Intellectual Property Enterprise Court

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
INTELLECTUAL PROPERTY ENTERPRISE COURT

		Royal Courts of Justice, Rolls Building Fetter Lane, London, EC4A 1NL
		30/07/2015

Judge Hacon:

Introduction

1. This is a dispute about copyright in these logos:

2. They were created in August 2011 by Rik Kirk, together with three variations on the larger 'Kilnworx Climbing Centre' logo shown above. I will refer to them collectively as "the Logos".
3. Mr Kirk is an employee and director of a design company, Purple Penguin Design Limited ("Purple Penguin"). The Logos were for the use of the First Defendant ("Kilnworx") which operates an indoor climbing centre in Burslem, Stoke-on-Trent. The instructions to make the Logos were given to Purple Penguin by Lionel Bunting who was both the sole director and shareholder of the Claimant ("Atelier") and also a director of Kilnworx. Mr Bunting, along with the Second Defendant ("Mr Sandhu") and Haroon Shabbir, had conceived the idea of the climbing centre and was closely involved in setting it up.
4. Atelier claims ownership of the copyrights in the Logos. It says that Purple Penguin was the first owner of the copyrights as employer of the author of the works, Mr Kirk. By a written agreement dated 23 August 2013 Purple Penguin assigned its interest in the copyrights to Atelier. Atelier alleges that Kilnworx has infringed those copyrights by using the Logos. It also claims that Mr Sandhu and the Third Defendant ("Ms Sangha"), who are husband and wife and both directors of Kilnworx, have personally infringed the copyrights while acting for Kilnworx. Alternatively they are jointly liable with Kilnworx for its acts of infringement.
5. The Defendants do not deny having done the various acts alleged to infringe the copyrights. Their defence is that Kilnworx either has at all times been the equitable owner of the copyrights in the Logos or alternatively benefits from an exclusive licence under those copyrights.
6. The Defendants' pleaded case was that when Kilnworx was set up Mr Bunting received shares in the company. This was by way of consideration for the transfer by him of certain assets to Kilnworx, including the copyrights in the Logos. By the time of the trial the Defendants' had modified their position and a simpler case was advanced. They said that because the copyright works in question are logos, at the time the Logos were created all concerned intended that Kilnworx would own the copyrights in them. Kilnworx has therefore always been owner in equity of the copyrights or failing that, an exclusive licensee. All that Purple Penguin could have assigned and did assign by the agreement of 23 August 2013 was the legal interest in the copyrights. That, the Defendants argue, remains subject to Kilnworx's equitable interest.
7. In my view this is not is not an instance in which a party should be prevented from adapting its argument away from the confines of what was pleaded. The Defendants' modified case did not rest on any facts which had not already been developed in evidence, so Atelier was fully able to deal with it. Mr St Quintin, who appeared for Atelier, did not seem surprised by the development and, I think rightly, did not take any strong objection to the change of argument.
8. The dispute thus came down to a short point: at the time the Logos were created, did the relevant parties intend that Kilnworx would own the copyrights in the Logos and if not, was Kilnworx the beneficiary of a perpetual exclusive licence under the copyrights?

