Infection Control Enterprises Ltd v Virrage Industries Ltd and Another
| Jurisdiction | England & Wales |
| Judge | HIS HONOUR JUDGE CHAMBERS QC,HHJ Chambers QC |
| Judgment Date | 22 October 2009 |
| Neutral Citation | [2009] EWHC 2602 (QB) |
| Court | Queen's Bench Division |
| Docket Number | Case No: 2008 FOLIO 1049 |
| Date | 22 October 2009 |
[2009] EWHC 2602 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MERCANTILE
Royal Courts of Justice
Strand, London, WC2A 2LL
His Honour Judge Chambers QC
sitting as a judge of the High Court
Case No: 2008 FOLIO 1049
Robert Thomas (instructed by Wedlake Bell) for the Claimant
Richard Edwards (instructed by Matthew Arnold & Baldwin LLP) for the Defendants
Hearing dates : 5 th– 7 th May, 22 nd– 24 th, 26 th June 2009
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This case concerns an acrimonious dispute concerning ownership of the copyright in the software of a computer system that is intended to collate data relevant to the identification and eradication of hospital bred diseases of which well known examples are MRSA and C.difficile. During the course of the trial this system was often described as the "Mark I system" in order to differentiate it from further development work by the Defendants which has been referred to as "Mark II".
ICEL asserts that its rights in the software arise under written Heads of Agreement dated 2 March 2007 (B1/261) and made between ICEL and the First Defendant ("Virrage") ("the Agreement").
The Agreement was made because there had been non-performance by a company called Link Information Systems Ltd ("LIS") of an agreement between ICEL and LIS dated 6 May 2006 ("the LIS Agreement") (B1/106). Under the LIS Agreement, LIS was to have provided the system at a price of £150,000 pursuant to a detailed specification dated 12 January 2006 (B1/34). LIS is also said to have agreed to additional work.
Clause 11 of the LIS Agreement stated:
"…
Title to product passes on full payment of purchase price. At that time, Title, copyright and all other property rights in the Software System shall remain vested in ICE …"
LIS subcontracted its obligations to Virrage. The Second Defendant ("Mr Cartwright") is and was a shareholder in and director of Virrage. He was also a director of LIS. His responsibilities were on the technical side (B1/57). Whatever the extent of that expertise, he was the business brains of Virrage on whose behalf he deployed a talent for marketing.
Although ICEL paid £60,000 to LIS, Virrage only received £10,000 and, in late 2006, stopped work in consequence.
After learning of the situation, ICEL threw up the LIS Agreement. LIS appears to have accepted the situation and, in due course, the Agreement was made. It states that:
"…
For avoidance of doubt the specification will be the same as ICEL previously agreed with Link Information Systems unless both parties agree that amendments should be made.
…"
ICEL says that, although there is no reference in the Agreement as to who was to hold the relevant intellectual property rights, it is to be inferred from the overall background that copyright in the software that ran the system was at all times to be vested in ICEL. In response to the Defendants' assertion that the 'overall background' in question includes an impermissible reference to the negotiations between the parties, ICEL says that it can get to where it wants to go by relying upon an estoppel by convention which does, as is admitted by the Defendants, allow of such an investigation.
Insofar as the initial question of ownership is concerned, the Defendants assert that, even where a work the subject of copyright is commissioned, the copyright is vested in the author(s) of the work, unless there is an express agreement to the contrary or such an agreement arises by necessary inference. To the extent that inference is relied upon, the exercise involves considering the situation not only from the viewpoint of the person asserting that copyright has passed but also that of the person(s) from whom such a right is said to have passed. It is said that, to the extent that any right is shown to have passed by necessary inference, such a right will only be the minimum required by the inference. Thus, if a licence is enough to meet the inference, there will be no presumption that ownership has passed or will pass. I regard these propositions as uncontroversial, see Robin Ray v Classic FM PLC FSR [1998] 622 and Meridian International Services Ltd v Richardson & Ors [2008] EWCA Civ 609.
I should state at the outset that I do not consider that the substantive rights of the parties depend upon whether ICEL can establish a legal, as opposed to an equitable, right to ownership of the copyright in the software.
In light of the above and after conceding the existence of the Agreement, the Defendants, by their counsel Mr Edwards, say that nothing in the Agreement is of effect because Mr Cartwright and Mr Nigel Underwood were the authors of the software and thus had ownership of its copyright.
