Copyright disputes between employers and employees

Sterling Law 27.10.2021

The recent case of Penhallurick v MD5[1] settled the copyright dispute between the employer and employee and clarified the law.


The 1988 Act[2] regulates the law of copyright. But, there is a conflict between two important sections. Section 11(2) says that if an employee creates a product during his employment, an employer will own the copyright. At the same time, section 109(2) states that if the author’s name appears on the work, then he remains the owner of copyright until proven otherwise. In Penhallurick, the court has resolved this conflict in favour of the employer.



Penhallurick developed forensic software for MD5. MD5 was interested in selling this software. From 2006 to 2016, they had three employment contracts.


In 2016, Penhallurick brought a lawsuit against MD5. He argued that he remains the owner of the software for the following reasons:

  • Penhallurick started developing the software before working for MD5.
  • He spent his own time developing the code.
  • He worked from home and used a personal computer.


The court had to decide whether Penhallurick or MD5 was the owner of the software. The court decided that the employer, MD5, remained the owner. The reasons were:

  • Penhallurick had a contractual obligation to develop the software.
  • The company paid him directly for developing the product.
  • It was Penhallurick’s choice to work in his free time from home and use a personal computer.


As a result, the court provided ways to avoid similar disputes in the future.


The lessons for employers.

To protect the right of ownership, the employer must ensure the following:

  • The employment contract clearly states that an employee’s main duty and responsibility is to develop the software.
  • The intellectual property clause is included in the employment contract. This clause defines the company as the owner of the work. So, even If the company fails to prove ownership under the 1988 Act, it can rely on the contract and reclaim the ownership.
  • An employee receives payment for developing the software.



The lesson for employees.

If an employee wants to remain the owner, he must enter into a licence agreement. This agreement will allow the company to sell the software created by the employee, but he will remain the owner.


Considering the rapid development of intellectual property law and the tendency to work remotely, we hope that you will find this information useful.

[1] [2021] EWHC 293 (IPEC)

[2] Copyright, Designs and Patents Act 1998

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