31 July 2015

Copyright in Commissioned Works: Atelier Eighty Two Ltd v Kilnworx Climbing Centre CIC and Others

A question that I am often asked at pro bono IP clinics as well as in my practice is who owns the copyright in a commissioned work when the graphic or web designer or software house fall out with their customer. The basic principles were set out by Mr Justice Lightman in Robin Ray v. Classic FM Plc [1998] ECC 488, [1998] EWHC Patents 333, [1998] FSR 622, (1998) 21(5) IPD 21047, [1999] ITCLR 256 and amplified and clarified by the Court of Appeal in R Griggs Group Ltd and Others v Evans and Others [2005] EWCA Civ 11. The issue arose again in Atelier Eighty Two Ltd v Kilnworx Climbing Centre CIC and Others [2015] EWHC 2291 (IPEC).

In Atelier a graphic designer called Rik Kirk made the logos shown above in August 2011. At that time he was an executive director of the design company Purple Penguin Design Ltd. of Timperley near Altrincham. He was asked to create those logos by one Lionel Bunting who was then a director of both the claimant Atelier Eighty two Limited and the defendant Kilnworx Climbing Centre CIC. Kilnworx was never able to pay Purple Penguin's invoices. These were paid instead by Ateler which also claimed to have paid many other expenses. The parties fell out in 2012. By an assignment dated 23 Aug 2013 Purple Penguin purported to assign whatever copyrights it held in the logos to Atelier. Atelier asked Kilnworx not to use the logos. When it continued to do so Atelier sued Kilnworx and two of its directors for copyright infringement.

The defendants argued that Kilnworx was and always had been the beneficial owner of the copyright or at the very least the exclusive licensee.

In Ray Mr Justice Lightman said at page 640:
The general principles governing the respective rights of the contractor and client in the copyright in a work commissioned by the client appear to me to be as follows:
(1) the contractor is entitled to retain the copyright in default of some express or implied term to the contrary effect;
(2) the contract itself may expressly provide as to who shall be entitled to the copyright in work produced pursuant to the contract. Thus under a standard form Royal Institute of British Architects ('RIBA') contract between an architect and his client, there is an express provision that the copyright shall remain vested in the architect;
(3) the mere fact that the contractor has been commissioned is insufficient to entitle the client to the copyright. Where Parliament intended the act of commissioning alone to vest copyright in the client e.g. in case of unregistered design rights and registered designs, the legislation expressly so provides (see section 215 of the 1988 Act and section 2(1A) of the Registered Designs Act 1949 as amended by the 1988 Act). In all other cases the client has to establish the entitlement under some express or implied term of the contract;
(4) the law governing the implication of terms in a contract has been firmly established (if not earlier) by the decision of the House of Lords in Liverpool City Council v. Irwin [1977] AC 239 ('Liverpool'). In the words of Lord Bingham MR in Philips Electronique v British Sky Broadcasting [1995] EMLR 472 ('Philips') at 481, the essence of much learning on implied terms is distilled in the speech of Lord Simon of Glaisdale on behalf of the majority of the Judicial Committee of the Privy Council in BP Refinery (Westernport) Pty Ltd v. The President,Councillors and Ratepayers of the Shire of Hastings (1978) 52 ALJR 20 at 26:
'Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied:
(1) it must be reasonable and equitable;
(2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(3) it must be so obvious that "it goes without saying";
(4) it must be capable of clear expression;
(5) it must not contradict any express term of the contract.'
Lord Bingham added an explanation and warning:
'The courts' usual role in contractual interpretation is, by resolving ambiguities or reconciling apparent inconsistencies, to attribute the true meaning to the language in which the parties themselves have expressed their contract. The implication of contract terms involves a different and altogether more ambitious undertaking: the interpolation of terms to deal with matters for which, ex hypothesi, the parties themselves have made no provision. It is because the implication of terms is so potentially intrusive that the law imposes strict constraints on the exercise of this extraordinary power. … The question of whether a term should be implied, and if so what, almost inevitably arises after a crisis has been reached in the performance of the contract. So the court comes to the task of implication with the benefit of hindsight, and it is tempting for the court then to fashion a term which will reflect the merits of the situation as they then appear. Tempting, but wrong.'
(5) where (as in the present case) it is necessary to imply the grant of some right to fill a lacuna in the contract and the question arises how this lacuna is to be filled, guidance is again to be found in Liverpool. The principle is clearly stated that in deciding which of various alternatives should constitute the contents of the term to be implied, the choice must be that which does not exceed what is necessary in the circumstances (see Lord Wilberforce at 245 F–G). In short a minimalist approach is called for. An implication may only be made if this is necessary, and then only of what is necessary and no more;
(6) accordingly if it is necessary to imply some grant of rights in respect of a copyright work, and the need could be satisfied by the grant of a licence or an assignment of the copyright, the implication will be of the grant of a licence only;
(7) circumstances may exist when the necessity for an assignment of copyright may be established. As Mr Howe has submitted, these circumstances are, however, only likely to arise if the client needs in addition to the right to use the copyright works the right to exclude the contractor from using the work and the ability to enforce the copyright against third parties. Examples of when this situation may arise include:
(a) where the purpose in commissioning the work is for the client to multiply and sell copies on the market for which the work was created free from the sale of copies in competition with the client by the contractor or third parties;
(b) where the contractor creates a work which is derivative from a pre-existing work of the client, e.g. when a draughtsman is engaged to turn designs of an article in sketch form by the client into formal manufacturing drawings, and the draughtsman could not use the drawings himself without infringing the underlying rights of the client;
(c) where the contractor is engaged as part of a team with employees of the client to produce a composite or joint work and he is unable, or cannot have been intended to be able, to exploit for his own benefit the joint work or indeed any distinct contribution of his own created in the course of his engagement: see Nichols Advanced Vehicle Systems Inc v. Rees [1979] RPC 127 at 139 and consider Sofia Bogrich v. Shape Machines unreported, 4th November 1994, Pat Ct and in particular page 15 of the transcript of the judgment of Aldous J.
In each case it is necessary to consider the price paid, the impact on the Contractor of assignment of copyright and whether it can sensibly have been intended that the contractor should retain any copyright as a separate item of property;
(8) if necessity requires only the grant of a licence, the ambit of the licence must be the minimum which is required to secure to the client the entitlement which the parties to the contract must have intended to confer upon him. The amount of the purchase price which the client under the contract has obliged himself to pay may be relevant to the ambit of the licence. Thus in Stovin-Bradford v. Volpoint Properties Ltd [1971] 1 Ch 1007, where the client agreed to pay only a nominal fee to his architect for the preparation of plans, he was held to have a licence to use the plans for no purpose beyond the anticipated application for planning permission. By contrast in Blair v. Osborne & Tompkins [1971] 21 QB 78 , where the client was charged the full RIBA scale fee, his licence was held to extend to using the plans for the building itself. Guidance as to the approach to be adopted is provided in a passage in the judgment of Jacobs J. in Beck v. Montana Construction Pty [1964–5] NSWR 229 at 235 cited with approval by Widgery LJ in Blair v. Osborne & Tompkins supra at p.87:
'it seems to me that the principle involved is this; that the engagement for reward of a person to produce material of a nature which is capable of being the subject of copyright implies a permission, or consent, or licence in the person giving the engagement to use the material in the manner and for the purpose in which and for which it was contemplated between the parties that it would be used at the time of the engagement.'
