All sorts of problems can arise when a company hires an independent contractor to develop software code for it.  Under the Copyright Act, only two categories of work will be considered “works made for hire” (and thus works owned by the company):

(1) a work prepared by an employee within the scope of his or her employment; or

(2) a work specially ordered or commissioned for use as a contribution to a collective work, as 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 the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

17 U.S.C. § 101.  If a company uses an independent contractor to develop its software programs, the programs will fail both these criteria.  First, independent contractors are not employees, and therefore, any work created by them would not fall under (1).  Second, software programs are not specially ordered or commissioned works under (2) because they are “not for use as a contribution to a collective work, as 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.”  Thus, if your company contracts with an independent contractor to develop its software programs, the company will be, at best, a non-exclusive licensee.  The independent contractor will retain ownership over the programs and will be free to license them to others, including competitors.

So what should a business do if wants to utilize independent contractors to develop its software programs?  The best practice is to have the independent contractor sign an agreement assigning all of the contractor’s ownership interest in the program to the company.  Such agreements are governed by section 204 of the Copyright Act.