Editors Note: Caroline Horton Rockafellow is a member of the Research Triangle Park law firm of Daniels Daniels & Verdonik, P.A.
________________________________________________________________________________________Last month Superman was back in the news again, and it has nothing to do with a new movie release.

A few years ago, the heirs of the creators of the Superman character began a highly charged dispute with DB Comics and Warner Brothers (the successor to DB Comics) regarding ownership of the Superman character. Superman was created by two teenage boys, Joe Shuster and Jerry Siegel, in 1938. They were paid $130 for their efforts. Superboy was later created by Siegel and also sold to DB Comics. Over the years many suits between Shuster, Siegel and DB Comics ensued. Settlements were eventually reached both with respect to the Superman and the Superboy copyright.

Last month, however, a District Court judge ruled that the notice of copyright termination served in 2002 by the heirs of Siegel became effective in 2004, 56 years after the 1948 agreement with DB Comics. The heirs have also filed notice of intent to terminate the copyright to Superman on January 1, 2013, 35 years after the date of the 1978 implementation of the 1976 Copyright Act.

Although this is an interesting story to follow from an entertainment perspective, the facts of this case may have far reaching effects on our technology industry.

Termination of Copyright — What Does It Mean?

One of the most often misunderstood aspects of copyright law relates to termination of copyright. Under the current U.S. Copyright Law, copyright owners that assign their works have the right to terminate the assignment of rights, regardless of what consideration was paid. This right cannot be waived by the author and any language to that effect in an assignment contract is void. For works created before 1978 (the effective date of the current 1976 copyright law), assignments may be terminated by authors or their heirs 56 years after the date the copyright was first secured, or 35 years from the date of the implementation of the current Copyright Act (January 1, 2013), provided that a number of formalities are met.

For works created after 1978, the right to terminate runs for a period between 35 and 40 years from the grant or the publication of the work, whichever is earlier. The rationale behind this right to terminate relates to the fact that prior to the current Copyright Act; copyright would run for two 28 year terms. This meant that at the end of the first term, an author would have the right to renegotiate a contract before the renewal of the copyright.

When the new copyright act was implemented, the renewal provision was removed and copyright now ran for a single term the life of the author plus 50 years (or ninety-five years for works made for hire). This term was recently amended to add an additional 20 years to the term. Accordingly, the termination right was included as a way to provide young artists and authors with a means for correcting what might have been an inequitable deal made early in their careers.

It is important to note that this right to terminate does not apply to works-made-for-hire, but only to works that are assigned by an author to a third party.

Why Distinguish Between Works Assigned and Works Made for Hire?

Works that are defined as “works made for hire” include works created by employees under their scope of employment and works created by a contractor who has agreed in writing that the work is a work made for hire, and provided that the work falls within one of the nine statutorily defined types of copyrighted works.

It is important to note that software is not one of these nine categories. Accordingly, if software is not created by an employee within their scope of employment, and it is instead created by a consultant, then it becomes a work assigned to the engaging party, and not a work made for hire. This is a critical distinction when it comes to the termination right of copyright.

If the concern is that a termination right is necessary to protect individuals from bad choices, why would a work made for hire differ from an assigned work? It is generally understood that if works made for hire were covered by the termination right, then it would create chaos in industries that rely on several collaborators to create a single work.

Take the case of a motion picture that hires multitudes of writers and designers. If each could terminate the copyright assignment at a point in the future, thus giving each the right to exploit the movie on a nonexclusive basis, it would create a difficult and undesirable situation for all involved.

What Does This Mean for Software?

For the same reason that works made for hire are not covered by the termination right, we are faced with a potentially complex situation when it comes to software copyrights. It is commonplace now for companies to hire a multitude of different programmers to work on a single program. More often than not, some, if not all, of these individuals are consultants and not employees of the company.

Given the fact that most software becomes obsolete within a few years, this termination issue will not be a problem in most cases, but keep in mind that copyright includes the exclusive right to control derivative works. It is very possible that the modified code for a key operating system could still be in existence 35 years after creation.

At the time the 1976 Copyright Act was adopted, the wide spread use of consultants to create copyright works, was just not a common practice. The work world has changed dramatically from the late seventies and many valuable copyrighted works are now created by consultants. This is not an issue if these works fall within one of the nine specified categories of works made for hire, but when it comes to software, we are faced with a potential dilemma.

What Does a Software Company Need To Do To Protect Itself?

Since the right to terminate assigned copyrights goes out for a period of more than thirty five years, this is only a concern for works that could still be in existence and of any value decades from now. This would include any modifications of the original work. Since authors cannot waive this right to terminate and it does transfer to heirs, it is an issue that must be considered before any work is created.

Because software cannot be a work made for hire, unless it is created by an employee within that employee’s scope of employment, companies must seriously consider the status of its programmers prior to the creation of any core software product. If there is a product that could potentially survive for decades, then those works should be created only by employees of the company and not by consultants.

The distinction between consultants and employees is critical when it comes to the creation of software. Companies need to be cautions about using consultants to create any portion of a core product, if there is even a remote chance that the product could continue to exist for decades after its creation, even in a modified form.

The choice between using employees and consultants to create core products is more than a short-term economic decisions. It can have long term impact on the ownership of the intellectual property of the company.

Daniels Daniels & Verdonik, P.A. has been serving the legal needs of entrepreneurial and high technology clients for more than 20 years. Caroline Horton Rockafellow concentrates her practice in the representation of entrepreneurial and technology-based business, focusing on corporate, technology and licensing matters. Questions or Comments can be sent to crockafellow@d2vlaw.com