Mr Justice Norris :
- In this action Destra Software Ltd ("Destra") claims ownership of the copyright in a software system called "MAT:share" which supports the management of investments in hedge funds and other managed assets. Destra alleges that the Defendants (three commercial entities and three individuals) have infringed that copyright. On the 11 June 2012 HHJ Birss QC directed that there should be tried certain preliminary issues relating to the ownership and licensing of the software. This is the trial of those issues.
- Destra is the services company through which Mr Hughes carries on his software development consultancy business. Because he is its sole directing mind it is unnecessary to distinguish between the two. The individual Defendants are:-
a) Gertrud Keazor, who had been involved in client support activities for the hedge fund industry since the early 1990s and had a specialism in the building of websites and in the analysis and specification of web-based applications:
b) Christopher Mitchell who (after a background in programming, analysis, design and project management of IT systems) had developed an expertise in online transaction processing: and
c) Robert Mitchell ("Bob Mitchell") who is the brother of Chris Mitchell and also has a background in software development for hedge fund management.
- The two commercial entities through which those individuals now operate are:-
a) Comada (UK) LLP ("Comada") an English partnership formed in 2004 (though then with different members) and which now provides client support services and undertakes marketing activities: and
b) MAT Services Ltd ("MAT Services") a Bermuda company through which the software and software services are provided to clients and with whom those clients enter into agreements for services.
- A third commercial entity features in the narrative. This is the second Defendant Comada Limited ("Comada Cayman"). This was incorporated in 2005 but has not traded since 2006. For many purposes it will be unnecessary to distinguish between Comada, Comada Cayman and MAT Services: and I will simply refer to them generically as "Comada" unless the precise entity is significant.
- In essence, Mr Hughes worked as part of a team with Ms Keazor and others to develop the "MAT:share" product. Mr Hughes says that he incorporated some pre-existing code in which he owned the copyright: and he created further code in which he retained the copyright. Comada say that the copyright in the software developed by the team belongs to Comada (not to the individual team members who wrote it): and that there is an express contractual provision in Mr Hughes' consultancy agreement to that effect which binds him. For his part Mr Hughes accepts that even if he owns the copyright he claims Comada must have some sort of licence to use it: but he originally claimed that that licence was very narrow. At the outset Mr Hughes said:-
a) That whilst Comada Cayman can host the MAT:share software on its own servers it cannot permit its clients to run the software on their own servers:
b) That whilst Comada is entitled to host MAT:share on its own servers it was not entitled to permit MAT Services either to run the software or to sub-licence others to run it:
c) That Comada is not entitled to develop new versions of the software or to adapt it to suit the needs of particular clients.
- By the end of the hearing Counsel for Mr Hughes' accepted (as was the plain effect of Mr Hughes' own evidence) that if Comada/Comada Cayman did not own the copyright then it was permitted under licence to develop the software, to create other "flavours" of the software, to "white label" the software (i.e. to apply a customer's branding to the software) and to allow end-users to host the software on their own servers. But Counsel for Mr Hughes maintained that there had been no assignment of the software to Comada/Comada Cayman and that all that was necessary was an irrevocable non-exclusive licence which permitted Comada Cayman to use software created by Mr Hughes up to and including March 2004, and an irrevocable exclusive licence to use the software created post March 2004.
- This argument presents some difficulties since the pleaded claim to copyright is a claim to the MAT:share software as a whole. Paragraph 63 of the Reply avers
"MAT:share is the subject of copyright. It is properly described as a single programme, but it does not affect the case if it is also considered to be a collection of programmes."
- As a result the issues have not been defined (and the evidence has not been led) in such a way as to enable the Court to decide whether some parts (and if so which) of the programme were the result of individual effort and which the result of collaborative effort; nor have the issues been defined and the evidence led so as to enable the court to decide whether there was a particular type of freestanding and fully functional software system in existence by the end of March 2004 (rather than a number of functioning modules which had yet to be integrated into a functioning system). But I will do my best to address the claim made.
