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Who owns consultants code?

Something I have never been sure about is who owns the intellectual property of code that is developed for a client during consulting?

Is it the client or the consultant?

Matthew Lock
Tuesday, May 07, 2002

By default, the work is a "work for hire" which means it is owned by the client. But you can structure the contract any way you want.

Joel Spolsky
Tuesday, May 07, 2002

I'm living in Germany and I'm studying Informatik (pretty much what CS is for the USA). What I don't understand is, why can consultants (which I understand to be developers or advisors who are contracted for a specific task) charge such incredible amounts of money? How do they get in such a position? Can't anybody just say "Well, I'm my own company now, I'll still work for you but you better increase my salary 3x."? I'm sure it's not that easy, so please could someone explain it to me? Are those people so ultra-hot, do they possess such arcane knowledge nobody else could do what they do? I'd like to know, you know, I can still choose what to specialize on =)

Sebastian Wagner
Tuesday, May 07, 2002

Over time, consulting developers acquire substantial expertise in their vertical fields, which translates to more robust code, better features and more reliable delivery.

For this reason, consulting development firms generally seek to own the intellectual property in their work, both to protect their own future and to avoid making it easy for competitors.

If the client has some reason for wanting the intellectual property, they might pay extra for particular parts, or they might pay substantial sums to get the whole lot.

Hugh Wells
Tuesday, May 07, 2002

Some reasons consultants charge more per hour than regular employees are:

- they usually have to fix work for free if it is faulty
- they don't receive any normal entitlements such as superannuation payments, sick leave or holiday pay from the client
- they have to do their own tax and paperwork

It’s often financially beneficial for non-IT companies to hire consultants for a few months to develop an application rather than higher a permanent team of coders.

Matthew Lock
Tuesday, May 07, 2002

Could anyone suggest wording for a contract to state that the consultant owns the intellectual property. I'm having a hard time thinking of an elegant way to state it. ;)

Matthew Lock
Tuesday, May 07, 2002

To reply to Sebastian's question....

Consultants often charge more because they wrap in the cost of employment more directly. At least in the US, one's salary is only part of the compensation package. Benefits have value as well.

How does a consultant pay for health insurance? Vacation days? Life insurance? Office equipment? Retirement savings? Income taxes?

If a consultant is not independent, the seemingly "extra" pay is for someone to answer the phone at the consulting company, to know the consultant's skills, to assign them to a contract, to do their payroll, etc.

It is necessary to charge more for services and allocate more of the take-home pay to cover these things.

That said, there is also a perception that if you pay more for something it must be more valuable. Perception is important for consultants to get work, too.

Lauren B.
Tuesday, May 07, 2002

Thanks for the replies. Those are some very good reasons of course.

In Germany it's quite easy to forget that in the US insurance for example is handled very differently. To me it always seemed quite nice to really be part of a company (if it's a good one), so I don't know if I'd like to jump from job to job and company to company. I think it's a different thing if you really own the project and just make it work for a particular customer.

Sebastian Wagner
Tuesday, May 07, 2002

matthew: i guess "all your copyright are belong to us" is out of the question?

nope
Tuesday, May 07, 2002

"Could anyone suggest wording for a contract to state that the consultant owns the intellectual property. I'm having a hard time thinking of an elegant way to state it. ;) "

I hate to say it but that might be because its not an elegant thing to do?

Robert Moir
Tuesday, May 07, 2002

Matthew, for a contract to be valid, there are actually lots of gritty details and for that reason it's sometimes not a bad idea to see a tame lawyer.

However for small projects, the important part is probably making sure the other party knows that you're keeping the IP. So tell them at the first meeting.

You could try searching builder.com or techrepublic or somewhere like that for boilerplate wording.

Hugh Wells
Tuesday, May 07, 2002

matthew: i guess "all your copyright are belong to us" is out of the question?


HA, good one!

Bella
Tuesday, May 07, 2002

"By default, the work is a "work for hire" which means it is owned by the client. But you can structure the contract any way you want. "

Not exactly true - there is no default that gives the code to the client. Thy often have clauses in their contracts that give them ownership. But, By law, independent contractors retain the copyright of any works they produce no matter who pays for them, unless they sign contracts assigning those rights to others.

At least that's what Realrates.com claims.

http://www.realrates.com/contract.htm

Marshall Harrison
Tuesday, May 07, 2002

Unless there is specific language granting all rights, including Intellectual Property rights, to someone other than the creator  then the rights remain with the creator.

Not all consultancy is work for hire, but when it is it must be explicit.  The simplest language for specifically identifying the owner is to state clearly, 'The Copyright and Intellectual Property rights residing in the Work are the property of X", whoever X is and where the Work is also clearly defined. 

Naturally, there should also be a clause identifying the licence under which the contractee can use the Work, their rights and duties under it as well as the specific performance the Copyright Owner is contracting to.

