Intellectual property: rights in employee creations

A recent copyright decision at the Intellectual Property Enterprise Court has found in favour of an employer in a dispute relating to the ownership of literary works or software created by the employee. It serves as a timely reminder of the distinction between authorship and ownership of works created through the course of one’s employment.

In Penhallurick v MD5 Ltd [2021] EWHC 293 (IPEC) (15 February 2021), the claimant asserted ownership of copyright in eight works of software, all of which related to a technique he called “virtual forensic computing” or VFC. The works comprised various versions of the software as well as a graphic interface and a user guide.

The claimant had conducted research into VFC during his MSc degree and produced a thesis on his VFC method prior to commencing employment with MD5. He was employed by MD5 between November 2006 and April 2016, where he developed the VFC software to assist with forensic casework supplied to MD5 by the police. The decision as to ownership of the works turned on whether the software, interface and guide were created within the course of his employment.

Authorship v ownership

On the evidence, the judge concluded there could be “no doubt” that making the software was the central task for which the claimant was paid. It was acknowledged that he wrote part of the work at home in his personal time; and even that it was likely that he wrote part of the software before having express permission from MD5 to devote the majority of his time to doing so. However, it was concluded that all the works were created with MD5’s knowledge and encouragement, and were directed to making and improving their VFC software product. In addition, there was held to be a binding agreement between the parties in 2008 which assigned to MD5 the ownership of the existing copyrights as well as the rights in the software yet to be written.

This decision highlights the key distinction between authorship and ownership. The general rule is that the first owner of copyright will be the author, but where a work is made by an employee in the course of their employment, it will be the employer. Therefore, though the claimant was the author and creator of the software code, MD5 was the owner in the first instance. The important question is whether the work can be said to be carried out during the course of the author’s employment. This is a question of fact, though case law has suggested a number of factors which can be taken into account:

• the terms in the employment contract;
• where the work was created – for example, in the office or at home?;
• when it was created – for example, during or outside normal working hours?;
• who provided any materials used (computer, software, equipment, etc);
• whether the employee was working subject to direction or on their own initiative;
• whether they could have refused to create the work;
• whether the work produced is “integral” to the business.

Unlike in the case of employees, if you commission work from a third party, the contractor will own the copyright in the absence of an agreement to the contrary. In such cases it is essential to address ownership directly in any legal agreements. The law permits the assignation of copyright in works which have not yet been created, which allows greater flexibility when drawing up such agreements. It is important to note that a common mistake by the commissioning party is the belief that if they have paid for the work, they will own it. In such cases, the courts have been known to imply licences to use the work, but this is not guaranteed. In any event, you would only be able to argue for an implied licence where all the circumstances suggest that the copyright owner expected you to use their work in the way you were going to, even though this was never discussed and was not written down anywhere.

Beware the remote worker

An important takeaway from this case is the comments regarding the employee’s homeworking. It was noted that the fact that work was carried out at home was a relevant consideration in assessing whether it could be said to be carried out during the course of the author’s employment. As we witness a rise in remote working, employers need to consider intellectual property carefully. This valuable business asset may be at risk away from traditional controlled workplace environments.

It should be noted that where remote working does not entail any change to employment, copyrights will likely continue to be owned by the employer. However, if an employee’s obligations are subject to change due to remote working, it may be necessary for employee contracts and copyright policies to be updated to include specific clauses on ownership suitable to the working from home model.