The Ninth Circuit decision in JustMed v. Byce presents a new take on the perennial issue of confirming an early-stage company’s ownership of its technology inventions. The creator of an original creative work is the owner of that work and all rights pertaining to it under copyright law.  The main exception is a “work-for-hire”, a “work prepared by an employee under the scope of his or her employment or a work specially ordered or commissioned for use as a contribution to a collective work, as a 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.”

If a software developer is an employee then the employer will be the owner of the code.  If the developer is a consultant or independent contractor, then the developer retains ownership rights in and to the code absent an express agreement between the parties to the contrary. (Software is not one of the specifically enumerated categories of works-for-hire by non-employees, so the developer can’t simply deem the work a work for hire but must assign the code to the other party.)

In the JustMed case, two former brothers-in-law disputed ownership rights in new technology. The Justs formed a corporation and held the majority of the stock; Byce purchased shares and took a position on the board of directors.  Byce eventually took over the role of developing the technology and received additional shares each month. Ultimately, concerned about getting more compensation, Byce changed the copyright notice on the software and claimed ownership in it.  There was no employment agreement, he had not been paid as an employee, and he worked from his home in another state developing software code — all factors he argued should support a determination that he was not an employee but a consultant.  If so, since there was no written agreement concerning the development of the code, he would have ownership rights in it.  Nevertheless the court held that Byce was indeed an employee when he wrote the code — and it was therefore indeed a work for hire.

Interestingly, the court specifically pointed to the fact that Justmed was a startup. There is something about the nature of a startup, to this court at least, which lends itself toward a wider more expansive view of the relationship between parties. Court determinations that workers treated as independent contractors should really be treated as employees are not new. Here, the developer was a co-founder and board member, but he worked independently from another state and was not paid as an employee (although a prior developer had been) and the company didn’t treat him as an employee for tax purposes.  Nevertheless, “as a small start-up

[the company] conducted its business more informally than an established enterprise might,” and the court did not want to allow the fact that it didn’t conduct things formally to make it “more susceptible to losing control over the software”.

Can we rely on this going forward – will courts give special latitude to startups seeking to assert ownership over their developers’ rights in technology? Not so fast – any prudent startup will still insist on an agreement with its developers, even, or especially, when the developers are there at the beginning and close to the founders.