The High Court has recently considered the issues of legal and equitable ownership of copyright in a logo which was designed by the defendant for the purposes of the claimant's business finding that, in these particular circumstances the commissioner had an equitable title to the copyright in the logo and that there was an obligation to assign the copyright.  (Fresh Trading Limited v Deepend Fresh Recovery Limited and Chappell [2015] EWHC 52 (Ch)).  

Business Impact

Whilst the decision is reliant on the particular facts relating to the circumstances of the creation of the logo and the terms of agreement between the parties, there are a number of practical issues that may be extracted from the court's decision.

  • in order to assign legal title to copyright in existing works or future copyright in works to be created, the assignment must be in writing executed for or on behalf of the assignor;
  • an assignment of future copyright can only be effective if, upon the creation of the work, the assignee is entitled to require that the copyright in the work be vested in him or her without the fulfilment of any further conditions;
  • the parties should be clear whether any heads of terms are to be binding on the parties.  Discussions and drafts should be stated to be and marked "subject to contract" to be clear that they are not intended to be binding. However, agreed heads of terms may become binding (even if they are expressed to be "subject to contract") if there is a clear intention to create legal relations and the parties treat the heads of terms as binding over time;
  • clearly identify in any agreement the trigger for assignment of IP rights by using expressions such "upon payment of the agreed fee X will assign to Y…";
  • design agencies  or parties to a commissioning contract may have standard terms that provide that any assignment of copyright is only effective on payment of the agreed fee. Whilst this is good practice, if a specifically negotiated form of agreement is agreed, then standard terms and conditions may not apply;
  • include a clause in an agreement on commissioned works to govern the situation where use is made of a commissioned work by the commissioning party, but payment is not made; and
  • before the dissolution of any company a form of due diligence should be undertaken to identify any rights which should be assigned out of the company. Such rights would include property rights such as intellectual property but also contractual rights.

Background

The dispute between the parties arose out of the arrangements in the late 90s between the parties (or their predecessors in title) under which Deepend agreed to undertake design work for the then fledgling company (Fresh) which subsequently grew to be the well-known Innocent Smoothie business.

Fresh and Deepend negotiated and agreed heads of terms under which:

  • Deepend undertook design and creative work for developing the brand and corporate identity for Fresh;
  • Deepend agreed to receive its remuneration in the form of equity in Fresh to be awarded to Deepend in 3 stages, the first stage being when the bottle and label first went into production;
  • Fresh received the copyright in any work presented by Deepend and then subsequently approved by Fresh.

Deepend designed the logo, known as the "Dude" comprising a cartoon representation of a face with a halo.

Click here to view image.

This design was adopted by Fresh as the logo used on Innocent Smoothies which were launched at the end of April 1999.

The shares in Fresh were never allotted to Deepend and Deepend claimed that they retained the ownership of the copyright in the Dude logo (and other various copyright works created by Deepend for Fresh).

Deepend relied on its purported ownership of copyright to invalidate Fresh's Community Trade Mark for the Dude logo. This prompted Fresh to seek a declaration from the UK court that Fresh was the owner of the copyright in the logo. Fresh's appeal against its CTM invalidity ruling was stayed pending the outcome of the declaratory relief proceedings.

The issues

The court considered various issues including the following:

  • were the heads of terms actually signed by Deepend and, if so, was this effective to transfer legal title in the copyright in the Dude logo to Fresh;
  • whether or not the heads were signed did they constitute a concluded legally binding agreement;
  • what was the event upon which the copyright in the Dude logo was to vest in Fresh;
  • if Fresh is not the legal owner of the copyright, is it the equitable owner of the copyright;
  • if Fresh is not the legal or the equitable owner of the copyright in the Dude logo, what rights does Fresh have in relation to the copyright in the logo;
  • if Deepend is the owner of the copyright is it precluded from obtaining injunctive relief against Fresh due to acquiescence, laches or estoppel.

The Court's decision

Legal title to copyright

An assignment of copyright (and of future copyright) is not effective unless it is in writing signed by or on behalf of the assignor. Neither of the parties was able to produce a signed copy of the heads of terms and the court was not convinced that the heads were actually signed by Deepend. In the absence of a signed agreement the court held that there could not be a legal assignment of copyright.

The court also commented that even if the heads had been signed there may not have been an effective legal assignment of copyright (under section 90 CDPA 1988) since at the time of agreeing the heads the copyright works did not exist. Therefore, in order for there to be a valid assignment the statutory provisions relating to assignment of future copyright (section 91 CDPA 1988) would need to be fulfilled.

Section 91 CDPA 1988 provides that it is possible to assign future copyright (by an assignment executed by the assignor) if the assignee is entitled to require the copyright to be vested in him on the copyright coming into existence. Fresh was not able to require the vesting of the copyright of the works upon them coming into existence. Fresh's right to acquire the copyright under the heads was conditional upon Fresh giving its approval to the works. The balance that the parties had struck meant that works approved by Fresh would be owned by Fresh, whereas ownership of works rejected by Fresh would be retained by Deepend. However, this arrangement meant that the clause purporting to assign future copyright was not effective.

Binding agreement

Notwithstanding that the heads were not signed the court readily found that there was a legally binding agreement between the parties since both parties acted on the basis that the terms had been agreed and behaved as though those terms were contractually binding.

Deepend sought to rely on the use of the words "subject to contract" on the heads as meaning that a final binding agreement had not been reached. However, the court considered that these words were waived and that any other conclusion would not make commercial sense given the conduct of the parties.

Equitable title to copyright

The court confirmed the principle that an agreement to assign future copyright can often give rise to an equitable assignment of copyright when the contractual conditions for the assignment arise.

The court had to identify the conditions that needed to be met in order to trigger Deepend's obligation to assign the copyright to Fresh. Deepend argued that the relevant condition to be met was the allotment of the shares in Fresh, whereas Fresh argued that the allotment of shares was a concurrent obligation (not a conditional one) and that the trigger for Deepend's obligation to assign the copyright was Fresh's approval of the relevant work.

The court held that the allotment of shares in Fresh to Deepend was not a pre-condition for the assignment of the copyright. The consideration for the assignment of the copyright was the promise to allot shares (not the allotment itself). The obligation to transfer the copyright arose on Fresh's approval of the work whereas the obligation to allot shares arose in stages over the course of a year.

Fresh had clearly approved the Dude logo and therefore Deepend was obliged to transfer to Fresh the copyright in the logo.

Other issues

Having determined that there was an express binding obligation to assign copyright in the heads, it was not necessary for the court to consider the other issues raised. However the judge did comment that there was much to be said for implying an equitable assignment and, given the consequences for Fresh of Deepend terminating a licence to use the copyright, the judge would not favour an implication of a mere licence.

Even if the court had found that Fresh had no legal or equitable interest in the copyright, the judge indicated that he would have been inclined not to grant injunctive relief to prevent Fresh from using the Dude logo.

It should be noted that Fresh did not refuse to make the allotment of shares. Initially the allotment of shares to Deepend's predecessor in title seems to have been something that was not treated by the parties as a matter of urgency. Even later on, when Deepend faced financial difficulties and was put into liquidation, the liquidator was not interested in an allotment of shares – he was primarily concerned with cash realisations. Now, any allotment of shares to Deepend is not possible since the original company that designed and created the copyright works and the company for which the design work was undertaken have been dissolved (although prior to its dissolution any IP rights that the design company had were ultimately assigned to Deepend).

Thus, the court held that Deepend is the owner of the legal title of the copyright in the Dude logo but Fresh is entitled to require Deepend to assign such legal title to Fresh.