Consultants claim joint IP ownership

Gannons defended an injunction application.

The application was brought by an IT consultancy that had developed software with our client and claimed joint ownership of the intellectual property. We established that our client was the sole owner of the IP.

Our client provides payroll services to small and medium-sized businesses. It collaborated with an IT consultancy to develop a new and unique software solution.

The collaboration combined each party’s specialist skills. Our client contributed its payroll expertise and knowledge, while the IT consultancy provided software development expertise. The parties established joint development teams to deliver the project.

Consultancy agreement

Our client prepared a consultancy agreement covering the software development stages and the fees payable on completion of each stage. It also provided for the intellectual property rights to be assigned solely to our client upon development and payment.

Adhering to the unsigned agreement

Our client signed the consultancy agreement and sent it to the IT consultancy, which failed to sign and return it. However, the consultancy followed the development schedule and invoiced our client in accordance with the agreement’s terms.

Despite several requests, our client did not receive a signed copy. Nevertheless, both parties acted in accordance with the agreement.

Joint IP ownership claim

When development was complete, our client assumed ownership of the software and licensed it to its clients. The IT consultancy sought an injunction, claiming joint IP ownership on the basis that both parties had collaborated in developing the software. It argued that our client’s licensing activities amounted to unauthorised use of the software.

Injunctive-relief

The IT consultancy sought injunctive relief, a court order requiring our client to stop the specified activity.

The joint IP ownership arguments

The IT consultancy argued that it had never entered into or signed the consultancy agreement and was therefore not bound by its terms. It also claimed that employees from both companies had jointly developed the software and contributed equally to its creation. On that basis, it argued that the parties jointly owned the IP and that our client could not license the software to third parties without its consent.

Our counter arguments

We advanced three key arguments:

Contract accepted by conduct

An unsigned contract may be binding where the parties’ conduct demonstrates acceptance of its terms. We argued that the IT consultancy’s failure to sign was not decisive, as it had followed the development schedule and invoiced our client in accordance with the agreement’s payment terms.

Ownership and licensing rights

We argued that our client owned the software under the agreement and was therefore entitled to license it to third parties without the IT consultancy’s consent.

The IT consultancy’s lack of expertise

The IT consultancy had no previous experience of developing payroll software. We argued that our client’s specialist payroll knowledge was fundamental to the development of the software solution.

Court’s decision

The judge agreed with our position and attached no decisive importance to the IT consultancy’s failure to sign the consultancy agreement.

Judge’s findings

The judge found that the IT consultancy’s conduct was consistent with the agreement’s terms and held that the agreement was valid. Although both parties had contributed to the software’s development, our client was entitled to exploit the intellectual property in accordance with the agreement.

Judge’s order

The judge refused the IT consultancy’s application for an injunction and directed it to assign its intellectual property rights to our client.

Conclusions

When engaging consultants, it is essential to define intellectual property ownership clearly. Software development often depends on a combination of technical expertise and the client’s specialist knowledge of how the software will be used. Without clear contractual terms, consultants may later claim rights in the resulting product.

Collaboration can be challenging because each party may have different interests, objectives, timescales and levels of commitment.

Commercially sound arrangements and carefully drafted agreements can help protect each party’s position. We combine commercial, intellectual property and tax expertise within a close-knit team to help clients structure these arrangements.