Trademarks & Advertising Update

Commissioned Work: Who Owns the Copyright?

Who owns the creative work commissioned by businesses can be a tricky legal question, particularly where outside contractors are involved. Many companies assume that if they authorize and pay for outside work—such as annual reports by design firms, logos by graphics consultants, or even software by outside programmers—they automatically own the copyrights. In fact, whether a company owns the commissioned work is a case-by-case determination, subject to the often misunderstood copyright Work Made for Hire doctrine.

Under U.S. copyright law, copyright protection is automatic once creative work is written down or otherwise set in a tangible form; the general rule is that the copyright becomes the property of the person who created the work. As a result, even if a business commissions a project and pays the contractor for his services, the contractor who creates the work may end up with superior ownership rights.

There is a narrow exception to this general rule for a limited category of works known as Works Made for Hire. Only if the exception is triggered is the beneficiary company, rather than the creator of the work, automatically considered its owner.

Works Created by Employees

Copyright law provides that a work will be deemed "for hire," and therefore owned by the beneficiary company, if it falls within one of two categories. The first category covers work prepared by an employee within the scope of his or her employment. Whether or not a worker is considered an employee for copyright purposes is governed by a variety of factors, such as the amount of control the employer has over the work, the level of control the employer has over the creator generally, and the status and conduct of the creator.

Even if a worker qualifies as an employee, not all of his or her work comes within the Work Made for Hire definition. Work beyond the scope of employment—weekend work in an unrelated subject matter, for example—does not qualify and thus is generally owned by the worker.

Works Created by Non-Employees

The second category of works deemed "for hire" covers particular types of works created by non-employees. Only a very narrow universe of these works is specified in the statute: works for use as a contribution to a collective work; as a part of a motion picture or other audiovisual work; as a translation; as a supplementary work; as a compilation; as an instructional text; as a test; as answer material for a test; or as an atlas.

If a non-employee creates one of these specific types of works and there is a written agreement with the commissioning party, then the work will be deemed for hire. Otherwise, as is most often the case, if the work created by the non-employee—such as a newly designed website or specially commissioned software—is outside these narrow statutory specifications, then it does not qualify for Work Made for Hire status, and it is presumptively owned by the worker.

Consequences of Work Made for Hire Status

Whether a work qualifies as a Work Made for Hire has other implications, such as the duration of legal protection. Generally the U.S. copyright term is the life of the author plus seventy (70) years, but for a Work Made for Hire it is the earlier of ninety-five (95) years from publication or one hundred twenty (120) years from creation. Moreover, the owner of a Work Made for Hire is exempted from the general copyright rule allowing creators to terminate assignments of copyright ownership after 35 years.

Companies also should bear in mind the non-copyright obligations arising from their legal status as employers. California law, for example, holds that to the extent a work qualifies under the Copyright Act as a Work Made for Hire, the party that commissioned the work will be considered an employer for the purposes of workers' compensation, unemployment compensation, and unemployment disability insurance. Failure to live up to these obligations can expose a company to significant liability.

Best Practices

Ambiguity over ownership of key intellectual property assets can best be avoided though contract. Companies that commission work from contractors can secure clear ownership through a simple copyright assignment, which must be in writing and signed by the contractor. Through an assignment, the commissioning company will be able to fully exploit the copyright as owner. Absent an assignment, the company runs the risk of future controversy and of losing control of key assets.

In connection with any key corporate transaction involving copyrighted work, such as an acquisition or asset transfer, there should be careful review of these copyright ownership issues, with particular sensitivity to whether Work Made for Hire status has been triggered.

The implications of these issues can certainly be significant for your company's intellectual property. The attorneys in our firm's Trademarks and Advertising Practices Group would be pleased to discuss them with you.


Gripe Sites Push Boundaries of Free Speech and IP Law

The owner of an Internet domain name corresponding to a well-known brand name may link to other websites that disparage the brand owner, according to a recent Ninth Circuit Court of Appeals decision. The decision, Nissan Motor Co. v. Nissan Computer Co., holds that enjoining the domain name owner from doing so would be an unconstitutional content-based restriction on non-commercial speech.

The tension between trademark rights and free expression is a strong one where, as here, so-called gripe sites—websites featuring criticism of a business or organization—are involved. Gripe sites are the modern-day version of angry letters, irate phone calls, or picketers parading outside a company's premises. Businesses large and small now find themselves targets of disgruntled customers or ex-employees capable of announcing their dissatisfaction to a worldwide audience. With just a few taps on a keyboard, a single complaint can reach millions of people—and for free.

Typically, the gripe sites boast names that play on a company's trademark, but with distinctive additions such as "stinks," "boycott," or "sucks." While incorporating a well-known trademark into a third-party Web address without authorization would appear to cross the legal line, recent court decisions suggest that gadflies and other corporate critics are afforded considerable leeway where free speech is concerned.

