Designer loses appeal over employer owning copyright on his work

A software designer has lost his appeal against a court ruling that his employer owned the copyright on his work.

The case involved Penhallurick and MD5 Ltd.

Penhallurick had been employed by MD5 in 2006 to develop virtual forensic computing (VFC) software, after developing a manual VFC method as part of his MSc degree.

VFC software was used by agencies, typically the police, who wished to analyse the contents stored on a computer without searching, corrupting or otherwise altering the files and thereby compromising a prosecution.

The software was sold to customers from 2007. During his employment, Penhallurick created a source code, object code, four versions of the software and a user guide.

In November 2008 the parties entered into an agreement under which he received as a bonus a fixed percentage of the annual sales of the VFC software while he was still employed.

He resigned from his employment in February 2016.

The judge concluded that the works were created during Penhallurick’s employment and accordingly, MD5 owned the copyright. He also found that even if that were incorrect, copyright had been assigned to MD5 by virtue of the 2008 agreement.

The Court of Appeal upheld that decision.

It held that the judge had been correct to conclude that the 2008 agreement vested copyright in MD5 for the following reasons:

• There was nothing in to suggest that the 2008 agreement was intended to operate as a licence.

• The payment under the agreement was described as a bonus and was to continue only while Penhallurick remained an employee involved in the VFC software. Those factors pointed away from the payment being a royalty or license fee.

• The agreement recorded that the software “was the sole property of MD5”. Against a background where Penhallurick had made claims to ownership of the copyright, it was obvious that the document was intended to operate to ensure that the copyright in the VFC software became vested in MD5.

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Court of Appeal (Civil Division)
2 December 2021
[2021] EWCA Civ 1770
Arnold LJ
Falk J
Sir Christopher Floyd