- Individual creates IP while providing services to a company
- for tax reasons, the services are provided under a personal service company arrangement
- should the individual be considered an employee for IP law purposes?
What's it about?
This case involved a dispute between a minority shareholder called Dr Potamianos and the majority shareholders of Sprint Electric Ltd (SEL). Dr Potamianos alleged that his personal service company, Buyer's Dream Ltd (BDL), owned the copyright in the source code of software which he had developed which providing services to SEL.
On SEL's suggestion, for tax reasons, when Dr Potamianos joined SEL, he formed a personal service company through which he would provide services to SEL. In 1999, Dr Potamianos was appointed a director of SEL. Then in 2007, again to take advantage of the tax position, Dr Potamianos assigned IPRs in certain modules of source code to SEL. SEL paid 400,000 for the assignment, but Dr Potamianos retained physical possession of the source code. By 2014, significant conflicts had arisen and Dr Potamianos altered microchip versions of software within SEL's server, which ultimately gave him sole access to the codes.
SEL brought proceedings in the High Court against Dr Potamianos and BDL, claiming that Dr Potamianos was obliged to provide SEL with the source code. BDL counterclaimed, claiming that it was the owner of the copyright in the source code. BDL sought an injunction restraining SEL from using its copyright.
Why does it matter?
The High Court found that SEL was the owner of the relevant copyright and Dr Potamianos was therefore obliged to deliver up the source code to SEL. In reaching that conclusion, it looked beyond the parties' bare description of their relationship, and examined the underlying facts, such as the fact that he was paid a wage by SEL, worked exclusively for SEL and was generally a key part of the SEL business.
This case is a good reminder of three key points:
- creating and having physical possession of a copyright work, such as source code, does not necessarily mean that the creator owns the copyright in the work;
- if using personal service companies in the provision of services, clear IP clauses must be included to ensure that ownership of existing and output IP is clearly addressed and defined, to avoid later disputes; and
- labelling a contract as a "consultancy agreement" does not mean that it will be interpreted as such by the courts, if they consider the true nature of the relationship to be one of employer and employee. If a contractor is found to be an employee, he is unlikely to own rights to IP created in the course of employment.