May 13, 2024

Five Things Small Business Owners Should Know About Copyright Law

Written By

Dana Howard
Member, Stoll Keenon Ogden PLLC

Copyrights can be an important component of a business’s intellectual property portfolio, helping to protect and increase the value of the business’s assets. As a result, knowing some of the basics about copyrights and copyright law can greatly benefit small business owners. 

In general, copyrightable works are protected by law under the US Copyright Act, 17 USC §§ 101-1511. Most simply, a copyright protects an original work of authorship, which may include, among other things, a photograph, illustration, film, sound recording, manual, form, and software. To be copyrightable, a work must be independently created, exhibit at least a “modicum of creativity,” and be “fixed in any tangible medium of expression.”

What makes copyrights so valuable are the rights that they bestow upon the owner of a copyrightable work. Specifically, a copyright owner controls the rights to make copies of the work, distribute the work, publish the work, display the work, perform the work and prepare derivative works based upon the work.  Such control includes the right to preclude others from copying, distributing, publishing, displaying, or performing the work and/or from making derivative works.

The following are five things that a small business owner should know about copyright law to maximize the value of a business’s copyrightable works and avoid liability for infringing upon other’s copyrights.

1. Copyright Registration and Standing to Sue for Copyright Infringement

      Under U.S. copyright law, a copyright attaches to an original work of authorship from the moment of creation. But, having a copyright and being able to enforce a copyright against infringers are two separate issues. To file a claim for copyright infringement in federal court, a copyright owner must have a copyright registration from the Copyright Office. Having a pending application is not sufficient; to have standing to sue, the copyright owner must have received either a copyright registration or a refusal to register the work from the Copyright Office. For this reason, businesses should ensure that any important photographs, artwork, forms, manuals, software, video recordings, sound recordings, or other copyrightable works are protected by a copyright registration.

      In addition to conferring standing to sue, obtaining a copyright registration as soon as possible also preserves the types of money damages available to a copyright owner who successfully proves copyright infringement. For example, to recover attorney fees and statutory damages (which generally range from $750-$30,000 per copyright work infringed), a copyright owner must have received the copyright registration before the infringement occurred or within 3 months of the original publication of the work. A copyright owner who receives a registration outside of that time frame may still sue for copyright infringement but will be limited to the recovery of injunctive relief and/or any actual damages that are proven.

      2. Small Claims Court for Copyright Infringement

      Because the costs associated with prosecuting a lawsuit for copyright infringement in federal court can be high and may deter some copyright owners from bringing claims against infringers, the Copyright Claims Board was established as a less expensive option for the resolution of copyright infringement disputes. The Copyright Claims Board is essentially small claims court for copyright infringement disputes. The Copyright Claims Board consists of a panel of three copyright experts who adjudicate claims. The proceedings are conducted electronically and remotely. Parties are not required to be represented by attorneys but may elect to have such attorney representation. For a claim to be heard by the Copyright Claims Board, the maximum amount of damages sought cannot exceed $30,000, and both parties must voluntarily agree to submit the claim(s) to the Copyright Claims Board. Notably, unlike lawsuits in federal court, a federal copyright registration is not a prerequisite for filing a claim in the Copyright Claims Board but an application for copyright registration must have been filed.

      3. Works Made for Hire and Software

      Registering a copyright requires identifying the author of the work. Typically, the author of the work is the individual or individuals who created the work. An important exception under the Copyright Act, however, applies when the work qualifies as a “work made for hire.” Generally speaking, there are two circumstances in which a copyrightable work may be considered a work made for hire: (1) where an employee of a business creates a work within the employee’s scope of employment; or (2) where a work is created by a nonemployee/third party pursuant to an express written agreement between the business and nonemployee/third party. When a work qualifies as a work made for hire, the employer or business commissioning the work is considered to be both the author of the work and owner of the copyright.

      The determination of whether a copyrightable work has been created by an employee within the scope of employment and is thus a “work made for hire” generally involves a consideration of the following questions: (1) Was the skill used to create the copyrightable work among the skills that the employee must have in performing the employee’s typical job duties?; (2) Did the employee create the copyrightable work during normal business hours?; (3) Was the copyrightable work created at the employer’s facility/location?; (4) Did the employer provide the space, materials, and/or tools used to create the copyrightable work?; (5) How was the employee paid?; and (6) Was the employee assisted in the creation by other employees of the employer? If a copyrightable work has been created by an employee within the scope employment, the business/employer should be identified as the author and owner of the copyrightable work in the application for copyright registration.

      The question of whether a particular work is a “work made for hire” becomes more difficult when the copyrightable work is created by a nonemployee/third party at the request of a business. Under the U.S. Copyright Act, only nine types of works made by nonemployees/third parties can constitute a work made for hire. They include the following: a collective work, a part of a motion picture or other audiovisual work, a translation, a supplementary work, a compilation, an instructional text, a test, answer material for a test, or an atlas. The ultimate determination, however, depends on the answer to the following four questions: (1) Does the work fall within one of the nine categories of works identified in the Copyright Act?; (2) Is there a written agreement between the party that commissioned the work and the individual who created the work?; (2) Does the written agreement expressly provide that the work is to be considered a work made for hire?; and (4) Is the agreement signed by all parties. To be a work made for hire, each of those questions must be answered “yes.”   

