Tuesday, April 13, 2010

Who Owns Copyright in Source Code in Technology Start Up Company?

Barbara I. BerschlerStart-up ventures, especially in the area of technology, often begin based on nothing more than good faith assumptions of the founders. Frequently they operate informally without understanding the need to document the relationships among the venture, its principals and its employees. More often than not avoidable disputes ensue, creating needless expense, arguments and sometimes the split-up of the founders or the loss of key employees leading to the dissolution of the venture.

JustMed, Inc. v. Michael Byce, a case decided by the U.S. 9th Circuit Court of Appeals earlier this month, involved a dispute between the founders of the venture about the ownership of the copyright in computer source code. This case is a classic illustration of what not to do; these facts are often present in startup companies (not only the IT field), namely the absence of written agreements and formal employment procedures.

Former brothers-in-law, Joel Just and Michael Byce, patented a device to help those whose larynxes have been removed. Together they formed JustMed for the manufacture and development of the necessary hardware and software. Byce was a shareholder and served on the Board of Directors. He took over the development of the software from a company employee, and basically rewrote the source code. JustMed had no employment agreement with Byce; he created the source code at home; worked his own hours; and his pay was in company stock.

Byce was anxious that he would not receive his fair share should there be a buy-out or merger of the company. So, to protect what he considered his intellectual property, he deleted the source code from the company’s computers.

The expected lawsuit followed. From JustMed’s point of view, it owned the copyright in the software on the theory that Byce was its employee and, therefore, the source code was a “work made for hire.” Byce countered, arguing that he was an independent contractor and, therefore, owned the copyright in the work.

In deciding whether an employer/employee relationship existed, the Court examined several factors to determine to what extent JustMed controlled the manner and means of the creation of the source code. Typically in employee vs. independent contractor disputes, factors such as whether an employment agreement exists; whether taxes are withheld and social security paid; to what extent the employer controls the creation of the work product; and what level of skill is required in the work, are examined to see which side proves stronger.

Here, despite that JustMed operated informally as to Byce’s compensation, namely, by the issuance of stock; did not exert control over the manner and means of the creation of the source code; and was lax in its tax and withholding procedures, the Court nevertheless concluded that Byce was an employee, making the source code a work made for hire, which meant that JustMed owned the copyright in it.

In other circumstances, such informal employment practices could be seen to favor an independent contractor interpretation. Here, because of the start-up nature of the technology enterprise, the Court relied on other factors (such as that a software developer is expected to be inventive and work independently, that the project was central to JustMed’s business and that Byce performed other tasks for JustMed) to buttress its conclusion that he functioned as an employee.

Regardless of whether one considers the outcome fair in this case, had some of the variables changed slightly, it is unclear whether another court would give similar leeway to a technology company faced with a challenge to its copyright ownership in its software. But why take the risk? Had JustMed documented its relationship with Byce and specified who owned the copyright, it could have avoided the expense, disruption and animus that both sides experienced.

Thursday, April 8, 2010

Commercial Photographer Dilemmas in Protecting Copyright in Photographs

Barbara I. BerschlerA case recently decided by the US Eleventh Circuit Court of Appeals offers commercial photographers a primer on what to do and what not to do in order to protect their copyright interests in their photographs. While the case involved some well known players—Kawasaki Motors and Roaring Toyz—and the unveiling of the ZX-14 sports motorcycle at the Daytona Bike Week in 2006, it took four years for the 11th Circuit to rule on the copyright claims of a photographer, and not all of the issues have yet been resolved.

The basic facts were that Kawaskai wanted to focus on the customization potential of its new motorcycle. It hired Toyz to customize some ZX-14 motorcycles to display at Daytona. As part of its customization efforts, Toyz hired an independent contractor, Ryan Hathaway, to apply custom paint and graphics to the vehicles. Toyz also hired Todd Latimer, a motorcycle photographer known for his unique and artistic style, to photograph the two customized ZX-14s.

The dispute arose over whether Kawasaki and Toyz used Latimer’s photographs in ways beyond those he claimed to have authorized. In response to Latimer’s claim of copyright infringement, the defendants raised significant arguments that he had to rebut. By examining some of these defensive arguments, you can learn from Latimer’s miscues.

Latimer’s first mistake was not having a written agreement that clearly stated what uses of his works he was permitting. Not taking the time to consider and memorialize, even if by an e-mail, what uses are permitted, subjected Latimer to the task of proving a negative, namely, that he did not authorize the use about which he then complained.

Ironically, Latimer had to overcome the argument that because his photographs were shot without Hathaway’s permission, he infringed on Hathaway’s copyright in the graphic art appearing on the motorcycles. Therefore, Latimer’s second mistake was not recognizing that what he was photographing contained separate copyright --protected material, thereby exposing himself to the claim that his photographs were not protected by copyright because they infringed Hathaway’s work. Only because the Court concluded that Hathaway had granted an implied license to have his work on the customized ZX-14s photographed was Latimer able to remain in the game. However, in accordance with the well-settled legal principle that “What is good for the goose is good for the gander,” Kawasaki and Toyz argued that their uses of the photographs came within an implied license from Latimer.

At this point it is useful to discuss how a court will determine the existence of an implied license. Basically, an implied license can be inferred from the conduct of the parties. The objective facts of a photographer creating a work at the request of another, delivering that work and intending that the person will copy and distribute the work, (i.e., knowing how the client intends to use the work), show the existence of an implied license. Once an implied license is established, it will be interpreted broadly unless there is proof that at the time of the work’s delivery, the photographer placed limitations on its use.

Latimer’s third mistake was not recognizing that his actions could be viewed as his grant of an implied license to use his photographs. In this case, the Court concluded that Latimer’s conduct resulted in an implied license. The unanswered question was whether any of Kawasaki’s uses exceeded the scope of the license.

Latimer’s fourth mistake was not having any clear proof when he delivered his work product (the photographs), that he intended to limit the scope of their use. This absence of proof of his intent resulted in the case being returned to the trial court to examine the facts on that issue.

The lesson from all of this is that commercial photographers can avoid Mr. Latimer’s problems by taking relatively simple steps to protect the use of their work.