Legal update: Former director liable for copyright infringement and breach of director’s duties despite delay in bringing claim

21 November 2014

In the case of IT HUMAN RESOURCES PLC v DAVID LAND [2014] EWHC 3812, a former director was found to have infringed a company's copyright in a software system by providing it to a competitor without the company's consent. He thereby also breached his fiduciary duties as a director. Although the company's claims had been brought over six years after those events, they were not statute-barred because the company's knowledge of them had been delayed by the director's deliberate concealment.

This was a claim by a recruitment company (X) against a former director (L).
L, an IT consultant and computer programmer, had been one of X's original directors. He later served as non-executive director for three years before resigning in June 2011. During his time with X, L had created a multi-user software system designed to assist in the conduct of a recruitment business for IT technical staff. Some years after L had left, X discovered that, whilst a director, L had provided this software to another recruitment company for whom L had occasionally worked as an IT consultant.

X issued a claim against L under section 16(2) of the Copyright, Designs and Patents Act 1988 and sections 172 and 175 of the Companies Act 2006. L counterclaimed for unpaid fees.

X argued that L had infringed its copyright in the software and also committed various breaches of his fiduciary duty as a director. L accepted that the copyright (in at least some of the software) was owned by the company. L also accepted that, while a director, he provided the software to another company. However, L submitted that he had provided the software with X's permission, and his actions were therefore not unlawful copyright infringements. L further submitted that in any event X's claim was statute-barred because most of the allegedly infringing acts had taken place over six years before the claim was brought.

The principal issue at the trial was whether L had the permission of X to act as he did. Most of the alleged acts of infringement took place more than six years before this claim was brought. L therefore argued that the claim was statute barred. X contended that the limitation period should have been extended pursuant to section 32 of the Limitation Act 1980, because of deliberate concealment by L of his actions.

The court found in favour of X.

In reaching its decision, the court determined that as the database schema was part of the source code of the software system, then there could be no dispute that the copyright in them had at all material times been owned by X.
L had not had X's permission to make the software available to a third party. Providing copies of the software to the other company therefore amounted to infringements of X's copyright in that software.

The court further found the L had breached his duties as a director under sections 172 and 175 of the Companies Act 2006 i.e. the duty to act in the way which he considered, in good faith, would be most likely to promote the company's success, and the duty to avoid conflicting interests with the company respectively. Mr Justice Morgan held that L had plainly breached his fiduciary duty on each occasion when he had provided the third party company with copyright material owned by X. L should also have realised that disclosure of his own wrongdoing was in X's best interests, and his failure to do that also amounted to a breach of fiduciary duty.

When it came to the question of limitation, the court considered that L had deliberately concealed facts relevant to his liability, and as a result the six-year limitation period did not begin to run until X had learned of L's conduct. Its claims were not statute-barred.

By way of remedy, the court ordered that X was entitled to an inquiry or an account of profits.

In respect of L’s counterclaim, the court found that he was entitled to unpaid fees for the month of June 2013.

By Katie Allard, Paralegal, Dispute Resolution

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