- These are my findings of fact. In 1987 Ms Keazor, Chris Mitchell and Bob Mitchell worked with others (in particular Mr Vaughan-Williams) in the development of a website to show fund facts and statistics for the Bank of Bermuda. In February 2000 they embarked on a development of this Bank of Bermuda software under the direction of a Mr Shastri. This software was initially called "the Fund Xchange System" (and then later called "FundNexus"). Mr Hughes (acting through Destra) was a member of the same team. The consultancy agreement under which Mr Hughes acted expressly provided that all software, methodologies and inventions produced during the term of the contract for Fund Xchange would remain the exclusive property of Fund Xchange who would have sole title to all copyrights.
- The FundNexus code was written in a language called "Delphi". It was a feature of the Delphi language and a consequence of the available means of communication between developers that the FundNexus codebase had to be built in modular units. Separate units were assigned to different developers. The coordination of the developers and the maintenance of the master copy containing all of the modules was the responsibility of Chris Mitchell, who would periodically upload the latest version of the assembled modules onto the test system. No individual developer had a complete copy of that assembly. Conflict between individual modules was avoided by transferring individual bits of code as required.
- In September 2001 responsibility for some of the module development was undertaken by a company called CJM Systems (a vehicle for Chris Mitchell and Bob Mitchell). Mr Hughes agreed that he (through Destra) would do some of that work. There is no written record of the terms of the agreement. But it is in my judgment clear that CJM Systems would not have sub-contracted development work to Destra other than on terms that CJM had an entirely unfettered right to use the work so produced in the FundNexus product (and all of the applications in which Fund Xchange Ltd itself chose to deploy that software). In fairness, Mr Hughes did not claim to retain copyright in what he had written for FundNexus.
- In the latter part of 2001 Zurich Capital Markets ("Zurich") acquired Fund Xchange Limited: it acquired the copyright in the FundNexus software by means of a confirmatory assignment on the 10 December 2001. Zurich, however, did not proceed with the development or apply the FundNexus software to the affairs of any client. It is common ground that Zurich must have abandoned its copyright in the FundNexus software as then developed.
- With the run down of the FundNexus project Ms Keazor, Chris Mitchell, Bob Mitchell and Mr Shastri were considering developing the project in a different direction. A new web technology had emerged ("DotNet") and webpage design had evolved into "cascading style sheets" ("CSS") which was suitable both for large flat screens and for hand held devices. It was in this context that Comada was formed on the 20 January 2004 to develop "Managed Asset Techware" or "MAT:ware" on a secure browser-based platform that was either in-house or hosted and which could be customised to specific requirements.
- Whilst these events were occurring Mr Hughes was himself developing an understanding of the new technology for website development based on a programming language known as "C#" and the DotNet software framework, having purchased the basic tools in November 2003 and finding that he had time on his hands with the rundown of the FundNexus project.
- In early 2004 he was invited to provide input into the Comada project. The object was to retain as much of the existing FundNexus logic as possible but to utilise DotNet as the framework. This would require conversion of the Delphi product into C#. That was the expertise that Mr Hughes was developing. He was doing so on an unpaid and speculative basis and thereby maintaining his relationship with the former FundNexus team.
- A consideration of the e-mails passing in early 2004 indicates a general exchange of ideas between Mr Hughes, Chris Mitchell and Bob Mitchell about the direction and method of development; the provision of FundNexus source code to Mr Hughes by Chris Mitchell for conversion into C#; the discovery by Mr Hughes of various features of DotNet; the participation of another developer (Gurbhajan Bagh) on an informal "sounding board" basis; compatibility problem-solving by Chris Mitchell; the development of user pages by Ms Keazor using CSS (sometimes called "cosmetics" but more accurately referred to as the interface with the user); consideration of database architecture and multiple hosting by Bob Mitchell. In short, the initial effort was collaborative. Whilst undoubtedly the bulk of the preliminary conversion work and the exploration of the DotNet framework were undertaken by Mr Hughes, there were significant contributions to the emerging system by others; and the whole was co-ordinated by Chris Mitchell.
