Consultants claim joint IP ownership

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Consultants claim joint IP ownership

We defended an injunction application that claimed our client infringed a consultant’s intellectual property.  We established our client rightfully owned the intellectual property. The case was heard at the Intellectual Property Enterprise Court, IPEC

Our client provides payroll services to small and medium size businesses. Our client collaborated with an IT Consultancy, called 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.

Our client created a consultancy agreement which contained:

  • Provisions that covered the software development stages;
    • Fees payable on completion of each stage.
  • Provisions for intellectual property rights,
    • Assigned to our client  upon development and payment;

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. Nevertheless, both parties acted as specified by the consultancy agreement’s terms.

When software development finished, our client assumed ownership, and licenced their software to clients. The IT Consultancy sought an injunction against our client, claiming:

  • Unauthorised sale of software;
  • Joint ownership of the software development:
    • Through a collaboration of both parties.

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

The joint ownership arguments

The IT consultancy argued:

  • The IT Consultancy never entered or signed a consultancy agreement;
  • A team comprising employees of both companies developed the software;
  • Both parties jointly created and owned the intellectual property:
    •   Because each party equally contributed to the software development;
  • Our client was not authorised to licence the software to third parties:
    • Without obtaining 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 development schedule and payment terms, the very essence of the contract.

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

IT Consultancy had never developed payroll software. IT Consultancy would have failed, without our client’s expertise.

The court’s decision

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

  • The IT Consultancy’s actions were consistent with the consultancy agreement’s terms:
    • Both parties had developed the software in mutual agreement;
  • The judge found the consultancy agreement valid;
  • Our client was within its right to unreservedly exploit its intellectual property ownership.

The judge:

  • Denied IT Consulancy an injunction;
  • Directed IT Consultancy to assign all its intellectual property 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. Only you, the client, really understands the problem and solution. Consultants have every incentive to claim the IP.

We establish your intellectual property rights at the outset.  This prevents costly disputes or the loss of your IP.  Set out these rights before work begins.

It is often difficult to make collaborations. Often each party has it’s own and different:

  • Interests;
  • Objectives;
  • Timeframes;
  • Committment 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.