Background facts

9. In around the late part of 2009 and the start of 2010 Mr Bunting, Mr Sandhu and Mr Shabbir conceived the idea of setting up an indoor climbing centre in the Stoke area. Mr Bunting and Mr Sandhu had been friends since university and went climbing together. On 5 May 2011 Mr Bunting incorporated Kilnworx as the corporate vehicle for the enterprise. Mr Bunting and Mr Sandhu each took 35% of the shares in the company while the remaining 30% was split between Mr Shabbir and four other individuals who had each agreed to put up £5,000. Mr Sandhu said that he invested £25,000. Mr Bunting put no money into the enterprise at this stage.
10. The directors agreed that Kilnworx should have a logo. Mr Bunting approached Mr Kirk of Purple Penguin by an email dated 19 August 2011 asking him to create the Logos. Mr Kirk replied on 18 August 2011 giving a guide price of £300-500. Initial ideas were sent by Mr Kirk and there followed email exchanges with Mr Bunting. In these exchanges Mr Bunting identified himself as director of Atelier.
11. By an invoice dated 21 September 2011 Purple Penguin sought payment of £300 for the work done in creating the Logos. The invoice was sent to Kilnworx at Burslem. However the £300 was paid by Atelier, not Kilnworx, on 26 September 2011. Purple Penguin sent a further series of four invoices dated between November 2011 and February 2012 for other work done on Kilnworx's behalf. Three of these were sent to Kilnworx, one to Atelier. All were paid by Atelier.
12. This was not all that Atelier paid for. The suppliers of certain other items and services provided to Kilnworx were paid by Atelier because Kilnworx did not have sufficient resources. Mr Bunting said that the sums paid totalled £15,888.14 in all and that it was agreed between the directors that once Kilnworx was in funds it would reimburse Atelier.
13. Kilnworx opened its doors in June 2012. Mr Bunting, along with the others, put a lot of time and effort into running Kilnworx. Going back to finances, Mr Bunting said that he provided a personal guarantee in favour of the company in the sum of £30,000 at around that time. For his part, Mr Sandhu said that he had to pay suppliers about £30,000 using his personal credit card.
14. The business was not making money and by September 2012 Kilnworx was under financial pressure. On 22 September 2012 there was what seems to have been an acrimonious shareholders' meeting. It was agreed that Atelier should invoice Kilnworx for all the expenses it had incurred thus far, including the cost of the Logos. Invoices dated 26 September 2012 were raised which totalled £45,900.81. This included not just sums paid by Atelier on Kilnworx's behalf but also Mr Bunting's estimates of what he was owed for his time spent working for the benefit of Kilnworx.
15. Mr Bunting resigned as a director of Kilnworx in November 2012. In the same month he sent emails to Mr Sandhu and others stating his view that Kilnworx did not own the copyrights in the Logos. He said that Mr Kirk owned them and that Atelier was the only party licensed to use the Logos. Mr Bunting suggested that he could arrange for ownership of the copyrights to be transferred to Kilnworx for £5,000. Kilnworx rejected the assertion that it did not own the copyrights.
16. By December 2012 the directors of Kilnworx made it clear to Mr Bunting that Kilnworx did not have the funds to pay any of Atelier's invoices. Atelier has never been paid.
17. The present proceedings were started by Atelier in November 2013.

The law

18. Griggs Group Ltd v Evans [2005] EWCA (Civ) 11; [2005] F.S.R. 31 also involved a logo. The claimant, Griggs, was part of the group of companies which produce 'Doc Martens' footwear. It commissioned an advertising agency to produce a logo. Specifically, Griggs wanted two of the existing Doc Martens logos to be combined to create a new composite logo. The agency approached a freelance designer, Mr Evans, who created the composite logo. Nothing was said about copyright. Mr Evans subsequently contended that he had retained both the legal and equitable interests in the copyright and that Griggs merely had a licence to use the logo in the United Kingdom.
19. At first instance the deputy judge found that Mr Evans had been paid the going rate for the job of creating the composite logo, that Mr Evans was owner of the legal interest in it, but that Griggs held the equitable interest.
20. The specific issue between the parties was the nature of the implied term regarding copyright in the logo in the agreement between the advertising agency and Mr Evans. On appeal Jacob LJ referred (at [13]) to the principles governing the respective rights of a client who has commissioned a copyright work and the contractor who carried out the design work. These principles had been explained by Lightman J in Robin Ray v Classic FM plc [1998] FSR 622 (at 640):

"The issue in every such case is what the client under the contract has agreed to pay for and whether he has 'bought' the copyright. The alternatives in each case are that the client has bought the copyright, some form of copyright licence or nothing at all. It is common ground in this case that by implication the consultancy agreement at the least confers on the defendant a licence to use the copyright material for the purposes of its radio station. The issue is whether the defendant impliedly bought the copyright or a more extensive licence than the limited licence conceded.

