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Copyright Guide: Work and business

Work and business

 

Agreements play a central role when copyright protected works and performances are used at work or in business. Agreements define to whom and to what extent rights are transferred. Commercial use of works is always subject to agreement. The Copyright Act describes the type of content of the rights in the Act and how those rights are born.

The Copyright Act is a discretionary, in other words, a contractual Act. As far as copyright is concerned, rights used in work and business are transferred by agreement and the quality and extent of these rights are further defined by agreement. Clear, written agreements play a central role when using copyright protected rights in business activity. 

An agreement of an offer is created when a corresponding reply accepting the offer exists. An agreement may be made electronically, in which case the party can read the agreement and accepts its terms, e.g. by clicking, the so-called 'click wrap'.  An agreement may also be made orally, in which case it is advisable to confirm the content of the agreement created, e.g. by an email and receipt of a confirmation email.
 
In drafting an agreement, it is good to identify and note the following issues:
• The parties by name and business ID; the company or society name and ID can be checked from the ytj.fi service.
• The subject of the agreement, i.e. that which is being agreed upon, e.g. the design of a visual concept but not the drafting of implementation instructions.
• Which rights are transferred, such as the right to reproduce, the right to perform publicly, the right to transfer to a third party, the right to adapt, the right to translate etc.
• Whether the transferred rights have limitations, in terms of time, purpose or quantity etc.
• Compensation for the transfer of rights, to which the account compensations are paid, the due date, interest on arrears, basis for calculating compensations, the author's right to check the accuracy of the compensations, when the rights are transferred, e.g. the rights are transferred when the agreed compensation is paid in full.
• The rights that remain with the author e.g. the right to use the work in the author's analog and digital portfolio.
• Responsibilities and duties of the partners in relation to each other and third parties.
• Duties relating to prohibition of competition, confidentiality and liability for damages.
• When the agreement enters into force, terminates and the effects of termination.
• The conditions for terminating the agreement.
• The opportunity to amend the agreement.
• Contact details of the partners and contact persons
• An identifying social security number, if the partner is a private individual
 
An entrepreneur should draft delivery terms for their activity, to which they can refer to in an offer or invoice, and which the client can accept with the offer or invoice. If the client company, society, cooperative or other organization wants to own the copyright, an agreement must be made regarding this. If the subject of the copyright is to be used in business, or the activity of more than a few people (nearest friends and family), the following rights from the author of the copyright are needed: financial rights, right of transfer and adaptation. The extent of the rights granted is a question of negotiation, governed by the freedom of contract with some exceptions regarding moral rights, adaptation of the work and the transfer of rights.
 
For legal security, the right of adaptation should be agreed upon in as much detail as possible, as there are special provisions in the Copyright Act that protect the author's moral rights.  If good custom requires the mention of the author's name, this can be left unmentioned only by the express consent of the author. In accordance with the Copyright Act, also the right to transfer rights and to adapt the work can only be agreed upon by express agreement. If the works are to be used e.g. in media other than the company's own website, they must acquire the right to transfer, so that this can be implemented.
 
Provisions in Chapter 3 of the Copyright Act are applied to contracts for publishing activity, such as illustrations, unless otherwise agreed. 
 
Copyright in employment
 
The copyright of an employee can be seen to have been transferred to the employer in part of such works that have been created while carrying out work assignments. The definition of job assignments is important in interpreting transferable rights. Rights are transferred to the employer for use in their ordinary activity. What constitutes the employer's normal activity, and the extent to which an employer may transfer the rights to third parties, is open to interpretation. An interpretation of the quality and extent of copyright transferable to the employer simply based on employment is unclear. It is advisable for an entrepreneur to make an agreement regarding the transfer of rights intended by the Copyright Act, as well as other intellectual rights, to the employer, providing this is the intention of both parties. Often, the physical contribution of an employee doing mental work is worthless to the company, unless the result of the contribution is accompanied by a transfer of intellectual rights.
  
When drafting agreements on the transfer of copyright, one must remember that copyright and related rights of a performing artist are always born to a natural person. The person who claims that a copyright has been transferred from the author, is obliged to prove this allegation. In cases that are unclear and open to interpretation, copyright is interpreted in favor of the author.
 
All work does not create a copyright. Copyright is a rough translation of a right that is born: it is a right that is born to the author of a creative work, author's right, droit de autèur. An original work or the performance of such a work is always born as a result of the work. As the threshold of originality is often open to interpretation, the entrepreneur or producer must in uncertain situations agree on the possible transfer of rights to the employer, should these be needed in order to use the product, work or the performances that are born.
 
Computer programs, databases and employee copyright
 
In accordance with the Copyright Act, the copyright of a computer program is transferred to the employer, if the computer application has been created while carrying out work assignments. The preparatory materials of the Copyright Act refers to EC legal practice regarding the definition of an employee employee / independent entrepreneur. As far as universities are concerned, there is some special provisions.
 
