New Scottish case law on the interpretation of intellectual property agreements

Whoever said that the judiciary lacked practicality or commercial awareness? The recent Scottish case of Profile Software Limited v Becogent Limited suggests otherwise. In this IP dispute, the Scottish Court of Session (High Court) confirm that the commercial intent of parties will not necessarily be overridden by restrictive literal interpretations of IP agreements.

The case arose out of a disagreement over the ownership of certain IP rights.

Whoever said that the judiciary lacked practicality or commercial awareness? The recent Scottish case of Profile Software Limited v Becogent Limited suggests otherwise. In this IP dispute, the Scottish Court of Session (High Court) confirm that the commercial intent of parties will not necessarily be overridden by restrictive literal interpretations of IP agreements.

The case arose out of a disagreement over the ownership of certain IP rights. The facts are worth rehearsing.

The copyright in certain software, namely a computer programme relating to customer relationship management systems (the software was branded as "profile"), was owned by Coranta Corporation Limited, which went into liquidation in July 2001. At that time a liquidator was appointed, whose task it was to realise the company’s assets for the benefit of its creditors. Licences between Coranta and various licensees, allowing restricted use of the software, were ongoing and many of those licensees expressed an interest in purchasing Coranta’s ownership rights in the software. Both Profile’s parent company and Becogent were such licensees. The liquidator duly selected Profile’s parent company as the preferred purchaser, and the following steps were undertaken:

1. Coranta (in liquidation) granted urgent transitional licences to all licensees, to protect their ongoing business interests for a limited period.
2. Coranta (in liquidation) entered into an agreement with Profile’s parent company to sell the agreed assets.
3. Coranta (in liquidation) agreed to assign its rights in the software to Profile.

All of these transactions occurred on 27 July 2001, less than one month after Coranta went into liquidation.

The licence between Coranta and Becogent granted a non-exclusive, royalty free, non-transferable licence in the Licensed Materials (the proprietary and confidential information of Coranta). All copyrights, trademarks and other IP rights of whatsoever nature in the Licensed Materials were to remain the exclusive property of Coranta. Coranta was entitled however to assign its rights in the Licensed Materials.

Missives formed the basis of the agreement between Coranta and Profile to sell the assets, defined as certain computer equipment and IP rights, including IP rights subsisting in the software. Any assets or rights not expressly sold to Profile were to remain the property of Coranta(in liquidation).

The Assignation between Coranta and Profile was of the copyright in the software, subject to pre-existing licences.

Thereafter, Profile fell into dispute with Becogent, alleging breaches under Becogent’s licensing agreement. The argument before the court centred around whether Profile did, in law, have title to sue in relation to the licence, given the restriction in the missives and the fact that the assignation did not expressly assign the various licence agreements. Profile’s interest was not disputed, but Becogent argued that title to sue remained with Coranta (in liquidation). The result of this argument was, however, that Coranta (in liquidation) had title to sue but no interest, having suffered no loss as a result of the alleged breaches.

Lord Kingarth took a practical approach to this problem, holding that it was the clear intention of all three parties that the rights in the licence were intended for Profile. He felt that the terms of the assignation were wide enough to cover, by implication, the rights in the licences (which were in essence copyright licences), as well as copyright rights. He noted the urgent circumstances in which the documentation had been drafted and explained that in the circumstances, the contract as a whole did include the proper conveyance of the rights in the licence to Profile that were enforceable against Becogent. This decision is to be welcomed as a common sense construction of what was an urgent re-organisation of assets and rights on liquidation. However, it also serves as a warning on the risks of insufficiently precise drafting.

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

The original publication date for this article was 28/06/2005.