The Court of Appeal recently gave judgment in this case, largely supporting the conclusions of the trial judge last year. The case deals with the much-litigated subject of copyright ownership in a commissioned work. The general law, as is well known but unfortunately often ignored, is that the author of a work (and not the commissioner) owns the copyright, subject to there being no written agreement to the contrary (Copyright, Designs and Patents Act 1988, s 91). The author is the person who creates the work. Disputes often arise when the parties fail to document the agreed position. Here, the dispute arose simply because the written agreement was inadequate.
The facts of this case arose from research by Sheffield University (“Sheffield”) into creating a computer-based database (“Simcyp”) which compares the interactions in the human body of pairs of drugs taken in combination. The software had originally been developed at Sheffield using MathCAD, a computer language which is not commercially exploitable. As it was itself incapable of funding a version capable of being marketed, Sheffield recruited sponsors to assist in developing the software into a package written in Java. Whilst some sponsors provided cash funding, Cyprotex “sponsored” Sheffield by providing expertise. The programmer (a Dr Edwards) was employed by Cyprotex and supplied to Sheffield to write the Java version. Both parties always intended to enter into a Research Agreement (“the Agreement”). However, this was not actually signed until 21 December 2000, well after work commenced on 12 June 2000. Cyprotex ceased work on the project when relations broke down between the parties, with Sheffield asserting its right to exploit the software which had been developed.
Three factors contributed to the dispute. First, the Agreement was entered into after work had started. Secondly, Cyprotex did not exist when the parties entered into the Agreement. Lastly, and most importantly, the Agreement was vague as to ownership of IPR.
The Formation of the Agreement
Sheffield argued that prior to the last signature being added to the Agreement, a separate informal contract existed, under which Cyprotex agreed to supply the programming services of Dr Edwards. Cyprotex insisted that there was no such informal agreement and instead that the Agreement had retrospective effect; indeed, an entire agreement clause supported this. Judge Thornton QC at first instance held that both parties had assumed that work done by Cyprotex prior to entering into the final Agreement was part of Cyprotex’s obligation under the Agreement. Retrospective contracts can be effective and, as this was the intention of both parties, the whole project between Sheffield and Cyprotex was governed entirely by the Agreement. The date of the Agreement was intended to be the start date of the Programme of Research as well as the date when the Agreement became effective.
Although Cyprotex had not been incorporated at the date it was signed, the judge found that Cyprotex was a party to the Agreement. Initially the person who signed on behalf of Cyprotex was personally liable because Cyprotex did not exist (Companies Act 1985, s 36). Upon incorporation, an implied novation of the Agreement occurred in favour of Cyprotex because both parties acted as if Cyprotex was the contracting party.
In the end, the Agreement was full of problems. One was the assumption that sponsors would provide cash as consideration. Another was that it was drafted as if Sheffield would employ the programmer, whereas in reality Dr Edwards was employed by Cyprotex and his services were provided as sponsorship.
Due to the Agreement’s inadequacies, the judge eventually had to construe the contract on an artificial basis. Before doing so, however, he considered the IPR position under general law.
Ownership of IPR
The findings of the judge at first instance on the issue of IPR ownership under the general law were not challenged in the appeal. Sheffield did not seek to show that it owned the copyright outright. However, Sheffield did try to argue that it was joint author of the Java program. Judge Thornton QC held that the original MathCAD element of the developed programme was insignificant and was used by Cyprotex purely as a technical aid. This was an application of the principle enunciated in Fylde Microsystems Ltd v Key Radio Systems Ltd [1998] FSLR 449 that the issue is whether the contribution the party makes amounts to ownership. In that case Laddie J said: “In relation to authorship, it seems to me that two matters have to be addressed. First it is necessary to determine whether the putative author has contributed the right kind of skill and labour. If he has then it is necessary to decide whether his contribution was big enough. The latter issue in particular is a matter of fact and degree.”
In this case Judge Thornton QC said the kind of skill and labour provided did not give Sheffield joint authorship or, therefore, a right of ownership. It was technical advice given in the interests of Sheffield ensuring that the programme would function as it required. Dr Edwards had worked entirely on his own in creating the programme and was advised by Sheffield only in relation to the specifications.
Therefore the author of the Windows-based program would be Cyprotex alone unless there was agreement otherwise. The terms of the Agreement were intended to decide this issue. The problem was that both parties thought the Agreement was in their favour.
Ownership of IPR under the Agreement
Clause 9(c) provided that all “Resulting Intellectual Property” under the Programme of Research belonged to Sheffield. Resulting Intellectual Property was defined to mean any “inventions, improvements and/or discoveries whether conceived and/or made by one or more members or other agents of [Sheffield] acting either alone or jointly with.. the Sponsors”. This was by no means determinant of the issue at first instance as the judge found it hard to bring into the express terms the activities actually carried out in relation to the software.
