The Waterfront Partnership

Contradictory approaches to implied assignment?

 

(This article was first published in Copyright World, October 2005)

In summary

• The recent decision in Clearsprings appears to contradict the April ruling in Dr Marten

• It is not easier to get a court ruling of implied assignment, but Griggs managed it in Dr Marten, so why did Clearsprings fail in its case against BusinessLinx

• The two decisions are not contradictory, but rather use the commercially focused test of what is necessary to  allow a company to carry out its business effectively

Regular readers of Copyright World may remember the recent article regarding the Dr Marten case reported in the April 2005 edition. In that matter the court found there to be an implied assignment in favour of the Claimant, R Griggs Ltd & Ors (Griggs). Griggs commissioned freelance graphic designer Mr Evans to create a new combined logo on a fee for service basis. The courts are traditionally reluctant to imply terms into contracts, preferring of course that the parties retain the responsibility for including all their appropriate terms expressly. It is for this reason that the implied assignment of copyright held to exist in the Dr Marten case may have sent a shudder of discomfort down the spines of those companies or individuals whose livelihood depends upon exploitation of its copyright.

However, there is no need for undue alarm! The recent decision in the Clearsprings[1] case demonstrates that the outcome of Dr Marten has not permeated every field of copyright. Indeed Clearsprings helps to highlight that the Dr Marten finding, far from being a rule of general application, is limited to a strict interpretation of the law on very specific facts.

This article aims to provide an overview of the Clearsprings case, drawing comparisons and making distinctions between it and the Dr Marten ruling.

The case

Clearsprings Management Ltd (CSM), incorporated in 1999, provides accommodation and related services to asylum seekers. Its main source of income derives from a contract with the National Asylum Support Services, under which it is required to, amongst other things, report information regarding the occupation of the accommodation to the Home Office.

At the outset CSM used a computer system called Sheraton to manage the information required. They swiftly recognised though that there was a need for the system to be developed beyond its then current limitations. It approached BusinessLinx Ltd (BL) (formerly trading as Access2.co.uk) to discuss the necessary software development.

CSM had retained consultants, Omnibridge, who were required to supply information to BL regarding CSM’s business practice. BL were to write the software to enable CSM to carry out its business as instructed by Omnibridge. The first part of the work was carried out on a fixed price basis, but as the project developed the parties agreed that BL would continue to be paid on a time and materials basis. The end result of BL’s work for CSM was the development of the software solution which became known as CMIS (Clearsprings Management Information Systems).

CSM contended that it was made explicit to BL, in discussions prior to the commencement of the work, that the intention was to make CMIS available for sale on the world market. It supported this contention by stating it had shown a diagram to BL of the organisation of CSM’ business, such diagram consistent of a box containing the words “C.S. Operations Co. Governments (H.O). The World Market E.T.C” they further contended that at various meetings between the parties during May and June 2000 CSM had expressly stated its intention to sell the end product software to third parties.

Mr Christopher Floyd QC, sitting as a deputy High Court Judge in this matter, found that the contract itself was set out in a letter which outlined the nature of the various software modules BL was to develop. The contract contained no reference to copyright ownership.

Implied rights

CSM argued that there existed an implied contractual term that BL would assign to CSM existing and future copyrights in CMIS. They also pleaded, in the alternative, that an implied licence existed on the following basis:

1)      CSM had a licence to use the software;

2)      the licence was perpetual and irrevocable;

3)      the licence was exclusive;

4)      the licence was royalty free;

5)      CSM would be free to repair, maintain and upgrade the software;

6)      CSM would be able to grant sub-licences.

BL never disputed that a licence existed between itself and CSM. Its view was that a licence was granted to CSM to use CMIS within its business on a perpetual and irrevocable basis. In essence the dispute regarding the terms of the licence surrounded only points three and six above.

The Copyright Designs and Patents Act 1988 s. 11 (1) is clear – at first glance – with regard to the ownership of copyright. It states that the author of a work is the first owner of any copyright in it, subject to any agreement to the contrary.

