Month: June 2017

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WMFH Affects More Than Copyrights

Creative pros have been understandably angry at the words work made for hire (WMFH) for some time. I mean, clients try to sneak that into contracts all the time and it means you, creative pro, have to carefully watch out for it, lest you sign that bad boy and end up making the client the author and owner of what should be your copyrights. So sure, those words tend to raise a creative pros hackles.

But this post isn’t about how your copyrights are affected with a WMFH contract; it’s about other effects of such an agreement.

Now, before I go any further, I’m only talking about California law here. If you are in another state, the rules (probably) aren’t the same. That being said, if you ever work in California or for a company in California, you might want to pay attention.

There is another side to WMFH agreements in the Golden State. If you are a sole proprietor business (that is, not an entity of some kind, like a corporation or an LLC), and someone hires you as an independent contractor, and the signed contract includes a WMFH clause, then you are statutorily an employee and the employer has to follow the laws regarding unemployment, disability, and workers compensation insurance as if you were a regular employee. According to the California Labor Code[1], if a person is hired to create a commissioned work and the parties agree in a signed writing that the work shall be considered a work made for hire, as defined in Section 101 of Title 17 of the United States Code, then, boom, the hired person is a statutory employee. Moreover, the California Unemployment Insurance Code[2] says almost exactly the same thing. Basically, every code that deals with unemployment, disability (including paid family leave) and workers comp has something about WMFH like this.

Anyway, failure by the employer to follow the rules means the employer can be hit with substantial fines and even jail time! Yikes!

“So what?” you may be thinking, “only the state cares but it doesn’t really affect me,” but you’d be wrong. Those are rights to which you are entitled under California law. If you get injured on the project, for example, Workers Comp should pay your medical bills (roughly speaking). Also, the law is unclear[3] about other benefits that employers in California must supply to such employees, so it may be that you, as the employee, are entitled to other things beyond being paid as an employee (including having the employer pay its half of FICA) rather than an independent contractor, like having limits on time/overtime, etc.

If you live and generally work in some other state but come to California for a WMFH project, then you too would likely be considered a statutory employee under California law as well[4], and maybe if the company is here but you aren’t. Also, if you work physically here, your pay would probably be subject to California personal income tax withholding[5].

Most importantly, if you are in California (resident/business) and you hire assistants or other independent contractor workers and you have a WMFH clause in the contract you have these people sign, you also need to know this info. You have to follow these same rules! There are ways to avoid some of these issues (for example, maybe an assignment clause instead of a WMFH), but there are downsides to the other options as well. Talk to an attorney to get the best advice for your particular situation.

Oh, and don’t forget, if you are in California, you really, really must pay your people on time.
[**UPDATE** There is more time to pay now, but it’s still faster than you might think]

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[1] California Labor Code Section 3351.5(c).

[2] California Unemployment Insurance Code Section 686.

[3] The statutes don’t seem to say explicitly one way or the other; a court could possibly make the analogy and apply the same rules to pay, time off, etc.

[4]See http://www.edd.ca.gov/pdf_pub_ctr/de231d.pdf.

[5] Id. (That means, same source as I just cited, for the non-nerdy readers).

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Forming an Entity: Watch for Issues

Most creative professionals start their businesses without doing anything more than accepting the first freelance project offered. That is, they don’t bother to do anything about forming a legal entity like a corporation. That’s fine; if you don’t do anything and you work solo, you are a sole proprietor. After that first project, if you continue doing business, getting projects, cashing checks, you probably won’t think about your business structure any further.

At least for a while.

One day, you, the now-successful creative pro hires an accountant to do your taxes and that CPA tells you you should incorporate or form an LLC. The accountant is concerned about the relative tax burdens and, often, it does make immediate financial sense to form an entity; that is, you can save a bundle on your taxes. But, the accountant doesn’t (probably) know about the copyright ramifications, and (usually) neither does the average creative pro.

Yes, there are copyright ramifications.

Overall, there are a whole host of legal issues to consider when it comes to potentially forming an entity. Most people focus on the tax issues, and that makes sense, but there are other legal issues and I highly encourage anyone considering forming an entity to talk to a lawyer before taking that step. Anyway, for this post, I’m only going to focus on the copyright one as it is most often totally ignored, and it shouldn’t be.

So, let’s imagine you have formed a single-member LLC and, as per your CPA, you’ve made yourself an employee of that LLC. Your tax bill thanks you. Now, however, when you make your art (whatever kind of art you make–doesnt matter), who owns its copyright?

If you said you do, you’d be wrong. Even though you are the only member of your entity (the LLC), it’s that entity that owns the copyright in the art you make as an employee of that entity. It’s an automatic work-made-for-hire. No writing required.

Well, I hear you saying, but I am the entity so it’s the same thing. Nice try; but, under the law, no, you aren’t and no, it isn’t at all.

