Software Ownership & CopyrightThe Destra Software Ltd and Comada (UK) LLP and Ors case emphasises the importance of a clear and well executed consultancy agreement at the outset for a collaborative software development project. Unlike in employment the employer or commissioning entity may not always claim ownership in the software, there are specific safeguards necessary to ensure that software ownership is retained when consultants are engaged in a project.
In this case, a team of consultant programmers working as a mix of service companies and individuals, one of which being Destra Software Ltd (“Destra”) developed a bespoke software called FundNexus.
Destra’s claims is related to the ownership in the entire FundNexus software.
Destra represented by Hughes had initially worked with other software engineers on a software called ‘FundNexus’. This software was commissioned to be built in separate modular units. The consultant engineers were assigned development of separate units of FundNexus, so that no one engineer had access to all modular units.
Later, Zurich Capital Markets acquired ownership of FundNexus but did not put the software to use, rendering any further developments to an abrupt end, including any involvement of Hughes or Destra. A new entity Comada (UK) (“Comada”) was incorporated in 2004, to use new emerging technologies in FundNexus and develop a new software product MAT:ware.
Comada team invited Hughes of Destra to join them to develop the new MAT:ware product. E-mail exchanges during this time indicated that this software development was understood as a collaboration project.
The arrangement was that in return for his work, Hughes shall accept shares in a future holding company, Comada Cayman (“Cayman”) until August 2004 upon which he shall start receiving payments from Comanda.
However, by August 2004 it became clear that Comada was not making enough revenue to pay salaries. Hughes continued with his development work with an extended future deadline for payments whilst he agreed to holds shares in Cayman.
Cayman was now incorporated, and Hughes received his shares. However, even by February 2005, Hughes was not paid for his development work. Eventually, he was offered a consultancy agreement by Comada. This agreement stated that any software developed by Mr. Hughes of Destra to be considered as ‘protected works’, and all ‘protected works’ to be owned by Cayman.
When the draft consultancy agreement was shared with Hughes, he suggested minor changes and expressed willingness to sign it. The amended draft was then approved by Cayman.
Hughes acting on behalf of Destra never actually signed the consultancy agreement but sent two invoices to Cayman under the terms of the agreement.
By November 2005, Cayman incorporated a separate entity MAT Services Ltd to own the new MAT:ware software.
Destra issued a claim against Cayman for infringing its copyright in the MAT:ware software. Destra argued that their Hughes was not bound by the consultancy agreement as he had not executed it with its signature. Based on the absence of which, Comada or MAT Services had no rights to use the copyrighted works without Destra’s permission.
The judge in reaching its decision investigated the following to decide if Cayman had infringed Destra’s copyright:
On the first issue, the judge held that the copyright in MAT:ware belonged to Cayman. The conduct of all parties showed that the software was always meant to be a collaboration project, and no single party had full ownership rights but it belonged to the commissioning entity. On the second issue, the judge held that although Destra acting through Hughes had never signed the consultancy agreement, his actions of continuing work and subsequent invoicing and accepting payments against those invoices, showed both parties willingness to be bound by the terms. Destra’s claim was dismissed.
The court decided that despite the absence of an express signed copy of the consultancy agreement, the copyright in a collaborative software development project belonged to the team or the commissioning entity irrespective of howsoever the arrangement is structured.
This claim could had been avoided which was a result of failure to ensure that clear and watertight agreement is in place and proper procedures followed.
Software ownership rights in a consultancy structure are intricate. Establishing ownership from the outset is vital in protecting your business and creating an asset that can be exploited. Where the intellectual property right is not registrable, e.g. copyright, it is important to your business that you properly document your ownership. When entering into agreements with third parties, and consultants we can advise you how to ensure that the agreement expressly covers the development terms and in particulars aspects relating to ownership of all current and future intellectual property rights.
Our team will seek out cost effective solutions for you if you are faced with a litigation or wish to ensure that appropriate agreements are put in place.