High Court finds software company owned copyright in source code developed by an individual who provided programming services through his company, as he was in fact an employee and/or because it was an implied term of the contract

The claimant, Sprint Electric Ltd (SEL), made small direct current electric motor drives (also known as controllers). In 1996, it wanted to develop digital computer controlled drives. Accordingly, it offered the second defendant, Aristides George Potamianos, an expert on digital drives, the post of “Head of Research and Development” at SEL. For tax reasons, Dr Potamianos used a service company, Buyer’s Dream Ltd (the first defendant), to contract with SEL, rather than becoming a direct employee of SEL.

Between 1997 and 2015, SEL entered into various contracts with BDL for the provision of Dr Potamianos’s programming services. In 1999, Dr Potamianos was appointed a director of SEL, and given the title “Research and Development Director”.

By 2017, the relationship between SEL and Dr Potamianos had broken down and Dr Potamianos was removed from SEL’s board of directors. SEL then brought proceedings against Dr Potamianos and BDL, claiming that Dr Potamianos was obliged to provide SEL with the source code and associated documents relating to the software he had developed. BDL counterclaimed, claiming that it was the owner of the copyright in the source code and associated documents and seeking an injunction restraining SEL from exploiting its copyright.

Mr Richard Spearman QC found that Dr Potamianos was under an obligation personally to perform the “technical services” under the contracts for SEL (as in fact he did). Dr Potamianos did not perform any material services for anyone other than SEL, and the services that he performed for SEL were provided in exchange for fixed levels of payment and involved him in neither a prospect of profit nor a risk of loss. The true relationship between SEL and Dr Potamianos was therefore that of employer and employee.

On that basis, SEL was the owner of the copyright in the documents and the source code authored by Dr Potamianos, in accordance with section 11(2) of the CDPA.

If that was wrong, Mr Spearman QC said, there was nothing in the contracts to give SEL entitlement to the source code and documents. However, such entitlement should be implied pursuant to the reasoning in R Griggs Group Ltd v Evans (No 1) 2005 EWCA Civ 11 and Robin Ray v Classic FM Plc [1998] FSR 622.

A contract under which SEL agreed not only that it should pay for the creation of the source code and associated documents, but also that it should be denied ownership of, or even any right of access to, those materials, and be confined instead to a right to exploit the object code only, was one that no reasonable persons in the position of SEL and Dr Potamianos would have made, the judge said. It lacked commercial and practical coherence. Implying such a term satisfied the conditions that: (i) it was reasonable and equitable; (ii) it was necessary to give business efficacy to the contract; (iii) it was so obvious that “it goes without saying”; (iv) it was capable of clear expression; and (v) it did not contradict any express term of the contract.

SEL’s claim therefore succeeded and BDL’s counterclaim for copyright infringement failed. (Sprint Electric Ltd v Buyer’s Dream Ltd [2018] EWHC 1924 (Ch) (30 July 2018) — to read the judgment in full, click here).