Simon Lucy
Tuesday, May 07, 2002

There's useful discussion about what constitutes work-for-hire here:

http://www.uri.edu/facsen/Appendix_H.html

To retain intellectual property, it is essential, on practical grounds, to do so explicitly, in a contract and or by making it clear up front.

Hugh Wells
Tuesday, May 07, 2002

Just to clarify the last few posts:

There is a default legal outcome regarding ownership of the IP you develop as an independent consultant:  Unless agreed otherwise, an independent contractor retains ownership.

So it's actually only essential for the _client_ to get explicit agreement that ownership will be transferred from consultant to client as part of the deal, if that's what the client wants.

As a practical matter, it's good to discuss these things with the client and get explicit agreement, even if the ownership is staying with the consultant.  But the general default, if it's never talked about, is that the ownership stays with the consultant.

Herbert Sitz
Tuesday, May 07, 2002

Though the client may be surprised to find that out. :-)  Which is why it's good to clarify this with the client beforehand.

Brent P. Newhall
Tuesday, May 07, 2002

Most consulting work IS work for hire, and you are putting yourself at legal risk if you think it isn't. I wouldn't be asking random people about this, I would seek the advice of a real live lawyer.

get a lawyer
Tuesday, May 07, 2002

A good source in the US is "Software Development: A Legal Guide" from Nolo press.

http://www.nolo.com/lawstore/products/product.cfm/objectID/2C02C865-21E7-497C-9DDDBA058175FFA1

Yes, if anything gets complex, you should probably consult an attorney. But for basic contracts, there's a lot of good boilerplate stuff in here.

IANAL

James Wann
Tuesday, May 07, 2002

In Norway, the general rule is that the work belongs to the party that carried the risk. I.e. if you would get paid anyhow even if the project would turn out to be a disaster, it belongs to the client. Conversely, if the client could walk away from the project if it wasn't good enough, it belongs to you.
(Notice the use of the word "would")

Roland Kaufmann
Tuesday, May 07, 2002

Work for hire is usually determined by 3 factors:

1. Tax status: is the consultant an employee of the contractee or a 1099 independent contractor?

2. Location where work is completed: does the consultant do their work at the contractee's location or at some other location (such as a private office)?

3. Number of contractees: how many contractees does the consultant have during the tax year in question? Does the consultant do work for other parties or just for this contractee?

If a consultant is a 1099 employee, works in his/her own office, and does work for multiple clients, it's a pretty cut and dried situation: the project is not a work for hire.

On the other hand, if the consultant fails to meet ANY of these criteria (if they are an employee, do all the work on site, or have no other clients during the tax year), then there might be a case for the job being a work for hire.

It's all very tricky. Definitely check with a lawyer (I am not a lawyer, but I play one on TV). And definitely put the ownership of the IP in your contract.

Benji Smith
Tuesday, May 07, 2002

Benji, your comments are not correct in every situation. I do all my work from my home office, typically have 2-3 contracts running at any given time, and worked 1099 until I had enough cachet behind my name to incorporate myself.

Nearly all of my work is classified as "work for hire."

I write hairy bits of software for other technical companies that are selling a product. This code is nearly always owned by the client in the end. For instance, If you are writting a one-off inventory system for a grocery store, who doesn't plan to resell the software...the code probably belongs to the consultant.However,  if you are writing a device driver for Apple, the code belongs to Apple.

Just pointing out that there are NO cut and dried situations, and unless the contract is for a pittance, it is almost always worth your while to consult with a lawyer if there is any grey area whatsoever.

Also, I second the recommendation for the nolo press book. Nearly everything I've read from nolo has been very useful.

consultatron
Tuesday, May 07, 2002

getalawyer said, "Most consulting work IS work for hire, and you are putting yourself at legal risk if you think it isn't. I wouldn't be asking random people about this, I would seek the advice of a real live lawyer."

I am a real live lawyer (not practicing anymore, but "being a lawyer" is the sort of thing that you are whether you're practicing or not).

I do agree that anyone concerned about this stuff should consult a lawyer about it.

But -- even though I'm no expert in this field of law --  I definitely would disagree that "most consulting work IS work for hire."

The work for hire doctrine (which says that the intellectual property created is the property of person paying for it, not the one actually creating it) generally applies to items created by employees within the scope of their employment, and generally does _not_ apply to work product created by independent contractors. 

There are a few instances where it may automatically apply to the work of an independent contractor (e.g., contributions to a collective work), but absent the presence of one of those, an independent contractor's work will be a "work for hire" only if it is explicitly agreed to between the client and the contractor.

The only way most work done by independent contractors is "work for hire" is if most independent contractors have explicit agreements saying that their work is performed as "work for hire".  I very much doubt that that is the case.

