Technology &
Internet Law

Ownership of Intectual Property Rights & Governing Directors

Introduction 

For the purposes of ascertaining who the first owner of intellectual property rights (IPR) - like copyright and design right - is, it becomes important to ascertain whether the "author" or "designer" of a work or design is an employee or not. As a general rule the author or designer becomes the first owner of copyright or design right.  

Section 11(1) of the Copyright, Designs and Patents Act 1988 (CDPA) provides that the author of a work will be the first owner of the copyright. In so far as design right is concerned, section 215 of the CDPA provides that the designer is the first owner of any design right in a design. 

However, in both cases, where the work or design is created in the course of employment, the employer becomes the first owner of the work or any design right in the design (see sections 11(2) and 215(3) respectively), unless there is an agreement to the contrary. 

Accordingly, the question of whether the author of a work or the designer of a design is an employee becomes crucial.

The Ultraframe Case 

In Ultraframe UK Ltd v Clayton & Ors (reported on 21 November 2002) Laddie J gave some useful insights into the law relating to the question of whether a person - for the purpose of ascertaining ownership of design right in a design - is an employee or not. 

The Plaintiff's Arguments in Ultraframe 

In Ultraframe, the plaintiff put forth two arguments as follows: 

1.       That whether or not a written contract of employment existed is the strongest indicator as to whether or not a governing director of a company was employed. The absence of a written contract of employment is a fundamental flaw in any argument that an employment situation exists.

2.       That a person who has actual control of the company, by whatever means, cannot satisfy the control requirement necessary to have a contract of employment with the company.

However, Laddie J in his judgment rejected both arguments of the plaintiff as erroneous in law. 

The First Argument 

With regard to the first argument of the plaintiff that there must be written contract of employment before a governing director can be an employee, Laddie J held as follows: 

'As far as the requirement for writing is concerned, there is no case which advances such a proposition. Nor can I see any reason why it should be so. Whether someone is employed by a company is a matter of fact to be derived from all the circumstances. I cannot see. why others could be employed by a company without a written contract but the shareholder/director could not. The existence of a written contract may be very helpful in determining whether the shareholder/director is employed and on what terms, but this does not make the existence of writing a fundamental pre-requisite. What is needed is an employee/employer relationship. If that exists it does not matter that it is not recorded in writing.' 

The Second Argument 

In demolishing the second argument of the plaintiff (that a person who has actual control of the company, by whatever means, cannot satisfy the control requirement necessary to have a contract of employment with the company), Laddie J agreed with the following passage of Gore Brown on Companies: 

'The cases also contain some discussion as to whether a director of a company is, or can be, an 'employee' of the company. The answer to this question depends very much on the particular context for which it is required; a particular director may, for instance, be an 'employee' for the sake of a statutory provision referring to employees, but not for the sake of an employees' pension scheme. Thus, in the last resort, the question may chiefly be one of the construction of the word 'employee' in its immediate context. Subject to this warning, it may be suggested that usually a director who performs no more than the tasks of a director pure and simple (attending board meetings, and the like) will not be considered an employee of the company, whereas if he is appointed to some executive post such as managing director, or if he works full-time or part-time for the company so as to be part of its 'labour-force', these activities may make him an 'employee' even though he is also a director....' 

Laddie J also agreed with the guidance given by the Judicial Committee of the Privy Council in Lee v. Lee's Air Farming Limited[1960] 3 All ER 420 in which their Lordships observed that in a company, one person may function in dual capacities. A governing director could have a contract of employment with the company and "be the company" (as it were) at one and the same time. So, it is possible that one person could both be under the duty of giving orders and also be under the duty of obeying them, because it would be the company and not that person who would be giving the orders. Control would remain with the company whoever might be the agent of the company to exercise it. The fact that a person continues to be the governing director, with vast powers, and in fact gives the orders, does not alter the fact that the company and the director are two separate and distinct legal persons. 

In Lee, the Privy Council identified the real issue as whether the position of a director as sole governing director made it impossible for him to be the servant of the company as an employee. It concluded that there was no such impossibility and observed that: 

'There appears to be no greater difficulty in holding that a man acting in one capacity can give orders to himself in another capacity than there is in holding that a man acting in one capacity can make a contract with himself in another capacity.' 

It follows, therefore, that the issue as to whether a person is or is not an employee is a pure question of fact. Accordingly, the context plays a vital part in reaching a conclusion one way or another. As Laddie J said in Ultraframe, whether 'someone is employed by a company is a matter of fact to be derived from all the circumstances.' 

Conclusion 

It is possible to draw the following conclusions from the judgment in Ultraframe: 

1. There is no need for a written contract of employment before a relationship of employer/employee can exist between a governing director and his company. And so, the absence of a written contract of employment is not a fundamental impediment to the creation of an employment relationship in those circumstances.
2. It is not impossible in a situation where there is a sole governing director for such a director to also be an employee of the company.
3. The question of whether a person is or is not an employee is a pure question of fact to be decided according to the same criteria as for any other legal purposes.

NEED TO KNOW MORE?

For further information on directors' duties and company law, contact Maitland Kalton.  Should you prefer to telephone, call us on +44 (0)207 278 1817.

Kaltons Solicitors, Suite 302, Spitfire Studios, 63-71 Collier Street, London, N1 9BE. Telephone +44 (0)20 7278 1817; Fax: +44 (0)207 278 1835.

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