Foundation Group works with thousands of nonprofits each year, so we get the opportunity to deal with many complex issues. Few are as complicated and confusing as copyright and royalty questions. The goal of this post is to give you ideas of how best to deal with your intellectual property concerns.
Intellectual property is difficult to understand in the best of circumstances. That’s why there’s a whole area of law specializing in the area. It’s only made more difficult when you throw in conflict of interest concerns. However, as a creator, you need to understand your options, even if the intellectual property involves a nonprofit. To best simplify the complexities, we’ll illustrate a fictitious example condensing very common, very real scenarios. If you stick with us, by the end of this article the mud will be a little clearer.
Jane Doe is Executive Director of Money University, a 501(c)(3) organization that teaches people the principles of money management. Jane is not only Executive Director, she is a founder, board member, and the primary instructor. Jane is also an author who has written two books about personal finance. The board believes her books, which were authored prior to the formation of the nonprofit, are a good fit to be sold by the organization to support its teaching program. There are also plans to have Jane create curriculum.
There are two parts to the intellectual property concerns and how to approach them. The first is for the books Jane had already written prior to the nonprofit’s existence that the nonprofit plans to sell. The second part is the curriculum Jane will develop to be used in the classes as part of the nonprofit’s programs. We will review how to approach both situations.
The two personal finance books are Jane’s intellectual property. She owns the copyrights because she had already written the books prior to the nonprofit’s existence. They are perfect supplements to the nonprofit’s program, but Jane has a rather obvious conflict of interest. How can the nonprofit take advantage of these resources without it resulting in unfair benefit to Jane? Let’s examine some options and their impact on the situation.
Jane gifts the copyrights to the nonprofit. This is probably the easiest way to go, but not necessarily the best for Jane. The conflict of interest problem goes away, but Jane no longer has rights to her works. If she and the organization ever part ways, she cannot simply reclaim the copyrights, nor can the nonprofit give them back to her.
Jane sells the copyrights to the nonprofit. Possible, but problematic. Because of the conflict of interest, Jane can have no direct involvement in the decision of the board to buy the works. That’s difficult considering she is such a key person. Valuation would require an independent appraisal, which Jane would have to agree to. Plus, it isn’t really plausible that Jane would not have been involved in the board discussion of the sale. This rarely works.
Jane keeps the copyright and donates wholesale copies of the books to the nonprofit. Now we’re getting to what can work, but even this can be a mess. Jane may not be able to afford to cover the cost of the inventory to donate.
Jane keeps the copyright and sells wholesale stock to the nonprofit. This scenario can work, but because of the conflict of interest, Jane cannot profit from this. That necessitates selling at cost. Even here, we may have yet another problem. If Jane self-publishes, she may have direct control over wholesale distribution. If Jane is working with a publisher, she may not have direct control, making this arrangement difficult or impossible.
Jane keeps the copyright and allows the nonprofit to buy wholesale directly from the publisher (or print-on-demand service). This is similar to Option 4 but bypasses Jane. This is often a good way to go but not always possible.
To confuse matters further, the issue of royalties comes into play. If Jane has a publishing and distribution contract, she may earn royalties with wholesale and/or retail sales. Conflict of interest rears its head again because Jane cannot profit from these transactions. There are creative arrangements that can be employed, including contractually donating royalties back to the nonprofit or having the publisher forward royalties from organizational sales directly to the nonprofit.
It’s a lot to consider!
Now let’s look at the issue of intellectual property that doesn’t yet exist but instead is being commissioned by the nonprofit. It is essential that all parties be deliberate about the arrangements. Without an agreement to the contrary, the copyright ownership defaults to Money University. The reason is that Money U. commissioned the work. This tends to be the most common situation.
But what if Jane really believes that she deserves to retain the rights to the work she creates, even if it is commissioned? It is certainly a fair stand for Jane to take. She will invest many hours into its creation. But given the obvious conflict of interest, how should this be handled?
Unlike pre-existing content, there are not a lot of options here. The best scenario would see Jane sign an agreement with the board that allows her to retain the copyright and give Money U. a license to use the curriculum in its classes. It is important to mention that Jane would need to recuse herself from board action regarding this agreement. The license may or may not be exclusive. In any event, Jane should not be paid for creating the materials, nor should she expect to receive any royalties from Money U. Ideally, Jane should not be writing on the clock, seeing as she will be the ultimate owner of the material.
Another question we are often asked is whether or not the license agreement should be time-limited. There is no right answer. Practically speaking, it just makes sense to put a sunset date on the license. It can always be extended. Another caveat we’ve occasionally seen put into such a license agreement is an automatic revocation in the event Jane is involuntarily terminated by Money U.
As you can see, this is an enormously complicated issue… and one that we deal with almost weekly. This discussion barely scratches the surface of the possibilities. Issues of intellectual property, copyrights, and the conflict of interest that can come along with it are very complex. Failure to appreciate that complexity and the need for deliberate action regarding it could be very costly, both to the creator and the nonprofit.
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