Clause 9(d) of the Agreement provided that rights relating to the programme of research made solely by employees of Cyprotex belonged to Cyprotex. Cyprotex relied on clause 9(d). Here the judge bent over backwards to find in Sheffield‘s favour. Having already determined that there was no joint authorship under the Fylde principle he found that nonetheless, for the purpose of the IPR provisions in the contract, Sheffield and Cyprotex had jointly made the program. This assumed a perhaps artificial distinction between joint “maker” of a work for the purpose of the contract and joint “author” of a work for the purpose of general copyright law. The Court of Appeal neatly avoided getting into this distinction, and it is hard to see how it can have any general application.
Implied Terms
Judge Thornton had deduced that both parties must have intended Sheffield to own the IPR in the resulting programme because the alternative would result in Sheffield not being able to grant licences to Cyprotex and other third parties under the Agreement. The Agreement could only work from a practical perspective if Sheffield owned the copyright and he implied a term in the Agreement to this effect; although he was not that clear as to how that related to the construction of the express terms.
The judge referred to the guidelines set out in Ray v Classic FM plc (1999) ITCLR 256 to determine when a term would be implied into a contract to give ownership to the client who commissioned the work. A term can be implied if the client needs the right to exclude the contractor from using the work and to give the client the ability to use the copyright against third parties. The judge added another example to those given in Ray. He said ownership would be implied for the client (Sheffield) where the purpose was to transform research into a marketable programme for the client to exploit and where the contractor (Cyprotex) had been granted a licence to use the program for internal purposes but had not been granted a right to market the program without a subsequent agreement being negotiated with the client.
Strictly, implying this should not have been possible since the CDPA requires an express written term signed by the copyright owner (Cyprotex). However the court could demand a written assignment to Sheffield. It was clear that the parties intended Sheffield to own the copyright and implying this into the Agreement was necessary to give it business efficacy.
Court of Appeal
Cyprotex appealed to the Court of Appeal on the issue of the construction of the Agreement. In his judgment Lord Justice Potter recognised that the Agreement was not well drafted in many respects.
He agreed that, in light of the problems with the drafting of the Agreement, the wording should not be strictly construed. Cyprotex submitted that the parts of the Agreement dealing with ownership of IPR did not require a strained interpretation. It claimed that the parties were aware of Dr Edwards’ role as an employee of Cyprotex and therefore the work fell to be work done solely by a sponsor and belonged to Cyprotex as a result.
In addition to supporting the judge’s approach in the earlier judgment, Sheffield claimed as a “short cut” that there was a separate arrangement applicable to the IPR, by which Dr Edwards was commissioned to write the Java software, which was separate from the Agreement. In doing so, although an employee of Cyprotex, Dr Edwards was an agent of Sheffield. The Court of Appeal accepted this. This brought into play all of the express IPR terms, allowing the court to find in favour of Sheffield. The Court agreed with the respondent that a fairly standard “no agency” clause did not cover the situation where the agency arose between the parties because of a separate bilateral agreement. This was principally so because the Agreement contemplated and required, as far as all sponsors were concerned, Sheffield to recruit a programmer to produce the software. Accordingly, the programmer fell to be an “other agent” of Sheffield and the “Resulting Intellectual Property” belonged to Sheffield under clause 9(c) of the Agreement. Sheffield also claimed that the entire agreement clause did not preclude an agreement between Sheffield and Cyprotex regarding the recruitment of Dr Edwards.
Lord Justice Potter said that if the programmer had not acted as an agent of Sheffield then he would have adopted the interpretation that Judge Thornton QC gave. The appropriate interpretation is to reflect the intention of the parties and the basis on which the parties proceeded. The input by Sheffield as controller of the project was sufficient to prevent the work from being solely that of Cyprotex.
Comment
General copyright law means that specifications discussed and agreed between the parties are not enough to mean that the commissioner is the author of any resulting work. The person employed to create the software remains the owner unless otherwise provided in a written agreement. Parties to software contracts should explicitly set out who is to own the copyright in the works created. Implied terms may be used by the court to give business efficacy to an agreement but this should never be relied upon.
This case is interesting for an application of the principles set out in the earlier cases of Fylde and Ray. The dispute was factually complex and the judge in the High Court spent a lot of time straining to find sensible meaning in the Agreement. In the Fylde case, there was no contract. Here there was but, quite simply, it was inadequate. On appeal Lord Justice Potter agreed with the approach taken by Judge Thornton QC but found the construction put forward by the respondents, with Cyprotex’s employee acting as an agent for Sheffield, more appropriate. The result was that the arrangement did then fit into the express terms of IPR ownership under the Agreement.
Renzo Marchini is a solicitor in the London office of Dechert, the international law firm, specialising in IT and e-commerce law. He can be contacted at +44 (0)20 7775 7563 (Renzo.Marchini@dechert.com).