The general principles governing the respective rights of the contractor and client in the copyright in a work commissioned by the client appear to me to be as follows:

(1) the contractor is entitled to retain the copyright in default of some express or implied term to the contrary effect;

(2) the contract itself may expressly provide as to who shall be entitled to the copyright in work produced pursuant to the contract. Thus under a standard form Royal Institute of British Architects ('RIBA') contract between an architect and his client, there is an express provision that the copyright shall remain vested in the architect;

(3) the mere fact that the contractor has been commissioned is insufficient to entitle the client to the copyright. Where Parliament intended the act of commissioning alone to vest copyright in the client e.g. in case of unregistered design rights and registered designs, the legislation expressly so provides (see section 215 of the 1988 Act and section 2(1A) of the Registered Designs Act 1949 as amended by the 1988 Act). In all other cases the client has to establish the entitlement under some express or implied term of the contract;

(4) the law governing the implication of terms in a contract has been firmly established (if not earlier) by the decision of the House of Lords in Liverpool City Council v. Irwin [1977] AC 239 ('Liverpool'). In the words of Lord Bingham MR in Philips Electronique v British Sky Broadcasting [1995] EMLR 472 ('Philips') at 481, the essence of much learning on implied terms is distilled in the speech of Lord Simon of Glaisdale on behalf of the majority of the Judicial Committee of the Privy Council in BP Refinery (Westernport) Pty Ltd v. The President, Councillors and Ratepayers of the Shire of Hastings (1978) 52 ALJR 20 at 26:

'Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.'

Lord Bingham added an explanation and warning:

'The courts' usual role in contractual interpretation is, by resolving ambiguities or reconciling apparent inconsistencies, to attribute the true meaning to the language in which the parties themselves have expressed their contract. The implication of contract terms involves a different and altogether more ambitious undertaking: the interpolation of terms to deal with matters for which, ex hypothesi, the parties themselves have made no provision. It is because the implication of terms is so potentially intrusive that the law imposes strict constraints on the exercise of this extraordinary power. … The question of whether a term should be implied, and if so what, almost inevitably arises after a crisis has been reached in the performance of the contract. So the court comes to the task of implication with the benefit of hindsight, and it is tempting for the court then to fashion a term which will reflect the merits of the situation as they then appear. Tempting, but wrong.'

(5) where (as in the present case) it is necessary to imply the grant of some right to fill a lacuna in the contract and the question arises how this lacuna is to be filled, guidance is again to be found in Liverpool. The principle is clearly stated that in deciding which of various alternatives should constitute the contents of the term to be implied, the choice must be that which does not exceed what is necessary in the circumstances (see Lord Wilberforce at 245 F–G). In short a minimalist approach is called for. An implication may only be made if this is necessary, and then only of what is necessary and no more;

(6) accordingly if it is necessary to imply some grant of rights in respect of a copyright work, and the need could be satisfied by the grant of a licence or an assignment of the copyright, the implication will be of the grant of a licence only;

(7) circumstances may exist when the necessity for an assignment of copyright may be established. As Mr Howe has submitted, these circumstances are, however, only likely to arise if the client needs in addition to the right to use the copyright works the right to exclude the contractor from using the work and the ability to enforce the copyright against third parties. Examples of when this situation may arise include: (a) where the purpose in commissioning the work is for the client to multiply and sell copies on the market for which the work was created free from the sale of copies in competition with the client by the contractor or third parties; (b) where the contractor creates a work which is derivative from a pre-existing work of the client, e.g. when a draughtsman is engaged to turn designs of an article in sketch form by the client into formal manufacturing drawings, and the draughtsman could not use the drawings himself without infringing the underlying rights of the client; (c) where the contractor is engaged as part of a team with employees of the client to produce a composite or joint work and he is unable, or cannot have been intended to be able, to exploit for his own benefit the joint work or indeed any distinct contribution of his own created in the course of his engagement: see Nichols Advanced Vehicle Systems Inc v. Rees [1979] RPC 127 at 139 and consider Sofia Bogrich v. Shape Machines unreported, 4th November 1994, Pat Ct and in particular page 15 of the transcript of the judgment of Aldous J. In each case it is necessary to consider the price paid, the impact on the Contractor of assignment of copyright and whether it can sensibly have been intended that the contractor should retain any copyright as a separate item of property;

