What was the case about?

The recent High Court case of Michael Penhallurick (MP) -v- MD5 Limited (MD5) [2021 EWHC 293 (IPEC)] provides useful guidance on the ownership of the copyright in software created by an employee.

MP had been employed by MD5 and claimed ownership in 8 works relating to “virtual forensic computing” (VFC) and that MD5 had infringed his copyright. MD5 asserted that it owned the copyright and MP was in breach of his employment contract and had infringed its copyright in the VFC works.

By way of background, VFC allows a mirror image of data held on a computer to be created, while preserving the evidence on the original computer and avoiding any corruption of it – a very important issue for police investigations.

MP had done research into VFC while studying for a degree at Cranfield University. Shortly after that, he claimed to have written some software to allow VFC to be performed automatically rather than manually, had also written a user guide and started work on a graphical user interface (GUI).

MP then became an employee of MD5. He claimed his work was in the area of forensic case work, carrying out forensic investigations, preparing witness statements and attending court. At the trial, unsurprisingly, MD5 claimed that MP’s duties were much broader.

While at MD5, MP developed software for a fully automated version of VFC, with a GUI. Both parties referred to this as “VFC v 1”. MP claimed that VFC v 1 included code from his earlier software, that the work was outside the scope of his employment and was done on his own computer and primarily in his own time.

MD5 claimed that MP had been briefed on a project to develop software to implement VFC automatically and so anything created was in the course of his duties.

Following on from VFC v1, MP developed three further versions of the VFC software over a period of 8 years. Again. MP claimed they were created in his own time, while MD5 claimed they were done in the course of his employment.

As regards the evidence, the court referred to MP’s employment contract and an end user licence agreement (EULA) under which MD5 licensed VFC v1 (as the owner and licensor).

MD5 claimed that MP had approved this. The parties entered subsequent agreements (in 2006 and 2008), which provided for annual bonus payments as a percentage of the value of VFC software sales.

MP resigned from MD5 in February 2016 and MP and MD5 made an agreement in April 2016 providing for payments to MP in respect f the VFC software. In January 2018, MD5 ceased payments under the 2016 agreement and the commercial relationship between the parties effectively ended.

The court decided that, while MP may have worked on VFC methodology before he was employed by MD5, all of the software was created and developed while he was employed by MD5.

The key issue was then section 11 of the Copyright Designs and Patents Act 1988 (1988 Act), which provides that a copyright work made in the course of employment will belong to the employer, subject to any agreement to the contrary.

What factors did the Court consider?

The court said that there were a number of factors to consider in deciding whether the work was created in the course of employment, including:

  • The terms of the contract of employment;
  • Where the work was created;
  • Whether it was created during normal office hours;
  • Who provided the materials for the work to be created;
  • What level of direction/instruction was given to the employee;
  • Whether the employee could refuse to create the work; and
  • Whether the work is integral to the business.

The court applied these in the following manner.

The 2006 agreement included an IPR clause under which it was clear that MP was expected to create copyright works and, given the nature of MD5’s business, such works were likely to be software.

The court took the view that MP had a “central task” of creating and developing the VFC software. It said it did not matter that, although MP did most of the work at MD5’s offices, he may have carried on with that work at home, using his own computer, rather than one owned by MD5.

When establishing the 2008 agreement regarding a bonus payment to MP, MD5 included text to the effect that the software developed at MD5 and sold as the VFC software was owned by MD5. The agreement provided that the bonus payments would only continue for so long as MP was employed to work on current and future versions of VFC.

The court concluded that, even if MD5 did not acquire copyright on the grounds of it being created in the course of employment, the effect of the 2008 agreement was to assign copyright in current and future versions of the VFC software, with the consideration being the bonus payment.

MP raised an issue under s 104 of the 1988 Act, relating to the use of the copyright legend, which gives rise to a presumption of copyright ownership (e.g. © Peter James March 2021).

MP had marked all versions of the VFC software and the user guide with a copyright legend identifying himself as the author of the works and the owner of the copyright in them.

However, the presumption is rebuttable and the court found, on the balance of probabilities that it was rebutted and MD5 was the true copyright owner.

In relation to the 2006 agreement, when MP ceased to be an employee, the court rejected MP’s assertion that this was a licence to commercialise MP’s software, but found it to be a consultancy agreement, under which MD5’s software could be supported.

The court concluded that MP’s claims should be dismissed, as should MD5’s claim of breach of the employment contract and copyright infringement, but MD5 were entitled to a declaration that they owned the copyright in all versions of the VFC software, the GUI and the user guide.

Take away points?

 Where appropriate, make clear in the scope of the duties in the contract of employment that there is an expectation or it is likely that copyright works will be created in the course of employment.

  • Although beyond the scope of this article, there are special rules relating to employer ownership of patentable inventions. Contact any member of the Commercial Team for further information.
  • As regards copyright ownership, if there is any date ask the employee to execute and assignment of present and future copyright to you.
  • Even though it is only a rebuttable presumption, have all copyright works created by employees marked with the copyright legend in favour of the employer.
  • In the post-Covid-19 environment, when employees are based in the workplace, watch out for employees who take their work home, or produce copyright works in  very short time periods. These may raise questions about whether the copyright work has been created “in the course of employment”.