Of course the phrase “subject to any agreement to the contrary”, whilst crucially allowing copyright owners the freedom to dispose of their rights as they so choose, has allowed a body of case law to develop surrounding equitable ownership of copyright and implied contractual terms. In particular, in instances where one party utilises the services of a third party contractor. Lightman, J in Robin Ray v Classic FM PLC[2] gives a comprehensive review of the current legal position. It would be inappropriate to provide a detailed analysis of this here, but these key points below summarise the position with regard to imputing an implied term into a contract.  Such term must:

1)      be reasonable and equitable;

2)      be necessary to give business efficacy to the contract;

3)      be so obvious as to ‘go without saying’;

4)      be capable of clear expression;

5)      not contradict any express term of the contract[3]

In Clearsprings the court found in favour of BL, ruling that as the author of the work it was the first owner of the copyrights in CMIS and that there was no implied agreement to the contrary, by assignment or otherwise. The act of commissioning BL to carry out the work on behalf of CSM was insufficient to entitle CSM, as the commissioner of that work, to ownership of the copyright.

Having found BL to be the rightful owners of the copyright the court went on to state that an implied licence did exist. The licence contained terms that many practitioners in the copyright arena may well anticipate or at least would feel reasonably comfortable with. The terms of such licence were held to be that:

1)      CSM shall be granted a licence to use the software;

2)      the licence will be perpetual and irrevocable;

3)      the licence will be royalty free;

4)      CSM will be free to repair, maintain and upgrade the software; and

5)      BL shall be prevented from making use of CMIS as a whole by further licence or sale.

There was held to be no implied exclusivity. This lack of exclusivity is consistent with the finding that there was no implied assignment, since the granting of an exclusive licence to the copyrights in CMIS would mean that BL would not themselves be able to make use of the underlying source code for its own purposes.

The fifth licence term above is consistent with common practices in the software industry. It recognises that whilst software developers routinely re-use the same lines of code in different software applications, the code of “bespoke” applications which are developed for an individual client and contains information or routines specific to that client is not generally re-used in its totality for other clients.

Griggs, in the Dr Marten case, asserted its right from the outset to the assignment of the copyright in the logo. The Claimant in that matter did not raise the alternative implied licence argument.  Not surprisingly both the court of first instance and the Court of Appeal  also applied the test as set out by Lightman, J (above) to the issue of copyright ownership.

Prima facie the Dr Marten and the Clearsprings cases look broadly similar. Both cases involve one party commissioning another for work on a fee for service basis. The defendants in both matters were given detailed instructions as to what was required by or on behalf of their clients and both delivered the works in accordance with such instructions. However, in the Dr Marten case the court found there to be an implied assignment.

This apparent disparity existing between the findings reached in these actions predictably set the legal hares running, it may have equally sounded alarm bells for all those who seek to commercially exploit their copyright. So are there significant differences between the cases and is the court’s application of the law consistent? The answer to both these questions is yes. There are many factors within these two cases to distinguish them from each other despite the apparent similarities of the legal aspects.

Similarities and differences

The Dr Marten case concerned copyright subsisting in a logo. The logo was based upon two separate existing designs. The copyright for each of those designs, which featured the words “AirWair” and “Dr Martens”, was owned by Griggs. Mr Evans, the first defendant, was commissioned by Griggs through an advertising agency to combine the logos and in so doing created a new artistic work capable of protection by copyright.

BL created CMIS, a new software product tailored to the needs of its client, such software was also capable of protection by copyright.

Mr Evans was paid £15 per hour for creating this logo on behalf of the Claimants in the Dr Marten case. Conversely BL were paid the sum of £30,000 for CMIS.

