Legal Definitions - instance and expense test

The instance and expense test is a legal standard used by courts to determine who owns the intellectual property rights to a creative work, particularly when an independent contractor or freelancer creates it for another party. This test helps clarify whether a work qualifies as a "work made for hire," which means the hiring party, rather than the creator, automatically owns the copyright.

The test involves two main components:

• Instance: This refers to the extent to which the hiring party initiated, guided, or had the authority to supervise the creation of the work. If the hiring party provided the reason for the work, participated in its creative direction, or had the power to oversee its development (even if they didn't always exercise that power), it strongly suggests the work was made at their "instance." Conversely, if the creator developed the work primarily on their own initiative, it weighs against meeting this part of the test.
• Expense: This component examines whether the hiring party provided the resources for the work's creation. Typically, paying a fixed, lump sum for the completed work satisfies this part of the test. If the creator is compensated through royalties (a percentage of future sales) or a profit-sharing arrangement, it generally indicates that the work was not made at the hiring party's "expense" in this context.

If a hiring party can demonstrate that both the "instance" and "expense" criteria are met, they are generally considered the owner of the work's intellectual property rights, unless there is a specific written agreement stating otherwise.

Examples:

• Custom Software Development for a Tech Startup:

  A new tech startup hires an independent software developer to build a unique mobile application for their business. The startup provides the developer with detailed specifications, user interface mock-ups, a list of required features, and regular meetings to review progress and provide feedback. They pay the developer a fixed project fee upon completion of the app.

  • How it illustrates the test: The startup's clear instructions, detailed requirements, and ongoing supervision demonstrate the "instance" prong. Their payment of a fixed project fee, rather than royalties based on future app sales, satisfies the "expense" prong. Therefore, under this test, the startup would likely own the copyright to the mobile application.
• Architectural Blueprints for a Commercial Building:

  A real estate development company commissions a freelance architect to design the blueprints for a new office complex. The company provides the architect with a specific budget, desired square footage, number of floors, aesthetic preferences, and zoning requirements. They also review preliminary designs and request revisions throughout the process. The architect receives a flat fee for the completed set of blueprints.

  • How it illustrates the test: The development company's detailed brief, specific constraints, and active involvement in the design review process fulfill the "instance" requirement. The payment of a flat fee for the blueprints, rather than a percentage of the building's future rental income, meets the "expense" requirement. This suggests the development company would own the copyright to the architectural plans.
• Corporate Training Manual Creation:

  A large corporation hires a professional writer to create a comprehensive training manual for its new employee onboarding program. The corporation provides the writer with existing company policies, specific learning objectives, brand guidelines, and access to subject matter experts for interviews. They also have several rounds of edits and final approval over the content. The writer is paid a set amount for the entire project upon delivery of the final manuscript.

  • How it illustrates the test: The corporation's provision of source material, clear objectives, and editorial control demonstrates the "instance" aspect. The payment of a fixed fee for the completed manual, rather than ongoing royalties from its use, satisfies the "expense" aspect. Consequently, the corporation would likely own the copyright to the training manual.