Contractors' Questions: How to best exploit my company's IP rights?

Contractor’s Question: I developed a web application (‘the Product’) for a company (Company A), which was carried out by my company (Company B). Subsequently, it was agreed that a business was to be set up (Company C) whose purpose was to sell the Product and both directors of Company A and B were made directors of Company C. When Company C was formed, no IP rights were explicitly transferred to it in writing.

When the Product was built, the contract stated that:

1) Company A grants to Company B a royalty-free, worldwide, non-exclusive licence to use the content supplied by Company A for the purposes of the Product only.

2) Copyright to the assembled work of web pages produced by Company B is owned by Company B. Upon final payment, Company B shall grant to Company A a royalty-free, worldwide, non-exclusive licence to use the website design, the web pages and the parts of the content designed by Company B. Rights to graphics, source code and computer programs are not transferred to Company A and remain the property of Company B.

• By setting up Company C in this way, were any IP rights passed across, perhaps by common law?
• Can Company B freely charge Company C a licence fee for having the right to sell/use the Product?
• If the answer is ‘yes’ and Company C does not pay Company B, does Company B have the right to switch the web application off and/or impose an injunction?
• If Company B can switch it off, what impact, if any, does this have on Company A rights to use the Product?

Expert’s Answer: Your questions and scenario primarily concern the rights in the Product, the ownership and exploitation of those rights. A worthwhile response to such questions depends very much on the specific facts of the case, for example what was agreed between the various parties involved? What was set out in the contracts and any other relevant written documents? Also central to such a response will be the details of the Product – what it is; what it does, how it works, how it fits in with the web designs and web pages referred to? In addition, what Company C contracted to do and what it needs in order to do that? As you can hopefully appreciate, considerably more detail about the background, an examination of the contract and other documentation would be required in order to give definitive advice you can rely upon. In this Q&A format, only some general advice in the relevant areas can be provided, as well as some explanations around some of the general principles relating to the Intellectual Property (IP) issues involved.

As you indicate in your question, the main right in the Product will be copyright which is an intellectual property right. In the first instance, copyright is owned by the creator of the work in question. You state that you developed the Product via Company B. 

Further information would be required to establish whether the copyright was initially owned by Company B or you, the questioner, personally. Relevant factors include whether you were an independent contractor or an employee of Company B at the time of the Product was developed and whether there was any written agreement relating to ownership of rights in the Product. This is because the ownership of copyright can only be transferred by written agreement signed by the owner, with the exception of a copyright work created by an employee in the course of his or her employment which will then belong to the employer.

In some cases, such as in this instance, where the Product was commissioned by Company A, the commissioner may be able to argue that it is entitled to an implied licence to use the copyright work. Even if that claim is successful, it may not result in a transfer of ownership but more likely in some form of implied licence, quite possibly only non-exclusive. 

Clearly it is not satisfactory to rely on such a claim in view of the uncertainty as to the outcome, the time it is likely to take to establish the position and potential cost of court proceedings for the parties concerned. By far the preferable course of action is to have a written agreement clearly setting out all the relevant terms before any work is carried out.

A copyright owner can transfer or grant a licence of the whole or part of the copyright work.  The commercial terms applicable to a transfer or licence, such as any payment to be made in return for the transfer or licence, the type of payment e.g.  a lump sum, a royalty based on sales, the duration of the licence, what the licensee can and cannot do with the licensed right and so on depend upon what is agreed between the parties.  As indicated above, to be effective a transfer of copyright (known as an ‘assignment’) should be in writing and signed by the owner and it is highly recommended that the terms of any licence should also be set out in a written agreement.

The Product is described as a web application including website design, web pages, content, graphics, source code and computer programs. These are all capable of being separate copyright works.

The ownership of each of the components will need to be established if they have been created by a different individuals or companies.  For example, if the Product includes items such as text, photographs, drawings, designs, videos, animations etc. which have been created by a third party or obtained from an agency, it is important to check that all the necessary copyright transfers or licences are in place before any onward transfer or licence is agreed.  Any use, adaptation or other exploitation, copyright work without the appropriate permission would be an infringement of the owner’s rights which could lead to action being taken against the infringer.

If the Product includes any registered trade marks or other registered rights, any transfer or licence will need to be made in accordance with the relevant statute and recorded as appropriate with the relevant registry.

A more definitive response from a legal adviser to the questions you raise would require more detailed information about the Product; the way in which it was created and an examination of all related documentation. I’d therefore advise that you prepare these materials and consult a solicitor in order to obtain specific legal advice on these issues.

The expert was solicitor Sue Mann, on behalf of legal advisory Cousins Business Law.

Editor’s Note: Related Reading –

Contractors’ Questions: Do I waive my rights if I accept this IPR clause?

Contractors’ Questions: Does leaving me unpaid reduce their right to IP?

Contractors’ Questions: Did I breach intellectual property rights?