- There is no hint in any of the contemporary material that Mr Hughes was (as he now says) creating for himself a free-standing database oriented dynamic web platform (later to be labelled "the Destra platform") capable of application outside the MAT:ware environment, and part of which he was making available to the Comada team. If such was the case (and for present purposes I will assume it to be so) I find that such circumstances were never made known to the Comada venturers. They did not know he was working on his own independent system: and they did not know he was incorporating part of that system in what he was involved in for them. Indeed, I sense that the work at this stage (late 2003 and early 2004) was more in the nature of a self learning programme undertaken by Mr Hughes using code with which he was familiar (derived from FundNexus material), and that it gradually developed into a feasibility study (or "proof of concept"), rather than the creation of a complete marketable product. Thus it was that on 18 February 2004 Mr Hughes could write an e-mail with the subject line "Start date?" enquiring as to the possible start date for "the Comada work".
- Whether or not there existed a functioning "Destra platform", I find that the evidence does not establish that by the end of February there was a functioning nascent MAT:ware system written by Mr Hughes, capable of being demonstrated to any potential client. The first functioning system, itself requiring much development, was delivered in July 2004 (according to Mr Hughes' pleaded case) following delivery to him of a MAT:share specification on 9 March 2004. The work continued until a complete functioning MAT:share system was ready on 28 June 2005. For the complete functioning system as developed Mr Hughes undoubtedly wrote hundreds of procedures drawing upon the collaborative work done in what I have described as the feasibility stage, upon the conversion of the FundNexus software, and upon newly written code: but work on the user interface, on report generation and on the database architecture was equally undoubtedly done by others. One does not get a fair picture of the significance of work done by others by simply totting up the size of the files passing between Mr Hughes on the one hand and Ms Keavor and the Mitchell brothers on the other. On a quantative approach that of course does not identify the actual original material included in the file and it ignores all coding material simply passing between the Comada venturers themselves and not sent to Mr Hughes: and totting up the bytes wholly ignores the qualitative element (how key various bits were, and how important the non-software elements of the business were).
- I must now pick up on two other themes. First the scope of the contemplated applications. Second the manner of Mr Hughes' remuneration.
- Part of the background discussions concerned possible hosting arrangements. An outline of the Comada project had been given to Mr Hughes in an email of the 22 January 2004 from Ms Keazor and Bob Mitchell in these terms:-
"We are intending to market a system which is similar to [Fund Nexus] but different in many ways, primarily in that [it is] intended for in-house use rather than as a separate system in its own right. So we'll be licensing the system for them to use, rather than getting them to sign up to a user agreement for "our" system and servers. But we'll be happy to arrange hosting for them of course. The system itself will be significantly different, but a lot of the functionality will be similar…"
In a later email they explained funding in these terms:-
"Development funding would come either from licensing, if we felt the changes were of use to others and should be part of the base system, or from the client as an extra charge by Comada for their specific requirement, customised interfaces to their other internal systems for example".
- On the 15 February 2004 Mr Hughes enquired of Chris Mitchell:-
"Would Comada still be hosted offshore and the customers access it over the net, as with Fund Nexus? Or would it be possible that custom installations would be deployed at clients' sites?"
To this enquiry Chris Mitchell responded:-
"Both are being suggested. Whatever the client wants!"
- From these exchanges it is clear that licensing by Comada of the developed software was a key part of the business model. Although Comada would host customer-dedicated software on its own servers it intended also to licence the software for use on the client's own server, and to offer "white label" products.
- As the development proceeded Comada was producing marketing material. Its "offer" was that Comada could "provide technology encompassed around key product suites that can be customised to your specific requirements". Amongst the product suites on offer was
a) "MAT-sale", a solution for the distribution of fund securities, internally and to third parties:
b) "MAT-order", a fund of funds operational tool maintaining a complex mix of information on holdings and trades
c) "MAT-trade", a product that provided a solution for the handling by investment banks and custodians of their trade functions (including execution, clearing, settlement and safekeeping):
d) "MAT-price", focused on electronic price distribution i.e. the collection and collation of price data amongst work groups.
