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Developer keeps software rights as implied term argument fails in court

A company’s claim for ownership of the copyright in a piece of software has failed because it was not explicitly stated in a contract. Meridian International Services had said that its ownership was an implied term of an agreement.31 Oct 2007

Advert: The Outsourcing Summit, London, 19th and 20th November 2007The High Court said that the company failed to prove that its ownership of the material was a term of the agreement and said that it could not claim intellectual property rights in the software.

Meridian won a contract for the development of a piece of software, called StatX, from pharmaceutical giant GlaxoSmithKline (GSK). It ran into financial difficulties and could not pay staff. A backlog of other work prevented the software being started until some of the workers at the company left over unpaid wages.

Those workers set up another company, IP Enterprises, and proposed to Meridian that it carry out the work, paying Meridian a ‘finder’s fee’ of 20% of the £200,000 cost of the project. The parties met in January 2006 in what was described in court as “an angry and difficult meeting”.

They agreed that IP Enterprises would carry out the work, though after haggling the fee to be paid to Meridian was set at 30% of the fees paid.

In court Meridian claimed that at that meeting it was agreed that it would own the copyright in the software once it was finished. IP Enterprises disputes that claim. There was no mention of it in a confirmation email sent by IP Enterprises after the meeting. That email said “This is as I understand the situation as we agreed yesterday – if you do not agree please let me know today”.

John Bobeckyj, the chief executive and sole shareholder of Meridian, did not dispute IP Enterprises' account of the meeting at the time.

Robert Ham QC, sitting as a deputy High Court judge, said that he did not believe Bobeckyj’s account of the meeting, and that in fact he did not find any of Bobeckyj’s evidence reliable. “Mr Bobeckyj came across like a salesman with an answer for everything… Mr Bobeckyj’s evidence before me was similarly dishonest,” said Ham in his ruling.

The Court found that Meridian’s claim that there was an express term of the agreement in that January meeting that awarded it copyright was not established.

Meridian then claimed that there was an implied term in the agreement that it should own the copyright. An implied term of a contract is something so obvious that it need not be stated, something without which the contract cannot be effective. It cannot contradict any term of a contract that is actually expressed.

The Court said that when framing implied terms, courts must not go any further than what is necessary to make the contract function. Meridian relied on a contract signed after the fact and the evidence of Bobeckyj that its terms were the same as those in an earlier draft contract.

“In my judgment, the existence of a draft contract the terms of which are not known but which were still open to negotiation is an insufficient basis for the implication of a term,” said Ham in his ruling.

“No contract having been entered into, it would have [been] possible to adapt the terms of the contract to the January agreement and it was not necessary to imply a term in order to make the January agreement workable,” he said. “The contract with GSK could have been adapted to bring it into line with the January agreement. Nor in my judgment was it so obvious as to go without saying that a term should be implied.”

The High Court found that IP Enterprises was the owner of all copyright in the StratX software.

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