First, since the entity is now the author of the work, the length of the copyright is no longer life of the author plus 70 years. A copyright authored by an entity lasts either 95 years after its first publication or 120 years after its creation, whichever is shorter[1]. By the way, there is an exception to this to get back to the authors death +70 years length, but it requires more paperwork and I know how much y’all love paperwork.

Second, when you register that copyright, you need to do it correctly. You have to name the entity as the author and the claimant because you, as an individual, by law did not create and do not own the copyright. While screwing this up doesnt necessarily totally void a registration, it certainly will be an issue if you ever get infringed. You (and your lawyer) don’t want to have to fight about the validity of your registration. I’ve seen it in cases and it could result in a great case becoming a loser. Remember, if you sue for infringement and lose, you might end up being required to pay the other side’s attorneys’ fees and costs; you don’t want something like this to scuttle your otherwise watertight ship.

Third, let’s say you get hit by a bus and shuffle off the mortal coil, who gets the copyrights your entity owns? And what about existing licenses and royalties based off those copyrights–who gets the money? It’s not so easy, if you havent planned ahead. Do you have a succession plan in place for your entity?

None of these issues are insurmountable at all. For example, you can have a writing that keeps the copyrights created after the entity is formed as your own (if you want to do that and there are reasons to do that, or not). Overall, the issues beyond the tax ones that come up when you form an entity, including copyright ones, do require some thought and there are decisions that need to be made and new processes need to be learned if you decide to go ahead and incorporate.

Don’t go it alone and hope it all works out–thats a lousy business strategy. Talk to your own attorney and get good, personalized advice.

[1] 17 USC 302(c).

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Safe Harbors, Piracy, and Your Value

I could write on this issue, but I’ll save the time and point you toDavid Newhoff over at Illusion of More. In this post, Mr. Newhoff discusses the differences and, importantly, the similarities facing artists in the USA as compared to the Canadians when it comes to the (false) promises made by tech to improve the lives of artists. Miranda Mullholland made a wonderful and passionate speech to the Economic Clubof Canada about her (and others’) life as a musician–one who works her ass off but who barely makes a living. Watch her video and read Newhoff’s comments. I won’t reiterate it all here.

I will say this, though:

  • You make the art, be it music, photographs, design, illustrations, and it is art–the platforms can’t be successful without you.
  • Stop calling the art you createcontent and stop letting people rip you off both directly and by devaluing what you do (like, by calling it content).
  • Don’t rip off anyone else and support all other artists, yes, even (especially) when it costs you more.
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Registration? Application? What’s the deal?

Recently, there’s been a lot of discussion amongst us copyright law nerds about a circuit split on the requirement written in the statute that says you have to register the copyright before filing suit. The question is: what does “registration” mean in that statute? Seems obvious but, in law, we’re quite persnickety about word meaning so this is a big deal for us. I bet already some of you are fading out, thinking that this has little to do with you and your creative business. But it does! The good news is, you don’t need to know all the gruesome technical legal details.

Here is what you do need to know: if you want to sue someone for copyright infringement, you have to have registered the copyright before you file the lawsuit and the easiest way to make sure you’ve done that, no matter how they define it, is to register all yourworks as soon as possible after their creation. If you do that, then the complex legal question causing the circuit split won’t apply to you.

If you are one those who simplymustknow the details (and, if not, skip to the last paragraph), here’s the legal question: is applying for registration enough to mean “registered” or do you have to have the certificate in your hot little hands, before filing suit? We lawyer-types often call these two approaches application and registration, respectively. A couple of circuits have said that applying is enough to keep your lawsuit from being dismissed and a couple of others have said that you have to have the certificate.

So what? Well, thedifference means that, for example, if you file suit in California (9th Circuit), the courtswillsayif you’ve applied for your registration, you’re good to go; but, if you file the factuallyidentical* suit in Florida (11th Circuit) they will say you have to have the completed registration or your suit will be dismissed. So, you may be thinking, if you’ve only filed the application, you should just sue in one of the circuits that says that’s enough; but there is another part of the law that limits where you can file your suit, so that won’t work. That’s why I have an asterisk next to identicalabove, because one of the facts would bewhere the defendant is and if the defendant is only in Florida you can’t sue ’em in California.

Anyway, when there is a split like this, where some circuits say X and others say Y about the same statute, it falls on someone to appeal to the Supreme Court to get an answer. This means having a partywilling to do that (it’s not cheap) and then the court agreeing to review the case (which it probably would–SCOTUS likes to resolve circuit splits, usually). In other words, it’s not going to happen tomorrow so, for now, we have to live with the split.

Like I said at the beginning of this post, you can avoid all of this mess if you take the time to register your copyrights in your works as soon as you possibly can, after creation. That way you’ll make it impossible for the other side to bring up the application/registration question at all.

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