Software created by employees - who owns the copyright?

Software created by employees - who owns the copyright?

Directors decision making: considerations for virtual meetings

There is a widely held belief that an employee who creates software outside normal working hours is entitled to the copyright in that software. While this may be true in some cases, the correct position is that, subject to contrary agreement, the copyright will belong to the employer if it was created “in the course of employment”. Depending on the circumstances, this may include work done at home or outside normal working hours.

High Court guidance

The recent High Court decision in Penhallurick v MD51 makes it clear that, when deciding whether the work is done “in the course of employment”, a number of different factors must be balanced against each other. The starting point will usually be to ask what the employee was employed to do, and the terms of the employment contract are an important indicator here. Employers should ensure that the duties specified in the contract include creating software of the relevant kind and are described as widely as reasonable. This should also be updated where necessary as the role changes.

The fact that the work was done at home or outside office hours or on the employee’s own computer may be factors pointing to ownership by the employee, but this will not carry much weight if there was a high level of direction by the employer, or the evidence shows that the employee was employed to do the relevant work and was paid for it. The risk posed by the over-zealous employee who simply takes the work home is therefore low.

Tricky situations

In practice, ambiguity often arises where the employee has worked on an idea prior to his or her employment, maybe developing a new concept and bringing this with them. Here the copyright in work done prior to employment is likely to belong to the employee and the employer should obtain a specific assignment of legal and beneficial ownership of the copyright in this initial work.

Contractors are different

A different situation arises if the developer carries out the work on a consultancy basis or as a contractor rather than as an employee working under a contract of employment as such. In practice, a good indicator of this is often whether he or she is taxed through PAYE – if not, then this suggests they are a contractor rather than an employee. A contractor will normally be the first owner of the copyright, so the employer should ensure that the legal and beneficial ownership of the copyright is expressly assigned to the company.

The Penhallurick case

This involved software for use in the forensic examination of computers by the police, enabling the contents of a computer to be analysed without corrupting or altering the files. The software was created by Mr Penhallurick, an employee of MD5 Limited. Judge Hacon in the Intellectual Property Enterprise Court (part of the High Court) found that developing the software was the central task assigned to Mr Penhallurick by MD5. This was clear from the fact that it was created with MD5’s knowledge and in discussion with MD5 for the purpose of improving MD5’s product and Mr Penhallurick was paid for it under his contract of employment. As a result, the software was created in the course of Mr Penhallurick’s employment and copyright belonged to MD5. The fact that some of the work was done at home did not affect this analysis.

With huge swathes of the UK workforce are currently working from home, the case serves as a timely reminder that when it comes to creative endeavours, defining the scope a person’s role is key.


[1] Michael Penhallurick v MD5 Limited High Court, 15/02/2021

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