Who Owns Intellectual Property Created by Independent Contractors?

Hiring an Independent Contractor

In most cases, the decision to hire a full-time employee or an independent contractor will depend on several different factors. Some of these factors include the type of business that you have, corporate form, and tax structure. In many cases, an independent contractor is an appealing option for an employer who does not want to be burdened with the many obligations that come with having a permanent employee. When you hire a permanent employee, you will have to be responsible for all kinds of extras, such as worker’s compensation, insurance, and taxes.

Not having to deal with these things can be very convenient for a busy company, and save you time and money, while still being able to work with top talent. However, if you do choose to do this, you must be aware of the consequences of choosing to hire an independent contractor instead of an employee. Who owns the intellectual property when inventions or discoveries are made by an independent contractor under your employ? 

What Do the Rules in the Copyright Act Say?

Under the Copyright Act, inventions and discoveries that are made by an employee belong to the employer, as long as these discoveries are made within the scope of employment. If there is ever any kind of dispute over who owns any intellectual property, the case can often be decided based on whether or not the invention or discovery was made within the scope of the inventor’s employment. In most cases, however, the employer tends to be the one if the better position in disputes about intellectual property when they define the relationship as employer-employee as far as ownership of intellectual property is concerned. 

When the person who has made the discovery or invention is not an employee, but an independent contractor, however, the case is more complicated. In these situations, the intellectual property is not automatically owned by the employer, even if the discovery is made while the contractor is working for you. This is the case even when the idea, invention, or expression is made on your worksite or within the scope of the contractor’s engagement with your company. In some cases of new discoveries, an independent contractor will have the right to intellectual property or the rights of a co-author. 

Protecting a Business’s IP

This could be a big concern for some employers, so it’s important to make sure you have understood this and what it could mean for your company. As an employer, if you still prefer to hire independent contractors instead of permanent employees, you still can, but there are some steps that you can take to solve the intellectual property issue. If you clearly define the relationship you have with an independent contractor in a written agreement, you can protect yourself from losing out on discoveries made by those working for you.

In many cases, the most important part of an independent contractor agreement will be a grant back of intellectual property rights. The issue will also be decided based on other details, such as how your worksite has been set up, the hours during which the independent contractor worked for you, and whether or not the intellectual property was created within the scope of the contractor’s engagement. 

Paying Special Attention to R&D Consultants

When you are negotiating with consultants, you should keep this lesson at the forefront of your mind, especially if you are hiring a consultant to research and develop for you, create software, or develop any other proprietary ideas and expressions. Before you decide to take on any independent contractor, carefully weigh up the pros and cons before you hire anyone. It is very important to get in place a well-defined non-disclosure agreement. It’s also a good idea to use a later agreement to grant intellectual property rights to really solidify your rights. 

Intellectual property rights shouldn’t put you off hiring independent contractors if they suit your business better than permanent employees. However, you should make sure you have clear agreements in place that explicitly cover intellectual property in the case of inventions or discoveries made in the scope of their engagement.