(8) if necessity requires only the grant of a licence, the ambit of the licence must be the minimum which is required to secure to the client the entitlement which the parties to the contract must have intended to confer upon him. The amount of the purchase price which the client under the contract has obliged himself to pay may be relevant to the ambit of the licence. Thus in Stovin-Bradford v. Volpoint Properties Ltd [1971] 1 Ch 1007, where the client agreed to pay only a nominal fee to his architect for the preparation of plans, he was held to have a licence to use the plans for no purpose beyond the anticipated application for planning permission. By contrast in Blair v. Osborne & Tompkins [1971] 21 QB 78 , where the client was charged the full RIBA scale fee, his licence was held to extend to using the plans for the building itself. Guidance as to the approach to be adopted is provided in a passage in the judgment of Jacobs J. in Beck v. Montana Construction Pty [1964–5] NSWR 229 at 235 cited with approval by Widgery LJ in Blair v. Osborne & Tompkins supra at p.87:

'it seems to me that the principle involved is this; that the engagement for reward of a person to produce material of a nature which is capable of being the subject of copyright implies a permission, or consent, or licence in the person giving the engagement to use the material in the manner and for the purpose in which and for which it was contemplated between the parties that it would be used at the time of the engagement.'

(9) the licence accordingly is to be limited to what is in the joint contemplation of the parties at the date of the contract, and does not extend to enable the client to take advantage of a new unexpected profitable opportunity (consider Meikle v. Maufe [1941] 3 All ER 144 )."

21. Having referred to this passage from Robin Ray, which he described as masterly, Jacob LJ, with whom Chadwick LJ and Lloyd J agreed, went on to say this:

"[16] So in the end, Mr Hobbs did not really challenge Lightman J.'s statement of the law which the deputy judge went on to apply. Mr Hobbs went on, however, to challenge that application. The deputy judge said this:

'36. It seems to me that when a free-lance designer is commissioned to create a logo for a client, the designer will have an uphill task if he wishes to contend that he is free to assign the copyright to a competitor. This is because, in order to give business efficacy to the contract, it will rarely be enough to imply a term that the client shall enjoy a mere licence to use the logo, and nothing more. In most cases it will be obvious, it will 'go without saying', that the client will need further rights. He will surely need some right to prevent others from reproducing the logo.

37. Indeed it seems to me that, in the ordinary way, a logo is a paradigm case falling within principle (7) in Lightman J's formulation.'

[17] Mr Hobbs initially characterised this as 'adopting a skewed approach' in favour of the commissioner. But as the argument developed, I think he in effect resiled from this. For he accepted that if Mr Evans' brief had simply been to combine two logos so as to produce a composite logo for the client, business efficacy would indeed require that all rights in the work should belong to the client.

[18] What, submitted Mr Hobbs, made all the difference in this case is that Mr Evans did not know that what he was being asked to produce was just a logo trade mark for the client – a mark which the client would be free to use all over the world actually on the boots as well as on point of sale material and elsewhere. All Mr Evans was told, and thought he was producing, was material for UK point of sale. That being so, runs the argument, all the client needed was a licence (possibly exclusive) for that purpose. A minimalist approach (see Lightman J.'s para.[6]) to the admittedly necessary implied term gives no more than that. It follows that there was no implied term as to title to copyright at all, and only a limited licence. Apart from that Mr Evans retained all the rights.

