As a software developer, there are a lot of things that need to be taken into consideration at the time of negotiation with the person engaging you to develop the software. It is very crucial to read the agreements that you might sign. On the other hand, as a person engaging a third party to develop software, you would always want exclusivity to the said software and accordingly, would like to include terms in a contract favouring that. So what happens when there a battle of ownership between the parties? This case here involves Section 17 of the Copyright Act which lays down who the first owner of the copyright is, various tests to determine what formulates a “contract of service” and some absolutely unique arguments. Here is the Court decoding the mystery of copyright ownership, source code and software in India

The source of problems

Exegesis Infotech, the plaintiffs, had created a software called “INTERACT” which comprised of twenty different feature based modules for the purpose of implementing what is known as Enterprise Resource Planning (“ERP”) which could be deployed by their clients. In addition to this, the plaintiffs had a registered copyright for their software algorithms called “CRATOR” and “SEEQUER” based on which the Plaintiffs make various customized software for their clients coupled with combinations of various modules out of the twenty five modules of INTRACT.

Medimanage Insurance Broking, the defendants, commissioned the plaintiffs to customize a software for their insurance broking business in 2008. The software created by the plaintiffs over a span of 5 years consisted of eleven modules out of which three modules were specifically developed by the plaintiffs to accommodate the requirements of the defendant.

The claim

The contention of the Plaintiffs is that they are authors of the customized software developed by them for the defendants and own copyright in it. One of the prime reasons for this suit of infringement was due to the apprehension that the defendant might perform reverse engineering and misuse their “CRATOR” and “SEEQUER” which make the software operational.

What the plaintiffs say

  1. That the literary work, forming part of the source code, was not made in the course of the Plaintiffs’ employment under any contract of service;
  2. That though the defendant is entitled to the software, the source code for the software belongs to the plaintiff.

What the defendants say

  1. That this is a contract of service to which Section 17 (c) of the Copyright Act, 1957 applies;
  2. That there is a Memorandum of Understanding signed by both the parties which clearly states that all the IP with respect to the software vests with the defendant;
  3. That there is no breach of confidentiality as the plaintiffs have failed to identify the alleged confidential information

Contract of service

Section 17 of the Copyright Act states who the first owner of copyright is in case of literary, dramatic or artistic work, photograph taken, painting or portrait drawn, contract of service and government work. Section 17(c) states that in cases that it is a contract of service, the first owner of the copyright is the employer who has hired the employee to perform certain services.

In this regard, the courts have also formulated certain tests that need to be followed to determine whether it is a contract of service or not. There are as follows;

  • Control test – this is a test where the court considers whether the employer has the right to control not just what the author does, but the manner of his doing it;
  • Organization test – whether the author is a part of the organization of the employer or not, when the copyrighted work was done
  • And a host of other factors like (a) who is the appointing authority, (b) who is the paymaster, (c) who can dismiss, (d) how long alternative service lasts, (e) the extent of control or supervision, (f) the nature of the job, e.g. whether professional or skilled or otherwise, (g) nature of establishment, (h) the right to reject, etc. The court has to take a holistic approach in determining the same.

So was it a contract of service in the present case or not? Well, I certainly think it was and so did the court. There were a number of emails exchanged between the parties wherein the plaintiff seemed to have fulfilled the requirements of the defendants as mentioned in the emails. In addition to that, there was a MoU that the parties had entered into which clearly established, among other things, that

Medimanage will hold the complete ownership of the software & Exegesis will own the rights for background technologies used for development of this software.

Apparently, the only reason why the plaintiffs signed the MoU was because they were told by the defendants that it did not have any legal effect. MoUs are generally signed prior to signing an actual contract and have terms that may state that MoU is not legally binding. However, the court in this case concluded the intentions of the parties based on the MoU that they had signed. It all depends on a case to case basis.

The court decoding the mystery of copyright ownership, source code and software in India

Since there was overwhelming evidence showing that there was an agreement between the parties which clearly stated with whom the IP vests, the court held that there was no case made out for grant of injunction. The court however accepted that the plaintiffs had the proprietary rights over their “Crater” and “SEEQUER”.

It will be rather interesting to see what will happen at the trial since there are so many intricate concepts involved in this case of source code, software and copyright!

This article has been authored by Durga Bhatt, an IP Law practitioner.