The product on which development focused was MAT-share, of which Mr Hughes had been sent a product specification. But it is clear that this was simply part of a portfolio of developments which could be packaged and re-packaged in a number of ways. By what licensing arrangements these different product packages were to be exploited was not discussed.
- I turn to remuneration. At this early stage in the project Mr Hughes was not submitting invoices to Comada based on time spent at an hourly rate. All of the Comada development costs were being borne by the partners personally: so the understanding was that Mr Hughes would not invoice for his usual fee, but would instead be offered shares in a Comada vehicle. This Comada vehicle was never seen as a purely trading entity from whose business the participants would profit. Everyone hoped to establish an enterprise and then to sell the established enterprise in whatever manner generated the maximum return. Mr Hughes was, in effect, investing "sweat equity" i.e. he hoped to have a shareholding in a marketable trading vehicle that would emerge from Comada. So it was that Mr Hughes wrote on the 12 March 2004:-
"Although I don't have the share offer in writing yet, I thought I would start to look at the MAT:share next week. I'll look at the spec and think about ways of implementing the new functionality".
This provoked an email under the heading "Confirming our arrangement" which was in these terms:-
"This is to confirm our understanding of the arrangement with which you are happy to work with us on the MAT-ware software for Comada… we will transfer to you 0.5% of the share capital in Comada as soon as we incorporate the holding company in Bermuda. The Comada holding company will fully own Comada (UK) LLP. We are waiting to incorporate the Bermuda company until we have our first client… we will transfer to you the same number of shares again at the end of July 2004 … you will programme with us without fees are required until the end of July 2004 … we will start to pay you full commercial rates for your work from 1 August 2004, or earlier, when we have paying clients and are able to cover the costs of operating the website and basic business expenses… in other words, we intend to start paying you for some or all of your time as soon as we can, and certainly before we start to pay ourselves anything".
- Although the email invited Mr Hughes to comment, he did not do so but immediately began the conversion process according to the MAT:share specification, having a first version almost ready by 22 March 2004.
- By July 2004 it was clear that those payment arrangements could not be adhered to and another proposal was put to Mr Hughes which involved his continuing to work for Comada but with the right to receive an additional 4% shareholding at the end of January 2005 (with an option for the Comada partners to buy back part of that holding on the footing that Comada had a valuation of £5,000,000, which I think would have been far in excess of its value measured purely in income generating terms). After some negotiations it was agreed that, to ease cash flow, Mr Hughes would be paid a deferred fee of £10,000 in December 2004 and would receive his shareholding when the trading company was set up.
- Comada Cayman was duly established on the 29 October 2004 (originally as a Bermuda company) and Mr Hughes received his shares. In accordance with the arrangement, he raised an invoice for £10,000 in December 2004 in respect of the preceding 6 months work. But when February 2005 came round Comada was still not in a position to pay him a commercial rate for the work he was undertaking. This angered Mr Hughes who wanted either proper commercial rates for full time engagement, or further equity at the rate of 1% per month. This lead to the offer in March 2005 of a Consultancy Agreement, proposed to be effective from the 1 April 2005.
- Clause 3 of the Consultancy Agreement provided for the payment to Destra of a fee for "professional engineering services provided or otherwise as agreed in writing for fixed-fee work for a specified software module". What that fee amounted to was spelt out in an ancillary agreement: that in a change from the pre-existing position Destra would in fact be entitled to invoice for 20 hours per week at £40 per hour (even though that payment was being funded by the Comada participators personally); and it would be entitled to invoice for 40 hours at that rate once a client had signed up (and Comada Cayman had some income).