For example, in Taubman Co. v. Webfeats, a case involving multiple gripe sites devoted to complaints about a shopping center and its owner, the Sixth Circuit Court of Appeals noted that "the domain name is a type of public expression, no different in scope than a billboard or a pulpit, and [the websites' creator] has a First Amendment right to express his opinion about [the shopping center owner], and as long as his speech is not commercially misleading, the [Trademark] Act cannot be summoned to prevent it."

Of course, the First Amendment does not shield every critic from liability. If the critic posts content on its website that is libelous, then those postings should be actionable. Critics are not free to infringe their targets' copyrights, tarnish their targets' trademarks, or divulge their targets' trade secrets. Significantly, if by mimicking a well-known trademark they create a likelihood of marketplace confusion, then critics' registration or use of a domain name may be enjoined. Courts have thus barred gripe sites with addresses such as ernestandjuliogallo.com, critical of the winery that owns the "Ernest & Julio Gallo" trademark, and thebuffalonews.com, a parody of the newspaper that holds the mark "The Buffalo News."

Some companies and organizations have effectively used the AntiCybersquatting Consumer Protection Act to halt misleading websites. In September, the Eighth Circuit Court of Appeals ruled that an antiabortion activist violated the law by registering more than 60 domain names, including drinkcoke.org, mymcdonalds.com, and my-washingtonpost.com, and then linking the domain names to an antiabortion site, which contained no references to Coke, McDonald's, or The Washington Post, but allowed visitors to make donations and purchase items with antiabortion themes. "Use of a famous mark in this way could be seen as the information superhighway equivalent of posting a large sign bearing a McDonald's logo before a freeway exit for the purpose of diverting unwitting travelers to the site of an antiabortion rally," the court said.

Some companies opt to deal proactively with the risk of gripe sites, registering variations of their own website addresses with disparaging add-ons such as "ihatechase.com" or "fordsucks.com." Others just resign themselves to inevitable Internet criticism as a cost of doing business in the twenty-first century.

Those inclined to respond to gripe sites with strong legal action should bear in mind the considerable First Amendment obstacles to an injunction, not to mention the significant public relations consequences to calling more attention to the criticism. Strongly worded demand letters or complaints are typically posted on the gripe site itself, fanning the flames and garnering even more attention for the site and the issue than otherwise might have occurred. As a result, the best response to a gripe site is often to ignore it as much as possible.


Promotional Endorsements: Proceed with Caution

Endorsements can be powerful sales tools, but they do present their own set of advertising-law risks.

Endorsements are broadly defined as any advertising message that consumers are likely to believe reflects the actual opinions, beliefs, findings, or experience of some person or organization other than the advertiser. They can be verbal statements or demonstrations by an individual, or identifying characteristics of an individual such as a person's name, likeness, signature, or distinctive voice. The name or seal of an organization also can constitute an endorsement.

The golden rule for endorsements, as in advertising generally, is not to mislead. An endorser's statements cannot be presented out of context or edited in a way that distorts the original meaning. The endorsement must represent the experience that consumers generally have with the product under normal conditions; if for some reason it does not, then the ad must clearly and conspicuously disclose the general expected results or it must acknowledge the limited applicability of the endorser's experience. If the endorser claims to use the product, then he or she must be a bona fide user of the product at the time the endorsement is given, and the endorsement only may be relied on by the advertiser so long as it is reasonable to believe that the endorser continues to use the product and hold the expressed opinion.

An advertiser generally bears full responsibility for an endorser's statements to the same extent that it does for claims made in its own words. A federal appeals court recently allowed a lawsuit by the Federal Trade Commission ("FTC") to proceed against a producer of television infomercials in connection with former baseball star Steve Garvey's touting of a weight-loss product as a company spokesperson. In the suit, the FTC alleged that the advertiser and producer were responsible for allegedly false claims made by Steve Garvey about the featured product

Where the endorser is presented as an expert, then he or she must have the necessary expertise with respect to the endorsement. At a minimum the endorser must have knowledge of the subject that is superior to that of ordinary individuals. If a comparison of products is made or implied, then the expert must have conducted an expert-level comparative evaluation.

If the endorser is presented as an actual consumer, then he or she must be an actual consumer. An actual consumer may not be paid for the endorsement unless the ad clearly and conspicuously says that there was payment or a promise to pay the consumer in exchange for the endorsement.

Photographs used in endorsements also must not be misleading. For example, because consumers assume that the person pictured is the one testifying on behalf of a product, an advertiser should indicate where a professional model is being used to illustrate another's testimonial.

The best practice for advertisers is to obtain from any endorser a written release to use his or her name and likeness, as well as an affidavit attesting to the fact that he or she holds the belief suggested in the ad and prefers the product advertised to other similar products. To ensure that the views in the advertisement remain current and truthful for the duration of its use, it is helpful to have a written promise that the endorser will inform the advertiser if there is any change in the opinion expressed.

A more comprehensive review of the rules for using endorsements and testimonials can be found in the FTC's Guide Concerning Use of Endorsements and Testimonials in Advertising, located on the Web at http://www.ftc.gov/bcp/guides/endorse.htm.