Legal Updates

Commercial Law – Outsouring of Software Development Work to India - Contract Construction – Assignment of Intellectual Property Rights -  Non Payment of Fees – Reversion of Intellectual Property Rights? -  Infringement of Intellectual Property Rights – Settlement Agreement – Patent Infringement - Injunction

The case of Satyam Computer Services Ltd v Upaid Systems Ltd [2007], concerned the contractual construction of a settlement agreement. The claimant in this case was an IT company based in India. The defendant company had considerable experience in the field of software technology, and specialised in payment processing technology.

In 1996, the founders of the defendant company developed an idea which would allow any normal telephone to effectively be converted into a pay-phone via the use of a pre-paid account associated with a caller PIN number. The decision was taken to outsource the development of the computer based external platform and related software.

The claimant was selected as an entity which could be capable of carrying out the software development work.

Subsequently, in May 1997, the parties entered into a short and relatively informal memorandum of understanding. Then, in June 1998, the defendant applied for a patent in the United States of America. In order to obtain the patent, the defendant was required to demonstrate 'unity of ownership' of the intellectual property rights in the invention.

In order to do so, it was necessary to transfer to the defendant of any rights in the invention which vested in the claimant, or in inventors working for the claimant. The claimant usually did so, however the memorandum of understanding, being short and relatively informal, did not have any provision for intellectual property rights.

Negotiations were therefore conducted until September 1998, at which point the parties entered into an assignment of the intellectual property rights. That assignment transferred all interests in the software developed to the defendants in consideration of a sum of money.

The assignment also referred to a service agreement which was not actually concluded until May 1999. The service agreement provided that a dedicated team from the claimant company would work exclusively on the defendant's projects.

Unfortunately by 2002, the relationship between the parties had deteriorated. Disputes had arisen concerning:

§   The quality of the claimant's work;

§   The non-payment by the defendant for work under the service agreement (which, according to the claimant, meant that intellectual property reverted to it);

§   The behaviour of the claimant's representative on the defendant's board; and

§   The claimant's potential infringement of the defendants' intellectual property.

On the 31st of December 2002, the parties entered into a settlement agreement, which was an agreement subject to the exclusive jurisdiction of the English courts. Subsequently, in June 2005, the defendant filed for patent infringement proceedings in Texas against two companies.

The defendant sought the assistance of the claimant in the action, and eventually later settled the action on unfavourable terms. After the settlement, it brought an action in Texas seeking the following:

§   A declaration as to the validity of the patents;

§   Damages for the claimant's alleged fraud in providing documents containing forged signatures which had affected the defendant's previous litigation adversely; and

§   Damages for the claimant's alleged breach in 1999 of the assignment agreement.

The claimant brought proceedings in England arguing that the claims in Texas had been brought in breach of the settlement agreement. It submitted that the settlement agreement compromised all such claims, or alternatively, that the exclusive jurisdiction clause in the settlement agreement required the claims to be brought in England.

This case concerned the following three preliminary issues:

§   Which, if any, of the claims had been finally compromised by the settlement agreement;

§   Whether any (and if so, which) of the claims fell within the scope of the English jurisdiction clause contained in the settlement agreement; and

§   Whether the claimant was entitled to a final injunction.

The court held that on its true construction, the settlement agreement did not deprive the defendant of the future right to claim damages for breach of the assignment agreement. It also did not prevent the defendant from claiming damages for alleged fraud in relation to documentation produced pursuant to that agreement. Furthermore, it was ruled that on the true construction of the relevant agreements, the actions did not have to be pursued in England.

The application for an injunction was therefore refused.

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© RT COOPERS, 2008. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.