Michael Penhallurick v MD5 Limited

The Court of Appeal dismissed the appellant's challenge to the Intellectual Property Enterprise Court's finding that the respondent owned the copyright in the VFC software. The court accepted the judge's findings that the relevant software versions were created while the appellant was employed by the respondent and, in any event, that the November 2008 written agreement operated as an assignment of any copyright then or subsequently vested in the appellant. The court applied the formalities in the Copyright, Designs and Patents Act 1988 (notably sections 90(3) and 91(1)) and held that the objective construction of the November 2008 agreement, viewed against the factual matrix, supported an assignment of both existing and future copyright, with the bonus payments providing valid consideration.

Subsidiary findings of legal significance were that: (i) the purported earlier source and object code said to pre-date employment either did not exist or had been abandoned; (ii) parts of the software (licensing and security features) were accepted by the appellant as created in the course of employment; and (iii) procedural difficulties in IPEC arising from late disclosure and the reception of material of an expert character were noted but did not vitiate the outcome.

Background and parties: The appellant, a former police officer and developer, alleged that he authored literary works consisting of computer software (the VFC software) and sued the respondent, his former employer MD5 Limited, for copyright infringement arising from the respondent's commercial use of that software. The respondent contended that the copyright belonged to it either because the works were created in the course of the appellant's employment or because a November 2008 agreement assigned any copyright to the respondent. The respondent counterclaimed for alleged infringement by the appellant. The case was tried over two days in the Intellectual Property Enterprise Court (IPEC) before HHJ Hacon, who dismissed the appellant's claim and also dismissed the respondent's counterclaim; the appellant appealed.

Nature of the claim and relief sought: The appellant sought declarations and relief for copyright infringement in respect of eight pleaded works (various versions of source and object code, GUI and a user guide). The respondent sought relief on a counterclaim and, by cross-appeal, sought delivery up of copies if ownership were established in its favour.

Issues framed by the court:

• Whether the pleaded works were created before the appellant's employment commenced or were created in the course of his employment;
• Whether the November 2008 agreement operated as an assignment of existing and future copyright or merely recorded licence/financial arrangements;
• Whether the formalities of the Copyright, Designs and Patents Act 1988 were satisfied for any assignment, including in respect of future copyright; and
• Procedural issues arising from late disclosure and material amounting to expert evidence in IPEC.

Court's reasoning and conclusion: The Court of Appeal upheld the IPEC judge's factual findings that the alleged pre-employment First and Second Works either did not exist or had been abandoned and that the remaining works were produced during the appellant's employment. Turning to the November 2008 agreement, the court applied an objective approach to construction, having regard to the factual matrix (including that the parties disputed ownership at the time). The court found that the wording, viewed objectively, was apt to transfer whatever copyright the appellant possessed to the respondent and to cover future copyright created while the appellant continued to work on VFC. The court held that the bonus payments constituted sufficient consideration for an assignment of future copyright under section 91(1) CDPA 1988 and that the instrument was signed. The court therefore concluded that the respondent owned the copyright in the Works and dismissed the appeal. The cross-appeal was not pursued since the appellant indicated no objection to delivery up if copyrights were found to vest in the respondent. The court also observed that IPEC procedures were not well suited to cases involving late disclosure and expert technical evidence and that the parties should have considered transfer or adjournment.

Appeal dismissed. The Court of Appeal affirmed the IPEC judge's findings that the contested software was created in the course of the appellant's employment or, alternatively, that the November 2008 agreement operated as an effective written and signed assignment of any copyright the appellant possessed (including future copyright under section 91 CDPA 1988), with the bonus providing valid consideration; therefore the respondent owned the copyright in the Works.

Appeal from the Intellectual Property Enterprise Court, Business and Property Courts (Chancery Division), HHJ Hacon, [2021] EWHC 293 (IPEC). The appeal to the Court of Appeal resulted in Neutral Citation [2021] EWCA Civ 1770.