A key factor in both these cases revolves around the “necessity” of where copyright ownership should lie to enable the parties to carry out their business. Jacob LJ in the Dr Marten case raises this question in his judgment: “given that Parliament vests the first ownership in the author, is it sensible that the parties intended that to remain the position?” The court looked at the nature of the contract and the “work” in question and Jacob LJ concluded that “If an officious bystander had asked at the time of contract whether Mr Evans was going to retain rights in his combined logo which could be used against the client by Mr Evans (or anyone to whom he sold the rights) anywhere in the world, other than in respect of point of sale material in the UK, the answer would surely have been “of course not.”. Mr Evans had in fact attempted to sell the rights to the copyright to a competitor of Griggs and this had led to the commencement of the action against the defendants.

It is also notable that both “AirWair” and “Dr Martens” are registered trademarks (both the word and logo mark in respect of AirWair) and therefore any commercial use of the new combined logo by a third party would have been an infringement of Griggs’ registered trademark rights (provided such use occurred within a territory in which a trademark was registered). The court looked at all the issues in hand and came to what is generally held to be the correct and common sense conclusion; that in matters such as these it is necessary that the copyright vests with the registered trademark owner.

This may seem a harsh result to some observers, given the low level of remuneration received by Mr Evans even in comparison with the BL case. It may in fact be that the level of remuneration could be relevant and persuasive to the court in matters of this nature. It is however clear from the transcripts of the judgments of the Dr Marten case that Mr Evans was not minded to bargain for a higher price for his work as he had not sought to make any enquiries in advance of agreeing to do the work regarding its potential marketability and value of the logo. The judgment states further that the mere combining of the original logos, whilst requiring skill and labour, was a relatively “mundane work” so that the commercial value arose not from Mr Evans skill and labour but from the continued marketing of an already successful brand. Both these factors would have been persuasive to the court of the fact that Mr Evans had actually been appropriately remunerated for his services.

So, the question is, if an assignment of copyright was held to exist in the Dr Marten case why was only an implied limited licence found in Clearsprings? A number of the points already mentioned above go some way to answering this question but there were also some additional evidential issues. Mr Christopher Floyd QC was not enamoured of two of the Claimant’s witnesses, finding one not to be a “convincing or reliable witness” and the other rather “over-emphatic”. This is to be contrasted with his views of the main witnesses for BL whom he found to be both “truthful and fair witnesses”. The importance of credible witnesses should never be underestimated!

Ultimately the court held that an implied licence existed on the terms set out above because that was what it deemed was necessary to allow CSM to continue to carry out its business effectively. The court found that if the parties had at the outset, or at any time during the continuation of their relationship, agreed that the software product developed by BL would be available to CSM for sub-licensing terms would have been discussed and arrangements made for further payments to BL in the event of any sub-licensing.

In order for CSM to receive the intended benefit of the CMIS system it was not necessary for more than the limited licence that was implied into the contract to be granted to CSM.

Confidentiality

The final point in the Clearsprings case relates to the law of confidentiality. This issue did not arise in the Dr Marten case. The basic rules in the law of confidence are set out in Coco v A N Clark (Engineers) Ltd (1969) RPC 41 and state that to benefit from the protection afforded by the law of confidentiality, information must be imparted in circumstances of confidence. The quality and nature of confidence and trade secrets has been discussed and expanded upon greatly in subsequent case law but suffice it to say for these purposes that BL were happy to acknowledge it was under an obligation to keep CMIS confidential. They appreciated that “it would be against conscience to sell a system which embodied CSM’s management procedures to a third party”. Mr Christopher Floyd Q.C felt this protection was adequate.

Although the outcome of both cases appears contradictory these conclusions were reached by the court following the clear guidelines set out by Lightman, J. The cases are distinguishable on their facts and the behaviour of the parties involved. We shall have to see whether, in similar cases in the future, those cases regarding logo designs for trademark owners are decided as per Dr Marten and those regarding software development as per Clearsprings. However, the consistent application of the law and clear guidance given by the courts, as has been in both these cases, is of course good news for all involved with the commercial exploitation of copyright. The key learning point from both matters is, to repeat a much favoured lawyers mantra: get the contract in writing at the outset!

Carole Hailey and Juliet Nutland 

Waterfront Partnership