see, everything Jimmy did on the Knox Project was during the course of that Independent Contractor Agreement. And that's when he wrote all the code, from scratch. He signed his Independent Contractor Agreement about 3 months after he quit working here as an employee. When he came back..."

"Did I write this Independent Contractor Agreement?"

"YES," Brenda scowled, and I felt a little redness fill my face. "So what are YOU going to do about this situation?"

"Well... Um... Let's go through our arguments and defenses."

"I'm listening," said Brenda, as she stood there, arms akimbo.

"Even assuming Jimmy owns the code, there is an argument you have an implied license to use the software as originally intended - that is to sell it to your customers."

"Nope. Good try. All of our customers are very rigid about our having all the rights to the software because they are financial institutions subject to a lot of regulation."

"Well... Let me look at this Agreement again. Doesn't it say somewhere that anything an Independent Contractor does for you is a work for hire, so that if the software falls within one of the categories listed in Title 17, Section 102, the Copyright Act, then it really is as if Jimmy wrote the code as your employee? So you own it?"

"Pat, I read the Agreement about a dozen times. The answer is NO. You are reaching. What are YOU going to do about this situation?"

I gave Brenda a big smile.

She scowled. "This is NOT funny."

"Brenda, you do know how you make sure you own all the software or code an Independent Contractor creates for you, right?"

"I don't know where you are going, but yes. It even says how you do it in Jimmy's demand letter. There has to be an assignment of rights from the contractor to the employer. That way the employer owns the software outright and without any restrictions."

"Correct. And I think we have one. I think Jimmy left out Addendum A. It should have been a part of the copy of his Independent Contractor Agreement he included with the demand letter. Come to think of it, I am pretty sure I remember getting his assignment as a part of this very Agreement. I turned the original in to HR after emailing it to you. Have you gone to HR and asked to see the original copy? It should include the assignment we need," I crossed my fingers.

"Don't you go anywhere! Maybe, just maybe, your job is saved too!" exclaimed Brenda, and she ran down the hall. Minutes later she returned with elation on her face and the original of Jimmy's Agreement was in her hands. "You got lucky this time Dickson! The assignment in Addendum A is all here. Jimmy even separatedly signed and dated it. That scoundrel! Conveniently leaving out the good part!"

"Does this mean lunch is on you?"

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