Do Your Employees Work From Home In Their Own Time?

In a recent Intellectual Property Enterprise Court (IPEC) case, it has been held that an employer is the owner of copyright in computer software created by one of its former employees, despite the software being created predominantly by the employee at home, in their own time (outside of working hours), and the employee being expressly identified as the author of the software.

Penhallurick v MD5 Ltd [2021] EWHC 293 (IPEC)

Case summary

In this case, the employee (Mr Penhallurick) claimed to be the owner of the intellectual property rights to a computer software product marketed by his employer because he regularly worked on its development in his own personal time.

The employer, MD5 Ltd, is a company that specialises in virtual forensic computing software that allows data to be extracted from a hard drive without that process altering the hard drive itself. Mr Penhallurick was hired in 2006 by MD5 Ltd. He had originally begun work on the computer software during the course of completing a master’s thesis and then developed the product in his role as a forensic analyst at MD5 Ltd. The software coding was often written and developed by Mr Penhallurick in his own time and on his own personal computer.

In April 2016, Mr Penhallurick resigned from his role. He claimed legal ownership in the creation of the computer software and alleged copyright infringement by MD5 Ltd. MD5 Ltd counterclaimed with a declaration of ownership and infringement of its copyright works by Mr Penhallurick. MD5 Ltd claimed that the software was developed in the course of Mr Penhallurick’s employment or was assigned to MD5 Ltd. Mr Penhallurick brought his claim to the IPEC.

It was argued by Mr Penhallurick that the computer software was developed from code created prior to his employment and that, during his employment, he worked on it in his spare time on his personal computer. However, MD5 Ltd claimed that this was part of his duty of employment. Mr Penhallurick had also alleged that the computer software was merely licenced to MD5 Ltd. Mr Penhallurick suggested that the remuneration received from MD5 Ltd were in fact royalty payments in return for a software licensing agreement. However, Mr Penhallurick could not produce any licensing agreement (or other documents) in support of his ownership claim.

The Judge was in no doubt that, by January 2007, the creation of the computer software was Mr Penhallurick’s central task for which he was being paid for. Despite much of the work being done at home, it did not displace the strong indication that it was work done in the course of his employment and subject to MD5 Ltd’s ownership under the Copyright Designs and Patents Act 1988 (CDPA 1988), s 11(2) (as the employer). Furthermore, a 2008 agreement that was entered into by the parties contemplated ownership by MD5 Ltd of the works, including future works, developed by Mr Penhallurick in the course of his employment. Additionally, all of the source code used in MD5 Ltd’s products were created after Mr Penhallurick started his employment. MD5 Ltd products’ user guide written by Mr Penhallurick was during the course of his employment, making MD5 Ltd the first owner under CDPA 1988, s 11(2).

Mr Penhallurick could not successfully rely on the presumption under CDPA 1988, s 104(2). The Court held that each version of the computer software expressly identified Mr Penhallurick as the author, thereby giving rise to a presumption that he owned the works, outside of CDPA 1988, s 11(2), under CDPA 1988, s 104. However, the Judge held that the presumption of ownership was rebuttable on the balance of probabilities based on the evidence as to actual ownership.

Comment

Penhallurick MD5A take away from the case is that despite Mr Penhallurick agreeing to spend a significant amount of his own personal time, and use his own personal computer to write the software code, it made no difference to the ruling. The decision illustrates the importance of contractual clarity from the outset, either in the employment contract or with any other applicable contracts. The work product, such as software, of employees created during the course of their employment will typically belong to the employer unless the employee can demonstrate otherwise.

From Mr Penhallurick’s perspective, he should have entered into a written license agreement expressly retaining ownership of his underlying pre-existing software, expressly licensing it to MD5 Ltd and clearly setting out any royalty provisions. Equally from MD5 Ltd’s perspective, they should have (ideally) expressly acquired an assignment of Mr Penhallurick’s pre-existing software – and expressly made it clear work done at home is still deemed to be in the course of his employment. The lesson – spending a little time at the beginning of a relationship documenting the intentions of the parties will save lots of time and expense in the future!

How can Nelsons help?

If you would like any advice in relation to the topics discussed in this article, please contact either Harpreet Sandhu or Aaron Singh in our expert Commerce & Technology team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online enquiry form.