Case Review: Sprint Electric Ltd v Buyer’s Dream Ltd – Personal service companies and ownership of copyright

Copyright developed by an employee during the course of employment is usually owned by the employer company. On the other hand, consultants will own the copyright in their works (even if commissioned to do the work) unless a written contract provides otherwise.

This case revolves around a dispute between shareholders of the holding company of Sprint Electric Ltd. Dr Potamianos, a 40% minority shareholder, programmed code for motor control algorithms. However, for tax reasons, the supply of his services was contracted through his personal service company, Buyer’s Dream Ltd. This meant that the paperwork showed the intermediary company as providing the programming services rather than Dr Potamianos in an individual personal capacity.

The shareholders fell out and a dispute arose over the ownership of the copyright in the source code. Sprint Electric claimed ownership in the intellectual property in the source code and requested its delivery to them. To protect the intellectual property, software programmers usually keep the source code separate from the object code (which is written in a language which can be executed by computers).

The Court decided that the true relationship between the parties for the programming services was that of employer and employee. Therefore, the copyright created during Dr Potamianos’ employment belonged to Sprint Electric.

The was found to be the case in the public interest, despite the parties not wanting to challenge the on-paper consultancy relationship.

Although the case was decided on its facts, with the judge critical of the tax avoidance devices used, this case serves as a reminder that people who supply services through their own personal service company (rather than contracting as an individual) may risk being found to operate under an employment relationship.

This can depend on a number of factors and you should seek specialist advice before entering into such an arrangement. This is both in relation to employment implications (such as ownership of intellectual property or whether there is an entitlement to certain employee rights) and tax (in particular, whether you fall under the remit of the IR35 legislation).

If you’d help or advice around any of the points raised in this article, please contact BHW’s commercial team on 0116 289 7000 or email info@bhwsolicitors.com.