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Freelance arrangements: a reminder on implied terms

October 2007 - Media, Entertainment & Sport. Legal Developments by Harbottle & Lewis LLP.

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It's a truism to say that for many businesses in the media and entertainment industries, their value lies in their content and intellectual property; their copyright in particular. It is uncontroversial to add that successful (old and new) media companies often grow at a pace so rapid that systems, paperwork and housekeeping can get left behind.

And freelancers are everywhere. Sometimes because the individuals prefer not to be tied to one employer. Sometimes because it makes financial sense for businesses not to maintain a large permanent workforce, but to work instead with freelancers/consultants on a project-by-project basis. Sometimes, candidly, because employers are looking to avoid National Insurance and other costs associated with ‚Äėemployment'. The examples are legion in old media - from ‚Äėstaff correspondents' with newspapers, to ‚Äėproduction freelancers' working with television companies, to ‚Äėcreative consultants' working on a client/project basis with advertising and marketing agencies.

The collaborative aspects of new media and convergence would suggest that the use of freelancers is not any less than it has been historically. In fact, in our experience, the reverse is true.

In the games industry, for example, outsourcing continues to be ever more prevalent. In an industry which has always been high in small developer and entrepreneurial businesses (often informally run and heavily reliant on external freelance assistance), publishers are increasingly bringing their development work in-house. But ‚Äėin-house' still involves significant external involvement, as studios continue to source the best suppliers of graphics, content and programming from external specialists.

Copyright Basics

With all these factors combined, it is helpful to have a reminder of the key provisions of copyright law, especially those which relate to the ownership of copyright works. The basic position under English law is very straightforward. Take software - in copyright terms a ‚Äėliterary work' - as an illustration. If the writer is an employee, then the copyright will generally belong to their employer. But if the writer is not an employee, then the starting point is that they are the owner. The fact that the work was produced ‚Äėfor' someone else, ordered by someone else, described, specified or commissioned by someone else, and/or paid for in full by someone else, does not of itself necessarily displace this starting point.

If there was an express agreement dealing with the question of copyright ownership, then that will usually be given effect (subject to questions of evidence if the agreement was not recorded in writing). If there was not, then a business which assumed that it would ‚Äėown' the work it paid for is likely to have difficulties in establishing the extent of its rights. In certain circumstances, the court will be prepared to imply terms as to copyright ownership and/or licence, but two recent cases illustrate how the results can be different depending on the precise facts.

Wrenn and others v Landamore

The most recent of these cases is the High Court decision in Wrenn. Mr Wrenn ran a company that developed and marketed interfaces for use in connection with car audio systems. Mr Landamore was a freelancer who wrote new software that was to be used in the interfaces by Wrenn's company. The terms on which Landamore was contracted to develop the new software (and indeed who he was contracted to) were the subject of some dispute, but suffice to say there was no express provision relating to the ownership of the copyright in the new software or the extent of Wrenn's, or his company's, right to use the software. Despite the absence of an express agreement, Wrenn contended that the Court should imply an equitable assignment of the copyright; Landamore argued that the Court should only imply a licence to use the software, although he conceded during trial that this should be an exclusive licence.

As it turned out, Wrenn and Landamore had in fact entered into a settlement agreement in relation to other disputes between them, which expressly provided that they would jointly own and manage a company called Integrated Multi-Media Solutions Limited (IMMS). The agreement provided for the assignment of the copyright in the software to IMMS. As a result, the Court held that the issue as to ownership of copyright in the software developed by Landamore fell away; it was owned by IMMS.

However, the subject was important enough that the Court still went on to consider what would have been the position had the parties not entered into this settlement agreement. Adopting the often cited ‚Äėminimalist' approach of Lightman J in the case of Robin Ray v Classic FM, the Court held that the whole purpose of Wrenn commissioning Landamore to develop new software was so that Wrenn's business would be able to market it. As a result, there must be some implied right for Wrenn to use the software. However, even though Wrenn was able to adduce in evidence two e-mails in which Landamore stated that Wrenn owned the copyright, the Court held that it would be sufficient to imply an exclusive licence in the present case as nothing more was necessary to make the arrangement between Wrenn and Landamore commercially workable. Furthermore, it made sense for there to be a licence only and not an assignment in order to give Landamore an effective remedy if Wrenn failed to pay royalties; that is, the right to terminate the licence. The Court also held that the exclusive licence to use the software would extend to the source code and that Landamore had an obligation to deliver the source code to Wrenn.

Clearsprings Management Ltd v Businesslinx and others

The outcome in this earlier case can be contrasted with that in Wrenn. In Clearsprings, the defendant was a company which had developed software intended for use in the support of web-based databases. Clearsprings commissioned Businesslinx to develop software that would meet Clearsprings' specific business needs. The contract was silent on the ownership of the software that was developed by Businesslinx. Clearsprings contended that the Court should apply an assignment, or at least an exclusive licence, of the copyright in the software. Businesslinx contended that only a licence for Clearsprings to use the software in connection with its own business should be implied. They argued that implying greater rights than this would prevent Businesslinx from further exploiting the generic elements of the software that they had developed prior to entering arrangements with Clearsprings.

The Court, again citing the Robin Ray case, held that it could not imply an assignment of the software to Clearsprings. It must have been obvious to the parties that Businesslinx would use pre-existing code to develop the software for Clearsprings and to imply an assignment of that code would prevent Businesslinx from being able to reuse that code for its customers. Instead the Court held that it would be sufficient to imply a non-exclusive licence for Clearsprings to use the software, without the right to sub-license. This would be supplemented by an implied term that prevented Businesslinx from using any of the software developed specifically for Clearsprings that contained or amounted to confidential information about Clearsprings' operating procedures.

Conclusions

In some situations, the difference between a licence, an exclusive licence, and outright ownership of an asset such as software may not be critical. In many others, the difference will be vital to the value of the business in which it is used. These cases illustrate that the extent of the rights that a court is prepared to imply is very much dependant on the facts of the case. It is also clear that the court continues to adopt the ‚Äėminimalist' approach described in Robin Ray, and so a party wishing to argue for anything more than a bare right to use a copyright work produced by a third-party freelancer may have an uphill struggle. These cases therefore provide a salutary reminder of the importance of ensuring that any business which uses freelancers, consultants or other non-employees has agreed clearly and expressly exactly what it is paying for.

By Andy Millmore, partner, and Adam Mitton, solicitor, Harbottle & Lewis LLP,

E-mail: andy.millmore@harbottle.com, adam.mitton@harbottle.com,

Tel: 0207 667 5000

For more information please visit www.harbottle.com.