Introduction
In the absence of express agreement, the author of a commissioned work is the first owner of the copyright in it, although circumstances may exist which necessitate an implied assignment of copyright, or an exclusive licence to the client.
The High Court’s recent decision in Clearsprings v. BusinessLinx and Hargreaves illustrates the difficulty of implying terms of ownership or exclusivity into a contract for commissioned works such as computer software. It also serves as a dual warning: to clients that the mere fact the software is bespoke does not mean that they own the copyright; and to software developers that although they may own the copyright, they will not necessarily be able to exploit the software without the consent of their client.
Facts
The Claimant, Clearsprings Management Limited ("CM") provides accommodation and other services to asylum seekers. CM is required to report information to the Home Office, such as dates of arrival and departure from the accommodation.
In 2000, CM identified BusinessLinx Limited ("BL"), a small software development company, as a suitable contractor to develop a web-based database system. Around this time BL had developed a number of packages in the programming language "ASP". BL’s packages featured generic modules, such as a report generator, which could be used to provide lists of specified filtered data, a module BL later incorporated into CM’s system.
In the absence of any other contractual documents, BL’s fixed price estimate of £30,000 was found by the court to be the contractual basis of BL’s and CM’s relationship. Although the estimate identified the modules to be developed, it contained no mention of copyright.
As the project advanced, it was agreed that for future work, BL would invoice CM on a time and materials basis. CM provided information as to the business practices and requirements of CM, and BL wrote the necessary software to do what CM wanted. The system created became known as CMIS (Clearsprings Management Information System). CM’s total payments for CMIS exceeded £1m.
CM argued that it was an implied term of the contract between CM and BL that CM would own by assignment, or at least have an exclusive licence under, the copyright in CMIS. BL accepted that CM had a licence to use CMIS in its own business. However, BL argued that any assignment of copyright / exclusivity was not necessary and would not give business efficacy to the agreement, as it would restrict BL from making use of the generic code incorporated in CMIS (e.g. the report generator).
Although BL claimed to be owners of the copyright in CMIS, at the first day of trial BL conceded that it was not entitled to sell or license CMIS as a whole to third parties. BL accepted that CMIS incorporated information about the specific business practices of CM, and that in these circumstances it would be unconscionable for BL to sell CMIS as a whole to one of CM’s competitors.
Law
As a computer programme, the CMIS system is protected as a literary work under s.3(1)(b) Copyright, Designs and Patents Act 1988 ("CDPA"). s.11 CDPA provides that the author of the work, in this case BL, is the first owner of the copyright in it.
In the absence of any express agreement, CM argued that it should be implied that BL would assign ownership of copyright, or alternatively that CM had an exclusive licence to use CMIS. The law governing the implication of terms when considering the rights of the contractor and client in commissioned works was summarised in Robin Ray v. Classic FM PLC [1998] FSR 622, as approved by the Court of Appeal in Griggs v. Evans [2005] FSR 31.
The courts adopt a "minimalist approach". Circumstances may exist where there will be implied into the contract a term obliging the contractor to assign copyright to the client. However, where the circumstances do not justify the implication of an obligation to assign, the law will only require the implication of a licence, and only upon such terms as are necessary to give business efficacy to the contract.
Findings
The court noted that it was "common practice amongst software developers to re-use quantities of code written for one client in one application in writing a similar or related application for another client. The quantity of code so taken could range from a single line of ASP to a short routine".
The court explained that an "exclusive licence under the copyright carries with it not just the rights in the respect of the whole work, but the rights in respect of any substantial part". Therefore if CM was found to have an exclusive licence (or ownership of the copyright) "the effect would be to exclude BL from using routines which it wrote in CMIS (if they amount to a substantial part of the copyright)" which are of general applicability to BL’s business. This the court could not accept.
The court justified its finding by applying the officious bystander test. If asked "can BL use the developed routines in future projects?" the court took the view that the officious bystander’s response would be that it would depend; "obviously BL should not do so if the routine would make use of CM’s own operating procedures. But otherwise of course they should be free to do it." This result does not give rise to the exclusivity which CM sought.
To reconcile this finding with BL’s concession that it could not exploit CMIS as a whole, the court concluded that "there must be an implied term preventing BL from making use of the CMIS system as a whole by, for example, selling it to a third party".
In the alternative, the court held that "there is no need to imply a term about copyright, because the law of confidence is adequate to protect CM from misuse by BL or others of the information supplied by CSM to BL about their procedures."
The court concluded that "BL’s recognition that they could not sell CMIS as a whole to third parties is based on its appreciation that it would go against conscience to sell a system which embodies CM’s management procedures to a third party. The sum total of what was disclosed to BL in the course of the contract amounts to a substantial body of information: it would be plainly wrong for BL to disclose this information to third parties." In applying a minimalist approach to the implication of contractual terms, the court held that in this case the protection offered by the law of confidential information "is adequate for the purpose" of protecting CM, and there was therefore no need to imply ownership or exclusivity.
Comment
Both software developers and their clients should give careful thought to the ownership of copyright in commissioned software developments at the outset of their relationship.
The courts will adopt a minimalist approach when considering which terms it should imply. In cases concerning software development, with the accepted industry practice of re-using code, routines and modules for different clients, it will be particularly difficult for a client to establish that outright ownership, or exclusivity, should be implied.
However, in circumstances where the programme in question incorporates a substantial body of the client’s confidential information, the court may be willing to imply a term into the contract, or rely on the law of confidential information, so as to prevent the developer exploiting the work as a whole, notwithstanding that the developer owns the copyright. In such circumstances, following the breakdown of a relationship between developer and client, both parties could end up in the position that neither is able to exploit the commissioned work without the consent of the other.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
