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Clearsprings Management, www.clearsprings.co.uk, did not, however, have its
expectations fulfilled when the High Court found (14 July 2005) that Clearsprings
had no ownership rights in a web based system which the Judge, Mr
Christopher Lloyd QC, described as an “electronic embodiment of Clearsprings’
operating procedures”.
In early 2000, Clearsprings engaged Businesslinx, trading as access2.co.uk, to
develop a web based database by which Clearsprings could report to the Home
Office on the accommodation services it provides to asylum seekers. Work
commenced on the basis of a letter outlining in broad terms the work to be
carried out and the fees to be paid. The letter formed the basis for the
contractual arrangements but was only in general terms. The letter did not
specify the exact requirements of Clearsprings and nor did it contain any of the
usual contractual protections. Ultimately, this led to serious disagreement.
By far the biggest dispute was over the ownership of the intellectual property
rights in the system. Not only did Clearsprings want to own the intellectual
property in the system as it was a reflection of its operating procedures but also
because it saw an opportunity to license the software to other businesses that
had a similar commercial need. This would have allowed Clearsprings to control
use of the system and prevent use by its competitors. It would also open up
potential new revenue streams.
The Court accepted that there was an agreement in principle that Clearsprings
would own the intellectual property in the system but because the transfer was
still subject to further negotiations on the precise nature of the terms transferring
ownership, the Court found that there was no binding agreement on this issue.
You can see the full judgment on the access2.co.uk site.
In this situation, the Court may imply a term in to the contract to deal with the
intellectual property issue as the parties have failed to provide for this expressly.
The Court will not rewrite an agreement but will only imply terms to give effect
to the parties intention and to give “business efficacy” to an agreement. As it
was always intended by the parties that Clearsprings should have rights to use
the system (even though the parties failed to specify the exact scope of those
rights in a binding agreement), the Court had no problem implying a term to this
effect. The difficulty is in determining the scope of the rights to be granted.
Should there be an implied licence or an implied right to transfer ownership?
It is well recognised that where a client engages the services of an independent
contractor to perform work which involves the creation of a copyright work, the
circumstances may be such that there will be implied into the contract an
agreement that the contractor will transfer to the client copyright in the work
created. Where the circumstances do not justify the implication of an obligation
to transfer ownership, the law may nevertheless require the implication of a
licence, whether exclusive or otherwise, and on such terms as may be
necessary to make sense of the commercial bargain between the parties. The
default position is that the contractor is entitled to retain ownership in the
copyright. The mere fact of commissioning alone is not enough to entitle the
client to copyright. There must be other factors present to justify the implication
of an obligation to transfer copyright.
The Court will only do the minimum necessary to secure rights to use the
system. In this case, the Court found that Clearsprings did not need to own the
system in order to be able to use the system and, therefore, a licence was
sufficient.
Having decided that a licence is appropriate, the Court has to determine the
scope of the licence. Clearsprings argued that if the Court rejected its
submission that it should own the system, then it should be entitled to an
exclusive licence with the right to grant sub-licences. In practical terms, this
would be the same as owning the system as Clearsprings would have been able
to prevent competitors using the system and would also have been able to earn
revenue through sub-licensing. Again, the Court re-iterated that the scope of the
licence should only be the minimum necessary to use the system. Granting
exclusivity and the right to sub-license went too far as these rights were not
necessary to use the system. All that Clearsprings was entitled to was a
non-exclusive, perpetual and royalty free licence.
It is common for developers to re-use software routines that were developed for
different clients. The Court had regard to this industry practice in coming to its
decision and accepted that in future projects BusinessLinx should be free to use
routines that were developed for the system unless a particular routine would
make use of ClearSprings' confidential and proprietary information. Implying a
term that transferred ownership or granted an exclusive licence would be
contrary to this practice. This practice was a significant factor in the Court
reaching its decision.
This case is a salutary warning that clients should put in place a clear written
contract specifying exactly who will own what elements of the software or
website being developed.
Kolvin Stone is a solicitor in the Commerce and Technology department at City
firm Fox Williams www.foxwilliams.com.
Email kstone@foxwilliams.com.
Back to Contents.
When is your software not your software?
“We have a good relationship with our supplier” or “I have it all in an email” are
typical responses from clients when they hear from their lawyers the importance
of putting in place a clear written agreement. This is crucial in relation to
intellectual property ownership in website development agreements as the
commissioning client often expects to own all elements of the work which they
have paid for.
By Kolvin Stone
Key Issues
The key issues arising from the case are as follows: