The Federal Court of Australia has reminded us that an independent contractor commissioned to develop software may be taken to have agreed to assign equitable ownership of copyright in the software.
The case is Intelmail Australia v Vardanian  FCA 1018. Justice Moore reviewed the principles to be applied when implying terms into an oral contract, confirming the following:
1. In a written contract, or a contract partly in writing and partly oral, the well known BP Refinery test applies to the implication of terms. Each implied term must be:
necessary for business efficacy (no term will be implied if the contract is effective without it);
reasonable and equitable;
so obvious it goes without saying;
capable of clear expression; and
consistent with express terms
2. In the case of an informal and obviously not detailed oral contract, there is not a rigid approach to the business efficacy requirement. But the ‘so obvious it goes without saying’ requirement will generally be required before the courts will imply a term which cannot be implied from some actual statement, from previous dealings between the parties or from established commercial practice. Hospital Products v USSC (1984) 156 CLR 41 per Deane J.
3. Courts may imply a term that copyright will be assigned to a party commissioning the creation of a copyright work, but if an issue can be addressed by the grant of a licence or by an assignment, a licence will generally be implied: Robin Ray v Classic FM Plc (1998) 41 IPR 235
4. Evidence of conduct after formation of the contract is of little relevance – the need to imply a term arises because the parties had not given thought to the issue. Pre contract conduct may be relevant, to set the context.
The Intelmail Australia business had been established by Mr Dilanchian in the 1980s. Mr Dilanchian’s expertise lay in the mechanical aspects of mail sorting machines. In 1986 Mr Vardanian had the idea of increasing the intelligence of the machines by designing software to assist at various stages in the mail sorting process. Mr Vardanian wrote all the relevant software, originally as an employee, but from 1996 onwards he provided services through a company controlled by him, Controlmech Pty Ltd. All contractual arrangements were oral.
Justice Moore found that neither party turned their attention to the issue of ownership of copyright in 1996. The key issue for the court was, when the contract was formed in 1996, whether Controlmech agreed to assign ownership of copyright in the software or to license the software to Intelmail. Given Mr Vardanian’s prior status as an employee and the other circumstances of this case, Justice Moore found (at ) that “the parties would have, as a matter of imputed intention, agreed that Intelmail would retain equitable ownership of the copyright in the software notwithstanding that legal ownership would, by operation of the Act, vest in Controlmech”.
The decision demonstrates that, when analysing ownership of copyright works commissioned under an oral contract, it is critical to investigate fully the circumstances in which the works were commissioned. Remember this decision next time you conduct a chain of title analysis.