A recent Court of Appeal decision has illustrated the value of determining the ownership of IP rights in software at the outset of a commercial relationship. In Meridian International Services -v- Richardson, the Court of Appeal held that the contract between the parties did not deal with copyright ownership and the Court refused to imply a term into the contract which transferred ownership of the copyright. This was because it was not necessary to imply a term on the basis of business efficacy.
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Full Article
A recent Court of Appeal decision has illustrated the value of determining the ownership of IP rights in software at the outset of a commercial relationship. In Meridian International Services -v- Richardson, the Court of Appeal held that the contract between the parties did not deal with copyright ownership and the Court refused to imply a term into the contract which transferred ownership of the copyright. This was because it was not necessary to imply a term on the basis of business efficacy.
Background
In 2005 Meridian International Serivces Limited (Meridian) was commissioned by GlaxoSmithKline plc (GSK) to provide them with financial forecasting software. Before contractual arrangements were put in place, Meridian ran in to financial difficulties and became unable to pay its employees. Employees Mr Richardson and Mr Aldersley left to set up another company, IP Enterprises (IPE). Mr Richardson and Mr Aldersley arranged to meet with Meridian, whereupon they agreed that IPE would carry out the software development, with Meridian being paid a percentage of the project cost of £200,000 as a "finder's fee".
Following the meeting, Mr Richardson sent Meridian an e-mail containing the discussed and agreed terms, adding, "This is as I understand the situation as we agreed yesterday – if you do not agree please let me know today". There was no mention of intellectual property rights in the e-mail, and Meridian did not reply.
Issues then arose as to which company or person owned the IP in the software. There was no dispute that Mr Aldersley was the sole author of the software's source code, nor that he had written it while working as an independent contractor for IPE. However, Meridian claimed that it should own the copyright.
Meridian claimed that, at the meeting, it had been agreed as an express term of the contract that Meridian was awarded the copyright. In case the court decided against this, Meridian also claimed that it was an implied term of the contract that they would be assigned the copyright in the software.
The First Instance Decision
Robert Ham QC, sitting as a Deputy High Court Judge held that when framing implied terms, courts must not go any further than what is necessary to make the contract function (i.e. what is necessary for business efficacy). The trial lasted 7 days, during which Meridian offered several arguments as to why the copyright assignment was "necessary". These included the fact that the software contained Meridian's confidential information and their need to prevent IPE from reselling the software.
The Court would not imply a term in to the contract that Meridian was entitled to assignment of the intellectual property rights in the software. It was held that confidential content in the software did not lead to the conclusion that there was an implied term as to ownership of copyright (the law of confidence would provide Meridian with protection), and that there was no "necessity" from both parties' point of view for Meridian to prevent IPE from approaching other customers. The High Court found that IPE was the owner of all copyright in the software.
The Appeal
Meridian appealed the decision in relation to the implied terms. Meridian argued that, on the facts, the implied terms were "necessary for the contract's business efficacy and/or so obvious as to go without saying". Meridian claimed that the High Court had discounted each of Meridian's arguments in relation to necessity and business efficacy, but had failed to consider the cumulative effect of all of the arguments.
The Court of Appeal dismissed the appeal. The Court agreed with the judgment of the High Court, namely that Meridian's arguments only considered 'necessity' and business efficacy from the point of view of Meridian, and not all parties to the contract. The Court agreed that it was difficult to see why Mr Aldersley, Mr Richardson or IPE would all have said "yes of course" when asked by an officious bystander whether a term assigning copyright ownership was intended.
In reply to the argument that the High Court judge had not considered the cumulative effect of Meridian's six arguments in relation to necessity, the Court expressed the view that the judge could not "be criticised for considering the six points on which counsel for Meridian relied individually for such value and force as they might possess if only as a preliminary to considering their cumulative effect. But if their individual value and force is nothing their cumulative effect is also nothing."
Comment
Software developers typically seek to retain copyright and re-use code in subsequent contracts. As a result, the courts have historically found it difficult to imply terms into contracts which assign copyright in software. This is partly because it is unlikely that a software developer would ever have intended such an assignment at the time of contract.
This case highlights the importance of considering intellectual property ownership early on in a new business relationship or joint venture. Once the parties have decided whether a licence or an assignment is appropriate or viable, ownership should then clearly be dealt with in the software development or supply contract.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 17/06/2008.
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