Meaning
The failure to satisfy the statutory requirements for the creation of a work made for hire or the proper assignment of copyright results in ownership remaining with the individual creator. This legal issue, termed statutory authorship defects, often occurs when agreements are unsigned, misdated, or lacking the specific language required by copyright law. It governs the ownership of software code, marketing materials, and other creative works.
The boundary of this concept is limited to works protected by copyright, as distinct from inventions governed by patent law.
Copyright Ownership
When a company uses freelance developers without a signed work made for hire agreement, the developers retain the copyrights under the law. These statutory authorship defects are common when startups rely on verbal agreements or informal emails. The actual creator remains the owner of the code, leaving the company with only an implied license to use it.
This situation prevents the company from exclusively licensing or selling the software without the creator’s consent.
Diligence Assessment
Identifying these defects is a primary focus during the legal review preceding any venture investment. Lawyers inspect all contractor agreements to ensure that they comply with the statutory requirements for work made for hire. The presence of a signed, compliant contract is the only way to prove exclusive ownership of the company’s code base.
The cost of correcting these issues during a transaction includes both legal fees and the risk that a contractor will demand additional payment to sign a corrective agreement.
Risk Remediation
Correcting the records requires obtaining signed assignments from all developers who worked on the product. This process is difficult if the relationship has deteriorated. The company must keep records of these assignments to prevent disputes.
