Avtec Systems, Inc. v. Peiffer
21 F.3d 568, 1994 WL 112201 (1994)
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Rule of Law:
Under the Copyright Act, a work is a 'work made for hire' vesting copyright ownership in the employer if it is prepared by an employee within the scope of their employment. The determination of 'scope of employment' hinges on a three-part test analyzing whether the work is of the kind the employee was hired to perform, occurred within authorized time and space limits, and was actuated, at least in part, by a purpose to serve the employer.
Facts:
- Jeffrey G. Peiffer was a full-time employee of Avtec Systems, Inc. (Avtec), a company providing space-related computer services, and his job included implementing computer simulations of satellite orbits.
- In 1985, Peiffer began developing a satellite orbital simulation program, known as the '.309 version,' on a company-purchased computer.
- Peiffer demonstrated the program during his 1988 performance review, and at the suggestion of Avtec's president, he made modifications to enhance it as a marketing tool, charging his time for these enhancements to an Avtec account.
- In early 1989, Avtec awarded Peiffer a $5,000 bonus for his role in securing a new contract by demonstrating the program to a client.
- Unbeknownst to Avtec, Peiffer secretly entered into an agreement with Kisak-Kisak, Inc. (KKI) in early 1989, granting KKI an exclusive license to market the program, from which Peiffer received approximately half of the $197,000 in gross revenues.
- In 1992, while bidding on a NASA contract, Peiffer intentionally demonstrated the old, uncorrected .309 version of the program, which contributed to Avtec losing the contract.
- Throughout his employment, Peiffer never represented to Avtec or its clients that he claimed a personal ownership interest in the program.
Procedural Posture:
- Avtec Systems, Inc. sued its former employee, Jeffrey Peiffer, and his business partners in the U.S. District Court for the Eastern District of Virginia.
- Avtec's claims included copyright infringement, misappropriation of trade secrets, and breach of fiduciary duty.
- The defendants filed a counterclaim against Avtec for copyright infringement.
- Following a bench trial, the district court ruled that Peiffer owned the copyright to the program because it was not a 'work made for hire,' and ordered Avtec to withdraw its copyright registration.
- The district court found in favor of Avtec on its state law claims for trade secret misappropriation and breach of fiduciary duty and imposed a constructive trust as a remedy.
- Avtec, as appellant, appealed the adverse copyright ruling to the U.S. Court of Appeals for the Fourth Circuit.
- Peiffer and his partners, as appellees/cross-appellants, cross-appealed the adverse ruling on the state law claims.
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Issue:
Did the district court err in determining copyright ownership by focusing on a later, commercially marketed version of a computer program, rather than applying the 'scope of employment' test to the employee's motivations and the circumstances surrounding the creation of the original version?
Opinions:
Majority - Phillips, Circuit Judge
Yes. The district court erred in its analysis of copyright ownership under the 'work made for hire' doctrine. The proper inquiry is not whether a later, derivative version of a work has a different commercial use, but whether the original work was created within the scope of the employee's employment. Copyright ownership vests at the moment of creation, and the analysis must focus on the facts surrounding the creation of the original work—here, the .309 version. The 'scope of employment' test from the Restatement (Second) of Agency requires a court to determine if the work was (a) of the kind the employee was hired to perform, (b) occurred substantially within authorized time and space, and (c) was motivated, at least in part, by a purpose to serve the employer. The district court's focus on the utilitarian differences between the .309 and 2.05 versions was a misapplication of copyright law, which protects original expression, not its intended use. Because the ownership of the original version is a heavily fact-dependent question that the district court failed to properly analyze, the judgment regarding copyright infringement is vacated and the case is remanded for reconsideration under the correct legal standard.
Analysis:
This case provides critical guidance on applying the 'work made for hire' doctrine to employee-created intellectual property, particularly computer software. The court's decision clarifies that the legal analysis must focus on the creation of the original work, preventing employees from later claiming ownership by creating derivative versions on their own time. It reinforces that an employee's motivation to serve the employer is a key factor, even if work is done off-site. The opinion also highlights the intersection of federal copyright law and state trade secret law, establishing that one cannot be liable for misappropriating a trade secret in a work for which they hold the copyright, as ownership grants the right to publish.