- Clause 7 of the draft dealt with intellectual property rights. It defined the term "Protected Works" as including any computer programmes, systems, software, source code or object code (and any improvements to or derivatives from such work) delivered by Destra to Comada Cayman
"Under this Agreement before or after the date of this Agreement, or conceived developed or produced by [Destra] whether alone or jointly with others in connection with or pursuant to [Destra's] performance under this agreement".
Clause 7(d) provided that all Protected Works should be deemed "work for hire" and be owned exclusively by Comada Cayman: and to the extent that it could not be "work for hire" Destra assigned all intellectual property rights in the Protected Works. Clause 7(b) said that the term "Protected Works" should not include any specified items, declaring
"These are and will remain the property of [Destra] even though they may be used in or made part of the work performed under this Agreement".
But no works were so specified.
- Clause 14.4 of the Consultancy Agreement said that no variations of its terms would be valid unless made in writing signed by the parties.
- Mr Hughes made some changes to the agreement to protect his position under IR35 (the applicable tax regime), commenting that "the rest seems fine". He then made a further change and on the 2 April 2005 sent an email stating:-
"This should be the last change now, as I am pretty sure this would be IR35 water-tight and I'd be happy to sign it if these small changes can be included".
The Consultancy Agreement in that form (described in the minutes as "amended and finalised") was approved by the board of Comada Cayman on the 4 April 2005. The board minutes specifically recorded that the Consultancy Agreement "served to ensure … that the intellectual property developed through the software was retained by Comada Limited".
- The Minutes were sent to Mr Hughes. On the 9 April 2005 he sent an email to Comada Cayman's solicitors stating
"I've just received the minutes of the Comada board meeting 4 April 2005 and I would like to confirm my agreement".
In oral evidence he said that he only wrote in those terms because he believed that he was a legal requirement for all shareholders to "approve" the minutes i.e. to accept them even if they disagreed with the contents. But the answer was singularly unconvincing. Mr Hughes directed that the Consultancy Agreement should be sent to his Australian address for signature, and this was done on 28 April 2005, having been signed on behalf of Comada Cayman.
- Although Mr Hughes had not signed copy of the Consultancy Agreement nonetheless on 15 April 2005 Destra sent an invoice to Comada Cayman in the sum of £10,000 with the narrative:-
"Software development fee, as agreed, for the next version of the Comada MAT:share website".
Destra sent a further invoice dated 31 (sic) June 2005 with the same narrative, also in the sum of £10,000. The reference "as agreed" can I think only be a reference to the Consultancy Agreement (Clause 3 and the collateral arrangement), for Mr Hughes did not (and could not) allege an agreement in some other terms for his periodic remuneration, effective after 1 April 2005.
- Mr Hughes did not ever sign the Consultancy Agreement. He says that this was on legal advice. On 6 July 2005 Australian lawyers wrote to say
a) That "the consultancy agreement whereby you agreed to engage our client's service… in actual fact commenced since in or about 2004"
b) That the agreement should not be for a fixed term but should be until terminated by either side on notice:
c) That there were some drafting points:
d) That the termination provisions were open to challenge and (crucially)
e) That "all (sic) intellectual property rights in connection with the system and the web pages belong at all times to our client" and to seek to insert into the consultancy agreement a provision for Comada to pay a licence fee.
- Chris Mitchell described this lawyers' letter as "a bombshell", asserted that no one individual could claim credit for the intellectual property ("its not just code, it's a working system") and pointed out that whilst Mr Hughes had been working for below a commercial rate the other participants had been working for nothing and had in fact been investing their own money on office costs, servers and on marketing. But, although Mr Hughes in his evidence protested that he was not trying to hold Comada to ransom, the plea fell on deaf ears and the parties moved further apart.
- This lead to the final break (at which point the MAT:ware software was still not complete and fully marketable).
- By November 2005 the other participants had incorporated MAT Service Ltd with the acknowledged object of distancing Mr Hughes from the software. However, this case is not about whether, by corporate restructuring, the other participants have unfairly deprived Mr Hughes of his share of the spoils (as to which, at first sight, there seems to be a case): it is about whether Mr Hughes is the owner of the copyright in the MAT:share software and (if he is) whether Comada Cayman has only a restricted licence such that its commercial use of the software since November 2005 has been unlawful.
