Excerpted from a Littler Mendelson PC blog by Darren E. Nadel

The U.S. Court of Appeals for the Second Circuit recently held that the creator of the “Friday the 13th” screenplay could terminate his copyright grant to Horror, Inc. (producer of the movie franchise) and reclaim it. The potential “horror show” for employers is that if they do not assume ownership of their own copy (such as software code) at the inception of the copy’s creation, they can lose ownership under the Copyright Act’s reclamation provision.

In Horror Inc. v. Miller, No. 18-3123-cv (Sept. 30, 2021), the Second Circuit affirmed that the original screenwriter of the horror film successfully terminated ownership rights that he had conveyed to the production company back in 1979.

This decision hinged on whether the copyrighted work was created by its author as an employee of the production company or as an independent contractor.

Employees create so called “works for hire” that are owned by the employer from its inception. Independent contractors create works that they own and can assign, subject to the right to terminate the assignment and reclaim their property interest in the copy.

In 2018, the production company Horror, Inc., sought a declaration from the U.S. District Court for the District of Connecticut that screenwriter Victor Miller, who originally wrote the “Friday the 13th” screenplay, was an employee when he created the screenplay in 1979.

If so, the screenplay would have been a work for hire owned by the production company from the outset and not subject to a reclamation right. The company argued mainly that Miller’s membership in the Writer’s Guild of America, East, Inc. (WGA) and its own participation in the collective bargaining agreement with the Writer’s Guild established that Miller was an employee.

The Copyright Act provides two distinct circumstances under which a copy constitutes a “work made for hire” that cannot be reclaimed by the original author: 1) all works created by an employee within the scope of employment, and 2) works prepared by writers who are not employees, but only if the parties expressly agree to the “work made for hire” status in a signed writing.

The lower court found that because the original screenplay was not specifically commissioned as a “work made for hire” under the original contract, and because, in its view, Miller was not an employee at the time he wrote the screenplay, the screenplay was not a “work for hire.”

Importantly, the court did not apply the tests that would normally be applied against an employer to determine whether someone is an employee under an ordinary analysis for wage and hour purposes. Instead, the district court applied general principles of agency law to determine whether Miller created the screenplay as an employee.

Second Circuit Decision
On appeal, the Second Circuit upheld the district court’s determination that Miller was not an employee and agreed that agency law governed employment status under the Copyright Act. After a thorough review of Miller’s employment status, the court reasoned that the company: 1) had only limited control over Miller’s creative process, 2) relied on Miller’s skill, expertise, and creativity as a professional creative artist to write the screenplay, 3) never provided Miller with employee benefits traditionally indicative of employee status, 4) never deducted taxes, social security, Medicare or other taxable amounts from his compensation, and 5) had limited rights to assign additional projects after the screenplay was complete.

While the court reviewed the remaining factors under Reid (i.e., duration, method of payment, source of instrumentalities, location of work, schedule, hiring assistants, business entity and type) it deemed them less significant in the context of copyright law (although it still found that they largely favored a finding that Miller was not an employee).

Implications to creators of copy, software, and beyond
This decision has significant implications for employers that create copyrighted works. When hiring others to produce creative works, whether it be for software code, books, pamphlets, articles, lectures, or other works potentially protected by copyright, employers should protect those works by expressly entering into a “work-for-hire” agreement, as works for hire are owned by the employer from the start and, therefore, are not subject to the Copyright Act’s termination and reclamation provisions.

For the full story, please click here.