Sprint Electric Ltd v Buyer's Dream Ltd and another
How does the use of personal services companies affect IP ownership?
Dr Potamianos (DP) was recruited by Sprint Electric Limited (SEL) because of his particular expertise. He was required to work for SEL through a service company, Buyer's Dream Limited (BDL), for tax reasons. DP was later appointed as a director of SEL and entered into a second contract for services in 2000. He was effectively SEL's sole programmer, tasked with writing source code for various motor control algorithms.
In practice, BDL physically retained the source code, supplying only object code to SEL, subject to a single exception that was the subject of an assignment in 2007.
In 2012, Sprintroom Limited (SRL) was incorporated. SRL held a 100% shareholding in SEL whilst Dr Potamianos was a 40% shareholder in SRL. In 2015 disagreements about SEL's management emerged, and in 2017 DP was removed as a director from both SEL and SRL.
In joint proceedings, SEL made a claim in respect of the intellectual property in, and delivery up of, source code from DP and BDL. DP and BDL counterclaimed for an injunction on the basis that they owned the copyright.
The High Court decided that SEL owned the copyright in the documents and source code authored by DP as the true relationship between SEL and DP was one of employer and employee.
Why is this important?
This case uses an employment relationship to determine the ownership of source code and any intellectual property. However, what is material to such determination is the true construction of the parties rather than the relationship as it is on paper.
Any practical tips?When drafting agreements with personal services companies, it is important to consider any relevant IP and include express provisions dealing with IP, as well as considering what happens to such IP in the event that the agreed structure is deemed to establish an employer/employee relationship.