[19] I find that conclusion fantastic. If an officious bystander had asked at the time of contract whether Mr Evans was going to retain rights in the combined logo which could be used against the client by Mr Evans (or anyone to whom he sold the rights) anywhere in the world, other than in respect of point of sale material in the UK, the answer would surely have been 'of course not.' Mr Evans had no conceivable further interest in the work being created – indeed he surely would never have had the job at all if there had been a debate about this and he had asserted that that was to be the basis of his work.

[20] Moreover the deputy judge's conclusion of fact at para.[47] (quoted at [11] above) is conclusive. He found that the reference to 'UK point of sale' material was only for identification of the work to be done. In other words it was not there to describe or limit the rights in the work.

[21] I should add that the judge's conclusion that Mr Evans was paid the proper rate for the work (and his rejection of the contention that he would have charged more if he had known about intended wider use) disposes of any possible argument based on the notion that Mr Evans needed to retain the copyright so that he could call for payment for such further use. Further use does indeed often cause problems as between an author and his commissioner and it is always better if payment for this is spelt out in the contract. A right to further payment for unforeseen or undisclosed further use may in some cases be implied. In others the author may indeed retain copyright and actually be able to prevent further use. All depends on the circumstances. In the present case, however, there is simply no such problem."

22. In the case of any agreement by which the design of a logo is commissioned, the starting point will be the one identified by the deputy judge in Griggs, expressly approved by the Court of Appeal (at [16]): where a designer is commissioned to create a logo for a client, in order to give business efficacy to the contract of commission there will in the normal course be a presumption that the client has the right to prevent others from using the logo. I would add that it is, after all, the client's logo, intended to signal to the world that the goods or services supplied under that logo come from the client and no one else. This will mean either that the client retains ownership of the copyright or alternatively that he has the benefit of an exclusive licence. As Jacob LJ also said (at [19]), it is normally to be expected that the designer will have no conceivable further interest in the work. By way of obvious expansion on this, I would point out that any use of the logo except by the client is liable to be unlawful because it would give rise to a justified allegation of passing off. It would be very unusual for the parties to be unaware of this, at least in broad terms.
23. Jacob LJ stated (at [21]) that on certain facts it may be that the designer is entitled to retain rights in the work pending further payment. Plainly it cannot be ruled out as an impossibility. But it seems to me that the facts would have to point very clearly to such an arrangement having been agreed by the parties. For obvious reasons it would be unusual and commercially dangerous for the client to have his use of his logo made subject to the approval of someone else. Far less is the client likely to agree (or the designer likely to contemplate) that the designer will in certain circumstances be free to sell off the logo, possibly to a competitor of the client, and thereby give the competitor both the right to use the logo and to prevent others, including the client, from using it. There would have to be very clear evidence to support the existence of an agreement along such lines.

