The High Court has refused to imply a term into a software development agreement that copyright in the software should be assigned to the claimant, with the result that copyright was retained by the developer. The court held that there was no need to imply such a term, nor was it obvious to do so. This case illustrates the dangers of failing to deal expressly in a contract with the issue of who is to own copyright in software developed by a contractor. Case: Meridian International Services Limited v Ian Richardson, IP Enterprises Limited and Peter Aldersley.
The author of a work (that is, the person who creates it (section 9(1), Copyright, Designs and Patents Act 1988) (CDPA) is the first owner of copyright in it (section 11(1), CDPA). A software program is a copyright literary work.
Where a person commissions an independent contractor to create a copyright work, ownership of the copyright will vest in the contractor unless there is express or implied agreement to the contrary. A term will be implied into a contract only where it is necessary:
· To give commercial efficacy to the contract; or
· To give effect to the parties' obvious and common intentions.
The claimant, Meridian International Services Limited, was a software developer. The first defendant, Mr Richardson, who used to work for Meridian, was a shareholder in the second defendant, IP Enterprises Limited (IPE). The third defendant, Mr Aldersley, was a computer programmer who had previously worked for Meridian.
In 2005, a division of GlaxoSmithKline plc (GSK) commissioned Meridian to provide financial forecasting software known as StratX. No formal contract was executed at that time. Before any software was written, Meridian ran into financial difficulties. It was unable to pay its employees and contractors. Mr Richardson, who had been a director of Meridian, refused to carry out any further work for it. Mr Aldersley refused to work for Meridian if Mr Richardson was not involved.
At a meeting held in January 2006, it was agreed that Mr Richardson and Mr Aldersley would complete the development of the StratX software for GSK, they would be paid via IPE and that Meridian would receive a percentage of the payment as a "finder's fee". The outline terms agreed at the meeting were set out in an e-mail from Mr Richardson to Meridian; there was no mention of intellectual property (IP) rights. In the e-mail, Mr Richardson asked Meridian to let him know if it did not agree with his account of the meeting. Meridian did not reply.
In April 2006, Meridian signed a contract with GSK (April contract), warranting that it was the owner of all relevant IP rights in StratX. Meridian alleged that a draft contract, containing the same terms as the April contract, had been in existence for some months, but no draft was produced in evidence.
It was not disputed that Mr Aldersley was the sole author of the StratX source code and that he had written this while working as an independent contractor for IPE. Meridian's case was that it was either an express or implied term of the January 2006 agreement that the IP rights would be assigned to it. Meridian argued that it was necessary to imply such a term in view of the provisions of the April contract with GSK; the need to prevent GSK from using the software outside its UK healthcare division; the need to prevent IPE from reselling the software; and the need to allow Meridian to resell it. Meridian also claimed that the software incorporated its confidential information.
Robert Ham QC, sitting as a Deputy High Court judge, dismissed the claim, holding that Meridian could not establish that it had the benefit of either an express or an implied term that it was entitled to the IP rights in StratX, with the result that the defendants had legal and equitable rights in the software. His reasoning is summarised below.
There was no credible evidence that it was an express term of the January 2006 agreement that the IP rights in StratX would be assigned to Meridian. It was unlikely that such an important term would have been omitted from the summary of the January agreement.
The court would not imply a term into the January 2006 agreement that Meridian was entitled to an assignment of the IP rights in StratX, for the following reasons:
· The existence of a draft contract, the terms of which were not known but were still open to negotiation, was an insufficient basis for the implication of a term. It was not so obvious as to go without saying that a term should be implied.
· Meridian's argument that it was necessary to stop GSK using the software outside its UK healthcare division presupposed that Meridian owned the copyright in the software.
· Meridian's other arguments looked at the matter entirely from its point of view and not from that of the other parties to the January 2006 agreement. There was no necessity from their point of view for Meridian to be able to prevent IPE from approaching other customers.
· The fact that the software contained confidential information, if that was the case, did not lead to the conclusion that there was an implied term as to ownership of copyright.
This case illustrates the dangers if it is not clearly established who owns copyright in software developed by a contractor. The parties' failure to have their agreement properly documented resulted in proceedings for an interim injunction (settled on the defendants giving undertakings to the court) and a trial lasting seven days.
The facts of this case can be contrasted with those in Griggs and others v Ross Evans and Others [2005] EWCA Civ 11, where the court was prepared to imply a term assigning copyright in a commissioned work to the party commissioning it . That case concerned the commissioning of a logo, and a term granting an assignment or exclusive licence was implied, primarily because the client needed to be able to enforce its rights against others. In those circumstances, the court's view was that the right to use and protect the logo should vest in the client. This is different from the less clearcut factual situations typically encountered in the context of IT contracts, where software is relatively rarely created entirely from scratch on a bespoke basis, and software developers typically seek to retain copyright and re-use code written for one client in other contracts.
Case: Meridian International Services Limited v Ian Richardson, IP Enterprises Limited and Peter Aldersley, Case No: HC 07C 00712, 18 October 2007 (Robert Ham QC (sitting as a Deputy High Court Judge); James St Ville (instructed by Wedlake Saint) for the claimant, Richard Davis (instructed by Wright Hassall LLP) for the defendants).
