How do you interpret a copyright contract?
The Court of Appeal has upheld a ruling by HHJ Hacon in the IPEC (first covered on the blog here) that copyright in a number of literary works consisting of computer software belonged to the claimant’s employer. The Court of Appeal’s decision is Penhallurick v MD5 Ltd.
At first instance, HHJ Hacon found that (i) all the relevant works were created in the course of employment and that, (ii) in any case, rights were assigned to the employer by a November 2008 agreement.
Interpreting the agreement
The bulk of the Court of Appeal judgment, written by Sir Christopher Floyd, focused on the November 2008 agreement. The agreement, like all contracts, should be construed “on the basis of the objective factual matrix available to both parties at the time the agreement was reached”. The parties’ subjective intentions are not relevant to contractual interpretation.
Looked at objectively, the Court of Appeal agreed with the IPEC judge that the language of the contract covered the assignment of the relevant copyright. As Floyd LJ noted: “it is obvious, in my judgment, that the intent of the document was to operate so as to ensure that the copyright in the VFC software, including any copyright not already so vested, became vested in [MD5].”
The agreement also included the assignment of copyright in any "future" works created after the contract was signed. As Floyd LJ noted:
“It is plain that the agreement contemplated the continued involvement of [Penhallurick] in the development of the software (as indeed happened). It would make no commercial sense at all for the agreement to draw a line in the sand and for future copyrights which would inevitably arise to be vested in [Penhallurick]”
The finding regarding the agreement meant that it was not necessary to consider whether the IPEC judge was correct in his conclusion that the works were created in the course of employment despite the fact that many were created at home - a point of interest in the first instance decision.
There was no objection to an order for delivery up of copies of the software in the appellant’s possession, so a cross-appeal on this point was not assessed.
Role of IPEC
The case had been heard over two days at the IPEC, despite the complexity of both the issues raised and the nature of the evidence. In his judgment agreeing with that of Sir Christopher Floyd, Arnold LJ noted that “the procedures of IPEC are not well suited to resolving substantial factual disputes involving extensive disclosure of documents, cross-examination of factual witnesses and expert evidence”.
With the benefit of hindsight, he said, this case may not have been appropriate for the IPEC. At the very least, the trial estimate should have been increased and the trial adjourned to consider the issues arising out of late disclosure. Whether that is a fair conclusion is hard to tell without being party to the proceedings.
Although Penhallrick, the claimant, may have ultimately regretted his choice of forum, IPEC provides the opportunity for parties, particularly smaller businesses, to obtain a cost effective solution with the security of knowing that the maximum costs liability is £50,000. This may be a fair trade off for many parties.
What does this mean?
As mentioned in our earlier blog post, the position regarding works created by an employee is complex and requires a multi-factorial assessment.
In such situations, the language of any agreement between parties is critical, and trumps whatever a party later claims that it intended. As Sir Christopher Floyd said: “it can often happen that the objective construction of an agreement does not align perfectly with the subjective intention of either party.”
Obtaining specialist advice on drafting an agreement and ensuring that the agreement meets your objectives is therefore essential. IP licensing, strategy and audits are among the services we provide to help individuals and businesses manage IP risks and maximise value.