I have already mentioned Mr Cartwright. At all relevant times, Mr Underwood has been a director of and shareholder in Virrage. Although closely involved in its business activities, his main role has been as a highly qualified computer technician at the heart of the development of the software systems, both Mark I and Mark II.
I regard it as beyond argument that at all relevant times Messrs Cartwright and Underwood held Virrage out to ICEL as holding any rights they now assert that they owned and that everyone involved on the ICEL side of this case acted on that representation. I can see no prospect of a successful defence that Messrs Cartwright and Underwood owned or own copyright in the software.
However, the main thrust of Mr Edwards' argument is that neither expressly nor by inference did the Agreement confer ownership of the copyright in the software upon ICEL. With this submission goes the concession that, without identifying when and how it happened, ICEL acquired a non-exclusive licence to the use of the software (including a right to grant sub-licences) in the United Kingdom but not in the United States.
The Agreement having been made, Virrage resumed development of the system.
I must now say a little more of how the story started.
The idea for the system came from Mr James Waters, who is and was the Managing Director of ICEL. Before his involvement with ICEL, he ran a company which had the exclusive licence for an Australian developed infection control software system. An American company, Epiquest LLC ("Epiquest"), run by a Mrs Bonnie Taggart, was a competitor which offered a different software. In mid to late 2005, Mr Waters was contacted by a Mr Howard Thomas who had in turn met Mr Paul Mustoe who ran LIS. The three men discussed the possibility of collaborating with a view to developing an improved infection control software for licence worldwide. As a result, ICEL was set up and shares were issued to the different parties in order to raise capital. Mrs Taggart also received a 20 percent holding in recognition of ICEL's particular intention to develop and market the new software in the US where Mrs Taggart enjoyed excellent contacts. Her disadvantages were lack of capital and a good product. Mr Thomas became the unpaid Chairman of ICEL. There were two paid employees: Mr Waters and Mr Rowley, its Operations Director.
The implementation of the above plans led to the making of the LIS Agreement.
While LIS was still involved, ICEL agreed two pilot sites at respectively Oxford and Swindon. The arrangement was that the hospitals should—free of charge to Swindon and at small cost to Oxford's John Radcliffe Hospital—become reference sites for potential customers to have the opportunity of seeing a working system. Such sites were called beta sites.
During the second half of 2006, development proceeded on the software for use both in the US and the UK, the work in the US being carried out in conjunction with Epiquest. Late that year, as stated earlier, Virrage stopped work.
During this time both Mr Cartwright and Mr Underwood were deeply involved in the activities that I have described. No mention was made of their involvement with Virrage. There was no suggestion that they were self-employed.
The primary function of the Agreement was to set out the terms upon which Virrage would be remunerated for its work. By the Agreement Virrage acquired a 5 percent holding in ICEL and on 1 May 2007 Mr Cartwright became an unpaid director. The second main issue in this case concerns the allegation that Mr Cartwright was in breach of his fiduciary duty to ICEL.
Work went forward at Oxford and Swindon. It appears that it was not completed by the time that the parties fell out.
Mrs Taggart and UK personnel were in constant communication. The main participant at the UK end was Mr Cartwright. It was arranged by Mrs Taggart that ICEL should install the system in the Miami Children's Hospital ("MCH") with the intent that it should become a US beta site. In November 2007 Messrs Cartwright and Underwood attended the hospital in order to set up the system. Although they encountered various problems, it is clear that Mr Cartwright was enthusiastic about the way that the project was going forward. It is his evidence that immediately upon his return to England on 4 December 2007, he gave Mr Thomas and Mr Waters a most positive report that was met with a profoundly disappointing lack of enthusiasm. ICEL says that no such report was ever given.
Whether or not the report was given, there is no doubt that on 18 January 2008 there was a meeting of the board of ICEL at which were present Messrs Thomas, Waters, Rowley and Cartwright. The minutes (B3/32) recite the company's extremely...
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Got What You Paid For? Why Express Terms Transferring Copyright In Software Are Crucial
...High Court's decision in Infection Control Enterprises Ltd (ICEL) v Virrage Industries Ltd (Virrage) [2009] EWHC 2602 confirms that where work is commissioned and the contract does not contain terms detailing how and when copyright in the commissioned work passes to the commissioning party,......