Case No. IP-2018-000200

70.On 24 November 2008 Mr Green sent a letter dated 24 November 2008 to Mr Penhallurick. It was signed by Mr Green on 26 November 2008 and by Mr Penhallurick on 27 November 2008. It reads: “Michael, this letter is confirmation of the verbal agreement we have regarding the annual payment of the 7.5% bonus of the *qualified VFC sales MD5 pay you for your continuing contribution to VFC. This payment will only be applicable while you are an employee of MD5 Ltd and you are continuing your involvement and development of VFC software or future versions. *The bonus will be calculated from the total sales of the software less any direct VFC expenses such as dongles, postage, commissions and any direct sales costs. 50% of training costs will qualify for a bonus and the balance will be added to your personal fee earnings. I would also like to take this opportunity to confirm with you for our records, that the software developed at MD5 Ltd by yourself and sold as VFC is the sole property of MD5 Ltd including the access code ………… I would also like confirmation that this code will not be modified or changed without the consent of the Managing Director. I agree to the above statement and conditions. Signed [by Mr Penhallurick and Mr Green]” 71.72.Mr Penhallurick’s pleaded position was first, the letter was not a contractual agreement, merely a written record of a pre-existing oral agreement. There was no further consideration which would give rise to a separate written agreement. 73.74.Thirdly, the third paragraph of the letter, in which “the software developed by MD5 by yourself” is referred to, had a particular meaning. I quote from paragraph 9(h)(iv) of the Reply and Defence to Counterclaim: “On its proper construction, this paragraph refers only to rights in the VFC computer program in the form actually sold to end users at the time, and not to the source code, and/or only to such parts of that software as had been developed by the Claimant in the course of his employment at MD5. The access code was not the source code.” 75.Fourthly, any purported assignment under an existing oral agreement was ineffective because it was not in writing and lacked consideration. 76.77.78.Despite these various pleaded positions, in his second witness statement Mr Penhallurick stated that following meetings and discussions he entered into an agreement on 24 November 2008. From what he says and his specifying the date of 24 November 2008 as the date of the agreement, it seems to me that Mr Penhallurick believed that he reached an agreement with MD5 on that date, this being the written November 2008 Agreement. It does not follow that he was right in law about that. But his evidence suggests that as with many written agreements, while there were oral discussions during which the parties settled the terms of a proposed agreement, the formal and binding agreement was that set out in writing. In cross-examination Mr Penhallurick confirmed that this had been his belief. In my view he was right. 79.Mr Green said he drafted the November 2008 Agreement because he was aware that the VFC software had been based around the methodology developed by Mr Penhallurick before he joined MD5 and because Mr Penhallurick had been complaining about the amount of work that he had done on VFC and what he thought were his rights in the software. Mr Green wanted something formal in place to confirm MD5’s rights. 80.A point developed by Mr Penhallurick in his evidence was that under the November 2008 Agreement he granted MD5 a licence and that the 7.5% bonus payments were royalty payments. He maintained this in cross-examination but conceded that nowhere in any of the exchanges between him and MD5 was there ever a mention of a licence. Mr Green was clear in his mind that there had never been talk of a licence. 81.82.83.84.This interpretation of the November 2008 Agreement is not inconsistent with section 91(1) and (2) of the 1988 Act. They provide: “91. (2) In this Part— ‘future copyright’ means copyright which will or may come into existence in respect of a future work or class of works or on the occurrence of a future event; and ‘prospective owner’ shall be construed accordingly, and includes a person who is prospectively entitled to copyright by virtue of such an agreement as is mentioned in subsection (1).” 85.86.87.Mr Penhallurick said in his second witness statement: “My understanding was that this part of the November Agreement referred to the security of the VFC computer programme in the form actually sold to end users at the time, and not to the source code, and/or only to such parts of that software that I had developed during my time at work. Accordingly, I did not consider that the ‘access code’ they refer to was the ‘source code’, as I created the source code (First Work) prior to my employment with the Defendant.” 88.89.Mr Green drafted the letter which became the November 2008 Agreement. He said in his second witness statement that he had a rudimentary grasp of computer language and that when he had written “access code” in the November 2008 agreement, he had meant “source code”. It was put to him in cross-examination that this would have made the November 2008 Agreement meaningless because the final sentence would then have forbidden Mr Penhallurick from changing the source code without the consent of Mr Green. In closing, counsel for Mr Penhallurick submitted that this challenge had forced Mr Green to change tack and say that access code meant the password protection part of the software. This does not accord with my note of the cross-examination. Mr Green was, as I recall, a little flustered, trying to recollect again what he had meant 12 years earlier and 8 years after his retirement. However, according to my note his final position was that his intention had been to ensure that Mr Penhallurick kept him up to date with changes to the source code. That is plausible. 90.I have found that all of the source code used for MD5’s products was created after Mr Penhallurick started his employment. He devoted all or most of his time at work to this project from January or February 2007. He dealt with this in cross-examination by saying that all the core functionality had been created in his own time. I think it is unlikely that he created none of the core functionality during his hours devoted to the VFC software at work. In any event, I have already found that copyright in source code created in his own time does not ipso facto belong to him. 91.92.Mr Green’s explanation that he used the term “access code” in the November 2008 Agreement when he meant “source code” was at first surprising, but he said he was not sophisticated in the field of software and was not shown to be so. To my mind his version of events is more probable than Mr Penhallurick’s. 93.