Who owns the copyright in software created by your employees?

12/03/21 – In accordance with the Copyright, Designs and Patents Act 1988 where any work “is made by an employee in the course of his employment, his employer is the first owner of any copyright in the work, subject to any agreement to the contrary”.

I think I knew that already.  So what’s the issue?

For ownership of the software to vest in the employer, the software must be created not only by an employee, but “in the course of” the employee’s employment.  And if the employee is creating the software at home, or outside wording hours, or using their own computer, then whether the software is created in the course of the employee’s employment may not be clear cut.  This was the issue that the Intellectual Property Enterprise Court considered earlier this year in Penhallurick v MD5 Ltd.

Ok, what happened?

Short version is that Michael Penhallurick claimed ownership of the copyright in a user guide and graphical user interface that he created while employed by his former employer MD5.  He also alleged infringement of those copyrights by MD5.   Mr Penhallurick put forward a number of arguments to support his claims, including that he worked on the relevant software using his own computer, primarily in his own time, and that each version of the software expressly identified him as the author.  MD5 argued that the software development was carried out as a result of instructions given by MD5 as his employer, and during a period when Mr Penhallurick was an employee of MD5 under an employment contract which contemplated ownership of the software by MD5.  On the facts, the judge sided with the employer, and granted MD5 a declaration of ownership of the software.

And you’re telling me about this case because…?

Because although Mr Penhallurick failed with his claims, there are circumstances in which the ownership of software (or for that matter other works that are subject to copyright) will not vest in the employer.  At the risk of stating the obvious, this can result in significant difficulties, particularly where the relevant software is then commercialised and/or becomes a material asset of the business.

To determine whether software has been created “in the course of” employment requires a multi-factorial assessment, including:

“(a) the terms of the contract of employment;

(b) where the work was created;

(c) whether the work was created during normal office hours;

(d) who provided the materials for the work to be created;

(e) the level of direction provided to the author;

(f) whether the author can refuse to create the work/s; and

(g) whether the work is ‘integral’ to the business.”

(as per David Stone sitting as an Enterprise Judge in Mei Fields Designs Ltd v Saffron Cards and Gifts Ltd [2018], and approved in Penhallurick v MD5 Ltd)

In the context of software development, an employer is therefore well advised to ensure not only that there is an employment contract in place, but that the contract includes provisions dealing with the ownership of any copyright (and/or other IP) that is created by the employee:

  • outside the employee’s normal place of work and/or
  • outside the employee’s normal office hours and/or
  • using equipment or materials not provided by the employer,

and, importantly, whether the employee is entitled to work on the employer’s existing software/other products without the employer’s express, preferably written instructions.

Receive email updates

Subscribe to updates on topics relevant to you. We won’t use your email address for any other purpose, and you can of course unsubscribe at any time.

Which emails would you like to receive:

I consent to my personal information being used to send me updates on the topics that I have selected.