Consultants claim joint IP ownership

Gannons defended an injunction application.

The application came from a consultancy who developed software with our client, and claimed joint IP ownership of that software.We established our client solely owned the IP.

Our client provides payroll services to small and medium size businesses. Our client collaborated with an IT consultancy who coded our client’s new and unique software solution.

The collaboration utilised each party’s specialist skills. Our client had deep payroll expertise and knowledge. The IT consultancy brought software coding know-how. The companies created joint development teams.

Consultancy agreement

Our client created a consultancy agreement which contained provisions that covered the software development stages. This included the fees payable on completion of each stage. The provisions for rights to the intellectual property were also included as being assigned solely to our client upon development and payment.

Adhering to the unsigned agreement

Our client signed the consultancy agreement, then sent it to the IT consultancy. The IT consultancy failed to sign and return the agreement. However, the IT consultancy adhered to the development schedule, and invoiced our client according to the agreement’s terms.

Our client requested a signed copy from the IT consultancy a few times, but they were not forthcoming. Nevertheless, both parties acted as specified by the consultancy agreement’s terms.

Joint IP ownership claim

When software development finished, our client assumed ownership, and licensed their software to clients. The IT consultancy sought an injunction against our client, claiming joint IP ownership because the IP was a collaboration of both parties. They argued on this basis that our client's actions amounted to unauthorised sale of the software.

Injunctive-relief

Technically, the IT consultancy sought “injunctive-relief”, which is a court order for the defendant to stop a specified act or behaviour.

The joint IP ownership arguments

The IT consultancy firstly argued that they had never entered or signed a consultancy agreement and so were not bound by it. Furthermore, they argued that a team comprising employees of both companies developed the software. Therefore because both parties had jointly created and equally contributed to the software development, both parties jointly owned the IP. Hence our client was not authorised to licence the software to third parties without obtaining the IT consultancy’s prior consent.

Our counter arguments

We countered with three points:

Accepted contract by conduct

An unsigned contract can be enforced if the parties act as if they had signed it. That the IT consultancy did not sign the consultancy agreement was irrelevant. Our clients had certainly acted in accordance. The IT consultancy adhered to the the very essence of the contract: the development schedule and payment terms.

Within rights

Our client owned the software. Our client was free to licence its software. IT consultancy knew our client was within its rights.

IT consultancy lacked expertise

The IT consultancy had never developed payroll software and would have failed in attempting to do so without our client’s expertise.

Court's decision

The judge agreed with us and placed no importance on the fact that IT Consultancy did not sign the consultancy agreement.

Judge's findings

The judge found that the IT consultancy’s actions were consistent with the consultancy agreement’s terms, which the judge duly found valid. Therefore whilst both parties had developed the software in mutual agreement, our client was within its right to unreservedly exploit its intellectual property ownership.

Judge's actions

On the basis of this ruling, the judge denied the IT consultancy an injunction. Then directed the IT consultancy to assign all its IP rights to our client.

Conclusions

When working with consultants, define who owns the intellectual property. Many large software companies were founded on the back of a client’s software development project. Many consultants can write code, however, only you really understand the proper application of this code. Consultants have every incentive to claim the IP though.

It is often difficult to make collaborations. Often each party has it’s own and different interests, objectives, timeframes and commitment to the project.

It requires commercial know-how to adopt appropriate business arrangements that work for both parties, and draft an appropriate agreement. Uniquely, we combine commercial, IP and tax expertise within a tight-knit group.