Pacific Software Technology Ltd v Perry Group Ltd

(2003) 57 IPR 145

New Zealand copyright law provides that the commissioning party first owns copyright in certain commissioned works.  This case provides a practical and principled way of dealing with commissioned works that consist partly of material developed independently by the author prior to the work being commissioned.

From about 1999, Pacific Software Technology Limited (“Pacific”) had worked on several software projects for Perry Group.  In these, Pacific had been commissioned to create databases to suit the specific needs of a Perry Group subsidiary.  In each of the projects, Pacific delivered up the relevant source code to Perry Group.

Perry Group made the decision to move to a Microsoft-based or Microsoft compatible program for a database for one of its subsidiaries, UGL, for use in connection with its gaming machine business.  On or about 23 March 2000, Perry Group commissioned Pacific to develop a VB/Access database for UGL’s use.  Pacific developed the database. 

In August 2001, Perry Group asked for delivery up of the source code for the database.  Pacific refused, contending that it had been independently working on the development of a gaming machine database prior to the commissioning.  Pacific contended that as much as 85% of the software in the database program had been developed independently prior to the commissioning and had gone into the commissioned software.  Pacific sought to protect its ownership of copyright in the pre-existing software (“library code”).  Perry Group’s position was that the software had been commissioned, that it was owner of copyright in the entire program and that it was entitled to have the source code for that program delivered to it. 

In the judgment appealed from, the High Court held that Perry Group had commissioned the VB/Access database and that, having paid for it, was the sole owner of the whole of the software and all the intellectual property incorporated in it.  On the face of it, any prior copyright interest in independently created routines was subsumed in the commissioned program.  The judgment noted that no division of software was contemplated in the negotiations.  Subsequently, however in the course of a stay application pending appeal, the trial judge sought to clarify his judgment by stating that “I intended to make it clear that what Perry Group … had commissioned from Pacific and paid for was the VB/Access database in workable form including the source code and library code necessarily incorporated in the software to the extent only that such required to make the database useable in accordance with the plaintiff’s requirements”. 

Orders were sealed by the plaintiff requiring Pacific to deliver up all copies of the source code of the VB/Access database that remained in its possession, power or control.  Pacific appealed and the Court of Appeal dismissed the appeal.

The Court of Appeal found that there was ample evidence to support the judge’s finding that there was, on or before 23 March 2000, a commissioning of a computer program to support a ‘usable database appropriate to Perry Group’s requirements.

There could be no question both in terms of the commission and by virtue of s21 of the Copyright Act that Perry Group was the first owner of copyright in the source code, as written.

However, the Court observed that the exercise by Perry Group of its statutory rights as owner did not displace the underlying ownership of Pacific in the library code (to the extent that this might ultimately be established at a further trial).  It would be wrong to say that there was a transfer of the library code copyright to Perry Group.  The parties did not turn their mind to the question of rights each would have in the library code copyright if it existed.  To give full weight to the position of the commissioning party and to give the commissioning business efficacy, it was both necessary and appropriate to imply a non-revocable licence for the Perry Group to utilise the library code (if any) which was embedded in the source code, and further imply a term that such licence also enured for the benefit of any successor or assignor of the Perry Group. That licence would then be enforceable by that third party under s4 of the Contracts Privity Act 1982.  The existence of such a licence was also a form of “authorisation” which would be a defence to any claim of infringement under the Act.