- This involves first a consideration of whether Mr Hughes and Comada Cayman are bound by the terms of the Consultancy Agreement. It is common ground that if this question is answered in the affirmative then the action must fail: it founders on the terms of Clause 7.
- There are two subsidiary questions to be answered: (a) Does there appear to be a meeting of minds as to the terms of the agreement? (b) Does there appear to be a meeting of minds that the agreed terms are legally binding? Both of these questions fall to be answered adopting an objective approach (and not by reference to the subjective state of mind of either Mr Hughes or of the authorised human agents of Comada Cayman).
- The first subsidiary question is straight forward. After a period of negotiation Mr Hughes indicated on the 2 April 2005 that the Consultancy Agreement was in a form he would "be happy to sign". The Consultancy Agreement in that form was put before the board of Comada Cayman (the body having the constitutional authority to act on behalf of the company) on the 4th April, and the board approved it. The Minutes were sent to Mr Hughes (including a summary of the effect of the Consultancy Agreement upon intellectual property rights): and on the 9 April 2005 Mr Hughes confirmed his agreement.
- Mr Hughes said that in "confirming his agreement" he was not really doing so. But I have rejected that evidence. In any event his subjective state of mind is irrelevant. Objectively there was agreement upon the relevant terms.
- Then Counsel for Mr Hughes submitted that no agreement can be established because Mr Hughes did not know what precise form of Consultancy Agreement the Board had approved, since the Minutes (with the content of which he expressed his agreement) did not identify the "finalised" form of the Agreement. But the board in fact considered Mr Hughes final version, and it was the version that Mr Hughes said that he would be "happy to sign" that the board in fact approved. So far as I can see, at no time before Counsel took the point had Mr Hughes himself ever enquired "What version?". So objectively there was agreement upon the terms that the board approved.
- The second subsidiary question is less straight forward. The Consultancy Agreement contemplated signature by both parties for it to be binding. The consensus upon the terms did not make the agreement binding because both parties contemplated a signed formal document. The approval of the Board to the finalised Consultancy Agreement did not make it binding on Comada Cayman. The Board directed that the document should be signed by a director. It was signed by the duly authorised representative of Comada Cayman. It was not signed by the duly authorised representative of Destra.
- Once the agreement had been signed on behalf of Comada Cayman, the requirement for signature on behalf of Destra operated for the protection of Mr Hughes. He could not be held to the agreement in law without some action on his part. The contemplated act was signature by him on behalf of Destra. But Mr Hughes could waive that provision if he choose. He could chose to perform some other act that objectively recognised that the terms of the Consultancy Agreement were binding as between Comada Cayman and Destra. What he chose to do was (a) to continue to undertake work on the MAT:ware software; (b) to invoice for the work – a right that only arose under the Consultancy Agreement (under clause 3 and the ancillary agreement as to mechanics); and (c) to accept payment when made. The Consultancy Agreement had itself been generated by Mr Hughes' very complaint, made in February 2005, that he was unable under the existing arrangement to render invoices. So when Mr Hughes invoiced on the 15 April for 20 hours work and accepted payment that was an unequivocal demonstration that he accepted, and indeed asserted, that the terms of the Consultancy Agreement were binding as between himself and Comada Cayman. The terms of clause 14.4 (which deal with variations in the agreement once it is legally binding as between the parties) do not in my judgment affect the position as regards to the agreement becoming binding in the first place.
- Counsel for Comada analysed the same facts applying the principles of estoppel – that Mr Hughes was estopped from denying that he was bound by the contract. In my judgment that is an entirely orthodox alternative: see Whitehead Mann Limited v Cheverny Consulting Limited [2006] EWCA Civ 1303 at paragraph [46] ("subsequent events have occurred whereby the non-executing party is estopped from relying on his non-execution").
