Independent Contractors are an attractive complement to most businesses. In addition to the myriad employment issues, there are significant Intellectual Property concerns that should be addressed. As outlined below, written agreements are effective means for alleviating potential risks in this area.
1. Copyright
If you've hired a freelancer to develop creative works for your company, there should be a written assignment of ownership to you. These types of works, including logos, website designs, photographs, video, software code, and written content, are protected by copyright law. Without a written assignment, under copyright law the freelancer is generally considered the author/owner of the work, even if you compensated the freelancer for it. Some types of works are considered "works made for hire" under the Copyright Act such as a contribution to a collective work, like a magazine or literary anthology. In work for hire situations, the company would be considered the author; however, this arrangement must also be documented in writing, prior to commencement of the work, for rights to properly rest with the company.
2. Patent
Depending on the scenario, rights in patentable material created by freelancers may not automatically vest in the company, even if the company has compensated the freelancer. It is therefore important to include a written invention assignment in your agreement.
3. Trademarks
Most companies assume that independent advertising and design firms have cleared the rights to trademarks created on their behalf, only to encounter problems in the U.S. Patent and Trademark Office application process or with third parties in the marketplace. Some larger firms provide this service for clients, but many small agencies and graphic designers do not have such capability. Determine what level of clearance your contractor regularly provides and allocate responsibility for legal clearance of marks in your agreement.
4. Trade Secrets and Other Confidential Information
An independent contractor may be exposed to the company's sensitive information while performing work for you, including trade secrets and other intellectual property. Make sure to address these concerns by limiting access, where practicable, and by including nondisclosure provisions in your written agreement. These provisions should survive termination of the agreement. Ownership and assignment of trade secrets should also be addressed because, like copyrights and patents, ownership may lie with the freelancer absent a written assignment.
5. Other Electronic Assets
Many companies hire independent contractors to register domain names, design and host websites, and manage data. These are also valuable intellectual property assets that should be conveyed to the company. Ownership can be ambiguous if not specifically addressed in writing. For example, require a web developer to list the company as the "registrant" of a domain name, or transfer it to the company after initial registration. Many firms commonly register domains in their own names without the knowledge of the company, requiring transfer back to the company at the end of the relationship.
6. Control of Work Product
Make sure that your company requires an independent contractor to provide information regarding access to everything it manages on your behalf, including administrative rights, user names, passwords and other related information. Many companies get into a dispute with a freelancer and find themselves electronically "locked out" of integral websites, databases and other electronic materials. This can be a huge disruption to your business, costing time and money.
7. Indemnification
As discussed above, if properly structured, the independent contractor will be assigning ownership of work to you. Your agreement should include representations and warranties that the freelancer is creating original works that don't infringe the rights of others. The contractor should further represent that it has all the right to assign ownership to you. Written provisions requiring defense and indemnification of your company against third party suits related to this intellectual property are also crucial to eliminating your risks. In these situations, ideally the company should have the option to control defense of a claim, including selection of counsel, with the contractor covering the costs.
8. Freelancer's Use of Completed Work
Most freelancers create digital portfolios, websites, and social media accounts to market their services. For example, a design firm that creates new trademarks, logos, and brand standards for you may showcase this work on its website and to its potential clients, including use of your company's name and logos. Make sure to address the use of works created for you with a specific limited license, or prohibit such use if the work created for you is not for public consumption.
9. Exclusivity
Unless you are hiring a freelancer to work exclusively for you, there's a good chance he or she will also do work for a competitor at some point during your relationship. Consider whether exclusivity makes sense for the relationship or whether it should apply to certain projects. For example, if you are hiring a developer to create software for a critical function, you might not be comfortable with the same freelancer creating something similar for a competitor.
10. Termination
The agreement should provide a structure for termination, even if the contractor does work for you on a periodic or per project basis. Upon termination, the contractor should be required to: (a) return any company materials, files or other information provided to the contractor during the course of the relationship, and (b) be obligated to maintain confidentiality of any work product retained by it but created or based on company materials.
Conclusion
Addressing intellectual property concerns with independent contractors is critical to ensuring your company owns and properly protects its valuable IP assets. In addition, as discussed above, other considerations, such as access to confidential information, portfolio use and termination, can help you effectively manage the relationship without jeopardizing the company's intellectual property rights.
