- The courts are reluctant to imply terms into contracts
- Written copyright licences avoid uncertainty and disputes
The recent case of Orvec International Limited v Linfoots Limited  EWHC 1970 (IPEC) concerned the extent of rights granted by Linfoots to Orvec in respect of images on its website and in its advertising material. The case demonstrates the perils of not having a written copyright licence in place.
THE BACKGROUND FACTS
Orvec sells textile products, such as blankets and pillows, to airlines for use by their passengers.
Orvec hired Linfoots, an advertising agency, to design and maintain its website and also to create advertising material for it. Linfoots made photographs of Orvec’s products and these appeared on Orvec’s website and in its advertising material.
As the author of the photographs, Linfoots was the first owner of copyright in them and it retained ownership of that copyright by virtue of an express term to that effect in its standard terms and conditions.
In 2011, the parties ended their business relationship. In the preceding discussions Linfoots had agreed that, for a small fee, it would supply Orvec with certain images from the photographs, for Orvec’s internal use and to supply to Orvec’s customers.
The products in the photographs were in some cases manufactured by Orvec; but in many instances by Intex Company Limited (Intex). The business relationship between Orvec and Intex ended in 2012. In the same year, two of Orvec’s employees left to join Intex, which then started to compete with Orvec. Intex subsequently asked Linfoots to supply photographs for use in its advertising.
Orvec complained to Linfoots that the images on Intex's website included the photographs. Orvec claimed that they had been supplied by Linfoots in breach of contract, as its agreement with Linfoots contained an implied term granting it a perpetual and exclusive licence to the copyright in the photographs. Consequently Linfoots was not entitled to grant a licence to anyone else to use the photographs.
THE LAW: IMPLIED TERMS
That argument raised the question of what, if any, terms should be implied into the agreement between Orvec and Linfoots. According to Lord Hoffmann in Attorney General of Belize v Belize Telecom Ltd  UKPC 10;  1 WLR 1988 (para 16), “The court has no power to improve upon the [contract] ... It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the [contract] means. However, that meaning is not necessarily or always what the parties ... would have intended. It is the meaning which the [contract] would convey to a reasonable person having all the background knowledge which would reasonably be available.”
Lord Hoffmann also noted that the question of implication arises when the contract does not expressly provide for what is to happen when some event occurs and so the most usual inference is that nothing is to happen; as if the parties had intended something to happen, the contract would have said so. The courts will therefore be slow to imply a term unless the following, potentially overlapping conditions (BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, paras 282–283), have been fulfilled:
- it must be reasonable and equitable;
- it must be necessary to give business efficacy to the contract. No term will be implied if the contract is effective without it;
- it must be so obvious that 'it goes without saying';
- it must be capable of clear expression;
- it must not contradict any express term of the contract.
The judge in Orvec hesitantly added that the more complex the proposed implied term, the less likely it is that the reasonable person would take it to be implied.
Nothing was said in Linfoots' standard terms and conditions about a licence being granted to Orvec to use the photographs. However, the parties agreed that they must have contained an implied term that Orvec had a licence to use the photographs. The issue was whether that licence extended further than that.
Orvec’s argument rested on the fact that some of the photographs included its trade marks and/or the trade marks and logos of its airline clients. Orvec argued that Linfoots could not have any conceivable legitimate use for the photographs displaying its trade marks and so the licence granted to it to use those photographs must have been exclusive, worldwide and perpetual. As a result, Orvec contended, the licence to use all the other photographs (even those which did not display Orvec’s trade marks) must have been the same.
The judge agreed that where a designer creates certain work, such as a client’s logo, it must have been understood between the designer and the client that (a) no one other than the client could have a legitimate reason to copy the work and (b) the client would expect to be able to prevent others from copying it. The reasonable person would, therefore, conclude that it must have been intended that copyright in the logo would be transferred to the client and so a term in the agreement between the parties would be implied to that effect. Indeed that is what happened in the case of Griggs Group Ltd v Evans  EWCA (Civ) 11, which concerned the creation of one of the "Doc Martens" logos.
However, the judge held that it would not necessarily be the case where the work created is a photograph which included the client's logo or other trade mark - rather than the original logo or trade mark itself. Consideration (b) would be unlikely to arise because the client would be able to protect the original logo and trade mark by other means. Consideration (a) would potentially apply but only if the photograph was copied unaltered, without the trade mark having been removed.
The judge could see no reason for implying that exclusive rights were granted to the client if the work created is a photograph displaying a third party's trade mark - in this case the airlines’ trade marks. The right of the designer and others to reproduce and/or display the trade mark would, in those circumstances, depend on their relationship with the third party trade mark owner. Accordingly, there was no reason to infer that the parties must have intended that Orvec should have the right to prevent Linfoot copying the photographs or dealing in such copies, even where the trade mark was omitted from the copy.
The judge bore in mind that where alternative terms are possible, the choice between them must favour the least that is necessary in the circumstances; and concluded that a term should be implied that Linfoots granted Orvec a non-exclusive perpetual licence in the photographs.
The judge commented that only where Orvec’s trade mark appeared in the photograph could the licence possibly be exclusive. However, that raised questions of fact and degree about whether there were any contexts in which the trade mark could legitimately be copied, which introduced a more complex formulation, which in turn meant that the term was less likely to have been implied. In any event, it was not established that any photographs showing Orvec’s trade mark were supplied by Linfoots to Intex. Hence, Orvec’s claim failed.
A licence granted by a copyright owner does not have to be in writing to be effective or even have to have been discussed verbally. However, as this case shows, it clearly makes sense for copyright licences to be in writing. If not, there might not be any basis for an implied licence.
Even if a licence is implied, the nature of that licence may not be what one or both of the parties expected, which may give rise to a dispute.
If the court is asked to resolve the matter, the court will go no further than it needs to in implying a term. Where alternative terms are possible, the choice between them must favour the least that is necessary in the circumstances. In the context of a copyright licence, this will mean implying a bare licence; failing that, an exclusive licence may be implied and in unusual circumstances (Griggs, for example), an assignment of the copyright may be implied.
In order to ensure that their copyright remains protected, copyright owners should enter into a written copyright licence from the outset. Certainty as to terms must be preferable for licensors and licensees alike, rather than the uncertainty of the court’s minimalist approach to implication.
Below are some of the key matters to consider when entering into a licence.
- Grant: Should it be exclusive, non-exclusive or sole?
- Purpose: What activities are to be covered by the licence? May sub-licences be granted?
- Territory: In which territories can the rights be exercised?
- Duration: For what period can the rights be exercised - perpetual, limited or renewable?
- Royalties: How are these to be calculated?
This article was published in New Law Journal in January 2015