Commercial/Employment UPDATE

Issue No.11 Oct 2005

Who owns the rights in “your” software?

What rights does a customer have in relation to software developed for it by an IT company? Many customers assume that, having paid for the software to be written, they have exclusive rights over it. However, in the absence of an agreement governing ownership and copyright, that is unlikely to be the case.

In the recent case of Clearsprings v. Businesslinx [2005] EWHC 1487, the High Court held that the IT company was the first owner of the copyright with the customer having only a royalty-free right to use the software for its business. The IT company had no obligation to assign its rights to the customer and could sub-licence the software to others.

Cases of this sort are extremely common because parties frequently fail to draw up a written agreement relating to ownership and copyright. If you commission third parties to develop software or, indeed, any product that gives rise to intellectual property rights, you should consider what rights you need/want. If you want more than just a royalty-free licence to use the software/product, it is essential that there be a written agreement to that effect.

Directors Indemnity

It is worth bearing in mind that there are now much wider provisions allowing companies to indemnify their directors. Previously, it was not possible for a company to indemnify a director for “negligence, default, breach of duty or breach of trust”. The rules have now been relaxed by the Companies (Audit, Investigations and Community Enterprise) Act 2004 (“the Act”), so that a company can indemnify its directors in respect of legal and financial costs of proceedings brought by third parties. The new legislation also allows directors’ defence costs to be paid as they fall due, whereas previously payment could only be made once the outcome of the proceedings was known.

Companies should check their Directors & Officers insurance to see if it provides the wider cover allowed by the Act. If it does not, it may be appropriate to renegotiate the terms of the insurance. You should bear in mind that the Company’s Articles of Association may need to be amended to allow for the wider cover.

Retirement and other “no fault” dismissals

It is easy to assume that the new statutory Disciplinary and Dismissal Procedure applies only where dismissals are connected to conduct or capability i.e. where an employee is at fault. In fact this is not the case. The Procedure applies to all types of dismissals, including “no fault” dismissals e.g. retirement, redundancy or expiry of a fixed term contract.

It is essential to seek advice as soon as you are contemplating any dismissal, whatever the circumstances of dismissal. Remember that failure to comply with the statutory Disciplinary and Dismissal Procedure will automatically render an otherwise fair dismissal into an unfair dismissal. It also results in an automatic increase in the compensation by at least 10% (and possibly up to 50%!).

Note:

Please note that this newsletter is not intended to be a comprehensive statement of the law and should be used for guidance purposes only. If you require specific legal advice please contact Mark Machray or Edward Bond or by telephone 020 7493 2903.