Clearsprings Management Ltd v (Businesslinx Ltd & Anor

Where an independent contractor creates copyright software for a client, commissioning alone does not transfer copyright or create exclusivity. The court implies only those rights necessary to give the contract business efficacy, adopting a minimalist approach.

A client will ordinarily receive a licence to use the software for the contemplated business purpose. A wider or exclusive licence, an assignment, or a right to sub-license requires clear necessity arising from the circumstances known when the contract was made. Generic code and routines may remain available to the contractor where they do not embody the client’s confidential operating procedures.

The claimant commissioned the defendants to develop a web-based management information system, known as CMIS, for its accommodation and related services business. Copyright belonged initially to the software developer.

The claimant sought a declaration that the contract implied an assignment of copyright or, alternatively, an exclusive, perpetual, irrevocable and royalty-free licence including rights to repair, upgrade, distribute and sub-license the system. The defendants accepted a personal licence for the claimant’s own business use but disputed exclusivity and sub-licensing. The preliminary issue concerned the claimant’s rights in or under the copyright.

1. Preliminary issue determined. The claimant had a non-exclusive, personal, perpetual, irrevocable and royalty-free licence under the copyright in CMIS. It could repair, maintain and upgrade the system for the requirements of its own business. The licence carried no right to sub-license.
2. The starting point was that copyright remained with the contractor unless an express or implied contractual term required otherwise. The fact that the work was commissioned was insufficient by itself to transfer copyright or confer exclusivity.
3. The implication of terms was governed by the principles summarised in Robin Ray v Classic FM PLC [1998] FSR 622. The term had to be reasonable and equitable, necessary for business efficacy, obvious, capable of clear expression and consistent with the express contract. Where a licence was sufficient, an assignment was not necessary.
4. The court rejected an approach based merely on counting analogies with cases involving composite or derivative works. The question was what term was necessary in the circumstances of this contract, having regard to both the client’s and contractor’s interests.
5. CMIS as a whole embodied the claimant’s operating procedures. The defendants could not exploit that system as a whole by selling it to a third party. Confidentiality protection was sufficient to prevent misuse of the claimant’s operating information. It was unnecessary to imply copyright exclusivity over generic routines which did not embody those procedures and which software developers ordinarily re-used.
6. There was no implied obligation to assign copyright. The claimant’s later wish to sell or license the software to third parties was a distinct future business opportunity, not a purpose shown to have been within the parties’ joint contemplation when the contract was made. No term permitting sub-licensing was therefore necessary.
7. The judge reserved the question whether the defendants could terminate the arrangement in respect of software written since the beginning of 2005 for which they alleged non-payment. Counsel were to be heard on the appropriate form of order.