Copyright, code libraries and ownership

In Australia, copyright automatically vests in certain types of literary works, including computer programs and artistic works, upon their creation.  The general rule is that the owner of copyright in a literary or artistic work is the author of that work.[1]  An exception to this rule arises if the work is made by an employee pursuant to the terms of their employment.  In this case, the employer owns the copyright subsisting in the employee-generated work.  However, the distinction of whether an employee has created the work pursuant to the terms of employment, is not always clear.  This issue was considered in the case of Redrock Holdings Pty Ltd and Hotline Communications Ltd v Hinkley [2001] VSC 91 (Redrock).

Who owned the copyright in the code library

In Redrock the dispute surrounded the identity of the owner of copyright programs.  The defendant Mr. Adam Hinkley (Hinkley) was a computer programmer who had developed a “class library” which he defined as being “a software tool that is used for making other software”.[2]  Redrock Holdings Pty Ltd ACN 104 683 838 (Redrock Holdings) employed Hinkley as a software programmer, the idea being he would use his library to write, or assist in writing, code to be indisputably owned by Redrock Holdings.  Once written, the computer program was fully integrated into the library and was unable to function without it, and any future changes to the code would have required access to the library’s source code.

Hinkley submitted that he retained copyright in the computer program he had developed, on the basis that he was not an employee because he was not subject to Redrock Holdings’ control and direction.  See our article on the tests for employment here.  Redrock Holdings alleged that it employed Hinkley as a software programmer and, as such, the copyright in the computer programs vested in Redrock Holdings.  Canadian company Hotline Communications Ltd (Hotline Ltd) was established by Hinkley and a group of Canadians to develop and market certain software programs created by him, and claimed ownership of the computer programs on the basis that Hinkley assigned that ownership.  The case considered a number of other causes of action, however, this article will only discuss the copyright claims.

Was Mr. Hinkley an employee?

Generally employees over whom a business has direction and control as to the manner in which they carry out their work will be employed under a contract of service.  For an employee’s copyright to vest in an employer, the work must be made pursuant to the employee’s terms of employment, or contract of service.[3]  Little judicial guidance is given to determining when a work is made ‘pursuant to the terms of employment’ however this will generally involve an examination of the employee’s duties and whether the work resulted from the employee performing those duties.

In this case, Hinkley argued that he was not an employee based on the following three (3) propositions:

  • First, that by his agreement with Redrock Holdings the class library was to be made available to Redrock by Mr. Hinkley as his tool that he was prepared to use in the service of his employer;
  • Secondly, that he created the library wholly or almost entirely outside working hours, both before and during the period of his employment by Redrock Holdings; and
  • Thirdly, that the library was conceived, designed, developed and used by Mr. Hinkley at least as much for purposes which had nothing to do with Redrock Holdings, but everything to do with non-Redrock products for work related purposes.

In determining whether Hinkley was an employee, the Court considered the test from Stephenson Jordan & Harrison Ltd v MacDonald & Evans [1952] 1 TLR 101, and said that Hinkley had been an integral part of the business.  However, the Court acknowledged that legal authority to control is no longer the sole determining factor, particularly where a person or employee exercises a high degree of professional skill of their duties.[4]  The Court had no doubt that Hinkley as a software programmer exercised a high degree of professional skill and expertise in the performance of his duties for Redrock Holdings.  However, it found that evidence of a fixed salary, the deduction of group tax, the completion of an ATO employee’s declaration form, annual, sick and long service leave entitlements, superannuation contributions and the provision of tools and equipment pointed towards a contract of service.[5]

Was the code developed pursuant to that contract of service?

In relation to the computer program named “Hotline” the Court found that Hinkley was the owner of copyright.  The Court accepted Hinkley’s evidence that Hotline was his own project carried out without any direction from Redrock Holdings and without their knowledge, and although he worked at it while at the premises of Redrock Holdings he only did so when he had no specific tasks.  Redrock Holdings was unable to produce sufficient evidence that Hinkley had developed the code during working hours.

Nevertheless, Redrock Holdings retained copyright ownership in another computer program named App Warrior upon which Hotline was dependent.  The program was originally conceived and developed by Hinkley to impress his prospective employer.  However, because the code was in what the Court described as an “embryonic form” whilst employed by Redrock Holdings, the Court said Hinkley had developed the computer program in pursuance of the terms of his employment Redrock Holdings.[6]  This was supported by the fact that the code was functionally and critically dependent on the program.  Expert evidence had also shown that the majority of the further development of the program occurred between 9:30am and 7pm on weekdays.

Takeaways

This case highlights the importance in software development of clearly defining who owns the inputs and outputs of the process before starting work.  The expensive of litigation could have been avoided by engaging in some robust analysis and negotiations at the start and distilling the outcomes of those discussion into some precise contractual terms.

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Legislation

Copyright Act 1958 (Cth)

Cases

Beloff v Pressdram Ltd [1973] 1 All E.R. 241

Redrock Holdings Pty Ltd and Hotline Communications Ltd v Hinkley [2001] VSC 91

Stephenson Jordan & Harrison Ltd v MacDonald & Evans [1952] 1 TLR 101

Further information

If you need advice about protecting copyright in code libraries please contact me for a confidential and obligation free discussion:

Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
Telephone: (07) 3221 0013 | Mobile: 0419 726 535
e: mburrows@dundaslawyers.com.au

 

Disclaimer

This article contains general commentary only. You should not rely on the commentary as legal advice. Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

[1] Copyright Act 1968 (Cth) s 35.

[2] Redrock Holdings Pty Ltd and Hotline Communications Ltd v Hinkley [2001] VSC 91 at para 4.

[3] Copyright Act 1968 (Cth) s 35(6).

[4] Redrock Holdings Pty Ltd and Hotline Communications Ltd v Hinkley [2001] VSC 91 at para 20; Beloff v Pressdam Ltd [1973] 1 All E.R. 241.

[5] Redrock Holdings Pty Ltd and Hotline Communications Ltd v Hinkley [2001] VSC 91 at para 23.

[6] Redrock Holdings Pty Ltd and Hotline Communications Ltd v Hinkley [2001] VSC 91 at para 19;

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