The problem with contracts is that often, perhaps like this article, there are just too many words covering esoteric points that will probably never arise anyway. Lawyers specialise in words, and all too often, they use them in ways which are hard to follow, at a cost which can be hard to swallow.
At the start of a busy day at the boat builder’s yard, when the email comes in from the naval architect’s office confirming the instruction to design the latest in a line of production boats, the yard manager checks the pricing and outline specs for the yard’s new baby, and confirms the instruction with some satisfaction. This new boat is going to hit a market spot, and the yard manager is very enthusiastic about the new product - it potentially heralds a new line of boats, of varying lengths and permutations.
The manager notices that there are Standard Conditions attached, published by the Royal Institution of Naval Architects (RINA), and sees that they have not been amended, and is comfortable that the yard is protected. The RINA conditions reflect industry standard, right? What the manager overlooks, however, is that the outline specification for the new boat is based on a previous design developed by the yard in-house, and it is to be further refined in discussion with his new best friend, the naval architect. He is expecting to pay for the design refinement for the new boat, and to own that design, rather than pay royalties. The original design was owned by the yard, and the new design is commissioned (important word that) to meet the yards requirements under its specific instructions. What could go wrong?
The manager is shocked, even outraged, some time later to receive a lawyer’s cease and desist letter in relation to the expanded range, and a demand for royalties on all boats produced to date on the original design. What on earth is going on?
If we look at the RINA standard conditions (remember them?), the manager is discouraged to read in clause 7 that all intellectual property rights, including copyright, in the designs is the absolute property of the marine architect, and that the contract does not enable the yard to produce the further range of boats based on the design. While the design services have been paid for, a royalty of 1.5% of the sale price for each boat on the original design is also due. The yard is threatened with arbitration.
Where an agreement is made on a handshake, the law will imply what are considered to be reasonable terms. The law of copyright (attaching to design documents, whether in physical or electronic form) is currently under review, but the broad principles are unlikely to change much. The starting point is that where a designer produces an original work, then all intellectual property rights (including copyright) are retained by that designer. At best, under most design contracts, a person purchasing that design gets a bare licence to use that design only for the purpose for which it was prepared.
There are important exceptions to this, for example where the designer is employed in a yard to prepare such designs, then the copyright belongs to the yard. Similarly, where a yard commissions a design, then the yard is the owner of the copyright in the design (see section 40 of the Copyright Act 1994). However, these provisions are subject to contract. It is therefore critical for the marine architect and the yard, these issues are best dealt with explicitly in the letter of instruction, rather than left to the law to apply.
That is an entirely reasonable thing to do, but the naval architect’s engagement must record that the design commission is on that basis and that the yard has ownership of the completed designs, including copyright in the developed CAD files and PDFs, and the ability to further develop those designs for further boats. The naval architect could not then sell those designs to another yard. If that was the agreed position, then the contract needs to record that.