Article

Ownership

The High Court has recently ruled that a sales agent, who developed a customer database in the course of promoting his principal’s services, was the first owner of the database right in that database in the absence of any express agreement to the contrary as to the ownership of the database.

Database rights were introduced into UK legislation by the Copyright and Rights in Databases Regulations 1997 (“the Regulations”). The Regulations provide that the maker of a database is the first owner of the database right in it. Subject to certain exceptions (the main one being where a database is made by an employee in the course of his employment, in which case the employer is regarded as the maker), the maker is the person who takes the initiative in obtaining, verifying or presenting the
contents of the database and assumes the risk of investing in the obtaining, verification or presentation of those contents.

The defendant company, MIL, supplied home insulation. It had an informal, unwritten contract with the claimant, C, under which C and his employees promoted MIL’s services to customers. In the course of promoting the services, C built up a list of MIL’s customers. C also used this customer list in connection with his other business services. MIL funded a telephone line dedicated exclusively to enquiries about MIL’s services; this line was manned by C’s employees and they answered it with MIL’s name. A disagreement arose between them and so MIL purported to terminate the agreement and asked C to deliver up all property belonging to MIL, including the database. C then brought proceedings for breach of contract, claiming that MIL had not paid commission. MIL counterclaimed, seeking delivery up of the database. Amongst other things, the court had to decide the question of ownership of the database.

The court found that the sales agent, C, was the maker of the database, mainly because the database had not been created as a result of a specific commission by MIL. Quite the contrary: the database had developed as the agency progressed. This finding was despite the fact that it was MIL who had invested in (or, “assumed the risk” of) marketing its business by paying for the telephone line and business cards which were distributed by C, and other resources that were used to get sales leads (although this
was not specifically raised). It may well be that such investment was not considered to be relevant since it was not in the generation of the database per se, but rather in the overall marketing of the business.

Comment

This case highlights the problems that can occur where parties do business without a written contract. We have previously written about this in relation to ownership of the copyright in software and websites - and this case is no different. While the principal invested a lot of money in trying to grow its business and trying to target and capture more customers, it overlooked the vital question of ownership of the customer lists - and was, thus, unable to realise the investment it made. While ownership will
usually depend on who has paid for the database to be compiled, checked and arranged in a searchable form, this is not always easy to establish in practice, since it is often the case that each party contributes in some way, or that the investment is connected with the business in general. This dispute regarding ownership could easily have been avoided with some careful planning and a written contract which set out which party would own the database and what the rights of the other party in relation to that database would be. As a general point, sales agencies can raise some difficult legal issues (such as the need to pay compensation on termination) and it is prudent to take legal advice on such
issues before commencing.

For further enquiries please contact Genevieve Mead on 01892 701308 or email genevieve.mead@
ts-p.co.uk.

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