Ownership of copyright in works created by an employee: Michael Penhallurick v MD5 Limited
By Wei Heng Tan
Summary of Ruling
The Court of Appeal upheld the first instance judgment  in favour of MD5 Limited and dismissed Penhallurick’s appeal. The issue particularly revolved around employee copyright in software when the idea was developed prior to the developer becoming an official employee.
The Claimant claimed that MD5 Limited had infringed his copyright in 8 works relating to a foreign IT investigation technique he had developed. Penhallurick began developing the method while pursuing his MSc degree at Cranfield University from 2002 to 2005. It was only on 6 November 2006 that he was formally employed with MD5 Limited. Subsequently, in early 2007, he developed the Virtual Forensic Computing software he had initially conceptualised while pursuing his masters.
The Claimant argued that the software he developed while employed was written prior to his employment, and therefore should belong to him. In response, MD5 Limited submitted that the initial method was slow and the final product had inputs from the directors of the company. Thus the final product was created in the course of Penhaullurick’s employment and the company should retain the relevant copyrights.
The law applied is s11 of the Copyright, Designs and Patents Act 1998:
The author of a work is the first owner of any copyright in it, subject to the following provisions.
Where a literary, dramatic, musical or artistic work, or a film, is made by an employee in the course of his employment, his employer is the first owner of any copyright in the work subject to any agreement to the contrary.
Software, pursuant to s3(1), is categorised under literary work. The assessment of ownership was established in Mei fields Design Ltd v Saffron Cards and Gifts Ltd  to include: 
the terms of the employment contract;
where the work was created;
whether the work was created during normal office hours;
who provided the materials for the work to be created;
the level of direction provided to the author;
whether the author can refuse to create the work/s; and
whether the work is ‘integral’ to the business.
The first instance court held that since the development of the software was the central task of his employment, the final product was work done in the course of employment, regardless of previous progress made. The ratio was that regardless of work done prior to employment, should the work fall within the scope of duty for which an employee is paid, the copyright would generally be retained by the employer. The Appeal Court affirmed the decision.
The case demonstrates the importance of having copyright clauses in employment contracts to protect software companies from copyright claims from their employees.
 Michael Penhallurick v MD5 Limited  EWHC 293 (IPEC)
  EWHC 1332 (IPEC)
 Charlie Bowles, ‘Employee Copright: Michael Penhallurick v MD5 Limited’. (EM Law, 10 December 2021) <https://emlaw.co.uk/employee-copyright-michael-penhallurick-md5-limited/>