Published by LawTechie - July 16, 2013 - LawTechie

Trade SecretsThe recently decided Antonick v. Electronic Arts Inc. illustrates the importance of drafting a vigilant copyright clause when high-tech companies hire or contract with web, software or videogame developers. The case also points out why it is useful perform proper legal audits ahead of launching software or videogames sequels so as to avoid infringing on the original designers’ copyrights.

In Antonick, the jury awarded John Madden Football’s original developer a whopping royalty award after it was found that Electronic Arts (EA) stopped paying him royalties after 1995 while continuing to incorporate some game elements (such as unusual size of the football court, methods of simulating actual NFL player behavior and, plays and formations) from the prior version Antonick designed.

Despite being a resourceful company, EA, the world’s third largest video-game company, did not seem to have taken those copyright issues seriously, back in 1984, when the contract was executed. But thankfully, developers do not need to have EA’s resources to guard against copyright infringement charges and be able to use your initial designers’ work in later versions.

Here’s how to avoid EA’s mistakes:

Works Made For Hire

Acquisition of a developer’s work under the Work for Hire doctrine is the most advantageous to the employer and thus should be sought after whenever possible. Simply put, a Work for Hire clause makes the company the creator of the work, from the get-go, for purposes of copyright law.

Limit of the Work For Hire Road

Work for Hire can only apply in specific scenarios. Not every relationship can be contractually re-categorized as a Work Made for Hire.

To simplify, the developer must fit within the common law mold of what an employee should look like for the developer to be eligible for Work for Hire status. To that end, courts often look to the following factual factors:

The skill required; the source of the tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party.

If the developer is not an employee, then the company must have specially “ordered or commissioned” such work and the work in question must fit within one of the 9 categories enumerated by the Copyright Act – a work with an “audiovisual” component, such as a videogames, would fit within this requirement, but that is not true for all software work.

Additionally, note that federal courts are currently in disagreement with one another (around the country) as to whether a Work for Hire agreement is only effective when made prior to the developer’s creation of the work or whether the agreement remains enforceable if it has been entered into after the work has been created. So, as far as EA is concerned a Work for Hire agreement would not have passed muster because EA is located in California, which is a jurisdiction that requires that Work for Hire agreement be executed prior to the work’s commencement (but a different result would have issued in New York).

All-inclusive Copyright Assignment

As an alternative to the Work for Hire road, a comprehensive assignment of all copyrights in the developer’s work covers all bases.

Although Work for Hire are ideal in the situations described above, when it looks as though the developer is the bona fide owner of the product, an assignment is more suitable. This is so because assignments leaves little room for the developer to later argue that he is the real owner of the work as opposed to Work for Hire which may give rise to factual disputes as to the actual relationship of the parties. In short, because a copyright assignment is solely a contract matter, as long as it is well-crafted and doesn’t introduce any ambiguity within the 4 corners of the contract, it will govern the relationship and will be enforced as is by the court.

Exclusive Right to Prepare Derivative Works

If (and only if) a Work for Hire or comprehensive copyright assignment cannot be obtained, a high-tech company should contract to have at the very least the exclusive right to prepare and distribute derivative works (and for the developer to have no such rights).

EA’s big contractual mistake is that it provided for a system of co-ownership of the videogame sequels, between the original developer and itself. Specifically, EA did have a license to prepare derivative works (sequels) but would have to pay Antonick between 5-15% per sale. That system meant that EA had to continue paying Antonick for all sequels incorporating copyrightable elements from the previous videogame.

So EA attempted to exclude the copyright elements from the prior videogame in the sequels so that it would bypass paying such royalties. The problem is that EA failed. It ended up incorporating some copyrightable elements and will now have to pay for two decades’ worth of royalties.

Had EA owned all rights to create derivative works, this case could not have been brought.

A License to Prepare Derivative Work

When all else fails, an exclusive license to prepare and distribute derivative works is an option to consider. Licenses too need to be carefully drafted.

And, importantly, avoid like the plague having to pay per sale, or per use, because as the Antonick case illustrates, having to pay your original developer 5-15% per sale indefinitely is no fun.

Perform Legal Audit Before Publishing Sequels to Your Developers’ Work

If, your developers’ contracts are not clearly assigning you the exclusive right to create derivative works, you should not be using the copyrightable portions of their works in later versions.

Without doubt, this is an uncomfortable position to be in. But this too could be avoided by commissioning a legal audit of your previous developer’s work, which would tell you what elements are copyrightable, and thus should not be copied, and which are not, and are therefore fair game.

In Sum

The Antonick case illustrates with particular vigor the importance of drafting copyright clauses with foresight, which, in effect, insulate your company from copyright claims.

LawTechie is a blog focusing on trends in tech and digital media. Areas covered include intellectual property, cyberlaw, venture capital, transactions and litigation as they relate to the emerging sectors. The blog is edited by the firm's partner Tim Bukher with contributions from the firm's experts in their respective areas of law.


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