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Software development agreement did not transfer copyright, rules High Court

A company has failed in its attempt to declare itself the owner of software that it paid another company to develop. The High Court has refused to declare that copyright in the software passed to Infection Control Enterprises Ltd (ICEL).

A complicated agreement was reached between ICEL and Virrage Industries to develop infection control software for hospitals. The agreement was complicated by the fact that Virrage shared a director with Link Information Systems (LIS), a company that had failed to produce the software under a previous agreement with ICEL.

The LIS agreement contained a clause which said: "Title to product passes on full payment of purchase price. At that time, Title, copyright and all other property rights in the Software System shall remain vested in ICE".

ICEL and Virrage came to an agreement on the work, which said: "For avoidance of doubt the specification will be the same as ICEL previously agreed with Link Information Systems unless both parties agree that amendments should be made".

According to the High Court's ruling, ICEL said that this meant that under the new agreement it would own the copyright in the resulting software.

"ICEL says that, although there is no reference in the Agreement as to who was to hold the relevant intellectual property rights, it is to be inferred from the overall background that copyright in the software that ran the system was at all times to be vested in ICEL," said the ruling.

"The Defendants assert that, even where a work the subject of copyright is commissioned, the copyright is vested in the author(s) of the work, unless there is an express agreement to the contrary or such an agreement arises by necessary inference," said the High Court judgment, by Judge Chambers QC. "To the extent that inference is relied upon, the exercise involves considering the situation not only from the viewpoint of the person asserting that copyright has passed but also that of the person(s) from whom such a right is said to have passed."

"It is said that, to the extent that any right is shown to have passed by necessary inference, such a right will only be the minimum required by the inference. Thus, if a licence is enough to meet the inference, there will be no presumption that ownership has passed or will pass," he said.

The Court rejected the suggestion that two Virrage directors, rather than the company, owned the software.

ICEL told the High Court that though no mention was made in its agreement with Virrage of the copyright passing to it, it was "so obviously the understanding between the parties that no mention needed to be made".

The High Court disagreed. "As more than one sale is contemplated, there is not to be a transfer of the ownership of the copyright when a sale is made," said the ruling. "In order to make the 'sales' ICEL will not need to have ownership of the copyright: a right to sub-licence will be just as efficacious."

The ruling said that a clause of the agreement did establish that if the software was completed and was sold outright by ICEL, copyright would pass to it so that it could be sold on, but that this situation did not arise.

"I find that there was no term in the Agreement to the effect that ICEL either had or was to have ownership of the copyright in the software before there was an agreement for its sale to a third party," said Judge Chambers. "In particular, I find that the Agreement did not provide for ICEL to have ownership of the copyright in the software before it had been paid for unless there was an agreement for the sale of the software that provided for such payment."

The ruling is presently available online at Casetrack.com and the Practical Law Company, each of which requires a paid-for subscription. The case is Infection Control Enterprises Limited v Virrage Industries Limited and Aidan Cartwright, [2009] EWHC 2602 (QB).

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