Business

Lessons from Paymaster v Grace

Legal Notes

With Peter Goldson

Wednesday, May 05, 2010    

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Hon Mr Justice Jones handed down last Friday the long-awaited judgment in the case of Paymaster (Jamaica) Limited v Grace Kennedy Remittance Services Limited and Paul Lowe.

Paymaster had sued Grace Kennedy Remittance Services Limited ("GKRS") and Lowe claiming damages for copyright infringement, passing-off, breach of confidence and tortious interference with contractual relations. Paymaster alleged that GKRS had wrongly duplicated and used bill payment software which it had commissioned Lowe to design but which he later licensed to GKRS.

The well-reasoned judgment - one of the few in Jamaica which focuses on intellectual property law - provides some important practical lessons for us all.

The first lesson is the need to fully record contractual arrangements in writing, especially those relating to intellectual property rights.

In the absence of a clear written agreement, Paymaster was forced to assert that there was an implied term in its contract with Lowe. The judge in the case noted that "there is an astonishing lack of clarity in the contractual arrangements between Paymaster and Paul Lowe regarding ownership in the copyright to the Paymaster Multi-Payment Software".

In the writer's experience, the failure to reduce into writing at all -or in sufficient detail- the parties' intentions as regards the ownership of or the entitlement to intellectual property is the cause of most legal disputes in this area. This is so particularly in the entertainment industry where parties collaborate in music creation or production with no or scanty written contracts. The parties are often happy to have "made a tune" until they realise - often only when the song achieves popularity - that the parties possess completely different views as to ownership.

The second lesson from the decision is that a party alleging an agreement that the author is not the owner of copyright bears a heavy burden.

In he Paymaster case, the judge referred to section 22 of the Copyright Act, 1988, which provides that the author of a protected work is the first owner of the copyright unless there is an agreement to the contrary. The litigation may have taken on a completely different character if there had existed between the parties a clear written agreement setting out their respective rights. Since there was no such agreement, Paymaster argued that the fact that it had commissioned Lowe to write the software and that it had paid a hefty sum for the development of the software was sufficient evidence of the agreement required by section 22 of the Copyright Act. Paymaster lost on both these points.

The judge cited and approved authority which set out a number of examples which show when a court is likely to imply a term to assign the ownership of the copyright to the author's client as follows:

"Circumstances in which an agreement to assign the copyright are likely to be implied include those where the work is made specifically for the commissioner's business and at his expense and neither party can have contemplated that the maker of the work would have any genuine use of it himself. It will be necessary to consider in particular the price paid the impact of an assignment on the maker and whether it could sensibly have been intended that he should retain the copyright. The fact that the maker may have made use of underlying works supplied and owned by the commissioner, such as preliminary drafts or sketches, so that the commissioned work could not be used by the maker without infringing the copyright in these underlying works, will also support such an implication. Again, where the maker works as part of a team with employees of the commissioner, this may justify the implication. On the other hand, where it is contemplated that the work may be sold by the maker to others or where it incorporates elements that the maker is likely to use again in his business, such as standard routines employed by a software writer, together with additions that are specific to the commissioner's business, an intention that the commissioner should own the entire copyright is unlikely to be implied

In applying this and other authorities, Mr Justice Jones found, inter alia, that Lowe always retained ownership and control of the software and, in particular, did not provide Paymaster with the source code for the software which he developed. In addition, the judge noted that Lowe was engaged in the business of creating software for the bill payment industry and the customary inference in the trade would be for him to retain copyright in his software and licence it to his client.

It may well be an easier matter for, in many circumstances, a purchaser of graphic design services to establish that it could never have been reasonable to conclude that the designer had any conceivable further interest in the work being created and a court to find that in those circumstances, an implied agreement existed that the copyright of the work was assigned to the person who contracted the service.

In the words of one authority citied in the Paymaster judgment, in the implication of contract terms, "the law imposes strict constraints on the exercise of this extraordinary power". The party alleging the implied contract to assign the copyright may have a lot to prove.

The third lesson to be learnt from the Paymaster case is that, when parties are sharing business plans or other important documents which might reveal intellectual property with third parties, they should lean heavily on a Confidentiality or Non-Disclosure Agreement.

Paymaster had asserted that GKRS had committed a breach of confidence in that it had, inter alia, used the confidential information from Paymaster's business plan to the general detriment of Paymaster.

The judge stated that Paymaster would have to prove three things for the claim in breach of confidence to succeed, namely,

(i) the information must have the necessary quality of confidence about it;

(ii) the circumstances in which the information was imparted must have imported an obligation of confidentiality; and

(iii) there must be unauthorised use of the information to the detriment of the party communicating it.

The judge ultimately found that Paymaster's claim for breach of confidence failed. However, he cited and approved authority which had stated that, where information of commercial or industrial value is given on a business-like basis and with some avowed common object in mind, the recipient of the information carries a heavy burden if he seeks to repel a contention that he was bound by an obligation of confidence. GKRS, the judge found, had failed to throw off this burden.

The point might have been plainer, however, had Paymaster required GKRS to sign a Confidentiality or Non-Disclosure Agreement in the first place. The truth is that many business persons do not avail themselves of the security which a Confidentiality or Non-Disclosure Agreement can bring and do so to their peril.

The fourth lesson from the judgment is that litigants who seek an interlocutory injunction against a defendant in a court action and, in order to obtain it, agree to give an undertaking to make good the damages which may be caused to the defendant consequent on the court's grant of the undertaking, must understand the risk which they are taking.

Having obtained such an injunction against GKRS and Lowe, the effect on the latter was to prevent him from marketing and licencing the software in question for just less than 10 years. Paymaster will, unless it succeeds in overturning the judgment of Mr Justice Jones on appeal, have to pay the damages suffered by Lowe in being unable to benefit financially from his property over that period.

This last is an expensive lesson indeed.

Peter Goldson is a Partner at Myers Fletcher & Gordon and Head of the Firm's Intellectual Property and Commercial Departments. Peter may be contacted at peter.goldson@mfg.com.jm or via www.myersfletcher.com.

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