Federal Court addresses IP issues and implications in technology supply contract

Federal Court addresses IP issues and implications in technology supply contract

In, Peter Vogel Instruments Pty Ltd v Fairlight.Au Pty Ltd [2016] FCAFC 172, the Full Court of the Federal Court of Australia found that trade mark licensing and copyright assignment provisions in a technology supply contract were legally effective. 

It also held that the technology supplier repudiated the contract when it ceased performance on the assumption that the contract was no longer in force. 

Case summary

In Peter Vogel Instruments Pty Ltd v Fairlight.Au Pty Ltd, an agreement provided for a technology supplier (Fairlight) to develop software for incorporation into computer musical instruments (CMI products) owned by the other party (Vogel). 

Three major points of contention emerged:

  1. whether copyright in new software had been adequately defined for assignment purposes
  2. whether the contract had been terminated when Fairlight withdrew its permission for Vogel to use its trade mark in connection with the CMI products; and
  3. whether, if the contract had not been terminated, Fairlight had repudiated it by refusing further performance on the mistaken assumption that it had in fact been terminated.

1)   Copyright issue

With respect to the copyright issue, the contract provided that “the software and its source components developed by [Fairlight] pursuant to this agreement will transfer to [Vogel], accompanied by a rider that “the exact definition of IP to be transferred will be defined in a separate document”.  It was accepted by the parties that the reference to “transfer” was a reference to assignment of copyright in the software.  One ground of appeal by Fairlight, however, was the primary judge’s rejection of its contention that ownership had not passed because the “separate document” referred to in the rider had never materialised.  Upholding the appeal on this point, the Full Court concluded that ownership of copyright had been assigned.  The purpose of a separate document was essentially to identify third party elements which were to be expressly excluded from the assignment, but the subject matter of the assignment nevertheless remained sufficiently clear.  The court considered the requirements of the rider were an “insignificant aspect of the bargain being struck by the parties”..   It followed that Fairlight, by subsequently supplying the software to third parties without Vogel’s authorisation, had infringed Vogel’s copyright in the product.

2)   Trade Mark issues

In relation to the trade mark issue, a clause in the contract provided Vogel with the right to use the “Fairlight” name and brand in connection with the marketing of its CMI products, with a rider that Fairlight could withdraw use of the Fairlight name and brand “should the name and brand be used in any way which [Fairlight] deem to be damaging to the Fairlight Brand reputation”.  There was no challenge to the primary judge’s previous finding that this constituted a worldwide trade mark licence in relation to certain identifiable CMI products but did not extend to separate but related Apps developed by Vogel and marketed incidentally to the CMI products.  The consequent finding by the primary judge that Vogel had contravened section 120 of the Trade Marks Act 1995 by using the Fairlight trade mark in connection with the Apps was also not challenged, nor was it disputed that Fairlight had been entitled to subsequently exercise its right to withdraw its authorisation for Vogel to use its trade mark in connection with the marketing of the CMI products.  The real issue was whether withdrawal of Vogel’s right to use the Fairlight trade mark brought the entire supply contract to an end.

3)    Repudiation issue

Fairlight contended that the entire contract was at an end once the trade mark licence was withdrawn as it had been fundamental to the contractual relationship.  The primary judge had agreed with Fairlight, finding that the Agreement “had no more work to do”.  This finding was overturned by the Full Court on appeal.  The Full Court concluded that the agreement could continue despite that fact that the trade mark licensing component had been withdrawn, as Vogel had acquired ownership of copyright in the software and remained free to market its products under a different brand.  It followed that by refusing to continue performance of the agreement after termination of the trade mark licence, Fairlight had repudiated the agreement.

Learnings emerging from the decision regrading contracts and IP rights

  • Precise language should be used in a contract to describe the parties’ intention regarding the disposition of intellectual property rights – it is, for example, less ambiguous to refer to “assignment” rather than “transfer”;
  • Precise language should also be used to identify the subject-matter of a copyright assignment – the more generic and ambiguous the description, the greater the likelihood of dispute;
  • If a particular scenario could undermine a party’s interest in maintaining a contractual relationship, it should include that scenario as a triggering event for termination rather than assuming it will necessarily be interpreted by a court as a material breach; and
  • Parties should remain aware that they can be liable for repudiation of contract if they refuse to perform in the mistaken belief that the contract has come to an end due to the conduct of the party.
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