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Tuesday, January 4, 2011

Breaking Up Is Hard To Do

Although you hope it won’t happen, you need to plan for the day when you and a business partner will decide to go your separate ways. Thinking it through up front can prevent a lot of angst and bad feelings later.

STEP 2 Sort Out The Rights Up Front
Once you and your advisors decide upon the type of business form you’re going to operate, it’s critical that you understand the default rules for the rights to the images that you’ll create, and perhaps most importantly, whether you or your company will own those rights. As strange as the notion may seem, you could very well find yourself in a situation where you’re only an indirect, or fractional, owner of the rights to your own images.

Under the current U.S. Copyright Act, a “work made for hire” is defined as “a work prepared by an employee within the scope of his or her employment,” and it’s owned by “the employer or other person for whom the work was prepared.” Given the definition of a “work made for hire,” there’s generally no requirement for an employer to require or use a written agreement with an employee in order to take advantage of the rights conferred by the Copyright Act. Thus, once the photographer/owner creates images within the scope of his or her employment, the corporation owns the images. The only way to avoid this result is for the photographer and business to agree to some other scheme in a signed writing or agreement.

At first blush, whether the photographer or business owns the rights to the images may seem to be a difference without a distinction. However, there are a number of very real consequences to the difference. If the business owns the images, the images will also be within reach of the business’ creditors. Even if creditors aren’t a concern, the very fact that the business owns the images means that when the business breaks up, the rights to the images must be distributed to the business’ owners, and if there’s no agreement as to the value of the rights or how they will be distributed among the owners, the rights are potentially sold at auction with the proceeds divided among the owners.

Now, if you’ve been a working photographer for any length of time, you may think that you can avoid the impact of the “work made for hire” provisions of the Copyright Act by treating yourself as a contractor. However, this clumsy attempt to avoid the default provisions of the Copyright Act isn’t without adverse consequences, such as tax problems (the IRS is scrutinizing companies that attempt to avoid paying payroll taxes by improperly classifying employees as contractors), insurance problems (the typical commercial general liability policy will include coverage for employees but not for contractors), etc.

While the application of the “work made for hire” provisions of the Copyright Act are relatively straightforward when applied to corporations, the application is far less certain with other types of business organizations. For example, court decisions involving partnerships are anything but uniform in their determination of whether copyrightable material produced by one partner belongs to that partner or to the partnership as a whole.

Ultimately, if you’re establishing a business by yourself or with a co-owner, it’s far easier to simply come to an agreement as to how the rights to the images will be owned when you form the business. Such an agreement, once in writing and signed, is the easiest way to avoid the “work made for hire” provisions of the Copyright Act and the uncertainty caused by various types of business organizations.

STEP 3 “Always Have An Escape Plan”
The late Desmond Llewelyn, in his portrayal of the character “Q”, immortalized the phrase “Always have an escape plan.” The phrase rings just as true for business relationships. And the best time to devise an escape plan is on the way into a business, when everyone is getting along. Just as emotions tend to run high during a breakup, emotions can run even higher in the breakup of a business because this breakup may have a significant impact on a person’s livelihood. More importantly, if you and your business partner can’t reach an agreement on these sorts of issues at the beginning of the business when everyone is getting along well, it’s highly unlikely that the co-owners will be able to resolve these issues when contemplating the imminent breakup or shutdown of the business.


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