Facts
Clearsprings Management Limited (the Claimant) brought an action
against BusinessLinx Limited (the Defendant) concerning the nature
and extent of the copyright that the Claimant had acquired in a
web-based database system designed and developed by the Defendant.
The Claimant provided accommodation and related services to asylum
seekers and commissioned the Defendant, a software company, to
design and develop a web-based database system.
It was intended that the software would be tailored to the
requirements of the Claimant's business and the Claimant provided
information to the Defendant regarding its operating procedures for
that purpose. The system that was developed was known as
Clearsprings Management Information System (CMIS). It was common
ground between the parties that copyright subsisted in CMIS and the
first owner of the copyright was the Defendant. It later transpired
that the Claimant wished to sell the software to third parties.
The Claimant contended that this had always been its intention,
of which the Defendant had been fully aware. To this end the
Claimant argued that there was an implied term in the contract that
the Defendant would assign all existing and future copyrights in
the system to the Claimant, or at least grant the Claimant an
exclusive licence which was perpetual, irrevocable and royalty-free
and which would allow the Claimant to distribute and sub-licence
the system to third parties.
The Defendant asserted that there was no such implied term. It
argued that any such implied term or licence would restrict it from
using parts of the source code incorporated in the database that
were wholly unrelated or consequential to the Claimant's management
and operating procedures.The Defendant accepted that the Claimant
had a royalty-free, perpetual and irrevocable licence to use the
system in its own business but said that this licence was
non-exclusive and that it did not include the right to sub-licence
to third parties.
Judgment
The judge first turned his mind to the law on equitable
ownership of copyright and implied terms and said that in some
circumstances it is implied that the supplier will assign the
copyright to the customer. He went on to state that if the
circumstances did not justify such an implication, the law may
imply a licence on such terms as would be necessary to give
business efficacy to the contract.
The judge referred to the nine propositions set out by Lightman
J in Robin Ray v Classic FM PLC [1998] FSR 622 which were
accepted by both sides:
1. the supplier retains copyright unless there is an express or
implied term to the contrary;
2. the contract may provide an express term;
3. commissioning of the work is insufficient in itself for the
customer to acquire copyright;
4. the law governing the implication of terms is set out in BP
Refinery (Westernport) Pty Ltd v The President Councillors and
Ratepayers of the Shire of Hastings (1978) 52 A.L.J.R 20 at 26,
which states that for a term to be implied the following 5
conditions must be satisfied:
(a)it must be reasonable and
equitable;
(b)it must be necessary to give business efficacy to the
contract;
(c)it must be so obvious that “it goes without saying”;
(d)it must be capable of clear expression; and
(e)it must not contradict any express term of the contract;
5. a minimalist approach is vital, in that an implication may
only be made if it is necessary and then only what is necessary and
no more;
6. if the need can be satisfied by a licence or assignment of a
licence then only this will be granted;
7.the individual facts of the case should be considered, such as
necessity of the licence, price paid and intention of the
parties;
8. the ambit of the licence must be the minimum required;
and
9. the licence must be limited to the joint contemplation of the
parties at the date of the contract.
The judge concluded from these 9 principles that whether a term
could be implied was entirely dependant on the circumstances of the
individual case. The judgment details fully the witness accounts of
both sides regarding the intention and knowledge of the parties at
the time of the contract. The judge made no secret of the fact that
he did not lay much credence in the credibility of the Claimant’s
witnesses. The Claimant claimed that the Defendant was always fully
aware that the Claimant intended to re-sell the software, referring
to several meetings and an undated document. The judge gave short
shrift to these claims.
The circumstances in this case were that the database was an
electronic embodiment of the Claimants’ operating procedures and to
that end it was necessary to imply a term in the contract
preventing the Defendant from making use of the database in its
entirety. The facts did not however require that a term needed to
be implied to give the Claimant an exclusive licence in the
copyright. An implied term to such an extent would restrict the
Defendant from using the generic and underlying parts of the source
code that were not attributable in any way to the Claimant. The
only terms necessary to give the contract business efficacy were a
licence for the Claimant to use the software for the purposes of
its business and a restriction on the Defendant making use of the
information about the Claimants’ operating procedures. The judge
concluded that sub-licensing the software to third parties had not
been contemplated and that, at the time of the contract, the
parties did not know that the Claimant intended to licence the
software to others. It followed that it was not necessary to imply
a term permitting such re-selling. The Claimant had, by
implication, a non-exclusive personal licence under the copyright
in the CMIS system with no right to sub-licence. The licence was
perpetual, irrevocable and royalty-free and the Claimant was
entitled under the licence to repair, maintain and upgrade the
system in accordance with the requirements of its business.
Commentary
This case provides a neat round up of the law in relation to the
implication of copyright terms although the judgment is heavily
focused on the judge's opinion of the characters of the witnesses.
This may be simply inevitable in a case that turns on the word of
one person against that of another. Clearsprings does not provide
new law in relation to the acquisition of copyright but in fact
serves as a distinct reminder that software contracts need to set
out clearly and unambiguously the rights that a commissioning party
requires. Customers need to consider their business plans and
intentions for the future before entering into software development
contracts with suppliers and suppliers need to consider precisely
what they may be giving away.
