August 2009

01 Aug 2009

Copyright Commissioning – Back to Basics

As reported in our May 2009 edition of On Your Marks, the National government has dropped the Copyright (Commissioning Rule) Amendment Bill which proposed the abolition of the copyright commissioning rule. This means that, for now at least, the rule under section 21(3) of the Copyright Act 1994 will still apply.

Under the commissioning rule, those who commission and agree to pay for the creation of computer programs, designs and other artistic works, photographs, films and sound recordings, are the first owners of any copyright in the works created. The rule applies subject to any agreement to the contrary.

If the commissioning rule had been abolished, the default position would be that the author would be the first owner of copyright in a work in all cases except:

1.1        where the work is created in the course of employment; or

1.2        where an applicable contract says something else about ownership.

Now that the abolition of the rule is no longer on the horizon, it is timely to remind ourselves of the findings of a recent case in the High Court which looked at the application of the commissioning rule (Oraka Technologies Ltd v Geostel Vision Ltd (High Court, Hamilton, CIV 2005-419-809, 18 February 2009)).

In Oraka Technologies one of the defendants regularly offered a free design service in a bid to attract new customers. In accordance with this practice, it accepted a request from one of the plaintiffs to prepare some concept and design drawings. At the time the plaintiff requested the defendant's services there was no discussion of payment, no subsequent request for payment by the defendant, and no offer by the plaintiff to pay for the services.

Although the material copyright works in this case (namely, design drawings) were created in 1993 and 1994 and therefore ownership questions should be determined under the Copyright Act 1962, the High Court held that for the purposes of this case, there was no distinction between the commissioning provisions in the 1962 Act and those under section 21(3) of the current Act, the Copyright Act 1994.

The Court restated a number of well known principles including the finding of the Court of Appeal in Pacific Software Technology Ltd v Perry Group Ltd ([2004] 1 NZLR 164) that for section 21(3) to apply there must be an agreement to pay. The Court also held that for the commissioning party to be the first owner of any copyright in the work, the payment or the agreement to pay must pre-date the creation of the copyright work in question, and relate to that creation. Applying the findings in Plix Products Ltd v Frank M Winstone (Merchants) Ltd ([1986] FSR 63, 87, per Prichard J) the Court also held that payment must relate to the article in which the copyright resides, irrespective of whether any of the finished products are purchased. The payment cannot be made for the product manufactured using the copyright works.

The commissioning does not have to be the subject of a written agreement; it may be inferred in all the circumstances of the case. However, the commissioning, whether express or implied, must include an agreement to pay.

The Court also confirmed the finding in Apple Corps Ltd v Cooper [1993] FSR 286 that the agreement to pay must be a true consensus and not a mere unexpressed intention to pay, or a unilateral expectation that there will be a payment. In the absence of such agreement, there could be no suggestion of a commissioning. 

The Court held that in this case no commissioning had occurred. Although the plaintiff subsequently sought and accepted a quote from the defendant for tooling and production of the final article, this was a distinctly separate instruction, payment for which could not convert the earlier instruction into a commission.

The Court also rejected the plaintiffs' arguments that a commissioning could be implied on the basis of the ordinary business efficacy test, or on the basis of trade custom. There was no persuasive evidence of a trade custom to that effect. Further, the express requirements of the Act require payment or an agreement to pay, and to accept that a commissioning had occurred by which the plaintiff would own copyright in the absence of payment or an agreement to pay would be to subvert this statutory requirement and run counter to the default ownership rules in the Act.

It seems then that for the time being at least, the commissioning rule is here to stay. These reminders on the well known requirements for a valid commissioning should therefore remind us all what steps can be taken to try and avoid arguments over copyright ownership when engaging a third party to create copyright works for us.

Authors

Earl Gray

Partner - Intellectual Property

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Karen Ngan

Partner - Corporate & Commercial

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Richard Watts

Partner - Intellectual Property

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Sarah Chapman

Senior Associate - Intellectual Property

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Claire Foggo

Senior Associate - Intellectual Property

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