A recent decision of the Full Court of the Federal Court of Australia emphasises the importance of structuring and documenting intellectual property ownership and rights within a corporate or family group.

What happened?

In the early 1990s Dr Hart, a PhD researcher employed by the Victorian Department of Education, developed a questionnaire called the School Organisational Health Questionnaire (SOHQ) to measure the “organisational health” of schools.  He subsequently allowed his company, Insight SRC IP Holdings Pty Ltd (Insight Holdings), to utilize SOHQ in commercial projects.

In a series of written transactions, Dr Hart:

  • in 2009 assigned the copyright in the questionnaire to his family trust, which in turn assigned those rights to Insight Holdings. Insight Holdings then gave Insight SRC (Insight) an exclusive licence of the copyright in SOHQ; and
  • in 2011 assigned to his family trust the right to sue for past or current infringement of copyright in SOHQ.  These rights were also assigned to Insight Holdings.

Dr Hart controlled and was the majority owner of each assignee and licensee.

Dr Hart was unaware that between 2006 and 2009 the Australian Council for Education Research Ltd (ACER) had copied SOHQ for a commercial transaction with Independent Schools Victoria (ISV), thereby infringing copyright in SOHQ. During the period of the infringement, Dr Hart owned copyright in SOHQ, which Insight Holdings used under a verbal (or bare) licence.

In 2012, Insight Holdings and Insight sued ACER for infringing copyright in SOHQ.

Trial

The main questions for the trial judge were:

  • Did Dr Hart or the Victorian Department of Education own copyright in SOHQ?
  • Had Dr Hart’s rights to sue for infringement been effectively assigned to Insight Holdings and Insight?
  • If ACER had infringed copyright, how should damages be assessed?

The trial judge found that Dr Hart, and not his former employer, owned copyright, and the Department had never sought or contested ownership.

The judge also held that the bare assignments of rights of action in 2011 by Dr Hart to his family trust and then by the trust to Insight Holdings in 2011 were valid, even though, at the time of the first assignment, the family trust was not the copyright owner (as it had assigned the copyright two years previously).  ACER argued that those assignments of bare rights of action were not recognised at law and were invalid.

As an entity associated with Dr Hart, the family trust had a “genuine commercial interest” in the enforcement of Dr Hart’s claims. As the owner of the copyright in 2011, Insight Holdings also had a genuine commercial interest.  The bare assignments of rights of action in those circumstances is valid where the assignee had a “pre-existing genuine commercial interest in enforcing the claims of the assignor”.

The court assessed damages at a nominal compensatory sum of $10, and an additional award for flagrant infringement of $32,500.  The compensatory award was limited because, at the time of infringement, Dr Hart was not commercially exploiting the copyright, as he had licensed Insight Holdings. Insight Holdings could sue for no more than the amount to which Dr Hart would have been entitled. No claim was made for the amount of Dr Hart’s loss assessed by reference to his interest as a shareholder in Insight Holdings.  The court found that $130,000 would have otherwise been an appropriate award of damages.

Full Court

On appeal the Full Court did not disturb the trial judge’s findings on copyright ownership. It also agreed that the assignments of rights of action were valid because Dr Hart’s associated entities had a sufficient commercial interest to support the assignments. However, the Court increased the award of compensatory damages, adopting the trial judge’s figure of $130,000. The Court held that the proper measure of damages was the value of the project lost to Dr Hart at the time of the infringement. The Court inferred that, if copyright had not been infringed by ACER, Dr Hart would have won the project for Insight Holdings. It found that Dr Hart’s damage was “the value of the loss of his ability to cause Insight to enter into a contract with ISV”.

The Court also upheld the award for flagrant infringement of $32,500.

Implications

For businesses that derive substantial revenue through exploitation of intellectual property, it is important to ensure that the rights of owners and trading entities within a corporate or family group are considered and documented.

Assignments of copyright must be in writing. It is often appropriate to also specifically assign the right to sue for past infringements.  The rights of users or licensees within the group should also be documented, noting that exclusive licences of copyright must be in writing and that non-exclusive licensees do not have a right to sue for copyright infringement.

Resolution of these matters at an early stage will assist business owners to effectively enforce their rights.