Coward v Phaestos Ltd & Ors

Software created for, and used as the foundation of, a partnership business may be partnership property even where the author originally owned the copyright and no express assignment was made. The question is one of agreement, express or implied, assessed from the surrounding circumstances. Statutory presumptions concerning partnership property cannot override a contrary agreement. Where software is essential to the business, is treated as its property, and becomes intermingled with later development, commercial necessity may support an inference that it belongs to the partnership. If ownership had remained with the author, an implied licence would have been exclusive where necessary to protect the business, although it would not necessarily have been irrevocable.

The claimant, a mathematician and programmer, claimed copyright in software used by the IKOS quantitative trading business. He alleged that he owned or co-owned the copyright and that the defendants infringed it by continuing to use the software after his departure. The defendants contended that the software was partnership property, later transferred on dissolution of the partnership, and counterclaimed for copyright and database infringement and breach of confidence.

The principal issues concerned the existence and scope of the partnership, the ownership and authorship of the software, the effect of the partnership dissolution, any implied licences, estoppel, infringement and confidentiality.

1. Partnership. A partnership may arise informally from conduct before formal trading begins, where parties have embarked on the commercial venture they agreed to pursue. On the evidence, a partnership existed from September 1992.
2. Ownership of the software. The software written by the claimant before December 1992 was created as a partner and for the purposes of the partnership business. It was the foundation of the venture, was used and treated as partnership property, and could not sensibly be separated from the business. It was therefore partnership property. The same conclusion applied to software written after December 1992. The absence of an express assignment, its omission from the partnership accounts, and the absence of an express reference in the partnership deed did not alter that conclusion.
3. The statutory rules concerning partnership property assist where intention is unclear, but do not override an express or implied agreement. The claimant’s fiduciary duties and duty of good faith were relevant, particularly in relation to software created after the partnership began. Retaining personal ownership while creating and intermingling the software for the partnership would have conflicted with those duties.
4. On dissolution in 2006, the partnership assets, including the software, passed to IKOS UK under the dissolution agreement. The claimant therefore failed in his copyright ownership claim.
5. Alternative findings. If the claimant had owned the copyright, the defendants would have had an implied licence. Commercial necessity would have required it to be exclusive, enabling the IKOS entities to prevent use by the claimant or third parties. It would not necessarily have been irrevocable and could have been terminated on reasonable notice. The claimant would also have been estopped from asserting his rights because he allowed the software to be intermingled, permitted substantial expenditure and development, and failed to assert personal ownership. These findings were unnecessary to the result.
6. The claimant was the original author of the 200 procedures remaining in his schedule. A substantial part of that software was reproduced in the 2009 software. The claimant had no licence to retain or use the 2009 software after resigning. The admitted confidential materials were owned by IKOS and had to be kept confidential and used only for the business.
7. The ownership claim failed. The defendants’ counterclaim remained for further submissions as to remedies, including nominal damages, delivery up, injunction and declaration. Copies of the Burns and Steyning materials were to be destroyed, subject to retention of a forensic image and liberty to apply.