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Whodunnit? Court of Appeal rules employee assigned copyright in forensic computing software to his employer by signing bonus agreement

Sheena Brown
13/01/2022

Locations

United Kingdom

This recent Court of Appeal decision in Michael Penhallurick v MD5 Ltd serves as a helpful practical reminder to employers to ensure that any relevant IP created by prospective employees pre-employment should ideally be assigned as part of the employment contract.

This dispute would probably have been avoided had that been the case. However, if that has not happened, another practical take-away for employers is the importance of obtaining an assignment of that IP at a later date. 

This case also serves as a reminder to lawyers to continually bear in mind the appropriateness of the IPEC (Intellectual Property Enterprise Court) if the dispute looks to involve extensive technical disclosure, cross-examination and expert evidence.

Background 

Under English law, copyright works like computer code, "made by an employee in the course of his employment" vests first in the employer rather than in the employee[1]. However, it can be difficult in practice to delineate exactly what work falls within the scope of employment. One is often left with something of a mystery to untangle to establish who the copyright owners truly are.

The key issue in this case concerned the ownership of copyright in computer software underlying a tool used for the forensic examination of computers now known as "Virtual Forensic Computing" (VFC). A manual version of this technique was developed by the appellant (Mr P, a former police officer) while he was studying for a Masters at university. 

Later, while employed by the respondent, Mr P developed software to automate the VFC process. Mr P went on to create further versions of the VFC software. He claimed that the core functionality of each of the original and later versions were developed by him, in his own time albeit whilst employed by the respondent. 

A few years into his employment, Mr P entered into a bonus agreement with the respondent whereby Mr P would earn a bonus upon certain conditions being met so long as he was employed by the respondent. Mr P also confirmed that the VFC software was the "sole property of [the respondent]". 

The Court of Appeal's ruling

The Court of Appeal affirmed the IPEC judge's decision that the bonus agreement operated as an assignment agreement, including of future copyright in the VFC software. The document did not need to use the words "assign" or "copyright" to have that effect. As such the respondent owned the copyright in the VFC software. (The judgment can be found here: [2021] EWCA Civ 1770.)

Given this conclusion, it was not necessary to consider who was the first owner of the copyright in the software.

Key practical takeaways

This case underlines the value to both employers and employees of clarifying the ownership of their IP assets at the outset of discussions concerning prospective employment. The respondent employers probably wanted to employ Mr P for his technical skills and ideas concerning the VFC. That would have been the ideal time to discuss who would own any IP that might already exist. 

Luckily for the respondents, they appear to have identified the vein of the dispute and had their interpretation of the position "confirmed" in an agreement during the course of Mr P's employment. This might not always be possible in practice if protests and grievances are already being aired. 

In a short paragraph, Arnold LJ also remarked on the inappropriateness of the dispute being heard in the IPEC given that it became quite clear during the course of the litigation that the facts were complex and involved extension disclosure, cross-examination and expert evidence (which it seems there was an attempt to introduce without permission).  

In both instances the parties would have been better to accept the costs of taking precautions earlier, to avoid bleeding out expenses later. "An ounce of prevention is worth a pound of cure" as they say, and when it comes to protecting your IP assets it is often best to avoid forensics.

Sheena Sheikh Brown (Director) and James Russell (Trainee)


[1] S.11(2) Copyright, Designs and Patents Act 1988

 

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