A company may agree on the quality and extent of the transfer of copyright between an employee and company with written express agreements also in the case of software programs. For works other than computer programs, there is no work for hire assumption under the Copyright Act.
Read more about computer programs and databases.
 
Licensing and ownership
 
A company may be the copyright owner, or acquire the right to use necessary for the company's business by acquiring a license. A company may sell the right to use, i.e. license, for a work they own, or sell the copyright of a certain work, as well as all the intellectual property rights related to the work.
 
When they are the owner of a copyright, a company is at liberty to decide on the use of a work in any way they wish. Copyright may be the property of a company. Some valuable intellectual property owned by a third party, such as the copyright of a popular musical composition, may be impossible for a company to wholly buy. In such cases, the only option is to acquire a limited right to use or a license from the copyright holders.
 
A company can buy a narrowly defined license e.g. the right to use a cartoon character as an ornament for headgear. In this case, the agreement shall be worded to apply to the agreed quality of extent of the transfer of copyright. The company must remember, that all use outside the agreed extent, is unauthorized use. A new license must be negotiated for any new and arising needs.
 
A company may also license their own know-how or intellectual property rights. For example, a furniture design company can grant a license to produce chairs, in accordance with a design, for a Finnish company in Finland and a Dutch company in the Netherlands. In granting the license, it is important to limit the license in a manner appropriate to a company in the creative sector.
 
Registered intellectual property
 
In addition to the copyright, also other forms of protection are used in business such as trademark protection, domain names,  the registered design right, protection of utility models and  patents. The external appearance of the product can be protected with design protection and, after design protection, with copyright, and in marketing one can utilize trademark protection. The exterior appearance of a product and its packaging can be protected by design protection, copyright and trademark protection simultaneously.
 
Branding is central to business activities. The cornerstone of the legal protection of a brand is the trade mark protection. Copyright, too, can be used to protect brand elements such as the interior decoration of a shop, cartoon characters or marketing photography.
 
In the case of registered  intellectual property protection, it is of primary importance that the registration of rights is sought first, and company names, designs and research results are only then made public.
 
Copyright can be an entrepreneur's personal property or the property of a legal person, such as a company, association or co-operative. In Finland, a legal entity is registered in the registry of the National Board of Patents and Registration in Finland and the legal entity has an identifying business ID. Also in other countries, a legal entity is registered, has a registration code and / or a Value Added Tax (VAT) code.  In Finland, the VAT number and company business ID are the same number sequence.
 
Ideas cannot be recorded as property in the company's balance sheet. However, processed IPR assets, such as a design right, can be recorded as property in the balance sheet.  Accounting law must be observed in evaluating IPR assets.
 
The Kaupparekisteri provides basic information on starting a company. For more information on the topic, also see the section The Entrepreneur as employer.
 
Trademarks are marks that businesses use to distinguish the goods or services they offer from other companies' goods and services.
 
A design right protects the external appearance of an object or ornament.
 
In all EU Member states, one can apply for community design right protection as well as community trade mark protection with one registration.
 
Patents are granted for inventions that can be used industrially. Utility models may be granted for inventions that are not sufficiently inventive to obtain a patent.
 
Copyright - personal property or property of a company
 
Intellectual property may either be the entrepreneur's personal property or part of the company's property. For the property to belong to the company, the copyright holder must submit a written copyright transfer agreement, and the intellectual property must be recorded as property in the company's balance sheet.   Whether the intellectual property belongs to a natural or legal entity, affects the taxation of the profit made from the sale of the intellectual property.
  
Mere notice to the tax authorities may not be  enough for the treatment of royalties as corporate income. An example of this is the Supreme Administrative Court case T 3033 of 24th Nov, 2000: A company had reported royalties from copyright protected materials as company income. The Supreme Administrative Court examined whether the royalties reported in taxation should be seen as the principal shareholder's personal income or income of the company. Royalties had been paid for the copyrighted materials created by the company's principal shareholder. Assistants were used to some degree in the creation of the licensed materials.  The company didn't have premises or fixed assets and the company had not been marketed. The Supreme Administrative Court held that the income was not income of the company, but personal income of the principal shareholder.
 
Copyright is a right that belongs to the creator of the work and is thus based on the personal skills and competence of the author. The copyright, which serves as the basis of the royalties, still belonged to the company's principal shareholder therefore copyright-related financial rights were not transferred to the company.  In the acquisition of the royalties in question, a limited company form was not necessary and, as far as royalties were concerned, the scope and publicity of the company's activity was not such, that there would have been grounds for the allocation of royalties.  Consequently, the company's principal shareholder was the correct beneficiary of the royalty.

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Copyright and value added tax

In accordance with Section 45 of the Value Added Tax Act, certain royalties are exempt from VAT.  Royalties from the use of the works are charged VAT free in accordance with the detailed provisions in Section 45.   In accordance with Section 131 of the Value Added Tax Act, acquisitions made for this activity are not VAT deductible. 

When a royalty is the result of a tax exempt sale, according to the Value Added Tax Act, the royalty must also not be charged inclusive of VAT. Works whose royalties are charged exclusive of VAT are e.g. furniture and architectural works that meet the threshold of originality.  If a piece of furniture or a building is also design protected, the royalty is charged for the design protected part using a VAT of 24%.

