The importance of written contracts when dealing with any intellectual property is crucial. In a recent dispute over software copyright, the parties had failed on this score and the claimant had to resort to an “implied terms” argument, how did it fare? Ray Coyle analyses the judgment.
Topic: Intellectual property
Who: Meridian International Services Limited
When: November 2007
Where: The High Court
Law stated as at: 30 November 2007
Meridian was a software developer commissioned to provide financial forecasting software for a division of GlaxoSmithKline plc ("GSK"). There was no formal contract in place between Meridian and GSK but work started nonetheless. Unfortunately, Meridian ran into financial difficulty and found itself unable to pay its employees. The two employees involved in the GSK project and two of the defendants in the case, Ian Richardson and Peter Aldersley, refused to do any further work on the project.
In January 2006, a compromise was agreed between Meridian and the two employees. They would carry on developing the software but would be paid via a company in which Mr Richardson held shares, and the third defendant in the case, IP Enterprises Limited ("IPE"). The terms were set out in a series of e-mails but no written contract was signed between the parties. There was no mention in the e-mails of the ultimate ownership of the copyright in the software once it had been developed.
In April 2006, Meridian signed a contract with GSK in which it gave a warranty that it was the owner of all the relevant rights in the software. The two former employees and IPE took a different view and maintained that they were the owners.
The judge was not impressed by Meridian's argument that, as the draft contract with GSK had been in existence for some months, Richardson and Aldersley were aware that the company had given the warranty and that was sufficient to give rise to an implied assignment. He based his final decision on whether it was "so obvious as to go without saying" that the terms should be implied into the contract. In this case, the answer was "No".
The net effect is that IPE retains the copyright in the software and Meridian has a licence only. This puts the company in the difficult position of being in breach of the warranty it gave to GSK.
Why this matters:
This case highlights the importance of written contracts when dealing with any intellectual property. As part of a creative industry, marketing professionals are constantly creating new property. It is vital that the ownership and rights in each property are clearly set out.
If parties merely rely on an assumption that the ultimate ownership is obvious, they may be surprised to find that the courts' test of "so obvious as to go without saying" is a far higher hurdle. This can be particularly problematic if, as in the above case, the party that assumes it owns the intellectual property rights provides a warranty to this effect to its customer. Meridian now face the legal, financial and customer relationship consequences of assuming that what seems obvious to them would actually be found to be the legal position.