- This conclusion is sufficient for me to hold that the action must be dismissed. But in case I am wrong I ought to address Mr Hughes' principal argument: absent any express agreement in the terms of the Consultancy Agreement about the ownership of copyright, what terms are to be spelt out of the relationship between Comada and himself as regards copyright?
- One approaches the answer to this question by recognising that on this footing there is still a contractual relationship between Comada/Comada Cayman on the one hand and Mr Hughes on the other. The agreement is that made in July 2004: Mr Hughes is to continue working on the MAT:ware software, he is to be paid one deferred fee in December 2004 and be given additional shares in Comada Cayman (when established) in January 2005, but subject to buy back provisions. What did that agreement implicitly provide about the ownership of copyright (the terms of the Consultancy Agreement both as to copyright and generally not being binding?)
- It was common ground that Comada/Comada Cayman must have some right to use the code that Mr Hughes wrote or translated. It was also common ground that the principles by reference to which that right was to be ascertained were in the first instance to be found in the judgment of Lightman J in Robin Ray v Classic FM [1988] FSR 622 at 640-643. Each side also took to heart the advice of Christopher Floyd QC (as he then was) in Clearsprings Management v BusinessLinx Limited [2006] FSR 3 at paragraph 36 that there are dangers in listing the factors identified by Lightman J and then looking at the degree to which each of them may be present in the instant case. Where Counsel differed was in the detailed application of these accepted principles.
- Counsel for Mr Hughes emphasised that a minimalist approach is called for so that "if it is necessary to imply some grant of rights in respect of a copyright work, and the need could be satisfied by the grant of a licence or an assignment of the copyright, the implication will be of the grant of a licence only" (Robin Ray at p642).
- It was this adoption of the minimalist approach that led Counsel to identify the implied term as to copyright as consisting of (a) a licence to Comada Cayman being a non exclusive licence to use the software comprising "the Destra platform" as existing at March 2004, coupled with (b) an exclusive licence to use the code generated by the entire development team after March 2004. The concessions made during the trial relating to further restrictions on the scope of the licence made this core argument appear the stronger.
- Whilst accepting that each case must turn on its own facts Counsel for Mr Hughes placed some reliance on the actual decision in Clearsprings itself. In that case the Defendant already had a web-based database system utilising the "BusinessLinx" software. Clearsprings wanted the Defendant to develop a web-based system, and it was common ground that the first owner of the copyright in the new system so developed would be the Defendant (not Clearsprings); but Clearsprings contended that it was an implied term that the Defendant would assign the copyright in the new system or in the alternative had an extensive licence. It was common ground that that licence would be perpetual, irrevocable and royalty free, and permitted Clearsprings to repair, maintain and upgrade the system as regards its existing business (but not adapt it for other business). But Clearsprings claimed (and the Defendant denied) that the licence was exclusive and permitted Clearsprings to distribute and sub-licence the new software and derivative versions. Shortly put, the deputy judge held that Clearsprings were wrong (and the Defendant was right) in relation to the contentious issues. There was no exclusivity and no right to distribute or sub-licence the new system. Counsel for Mr Hughes submits that it would not be surprising if the same result were to be reached in the instant case. If such a thing as the Destra platform existed and if parts of it were incorporated in the MAT:ware software, then if the objective observer were to be asked "Can Mr Hughes use the Destra platform in other contexts or develop it in other ways?" it would not be realistic to think that that question would be answered in the negative. The objective observer would say "Of course he does not have to go back to the beginning: he can continue to use anything he incorporated in the MAT:ware software".