The tax authorities or the designer may ask the Copyright Council, which is under the Ministry of Education and Culture,  for their opinion on whether the result of the design work is sufficiently independent and original enough to meet the threshold of originality. If the designer deemed the compensation from the work as a royalty, which he or she has charged exclusive of VAT and the tax authorities later decide, for example based on the Copyright Council's advice, that the activity is the VAT inclusive sale of design services (as the work doesn't meet the threshold of originality), the designer will have to pay the VAT retrospectively even though they didn't charge for it.  For example, the Copyright Council's case 2007:18, concerned the threshold of originality for illustrations and logos, and whether the compensation received for them was VAT inclusive or not.

Industrial property rights and value added tax

Compensation from the use of industrial property rights are always VAT inclusive and the rate is 24%. Compensation e.g. for the use or sale of a model right or trade mark right is VAT inclusive sale.

 

Compensation for use is income that the author of the work or design receives, and which is paid for the financial exploitation of the work.
Compensation for use, which is based on the beneficiary's own activity, is earned income. Also, compensation paid for intellectual property received as a gift, is earned income. However, if the copyright has been transferred by inheritance, will or acquired for payment, the compensation received is capital income.

For example, in the case of a book illustrator, a publisher is usually the other agreeing party, who remunerates the author of the book for his work. An industrial designer, on the other hand, may make a licensing agreement with a company, that remunerates him a royalty based on terms of the licensing agreement.

Although the payment is not considered a salary according to the Prepayment Act, the payer is nevertheless obliged to withhold tax for payments that are considered compensation for use in § 25 of the Prepayment Act, if the recipient was not registered in the prepayment register.

Compensation for use is  a compensation paid for the use of a copyright, a right based on a photograph or a industrial property right, such as the use of a patent or trade mark; a compensation paid for the right of use, or the sale of a right of use; or a compensation paid for information regarding industrial, commercial and scientific knowledge.

Upon application, the prepayment register enters those, who are engaged in business or self-employed activities, whose compensations are not considered salary. A prerequisite for entry into the register is the practice of professional activities with an intent to earn. However, this activity need not be continuous.

Photograph, photographic work and other works of fine art

Please note that the royalties from the sale of photographs' and photographic works' copyright are always charged inclusive of VAT using the standard rate of 24%.

A photographic work and other fine art work, which is sold directly from the artist at an introductory rate, is charged inclusive of 9% VAT. The resale of fine art and, for example, services to a fine art gallery, is charged inclusive of the standard VAT of 24%.
In the resale of fine art and photography by a professional art dealer, the dealer must pay a resale compensation for fine art. You can find more information on the resale compensation from Kuvasto ry.

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The entrepreneur as employer

Making art in a team can lead to a situation, where the characteristics of employment are met and the artist or creative worker finds herself or himself in a situation of having to bear the responsibilities of the employer for the others. Labour legislation protects employees strongly and sets financial and legal obligations for the employer. The creation of an employment relationship should always be discussed, and if it is found that employment is an appropriate way to carry out a project; all relevant agreements should be made in writing.

Employment legislation and the generally binding agreements should be observed.  For example, collective labour agreements for the field generally define the payment of wages, so that even a written agreement is rendered null and void, if it doesn't agree to conditions at least as favourable as those guaranteed by the collective agreement.  An employee may recover their financial interests in accordance with the generally binding collective agreement even after the employment relationship and will be able to receive help for this from the authorities. A collective labour agreement may also contain provisions regarding copyright. This is the case, for example, in some of TEME's collective agreements. If you are in the position of an employer or employee, please familiarize with your field's collective agreements.

Compensation for work and social security

Compensations for use, such as royalties, do not accrue pension or other earnings-related contributions such as maternity allowance or unemployment benefit. In paying compensation for use, none of the social security contributions related to salaries are paid.

Marketing considerations

The subject of a photograph can be a human being, building or other private property. When such images are used in marketing, it must be noted that the use of both people and property in marketing is regulated by the code of advertising and marketing communication practice by the International Chamber of Commerce, which can be found on the website of the Central Chamber of Commerce.

In accordance with these rules, consent must be obtained for the commercial use of the likeness of the person in question. This agreement, which is internationally known as the model release, should always be made in writing, so that its existence can be proven. The model release should include a record of those purposes, to which the photograph is to be used.  In marketing, one may not, without consent in advance, photograph private property e.g. a building, in a manner that creates the impression of the owner's consent.

In marketing, one may not, without consent, use another company's name or trade mark or another person's or company's protected intellectual or industrial property rights. 
 
Links for entrepreneurs and start-ups

New entrepreneurs and those planning to start a business are offered a variety of services at Universities, through societies as well as at the City of Helsinki. Here are links to various services:

Aalto University Center for Entrepreneurship

Aalto University Startup Center

Aaltoes

Helsinki Business Advisory Services

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