Opinion: Copyright ownership in software

IT legal specialist James Carnie looks at copyright-ownership disputes arising from commissioned work

Under New Zealand copyright laws, the starting point is that the author (software developer) of a copyright work is presumed to be the first owner of copyright in that work.

This position is different, however, if another party had “commissioned” the development of the work. In that case, copyright ownership lies with the commissioning party, and not the original creator of the work.

To establish a “commission” for copyright purposes, there must be an obligation on the commissioning party to make payment for the works commissioned. Over the years, various copyright-ownership disputes have arisen where it is disputed whether a “commissioning” had occurred. Each situation will depend on its own facts, although courts will be prepared to consider indirect or contingent rewards (including the potential for future business engagement) when assessing whether initial works (eg concept designs) have been commissioned (eg Oraka Technologies Limited v Geostel Vision Limited (2010) 88 IPR 227, Court of Appeal).

The supply of initial works free-of-charge will not, therefore, prevent a finding of commissioning where the initial works are designed to secure a future paid engagement – although again, the facts in each situation are crucial.

Given that many software developers are SMEs, with developers often fulfilling the dual role of salesperson, it is perhaps unsurprising that development engagements are often not precisely defined, and in some cases scarcely committed to writing at all. That said, some large companies and leading educational institutions also have inadequate copyright arrangements, and in some cases appear to display a conscious desire to postpone any consideration of those issues until the software becomes ‘valuable’ – by which time the copyright ‘horse’ has often bolted.

Under New Zealand copyright laws, timing is critical. Copyright will come into existence immediately upon the creation of an original work (whether complete or incomplete) – the only remaining question is – who owns it?

Multi-party software developments are particularly fraught, with the prospect of fractional copyright ownership, and no individual party having any separate use/development rights or ability to commercially exploit the software. In some cases, courts have awarded proportional copyright ownership to parties in dispute. Unless jointly-owned copyright is clearly defined between the owners, and individual use/development/sublicensing rights specifically agreed, then joint ownership of copyright is unlikely to enable the best future use of that software and will inhibit potential for future sale of the copyright.

In 2004, the Court of Appeal issued a leading judgment in this field (Pacific Software Technology Ltd v Perry Group Ltd [2004] 1 NZLR 164).

In that case, PST was commissioned by PGL to develop software but, after discussions on a potential joint venture failed, PGL made a request for delivery of the source code. PST refused to supply it, claiming that it had independently developed up to 85 percent of the software code before it was commissioned by PGL. After analysing the foundations of the relevant technology (including the functional elements of computer hardware, of software/programs, and the software development process) the court found that:

The commissioning engagement entitled PGL to possession of the source code, and the right to use and develop it further; and to the extent that PST retained ownership of any of the software components, it was appropriate to imply a non-revocable licence for PGL to use the prior independent code developed by PST.

The court identified a specific series of guidelines describing the circumstances in which a commissioning would arise. The court also observed that, as in many cases, the dispute might have been avoided altogether had a suitable written contract been put in place at the outset.

The importance of considering when, or if, copyright should be owned by anyone other than the developer, before beginning the development work, cannot be overstated. All doubt can be resolved by a signed agreement (or at least, an exchange of written communications) at the outset.

It is fundamental good business practice for software developers to consistently document their supply terms for all customers, even those receiving free services (by at least a standard form services/engagement letter).

This article provides general information and does not constitute advice. Professional advice should be sought on specific matters.Carnie is a lawyer with specialist expertise in copyright and technology law at Clendons barristers and solicitors. He can be reached at james.carnie@clendons.co.nz