The recent decision in FilmFlex Movies Limited v Piksel Limited [2015] EWHC 426 (Ch)highlights the risks of losing control of IPR in joint software development agreements.  Companies entering into such agreements should be clear about the nature and extent of the rights they wish to grant and what that means if and when interests diverge.  A lack of clarity could lead to implied terms and reduced control (and therefore value) of crucial IPR.

What?

FilmFlex is a well-known provider of content streaming services for companies such as Virgin Media, TalkTalk and EE, who then provide that content to consumers.

FilmFlex’s online content delivery platform was developed and maintained by Piksel. Piksel developed the base source code and then signed an agreement with FilmFlex to further develop it and a content delivery platform on FilmFlex’s behalf (the “MSA”).  The software was licensed on the basis that Piksel would have rights to the original source code it had developed up to when the MSA was signed, and thereafter the IPR would belong to FilmFlex for the development work done after the date of the MSA.  

In November 2014, Flimflex requested a copy of the source code so that it could contract with another instead to further develop the platform.  Piksel refused to provide it. In addition to Piksel, the source code was also held by NCC Group (“NCC”) under an escrow agreement signed several months after the MSA.  The release triggers under the MSA and escrow agreement differed, with the escrow agreement being more restrictive. 

FilmFlex therefore sought an order for: (a) delivery of the source code; (b) damages; and (c) Piksel to assist FilmFlex in procuring the release of the source code from NCC.  It argued an entitlement via contractual rights: (i) a right to appoint a third party to provide the services in relation to the IPR (and the definition of the IPR in this case was very broad); (ii) a right of “access” to the source code throughout the term; and (iii) its licence of Piksel’s IPR (broadly defined) which entitled it to do such things as “access”, “modify” and “enhance” Piksel’s IPR and its ownership of developed IPR (again, broadly defined).  Filmflex accepted that it could not seek a release of the source code directly from NCC due to the terms of the escrow agreement not being triggered. 

Piksel defended the claim on the basis that the release triggers in the MSA were superseded by the escrow agreement (and the terms of the escrow agreement had not been triggered) and, even if not, the MSA terms of release had not been triggered.    

The Court disagreed.  It held that the terms of the escrow agreement did not supersede the MSA because there was no evidence that the parties intended that to be the case.  In addition, where there was an inconsistency between the two agreements, the bespoke wording of the MSA would be favoured over the standard terms of the escrow agreement as evidencing the parties objective intent. 

As for the MSA terms of release, all of the contractual rights relied on by Filmflex were applicable and entitled it to a release of the source code.  The Court held that rights of “access” linked to purposes of being able to “use”, “enhance” and “modify” implied a right to obtain a copy of the source code and access would not be restricted to merely “viewing” it.  However, more generally, what is included in a right of access to something would depend on the nature of the thing and the purpose for which access is being given. 

So what?

This case is a useful reminder of the risks involved with licensing software, the issues that can arise when interests diverge and the importance of clear drafting.  In particular the need for clarity concerning (i) the limits to the rights granted under licence; (ii) the definitions of each parties’ IPR and dividing lines between background and foreground IPR; (iii) rights granted in relation to release events; (iv) the terms of the MSA and ancillary agreements such as an escrow agreement; and (v) the exits.