I do agree with an earlier post that the Nolo Press book, "Software Development, A Legal Guide" is an excellent reference.  The only caveat I would add is that it's easy for non-lawyers to think they understand something perfectly, only to find out later that they were missing out on some key point.  That's one reason why it's always better to consult a lawyer.

Herbert Sitz
Thursday, May 09, 2002

Joel,

Herbert is right -- under the common law (in the absence of a contract specifically saying otherwise), work done by a contractor is NOT work done for hire -- that only applies under common law to work done by employees. I know this because I have been through his whole routine and had Brobeck, Phleger and Harrison on my side -- some of the top IP lawyers in the world today. The basic summary is that the consultant owns the code outright under US Copyright law as creator of the work, but the client is basically a co-owner of the code and shares perpetual rights. And I think that's how it should be too. When I contract out I never give away my rights since I typicall use libraries and modify routines I have previously created -- selling away the rights to use my own code is not worth it at any cost because there goes my career if I start doing that. But I have little problem with clients having a perpetual license to use and modify and even sell source code I create for them, excepting cases of proprietary algorithms and such which I keep as trade secrets in well-documented modules they can reimplement if they ever need to.

X. J. Scott
Saturday, May 11, 2002

Matthew,

Don't forget contracts are negotiated. If your client insists on ownership of the code, I suggest making that an option to them -- for the right price that would be the price at which you would feel perfectly comfortable permanantly losing rights to use your own IP. Or, if they like -- they can merely share a license to use the code themselves, or for a little bit higher rate, you might even allow them to transfer that license or even sell it to others. Idea is tno present the client with options and have negotiation be the process of them selecting which option you have presented them with. Can also split it up so any sperific modules cantaining proprietary bits specific to their business rules or what-have-you are their property but all the generic stuff is yours.

X. J. Scott
Saturday, May 11, 2002

X.J. said, "The basic summary is that the consultant owns the code outright under US Copyright law as creator of the work, but the client is basically a co-owner of the code and shares perpetual rights. "

This is not quite right.

Under the general rule that an independent contractor retains ownership of IP he or she creates, there are several different scenarios.

Scenario 1 is where the contractor works on a project where the client also provides significant amounts of its own copyrightable work to the project. 

For example, maybe the client generates functional requirements on its own and then procures a contractor to build the thing.  In this case the IP is "jointly" owned by both contractor and the hiring party, with each being free to use and sell as they wish.  Note that the hiring party does not just have some sort of perpetual license in this case; their ownership is even with that of the contractor.  It is also important to note that, although either the contractor or hiring party is free to sell (i.e., license) the software third parties, if they do so then they will be liable to the other joint owner for his or her share of the proceeds.

Scenario 2 may be the more common one, where the independent contractor works largely on his own, with the hiring party providing a significant amount of copyrightable work to the project.  In this scenario, the independent contractor retains full ownership, but the hiring party has a perpetual license to use the software.  The license the hiring party has in this case does _not_ include the right to sell the software to third parties.

Thus, the default rule is two-pronged.  If the hiring party provides significant amounts of its own copyrightable work to the project, then there is joint ownership between hiring party and independent contractor.  If not, then the independent contractor has full ownership and the hiring party has a license to use (but not sell) the software.

Deciding which prong of the rule would apply in some particular case could only be done by looking at the facts of that case and comparing it to see which prong has been applied in similar cases.  This is not something a layperson (or a lawyer not familiar with this area of the law, e.g., me) would be able to do.  So if you're concerned about which outcome might apply in your case, you'd be wise to consult a lawyer.

As always, it's just generally a good idea to discuss these things with your clients and to record some agreement regarding them in the contract.  It's not a good idea to rely on the general rule, because if there's no explicit agreement, you can never be certain which rule is actually going to be applied.

Discussing it and getting agreement regarding it before you do the work is also good customer relations.  Your client may be intending to license the software after you develop it, and may not be aware that ownership stays with you unless agreed otherwise.  They won't be happy to find that out after the deal is done. 

Also, the client may want to retain a competitive advantage over competing companies, and may be depending on you not having the right to license it to third parties.    If so, they would be very unhappy to hear you were selling the now-developed software to competitors at a cheap price, feeling like they subsidized your development of it at an hourly wage.

There's just to much uncertainty and too many possibilities for misunderstanding to rely on the general rule.  Ownership of the IP you develop is something you should always talk about with your clients.

Herbert Sitz
Saturday, May 11, 2002

In the preceding post, the paragraph that begins,

"Scenario 2 may be the more common one, where the independent contractor works largely on his own, with the hiring party providing a significant amount of copyrightable work to the project. "

should have said,

"Scenario 2 may be the more common one, where the independent contractor works largely on his own, WITHOUT the hiring party providing a significant amount of copyrightable work to the project. "

Herbert Sitz
Saturday, May 11, 2002

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