IT Human Resources Plc v Land

The claimant, IT Human Resources plc (ITHR), owned the copyright in the Interact source code and, on the true construction of the 1999 agreement, also owned the copyright in the database schema used by Interact. The defendant, a director of ITHR, provided Interact (both executable/source elements and database schema) to Nationwide Technology Recruitment Ltd (trading as Impact) on a number of occasions without ITHR's permission. The court held that those acts amounted to copyright infringement and to breaches of the defendant's fiduciary duties.

The defendant’s primary defence — that he had an oral licence or permission from ITHR to provide the software to Nationwide — was rejected on the evidence after an assessment of contemporaneous documents, witness evidence and technical expert evidence.

As to limitation, the court held that section 32 of the Limitation Act 1980 applied: the defendant had deliberately concealed his wrongful acts (and/or deliberately committed breaches of duty in circumstances unlikely to be discovered), so the six-year limitation period did not begin to run until ITHR discovered Nationwide’s use of Impact in October 2009. Accordingly the claim was not statute barred. The court ordered that ITHR was entitled to an inquiry/account of profits (or inquiry as to damages) in respect of the infringements and breaches of duty, but refused to order an immediate clawback of remuneration where ITHR had not established a viable case for repayment. The defendant’s section 1157 Companies Act 2006 application for relief was refused.

Background and parties: ITHR, a recruitment agency, engaged TBS (a company of which the defendant was director) to develop bespoke recruitment software called Interact pursuant to a services agreement dated 10 February 1999. The defendant, who was a director of both TBS and later a non-executive director of ITHR, also provided software services to Nationwide, which adopted a system called Impact.

Nature of the claim: ITHR claimed copyright infringement and breaches of fiduciary duty arising from the defendant providing Interact software (including database schema) to Nationwide. The claimant sought declarations of infringement and an inquiry (or account) as to profits or damages. The defendant relied on an oral licence/permission to supply software, and on limitation for earlier acts.

Issues framed:

• Whether ITHR owned the copyright in the Interact source code and the database schema;
• Whether the defendant provided copyright material to Nationwide and, if so, on what dates;
• Whether the defendant had ITHR's permission (oral or implied) to do so;
• Whether the claim was statute barred or whether s.32 of the Limitation Act 1980 postponed the limitation period;
• Whether relief under s.1157 Companies Act 2006 was appropriate;
• Remedies, including an account of profits/additional damages under CDPA s.97(2) and damages assessment under the 2006 Regulations.

Court’s findings and reasoning:

• Ownership: the court accepted that ITHR owned the copyright in Interact source code; on construction of the 1999 contract and having regard to commercial common sense, the court also concluded that ITHR owned the copyright in the database schema (or in equity where appropriate).
• Infringing acts: the court accepted expert and documentary evidence that the defendant supplied Interact material to Nationwide on multiple occasions up to about April/May 2003 and made a backup copy of Nationwide’s database on 12 December 2006; those acts were infringements absent permission.
• Permission/licence: on careful evaluation of contemporaneous documents and witness testimony (including the defendant, Mr Locke of Nationwide and Mr Gallagher of ITHR), the judge found the defendant had failed to prove any oral licence from ITHR permitting the supply. The judge preferred the account that the defendant supplied Interact to Nationwide without ITHR’s authority and that, after unsuccessful negotiations in early 2002, he acted to enable Nationwide to proceed.
• Limitation: the court held that s.32 applied. The defendant deliberately concealed relevant facts and/or deliberately committed breaches of duty unlikely to be discovered, so limitation was postponed until ITHR discovered the use of Impact in October 2009; the claim was therefore within time.
• Fiduciary duties and state of mind: the court found that the defendant breached fiduciary duties, knew the conduct was wrong and failed to disclose it; he had acted in the interests of himself and Nationwide rather than in ITHR’s interests.
• Relief under s.1157: the defendant failed to show he acted honestly and reasonably and was not entitled to relief.
• Remedies: the claimant was entitled to an inquiry or account of profits and to pursue additional damages (including by reference to flagrancy and benefit under s.97(2) CDPA and the 2006 Regulations). The judge refused to order at trial an immediate award clawing back remuneration paid to the defendant because ITHR had not established a sufficient case that it would have dismissed him or that repayment was principled; that issue would not be pursued without appropriate evidence at an inquiry. The defendant’s counterclaim for unpaid June 2011 fees was allowed.

Practical note: the judgment emphasises careful assessment of contemporaneous documents and technical evidence in software copyright disputes, and illustrates the operation of s.32 Limitation Act 1980 where deliberate concealment or deliberate breaches unlikely to be discovered are found.

First instance: The claimant's claim succeeded in part. The court found that the defendant infringed ITHR’s copyright in the Interact software and database schema and breached his fiduciary duties by providing the software to Nationwide without ITHR’s permission. Section 32 Limitation Act 1980 applied so the claims were not statute barred. Relief under s.1157 Companies Act 2006 was refused. The claimant was entitled to an inquiry or account of profits (and to pursue additional damages at an inquiry). The defendant's counterclaim for unpaid fees was allowed. The court's findings followed a detailed analysis of contemporaneous documents, witness credibility and expert technical evidence.