(9) the licence accordingly is to be limited to what is in the joint contemplation of the parties at the date of the contract, and does not extend to enable the client to take advantage of a new unexpected profitable opportunity (consider Meikle v. Maufe [1941] 3 All ER 144 )."
Those principles were applied by the Court of Appeal in Griggs  which also concerned a customer's beneficial interest in a logo that had been designed for it, Lord Justice Jacob added at paragraph [16]:
"[16] So in the end, Mr Hobbs did not really challenge Lightman J.'s statement of the law which the deputy judge went on to apply. Mr Hobbs went on, however, to challenge that application. The deputy judge said this:
'36. It seems to me that when a free-lance designer is commissioned to create a logo for a client, the designer will have an uphill task if he wishes to contend that he is free to assign the copyright to a competitor. This is because, in order to give business efficacy to the contract, it will rarely be enough to imply a term that the client shall enjoy a mere licence to use the logo, and nothing more. In most cases it will be obvious, it will 'go without saying', that the client will need further rights. He will surely need some right to prevent others from reproducing the logo.
37. Indeed it seems to me that, in the ordinary way, a logo is a paradigm case falling within principle (7) in Lightman J's formulation.'
[17] Mr Hobbs initially characterised this as 'adopting a skewed approach' in favour of the commissioner. But as the argument developed, I think he in effect resiled from this. For he accepted that if Mr Evans' brief had simply been to combine two logos so as to produce a composite logo for the client, business efficacy would indeed require that all rights in the work should belong to the client.
[18] What, submitted Mr Hobbs, made all the difference in this case is that Mr Evans did not know that what he was being asked to produce was just a logo trade mark for the client – a mark which the client would be free to use all over the world actually on the boots as well as on point of sale material and elsewhere. All Mr Evans was told, and thought he was producing, was material for UK point of sale. That being so, runs the argument, all the client needed was a licence (possibly exclusive) for that purpose. A minimalist approach (see Lightman J.'s para.[6]) to the admittedly necessary implied term gives no more than that. It follows that there was no implied term as to title to copyright at all, and only a limited licence. Apart from that Mr Evans retained all the rights.
[19] I find that conclusion fantastic. If an officious bystander had asked at the time of contract whether Mr Evans was going to retain rights in the combined logo which could be used against the client by Mr Evans (or anyone to whom he sold the rights) anywhere in the world, other than in respect of point of sale material in the UK, the answer would surely have been 'of course not.' Mr Evans had no conceivable further interest in the work being created – indeed he surely would never have had the job at all if there had been a debate about this and he had asserted that that was to be the basis of his work.
[20] Moreover the deputy judge's conclusion of fact at para.[47] (quoted at [11] above) is conclusive. He found that the reference to 'UK point of sale' material was only for identification of the work to be done. In other words it was not there to describe or limit the rights in the work.
[21] I should add that the judge's conclusion that Mr Evans was paid the proper rate for the work (and his rejection of the contention that he would have charged more if he had known about intended wider use) disposes of any possible argument based on the notion that Mr Evans needed to retain the copyright so that he could call for payment for such further use. Further use does indeed often cause problems as between an author and his commissioner and it is always better if payment for this is spelt out in the contract. A right to further payment for unforeseen or undisclosed further use may in some cases be implied. In others the author may indeed retain copyright and actually be able to prevent further use. All depends on the circumstances. In the present case, however, there is simply no such problem."
Judge Hacon found for the defendants. He set out his reasoning at paragraph [29] of his judgment:
"[29] In my judgment, in August 2011 Kilnworx through Mr Bunting and Purple Penguin through Mr Kirk entered into an agreement for the creation of the Logos as described above. There was an implied term in the contract. It was a term of the usual nature to be implied into a contract for the creation of a logo, namely that Kilnworx would own the copyrights in the Logos. Purple Penguin, as Mr Kirk's employer, was the owner of the legal interest in the copyrights at the time the Logos were created. It held such copyrights on trust for Kilnworx. By the written agreement dated 23 August 2013 between Purple Penguin and Atelier the legal interest was assigned to Atelier.
[30] Atelier was not a purchaser of the copyrights for value without notice of Kilnworx's claim to the copyrights. In other words and in a further parallel with Griggs, Atelier is not a darling of equity (see Griggs at [7]). Therefore Atelier took the legal interest in the copyrights subject to Kilnworx's equitable interest.
[31] I think the reality is that Atelier's current claim to the unencumbered ownership of the copyrights in the Logos is borne of the unfortunate and bad tempered split between the individuals who thought up the Kilnworx project and a wish on the part of Mr Bunting to hold Kilnworx and its remaining directors over a copyright barrel in order to recover some of what he believes to be the £45,000 or so owed to him. There is nothing intrinsically wrong in that, but the barrel has to be there. In my view it is not."
It followed that Kilnworx was beneficially entitled to the copyrights and that the action for infringement failed.

It is important to remember that each case revolves in its own facts and while it may not be easy to argue that the author of a commissioned work is free to do with the work whatever he wishes there may be circumstances where that was the manifest intention of the parties. Mr Justice Lightman referred to the RIBA contract and that is as it should be since it is the architect and not the client who has an interest in preventing unauthorized reproduction of his designs. That is because it is the architect and not the client who suffers loss - namelyt a second commission and chance to earn another fee - when his design is pirated. In the case of a logo the parties' interests are reversed, It is the client and not the author who will use the logo as a trade mark or seek damages for loss of sales if the mark is infringed.

Although a short case it is an interesting one. I have already referred to it in one skeleton argument and I expect my reference to be the last. As the case comes from the Potteries and as I know well both the counsel for the claimant and his instructing solicitors and the trade mark attorney for the defendants I read the judgment with considerable personal interest. I have no doubt that it would have been hard fought and well argued on both sides. Should anyone wish to discuss this case or copyright in general he or she should not hesitate to call me on 020 7404 5252 or fill in my contact form.

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