Mail sorted, IP ownership not

The decision in Intelmail Explorenet Pty Limited v Vardanian (No 2) [2009] FCA 1018 again illustrates the difficulties which can arise where ownership of employee or contractor generated intellectual property is not adequately addressed by express contractual terms.

Dilanchian, the controlling shareholder of Intelmail, had for many years operated a business involving the manufacture, sale and servicing of intelligent mail sorting machines. A significant contribution to this business was made by Vardanian, who for over twenty years wrote and updated the software used in relation to the mail sorting machines. Between 1988 and 1996 Vardanian was an employee of the Intelmail business. From 1996, he was employed by Controlmech, a company which he controlled, with that company providing the software written by Vardanian to the Intelmail business.

In 2003, the question of ownership of the copyright in the software arose due to apparent copying of that software by former employees of the Intelmail business. At about that time there were also discussions between Dilanchian and Vardanian about the later being “bought out” of the Intelmail business, however no agreement was reached. By 2008, the relationship between Dilanchian and Vardanian had completely broken down, and the issue of ownership of copyright in the software again arose. There were no written agreements in place dealing with ownership of copyright works produced by Vardanian. Intelmail asserted that either it was the beneficial owner of the copyright in the software or alternatively that it had an implied, irrevocable and royalty free licence. Vardanian conceded that an implied licence existed, but disputed the terms of that licence propounded by Intelmail. Regarding whether Intelmail was an owner or licensee, Moore J noted that:

If there is a lacuna in the contract and it is necessary to imply the grant of some right to fill the lacuna involving a choice between possible alternative rights, the choice should be of that right which does not exceed what is necessary in the circumstances. … if the need can be satisfied by the grant of licence or an assignment of the copyright, the implication will be of the grant of licence only.

There was no doubt that the ownership of any copyright in software developed by Vardanian while an employee of the Intelmail business was owned by that business. With regard to the software produced while Vardanian was employed by his own company, Controlmech, his Honour noted that:

it is unlikely that either Mr Dilanchian or Mr Vardanian would have agreed to an arrangement that imperilled the rights of either or would have put at risk the continued growth or at least prosperity of the business …It is improbable they would have agreed to an arrangement which would, over time, invest in Controlmech copyright in the software over which Mr Dilanchian would have no control other than as a licensee and deny it the opportunity to control the source software.”

Accordingly, Moore J concluded that for the reasonable and effective operation of the contract between Controlmech and Intelmail, it was necessary to imply a term that Intelmail would retain equitable ownership of copyright in the software.