Intellectual Property

08 Sep 2010

When an Asparagus Relationship Goes Bad

New Zealand's copyright law provides that, for certain categories of copyright works, someone who commissions, and agrees to pay for, creation of a work will be the first owner of copyright. A recent Court of Appeal decision has examined what is meant by "agreement to pay" for creation of a work.

In short, whether there has been agreement to pay will be determined by looking at a transaction as a whole, rather than artificially segmenting aspects of the overall transaction to see whether there was an agreement to pay at a particular stage.

In 1992 or 1993, Oraka had asked an engineering company, Napier Tool and Die, to prepare concept and design drawings for a machine to grade asparagus spears. Napier produced design drawings, they were accepted, and Napier was engaged to manufacture the machines. The machines were very successful.

Later, Napier produced asparagus grading machines for one of Oraka's competitors. Oraka sued Napier and its competitor for copyright infringement.

At the time of its work for Oraka, Napier offered a free design service in the hope that the quality of its design would persuade customers to use its engineering services. There was some uncertainty though, about whether or how this may have been communicated to Oraka.

In its defence, Napier relied on this free design service, as a separate transaction, to claim that there was no agreement to pay for creation of the drawings.

The High Court accepted this argument and decided that the "commissioning rule" did not apply, Napier owned copyright in the key drawings and was therefore entitled to use those designs for Oraka's competitor.

The Court of Appeal disagreed. While it confirmed that the agreement to pay must relate to creation of the article in which copyright resides, the Court of Appeal viewed the commercial reality of the arrangement as a single "seamless" transaction rather than two. In commercial terms, the Court saw the agreement to be that if Napier came up with satisfactory drawings it would get to do the manufacturing work and be paid for it if an appropriate price could be worked out. That was, in fact, what happened.

Looked at another way, the Court said that, arising from the request to prepare the drawing, there was an implied obligation that Oraka would pay if satisfactory drawings led to manufacturing work. That implied obligation arose before the work was undertaken and was a normal and necessary result of Oraka's request for drawings. The Court observed that there was no reason why the commissioning rule would not apply to a conditional agreement of this type where, as in this case, the condition is subsequently satisfied.

A specific payment for the drawings was not necessarily required. It was sufficient if Oraka agreed to pay for the drawings in the general way it did in this case.

Moreover, the Court of Appeal observed that the parties appeared to be operating under the expectation that Oraka would own the copyright in the drawings. The Court was not impressed by the fact that Napier only came up with its "no commissioning" argument as an "afterthought" defence to the infringement action.

Particularly given that Oraka was to own the moulds which were later manufactured for the machines, the Court considered this was an "all-or-nothing" case where ownership of copyright, and the right to exclude the contractor from using the work, was contemplated rather than a licence from Napier to Oraka.

The Court of Appeal's treatment of the evidence was also interesting. The Court considered that recollections of the witnesses were at best vague because so much time had elapsed since the transaction. Bearing that in mind, the appellate judges' view was the High Court was not assisted much by the testimony of witnesses, and the Court of Appeal was in as good a position as the trial judge to assess the evidence.

There are some risks here for businesses which provide original material in an attempt to obtain future work, such as an agency pitching for advertising work. While we do not interpret the Court of Appeal to say that pitched work would be owned by the customer if the agency does not win the pitch, it is possible that this might be asserted, particularly as a defence to a copyright infringement claim. The safest approach is to ensure that any pitch is accompanied by a clear agreement as to when, if ever, ownership of rights in the pitched material might pass to the customer.

Authors

Earl Gray

Partner - Intellectual Property

DDI: +64 9 977 5002

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John Shackleton

Partner - Dispute Resolution

DDI: +64 4 924 3540

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Tracey Walker

Partner - Dispute Resolution

DDI: +64 9 977 5088

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Richard Watts

Partner - Intellectual Property

DDI: +64 9 977 5182

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Claire Foggo

Senior Associate - Intellectual Property

DDI: +64 9 977 5314

Mobile: +64 21 582 674

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Sonya Hill

Senior Associate - Corporate & Commercial

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