Calif. Employment Ruling Raises Copyright Ownership Questions

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By Anandashankar Mazumdar

A California state court ruling has raised concerns in the legal community about its potential impact on copyright ownership.

The California Supreme Court in late April created a new standard to determine if a worker is an employee or an independent contractor in Dynamex Operations West, Inc. v. Superior Court of Los Angeles. The difference may be a critical one in the gig economy high technology and entertainment industries.

The ruling adopted a simple three-part test for deciding whether a worker is covered by state employment protections. It replaced a complex multi-factor consideration and put the burden on companies to show that all three parts weigh against an employment relationship.

The new California rules could lead to significant changes in a state with so many media and software operations, music industry lawyer Michael S. Poster told Bloomberg Law. It also could affect whether a creator or a company gets to claim ownership as the original author of a work, if the law spreads to federal cases.

Federal courts use a test much like one in the Internal Revenue Service code to decide if someone is an employee for purposes of copyright authorship, Poster said. If federal courts start looking to the Dynamex case, people’s expectations based on past rulings might change.

“If, under California law, a lot more people are going to be treated as employees rather than as independent contractors, chances are that a lot of their work product that they would have retained a copyright interest in might belong to their employer,” Poster, of Michelman & Robinson LLP, told Bloomberg Law.

Determining ownership

Authors of a expressive works own the initial copyright interests under the Copyright Act of 1976. But Section 201(b) of the law says an employer can be considered the author under the work-made-for-hire doctrine. That’s why a newspaper owns all rights to content produced by its staff.

If a creator is an independent contractor, then the ownership stays with the individual who created the work, unless a written contract says otherwise. That’s why freelance writers and photographers often keep ownership of their pieces, even if they produced them for a publication.

This may be particularly important for termination rights, Poster said. The federal copyright law gives authors a “do over.” A creator at the beginning of his or her career often doesn’t have bargaining power to get a good deal from a publisher or a record label. The author can cancel the original transfer or license and seek a better deal 35 years after signing away rights under Section 201 of the federal copyright law.

Termination rights in Section 203 belong to the original author, Poster noted. There’s no redo if the creator wasn’t the author in the first place because of the work-made-for-hire doctrine.

Nathaniel S. Strauss, a technology an intellectual property lawyer with Karr Tuttle Campbell, Seattle, told Bloomberg Law that the long-range effects of Dynamex are unclear.

“When it comes to state law, the California Supreme Court is a leading court on employment law decisions,” Strauss said. “At least in the copyright realm, the federal courts might consider it to be of interest. It might be persuasive, but they’re not going to automatically adopt it.”

But Thomas A. Magnani of Arnold & Porter Kaye Scholer LLP, San Francisco, doubted that federal courts will look to Dynamex when considering the work-made-for-hire question.

Federal copyright law is well established on this point, Magnani told Bloomberg Law. And in the 1989 U.S. Supreme Court ruling on the issue, Community for Creative Non-Violence v. Reid, whether state law considers a creator an employee is not a factor. But, Magnani said, “I can’t say for sure the courts won’t look at it somehow.”

The ruling could prompt media and software companies to hire fewer independent contractors and hire people who work on their projects as employees, Magnani said. This could quell disputes over copyright ownership before they even happen.

“More people will be hired as employees to begin with, so there will never be a dispute as to whether the person is an employee,” Magnani said.

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