This case

24. Mr Kirk, acting as an employee of his company Purple Penguin, was approached by Mr Bunting to design the Logos. In cross-examination Mr Bunting said that he commissioned the creation of the Logos "on behalf of Kilnworx". Given that it was Kilnworx which would use the logo, this was not surprising evidence. The fact that Mr Bunting's emails to Mr Kirk at this time identify the sender as a director of Atelier seems to me to have been arbitrary. Mr Bunting was also a director of Kilnworx and was, as he says, dealing with Mr Kirk on Kilnworx's behalf. In my view Mr Bunting could and did enter into a contract on behalf of Kilnworx. There is no reason to doubt that he was empowered to order the creation of a logo for Kilnworx and to bind Kilnworx in a contract to that end. With Mr Kirk he thus created an oral agreement. The parties to the agreement were Kilnworx, for whom Mr Bunting acted, and Purple Penguin represented by Mr Kirk. The express terms of the agreement were that Purple Penguin would design Logos for use by Kilnworx and that Kilnworx would pay Purple Penguin the going rate. Mr Kirk had earlier indicated to Mr Bunting that the going rate was £300-500 and the sum later paid to Purple Penguin was £300. Mr Bunting in cross-examination accepted that Purple Penguin had been paid the standard rate. The existence of such a contract between Kilnworx and Purple Penguin is supported by the fact that Purple Penguin later invoiced Kilnworx, not Atelier, for the £300 due. Mr Kirk seems to have understood at the time which party he was dealing with.
25. Mr Bunting maintained, however, that in fact he was acting solely as director of Atelier when he commissioned the creation of the Logos. He said that Purple Penguin invoiced Kilnworx by mistake. I reject both contentions. The first is not consistent with Mr Bunting's concession that he was acting on behalf of Kilnworx. No reason was given to explain why Purple Penguin would have made the mistake alleged, which would also be inconsistent with Mr Bunting acting on behalf of Kilnworx.
26. Mr Bunting acknowledged in cross-examination that when the Logos were created he knew that they would be for use exclusively by Kilnworx. He then went on to assert that although Kilnworx would have expected to retain the right to stop others from using the Logos, in fact they had no such right. The acknowledgement and assertion are contradictory. The former is also not consistent with Atelier's current case that it owns the copyright in the Logos and so can prevent Kilnworx using them and allow any third party to use them.
27. Atelier pointed to a letter dated 29 January 2013 from Mr Kirk to Mr Bunting in which Mr Kirk states that he was commissioned by Atelier to create a logo and brand identity for Kilnworx and that the work was paid for by Atelier. I give this no weight at all. It was written in response to a request from Mr Bunting to Mr Kirk to write it. Mr Kirk did not attend as a witness. I think it is likely that Mr Kirk wrote this, a long time after the event, because he was told that it would help Atelier. Without having heard from Mr Kirk I do not know that he gave the matter any more thought than that.
28. Atelier also relies on the fact that Mr Kirk's work in creating the Logos was paid for by Atelier. This is common ground. But at the time the Logos were created the parties were agreed that Atelier would be repaid the £300 cost of the Logos along with other costs it incurred on Kilnworx's behalf. The expectation of repayment seems to have continued at least until September 2012 when Atelier served its invoices on Kilnworx. It is possible that Atelier has a cause of action for the recovery of the £300 paid for the Logos. But that's it, so far as the Logos go. I should add that the Defendants denied being liable for the £300. They say that when all the various sums paid into the Kilnworx project by the parties concerned are taken into account Mr Bunting is not out of pocket, he retains his shares, and is therefore entitled to nothing. I have no view on that.
29. In my judgment, in August 2011 Kilnworx through Mr Bunting and Purple Penguin through Mr Kirk entered into an agreement for the creation of the Logos as described above. There was an implied term in the contract. It was a term of the usual nature to be implied into a contract for the creation of a logo, namely that Kilnworx would own the copyrights in the Logos. Purple Penguin, as Mr Kirk's employer, was the owner of the legal interest in the copyrights at the time the Logos were created. It held such copyrights on trust for Kilnworx. By the written agreement dated 23 August 2013 between Purple Penguin and Atelier the legal interest was assigned to Atelier.
30. Atelier was not a purchaser of the copyrights for value without notice of Kilnworx's claim to the copyrights. In other words and in a further parallel with Griggs, Atelier is not a darling of equity (see Griggs at [7]). Therefore Atelier took the legal interest in the copyrights subject to Kilnworx's equitable interest.
31. I think the reality is that Atelier's current claim to the unencumbered ownership of the copyrights in the Logos is borne of the unfortunate and bad tempered split between the individuals who thought up the Kilnworx project and a wish on the part of Mr Bunting to hold Kilnworx and its remaining directors over a copyright barrel in order to recover some of what he believes to be the £45,000 or so owed to him. There is nothing intrinsically wrong in that, but the barrel has to be there. In my view it is not.

Conclusion

32. Two consequences follow. First, Kilnworx is entitled to an assignment from Atelier of the legal interest in the copyrights. Secondly, neither of the Defendants is liable for infringement of any of the copyrights through use of any of the Logos.