- For his part Counsel for Comada emphasised two observations of Lightman J in Robin Ray indicating circumstances in which it is necessary to treat the parties as having agreed upon an assignment of copyright to the party commissioning the contractor's work. First, where the purpose in commissioning work is for the client to multiply and sell copies on the market for which the work was created, free from the sale of copies in competition with the client by the contractor or third parties. Secondly, where the contractor was engaged as part of the team with employees of the client to produce a composite or joint work and cannot have been intended to be able to exploit for his own benefit the joint work or indeed any distinct contribution of his own created in the course of his engagement. Counsel for Comada submitted that the whole object of the engagement of Mr Hughes/Destra was to participate (along with others) in the creation of fund management software that was to be licensed to third parties in sundry jurisdictions across the world: that it cannot have been contemplated that individual contributors should be entitled to retain the copyright in the individual bits of code they were all creating for the company in which they were all shareholders; and that it is plain that the company that was licensing the software for use by clients had to have available a full range of enforcement measures to protect its software.
- Counsel for Comada submitted that whilst every case turned on its own facts it would not be surprising if I reached the same view as did Jacob J in IBCOS Computers v Barclays [1994] FSR 275. In that case a programmer and a client developed a package targeted at agricultural dealerships. They marketed this through a company. The question was: who owned the copyright with which the company started? That could only be answered by knowing who owned the copyright during the period of the informal partnership between the programmer and the agricultural dealer. The judge decided that it belonged to the informal partnership because
"The program as it then stood was the very foundation of the venture. Moreover even if he had not contributed to it by way of programming, [the dealer] contributed to it in other ways – by considerable discussion as to what the program should do and by some payment… He was for some time with [the programmer] intending that the developments should result in a vendible product… I think it was indeed "absolutely necessary" that the company should own the copyright in the program as it was in 1982. If the position were otherwise once the program was established commercially [the programmer] could have left the company and sold the same product on his own account. Or if there was a third party pirate, it would not be the company's right to sue for infringement and claim damages. Neither of these would make any commercial sense".
- I am in no doubt that under the contract that predated the Consultancy Agreement it was implicit that the copyright belonged to the commissioning entity and not to the contractor. I so conclude for the following reasons:-
a) The very foundation of the venture conducted by Comada (later Comada Cayman) was the MAT:ware software. The idea that the actual copyright in the MAT:ware software should not belong to Comada/Comada Cayman makes no more commercial sense than it did in IBCOS. MAT:ware is not a tool that is deployed in Comada's business: it is the very business itself. It is what the whole enterprise was about.
b) The object of the business was that MAT:ware should be exploited in whatever way proved to be beneficial. If an informed bystander had been asked "Does anyone have a veto over the way in which Comada Cayman exploits the software?" he or she would have said "Of course not: it is up to the company through its directors and shareholders what they do. Everyone's efforts in establishing the enterprise are reflected in their shareholdings and their individual contractual arrangements".
c) One of the principal means of exploiting the software was by licensing: it was necessary for Comada Cayman to have full rights of enforcement in multiple jurisdictions. That is secured by assignment but not by licensing.
d) The ultimate aim of the project was to dispose of the enterprise to the maximum advantage of the participants: it is necessary to the attainment of that goal that Comada Cayman should own the intellectual property rights and be able to dispose of them freely without requiring any purchaser of the business to negotiate with multiple Claimants to the copyright in the core product in order to gain complete control.
e) The MAT:ware software was a collaborative effort: it makes no sense for individual team members to retain property rights of any sort in what that member produced.
f) There cannot be any special implied term relating to what Mr Hughes produced because Mr Hughes never disclosed to any other participator either that he was creating something called "the Destra platform" or that he was incorporating part of it in the work that he was doing on the MAT:ware software. Implied terms are based on what is obvious given the common knowledge of the parties. You cannot create an implied term out of secret knowledge held by one party alone. That was the view I expressed in Burrows v Smith [2010] EWHC 22 (Ch) at paragraph [44]: and I adhere to it. That is why the actual decision in Clearsprings does not assist in this case: in Clearsprings it was common knowledge that in performing the commission the contractor would be using software that already existed.
- For these reasons I determine the Ownership and Licensing issues (as defined in paragraph 2 of HHJ Birss QC's order of the 11 June 2012) against Destra: and I dismiss the Claim.
