Reed Smith Client Alerts

Authors: Gregor Pryor

Case law teaches contractors a valuable lesson when dealing with ownership of copyright. It is essential to deal with each party’s position, typically through a written copyright licence, to avoid pitfalls further down the line. Courts are unwilling to imply terms into contracts. It is therefore advisable that all agreed terms are made explicit at the outset, because otherwise you may be left vulnerable to uncertainty and potentially harmful litigation.

Last year’s case of Orvec International Limited v Linfoots Limited [2014] EWHC 1970 (IPEC) is the latest in a line of cases which highlight the dangers in this area. It illustrates why, when one party commissions another to carry out some work, it should be agreed that all present and future rights in any work created by the contractor are assigned to the commissioning party.

Preceding case law Perhaps the greatest cause of such contractual uncertainty is a lack of understanding of the underlying legal position. If Party A commissions Party B to complete a piece of work, one might assume that Party A owns the copyright in the work as it paid for it to be carried out. But this isn’t the case. By law, the contractor owns the copyright.

This issue was the focus of R Griggs Group Ltd and others v Evans and others [2005] EWCA Civ 11. The dispute arose after the manufacturer of Dr Martens boots commissioned an advertising agency to design the logo, without formally agreeing that the copyright would be assigned to the commissioning party.

Fortunately for the manufacturer, the court ruled that it was the beneficial owner of the copyright thanks to the application of various equitable principles. Rather less fortunately for the manufacturer, this decision was only reached after a lengthy spell of litigation which would have been entirely unnecessary had an assignment of copyright been agreed at the outset.

The consequences were more severe for the commissioning party in Clearsprings Management Ltd v Businesslinx Ltd and another [2005] EWHC 1487 (Ch). Here, a third party company was commissioned to create software under a software development agreement which neglected to even mention the position on ownership of copyright in the software.

The court considered various aspects of the case, including the likely impact on the contractor and that the software did not appear to be bespoke. In arriving at the decision not to imply an assignment or exclusive licence of the copyright, the court instead ruled that, as long as the developer did not abuse the knowledge it had gained of the commissioning party’s operating procedures, the commissioning party only had a non-exclusive licence to use the software.

Orvec v Linfoots The case of Orvec v Linfoots concluded midway through last year and only serves to reinforce the principles outlined in preceding case law. Orvec International Limited (Orvec), a company which sells textile products to airlines, brought a claim for breach of contract (and passing off) against its former advertising agency, Linfoots Limited (Linfoots).

Through their arrangement, Linfoots took photographs of Orvec’s products which were included on Orvec’s website and within its advertising material. After the business relationship between the two companies had come to an end, Linfoots provided to a third party some of the photographs which were subsequently used on that company’s website. Orvec claimed that, in taking these steps, Linfoots had breached an implied term of the contract which granted Orvec a perpetual and exclusive licence in the photographs.

Unlike Clearsprings, the issue of whether there was a licence in place was not in doubt – both parties agreed there was. Instead, the court had to consider whether the licence was perpetual and exclusive, as Orvec had claimed.

An important consideration was the fact that some of the photographs included Orvec’s trade marks. Orvec argued that Linfoots had no “conceivable legitimate use” for the photographs containing trade marks, so the licence granted for these photographs, and by extension all of the photographs, was perpetual and exclusive.

The court disagreed. It contended that, as Orvec could rely on distinct rights in its trade mark to prevent others from using it, there was no reason to assume that Orvec and Linfoots reached an understanding that others would be prevented from doing so, or that Linfoots was prohibited from dealing further with the photographs.

The judge applied the typically minimalist approach the courts adopt when deciding whether to imply terms into contracts, explored in more detail below, and dismissed Orvec’s claim, deciding that there was deemed to be no implied term creating an exclusive and perpetual licence. The term that should be implied instead granted Orvec a non-exclusive licence in the photographs. Linfoots, said the court, had not breached the contract.

Courts’ reluctance to imply terms The approach adopted in the cases above reflects the courts’ general tendency to avoid implying terms into contracts. The test cited most often by the courts can be found in Attorney General of Belize and others v Belize Telecom Ltd [2009] UKPC 10. In this case, the judge stated that the court is “concerned only to discover what the [contract] means”, which is what “a reasonable person having all the background knowledge which would reasonably be available” would understand it to mean.

As a starting point, one should infer that there are no implied terms, because the contract would presumably have included any terms that the parties had initially intended. If a term is to be implied, it should be the least that is necessary in the circumstances.

Practical guidance The case law discussed conveys a clear message that certainty of terms is inherently important when forming any contract and this is no different when copyright is involved. Parties must not assume that a licence of copyright, and indeed the particular licence they desire, will be implied into the contract if there is a disagreement between the parties at a later stage. The intended position on ownership of copyright should be explicitly set out in writing through an assignment or licence. Relying on the courts to make the decision is likely to be to the detriment of both parties.

Should the work in question have not been created at the time of negotiation, an assignment of future rights can be agreed, as permitted by section 91(9) of the Copyright, Designs and Patents Act 1988. In this scenario, the legal title will vest in the assignee as soon as the copyright comes into existence.

Having such an agreement in place from the beginning will provide comfort and certainty and minimise the risk of a protracted disagreement in future as to who holds legal title

Client Alert 2015-028