If you’ve worked in the videogame industry for any length of time, you’ve undoubtedly come across legal language similar to this:
In a videogame contract, Work Made for Hire is a means of clarifying the intellectual property ownership of whatever creative work is being developed between the parties. In the context of a videogame publisher-developer relationship, it is used to ensure that the publisher owns developer-created assets and game content. As a developer, when you see Work Made For Hire in your contract, you should be thinking, “What intellectual property rights did I just give up?” And the answer, most of the time, is that you’ve given up all your intellectual property rights.
In a videogame developer-independent contractor relationship—a 3D artist working on subcomponents of a game, for example—the same principle applies. If Work Made for Hire appears in your developer-contractor agreement, then the developer is expressing a desire to own and exclusively control the work that an independent artist is creating.
So What Happens When There Isn’t a Work Made for Hire Contract or Provision?
Technically, Work Made for Hire is a contractual clarification of the relationship between the parties. If you’re an artist, musician, programmer, or designer, but not an employee, and you’re either a) working without a written agreement altogether, or b) there isn’t a Work Made for Hire provision in your agreement, then its likely that you’ve retained your intellectual property rights, despite being paid to create them.
How can this be true?
Under U.S. Copyright law, artistic creations—whether art, music, programming code, or game designs—vest to the creator, unless a work made for hire arrangement has been agreed.
What surprises many is that the act of paying for a creative work doesn’t automatically give the payor the intellectual property rights of the creator.
This idea is codified in Section 101 of Title 17 of the United States Code:
A “work made for hire” is—
(1) a work prepared by an employee within the scope of his or her employment; or
(2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.
Understanding Category 1 – Work Created by an Employee.
In unraveling the language in Number 1 above, it’s clear that work created by an employee is work made for hire. As such, the employer owns the underlying intellectual property rights. But the trick is in figuring out whether a binding employer-employee relationship exists. And that’s where things get more complicated.
Under copyright law, the term employee is broader than what most people assume.
As an example, let’s assume that you’re the employer, and you’ve hired someone to create 3D art for your new game.
To determine whether they are an employee under copyright law, we have to examine the nature of the relationship as codified in a U.S. Supreme Court case, Community for Creative Non-Violence v. Reid: 
1) Do you, the employer, have control over the work? Do you determine how the work is done? Is the work done at you location or does the artist create their work offsite? Do you provide equipment or other means for the artist to create their work?
In our example, the artist works from home, but comes in your office once a week to pick up their check and show you their progress. Theyuse their home computer and their own personal copy of Maya (graphics software). You only provide general direction over their work.
Not withstanding other considerations, the artist probably owns the art they create, and your rights are limited either to a non-exclusive license to use it, or a claim that it’s a jointly owned work, giving both parties equal intellectual property rights.
2) Do you control the artist’s schedule? Can you assign other tasks to them?
In our example, the artist works on a schedule they alone determine (provided they hit their milestones), and they have the right to refuse additional work from you.
As was true in the prior illustration, not withstanding other considerations, the artist probably owns the art they create, and your rights are limited either to a non-exclusive license to use it, or a claim that it’s a jointly owned work, giving both parties equal intellectual property rights.
3) Do you provide the artist with health insurance and other benefits? Do you withhold tax?
In our example, you pay the artist a set fee, and you don't deduct taxes or provide health or retirement benefits.
Just as it was true in the prior two illustrations, not withstanding other considerations, the artist probably owns the art they create, and your rights are limited either to a non-exclusive license to use it, or a claim that it’s a jointly owned work, giving both parties equal intellectual property rights.
Note that the factors above (called the Reid factors after the precedent case) are not conclusive or exhaustive in determining whether an employer-employee relationship, but they are indicative of whether you’re treading dangerous water.
Understanding Category 2 – Work Created in One of Nine Enumerated Categories.
In addition to the employer-employee test discussed in Category 1, copyright law specifies that if a work is included in one of nine categories (a collective work; a part of a motion picture or other audiovisual work; a translation; a supplementary work; a compilation; an instructional text; a test; answer material for a test; or an atlas) then a written instrument signed by both parties is required for that to be considered a work made for hire.
For simplicity sake, I’ll narrow our discussion to two common problems in the videogame industry.
1. A videogame, as a whole, is considered an audio-visual work under copyright law.  As such, it is included in the nine categories (audio-visual), and unless there is a work made for hire agreement, signed by both parties, then the work still belongs to the creator.
2. The computer code underlying the videogame is considered a literary work under copyright law.  As such, it is not in included in the nine categories, and without an agreement in place, it falls outside the statute. In other words, the programmer owns the work.
There are other ways of proving ownership—a common law argument, as given in the Reid case—but enforcing these arguments is costly and risky. As such, it’s always better to clarify the relationship before the work begins.
So the bottom line is this:
If you’re an independent artist, programmer, musician, or designer, pay attention to the work made for hire provision in your agreement. You may be giving up more than you intended.
If you’re a publisher or a developer hiring independent artists and programmers, and you want to own the intellectual property they create, then you need a work made for hire provision in your agreement. Without one, you probably own less than what you think.
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 In a precedent U.S. Supreme Court case, Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989), the Court concluded that “In the past, when Congress has used the term "employee" without defining it, we have concluded that Congress intended to describe the conventional master-servant relationship as understood by common law agency doctrine.”
 Stern Elecs., Inc. v. Kaufman, 669 F.2d 852 (2d Cir. 1982).
 Williams Elecs., Inc. v. Artic Int'l, Inc., 685 F.2d 870 (3d Cir. 1982).