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A Lancashire software house has defeated a claim by its customer to ownership of a database system that took four years and over £1 million to write. The High Court refused to imply an assignment or exclusive licence into their contract.

Darwen-based BusinessLinx Limited wrote the software for ClearSprings (Management) Limited. ClearSprings provides accommodation to asylum seekers, charging its services to the Home Office. The software helps it to report on the allocation of housing.

The contract between the companies was hard to identify because it was not a single, all-inclusive document. Instead, it had to be identified by the court from evidence of negotiations, a written estimate, meetings and emails.

In the absence of any agreement to the contrary, a contractor generally owns the copyright in software that it writes for a client. In most such cases, a licence to use the software can be implied.

But ClearSprings, based in Essex, wanted more, including the right to sub-license the software to others. It acknowledged that BusinessLinx wrote the system and that BusinessLinx was the first owner of copyright in the software; but it claimed that certain rights had passed its way.

It argued that an assignment of all existing and future copyrights in the software was an implied term in the contract. Alternatively, it said, there was an implied term that ClearSprings had an exclusive, perpetual, irrevocable, royalty-free licence in the software.

It took BusinessLinx and its founder, Mark Hargreaves, to the High Court to argue for these rights. ClearSprings' said that it had made it clear from the start that it intended to sell the software on to third parties, and that it had a right to do so.

BusinessLinx disagreed. It accepted that ClearSprings had a royalty-free, perpetual and irrevocable licence to use the software; but it said that no mention of copyright ownership or third party sales was made during the initial negotiations or in a letter of 21st July 2000 that, according to the court, formed the basis of the contract between the parties.

The software firm accepted that ClearSprings had a licence to use the software, and that BusinessLinx could not sell or licence it as a whole to a third party because parts of it constituted ClearSprings' procedures in electronic form based on Clearsprings' specific input.

But BusinessLinx said that the software was just a tailored implementation of its web-based database suite – and that an implied assignation of ownership or an exclusive licence to ClearSprings would restrict its entitlement to reuse important parts of the system. The court agreed, preferring the account of Hargreaves, now the managing director of BusinessLinx, about what happened at various meetings between the parties.

Deputy High Court Judge Christopher Floyd QC wrote, "it is to be expected that a software developer will both import pre-existing code into the code he is writing for the client, as well as export it for other projects." He considered that no mention of copyright was made until 24th July 2000 and negotiations over the software continued haphazardly thereafter.

He decided that ClearSprings had a non-exclusive licence under the copyright in the software but no right of ownership or any right to sub-license. He reasoned that in future projects, BusinessLinx should be free to use routines that were developed for the software unless a particular routine would make use of ClearSprings' own operating procedures.

An implied assignation of copyright is a very rare thing. In January, England's Court of Appeal issued one of the few judgments that supported such a right when upholding a decision that copyright in Dr Martens' AirWair logo is owned by the company that makes the famous boots and did not pass to its freelance designer. The agreement was silent on copyright; but the High Court had reasoned in that case that:

"…in order to give business efficacy to the contract, it will rarely be enough to imply a term that the client shall enjoy a mere licence to use the logo, and nothing more. In most cases it will be obvious, it will 'go without saying,' that the client will need further rights. He will surely need some right to prevent others from reproducing the logo."

In the ClearSprings case, the judge made a point that highlights the difference between these cases. He wrote:

"…in the circumstances of this case, the only terms which are necessary to give the contract business efficacy are, firstly, a licence for [ClearSprings] to use the software for the purposes of their business and, secondly, a restriction on [BusinessLinx] making use of the information about [ClearSprings'] operating procedures for purposes other than those of [ClearSprings.]"

He said it was not necessary to imply into the contract a term giving ClearSprings exclusivity in relation to the copyright in the software.

Commenting on the result, Hargreaves said: “This is a classic story of David taking on Goliath and winning. I am delighted that the Judge has supported the line we have taken throughout this case,” adding that his company is looking forward to developing the "business opportunities" presented by the judgment.

John Salmon, a partner of Pinsent Masons, the law firm behind OUT-LAW.COM, said: "The result is good news for BusinessLinx, but the dispute serves as a reminder of the need for a clear agreement before development begins. Court battles like this can be avoided."

See: The ruling (18-page / 850KB PDF)
Dr Martens wins logo ownership appeal,

© Pinsent Masons 2000 - 2005

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