      Notably, a common area of confusion involves the development of software or mobile applications by nonemployees/third parties. Often businesses need to commission others to develop computer software programs and/or mobile applications to conduct their business and, in doing so, must ensure they retain sufficient ownership rights to the software, including the ownership to any copyright protecting the software. Under U.S. copyright law, however, computer software programs are generally considered to be “literary works,” and, of course, literary works are not among the nine enumerated works eligible to be a work made for hire under the Copyright Act. Accordingly, when a business engages a third-party developer to create a computer software program, the business should ensure there is a written assignment agreement between the developer and the business in which the developer assigns ownership rights in the software, including any copyrights, to the business.   

      4. Photographs and Fonts and Copyright Infringement

      Generally speaking, photographs are protected under copyright law as a visual artwork, and the individual taking the photograph is considered the author and owner of the copyright. Fonts, themselves, are not generally subject to copyright protection, but the computer software programs that generate fonts may be protected by copyright, in which case the developer of the software program is typically considered the author and owner of the copyright.

      One way that small businesses find themselves on the wrong side of a copyright dispute involves the unauthorized use of photographs and/or fonts.  This commonly occurs when a business owner uses photographs or font systems owned by third parties on their websites and/or in their marketing/branding materials without a license or other authorization from the copyright owner(s). Because damages owed for copyright infringement can be substantial – possibly including attorney fees, statutory damages, disgorgement of profits, lost license fees, and/or other actual damages – business owners should exercise caution when using photographs and/or special fonts in their marketing/branding materials.  

      Trouble often arises when businesses have been using particular photographs or fonts for a period of time but are unsure of the original source of such photographs or fonts. To mitigate the risk of copyright infringement associated with such uncertainty, businesses should conduct an audit to ensure that they know the origin of every photograph or font used in their marketing/branding materials (including on their website) and have the appropriate documentation showing that they have the rights to use the photographs or fonts. This documentation may include copyright registrations, formal license agreements, or other written authorization/permission from the copyright owner.

      Another pitfall that small business owners encounter is overlooking and/or not understanding the restrictions in their existing copyright licenses that preclude or limit commercial uses of photographs or fonts. This can result in business owners mistakenly believing that they have sufficient rights to use copyrightable works when they do not. To mitigate this risk, business owners should carefully review any license agreement before signing and/or engage the assistance of an attorney in reviewing license agreements. Extra caution should be given when entering into online license agreements, or so-called click-thru agreements. Particularly troublesome terms and conditions include restrictions that prohibit commercial uses of the photographs or fonts and/or only permit “internal uses” of the work. Other problematic restrictions involve limitations on the number of computers or people that may use the photographs or fonts. If an online license does not provide sufficient commercial rights, business owners may need to call and negotiate directly with the copyright owner.

      A final way in which business owners may mitigate their risk of copyright infringement is to have policies in place providing clear guidelines to employees and third-party contractors regarding the appropriate use of copyrighted material, including photographs and fonts.     

      5. Artificial Intelligence & Copyright Protection

      ChatGPT and open-source generative AI tools have raised complex issues concerning nearly every aspect of business, including how to protect AI-generated material. In 2023, the federal district court for the District of Columbia addressed whether AI-generated material could receive copyright protection in Thaler v. Perlmutter.[1] In that case, the U.S. Copyright Office had denied an application to register a copyright for a visual work of art generated by an AI system on grounds that the visual work of art lacked sufficient human authorship, and the computer program developer who had created the AI system that generated the visual work of art sued the Copyright Office. The District Court, however, agreed with the Copyright Office’s rejection, explaining that “human creativity is the sine qua non at the core of copyrightability” and that “[c]opyright has never stretched so far [] as to protect works generated by new forms of technology operating absent any guiding human hand.”

      The Thaler opinionis consistent with the Copyright Registration Guidance for Works Containing AI-Generated Materials (the “Guidance”) issued by the U.S. Copyright Office in March of 2023. In its Guidance, the Copyright Office specifically addressed the copyrightability of works created by AI technology in response to prompts entered by humans. Specifically, the Copyright Office considered whether or not providing the prompts constituted sufficient human authorship for copyright protection and found that “when an AI technology receives solely a prompt from a human and produces complex written, visual, or musical works in response,” the requisite human authorship for copyright protection is lacking. The Copyright Office, however, recognized that there may be cases where AI-generated material “contain[s] sufficient human authorship to support a copyright claim” and that the determination will be on a case-by-case basis.

      Since the Guidance was issued, the Copyright Office has launched an initiative to examine copyright law and the issues raised by artificial intelligence technology and plans to issue a report in 2024 that may add further clarity to the protectability of works generated by AI technology.

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