New Zealand: Protecting IT with IP

Last Updated: 16 January 2009
Article by Ian Finch and Justin Sweetman

Intellectual property is a term that refers to the ownership of an intangible thing — be it the innovative technology behind a new product or service, the brand name affixed to it, the goodwill the company making or providing enjoys, or the manner in which the product or service and associated material are presented. Intellectual property is now often recognised as the most valuable asset in a business. It is hardly surprising therefore that intellectual property disputes are increasingly prevalent, and are some of the most hard fought.

Although intangible, the law recognises that the rights arising out of intellectual property are property rights. As such they can be sold, licensed, damaged and, in a recent development, converted or unlawfully detained: Pacific Software Technology Ltd v Perry Group Ltd [2004] 1 NZLR 164; (2003) 7 NZBLC 103,950; (2003) 57 IPR 145 (CA).

The intangible nature of intellectual property makes it especially vulnerable to infringement. Consequently, clearly defining the ownership and scope of rights to intellectual property, and effective enforcement of those rights, assumes increased importance.

Registered and unregistered rights:

Broadly speaking, intellectual property rights fall into two categories – registered and unregistered rights.

Registered intellectual property rights are obtained by means of an application process, and include:

  • Patents: a patent provides protection for the ideas embodied in novel technologies, products and processes. Patents cover a principle or idea and not just a single physical form of an invention. Therefore, the monopoly granted can be wide in scope and cover many variations.
  • Design registrations: a design registration provides protection for aspects of the appearance of an article, such as its shape, configuration, pattern or ornamentation. Unlike patents, a design registration does not protect functional aspects of an article unless they also contribute to its appearance. As most manufactured articles involve an element of designer choice, design protection is generally available.
  • Trade marks: a trade mark may comprise any marking such as a word, phrase, symbol, picture or any combination of these. A trade mark may also be a colour, label or even a smell or sound if these are capable of being represented graphically. The purpose of a trade mark is to indicate a connection between certain goods or services and the trade mark owner. More recently it has been recognised that the connection may comprise a licence permitting other parties to use the mark with the owner's consent, and that trade marks may have a secondary purpose, which is to indicate the quality of goods or services rather than simply their origin.

Unregistered intellectual property rights subsist either as a creature of statute or at common law. They typically operate to prevent unscrupulous people from capitalising on the creative or intellectual effort of the intellectual property rights-holder in order to save time or money. Unregistered intellectual property rights include:

  • Copyright: copyright is a property right that subsists automatically in certain categories of original works, such as literary, dramatic, musical or artistic works, irrespective of their quality. There is no requirement to register copyright in New Zealand. Copyright rewards the time, labour, skill and judgment expended in creating a work. Copyright rights can be used to prevent others from piggy-backing on that effort by copying the work or a substantial part of it.
  • Layout design rights: layout design rights are akin to copyright rights and subsist specifically in the layout of integrated circuits.
  • Goodwill and reputation: goodwill is the "attractive force which brings in custom". Goodwill and reputation can subsist in anything from the name of a business, to the shape and appearance of a product, or the look and feel of a web site. Goodwill and reputation can be protected via an action under the tort of passing off (where one person disguises his goods or services as those of another so as to pass off those goods and services as the original) and/or an action under the Fair Trading Act 1986 (to restrain misleading or deceptive conduct and/or false or misleading representations).
  • Confidential information and trade secrets: where information is communicated in circumstances importing an obligation of confidence it may be possible to restrain unauthorised use or dissemination of that information until it lawfully enters the public domain.

The scope of this paper:

What follows is an overview of some of these registered and unregistered rights from an IT perspective.

Patents:

Criteria for patentability

In applying for patent protection in most jurisdictions there will usually be three critical enquiries:

  1. Is the invention novel?
  2. If so, is it obvious (ie does it embody an inventive step)?
  3. Finally, does it meet the statutory definition of "invention"?

Novelty

Patent legislation is designed to provide an incentive for innovation and the introduction of new technology into New Zealand. The legislation gives the registered proprietor the exclusive right to make, use, or sell the invention in New Zealand and to authorise others to do the same. Because a patent confers a monopoly on the patentee which is potentially broad in scope, it is granted for a limited duration only. In addition, the patentee must fully disclose the best method of making or carrying out the invention as a condition of the grant. Full disclosure of the invention enables others to make and use the invention once the patent expires, or to develop non-infringing improvements, which benefits New Zealand society at large.

In order to warrant this monopoly the invention must be novel. New Zealand currently applies a local standard of novelty (i.e. not known or used in New Zealand). However there are plans to change this to an absolute standard (i.e. an invention must be novel having regard to the prior art base which includes all matter which has been made available to the public in any way whether in New Zealand or elsewhere: Patents Bill 2004 cls 6, 8 and 13(b)(i)).

The concept of local novelty has been seriously eroded by a recent decision of IPONZ which held that a document available electronically via the Internet before the priority date of the opposed application met the s 2 definition of "published": Molecular Plant Breeding Nominees Ltd's Application Commissioner's Decision P25/2005 12/09/2005 Assistant Commissioner Popplewell at pages 27-28:

"... it is no longer necessary for a hard copy of a document to be available to comply with the requirements of section 2. The internet, by 1999, was widely available to New Zealanders and, in fact, a search of the 'web', by that date, would have been considered virtually essential for any scientist engaged in a survey of literature relevant to his field. There is no doubt in my mind that in the present case the document concerned has been 'made available to the public'. It could be inspected 'as of right' by the public at any place where a computer with access to the internet was available... Any person who accesses a document on the Internet is free to download or print it; thus it seems to me that this would be analogous to a facsimile of a document being sent from overseas to a New Zealand resident – such a document would surely fall within the definition of section 2. I also note, as pointed out by Mr Arthur, that a journal or book unopened on a New Zealand library shelf is still 'published'. Similarly, it seems to me that a document stored electronically on a computer and freely accessible on a computer terminal in New Zealand is 'published' whether or not anyone actually downloads or prints it."

Non-obvious/Inventive step

Although an invention might be novel it will still need to pass a threshold for "inventive step". The UK case of Crane v Price in 1892 was the first to recognise that something more than mere novelty coupled with labour or expense was required to justify a patent. There must be some difficulty overcome or some barrier crossed. Thus while novelty is a quantitative enquiry inventive step involves a further, qualitative, assessment.

Thus, under s 41(1)(f) Patents Act 1953, a patent may be revoked if the claimed invention is obvious, and does not involve any inventive step, having regard to:

  • What was known before the priority date of the invention in New Zealand; or
  • What was used before the priority date of the invention in New Zealand.

In Beecham Group Ltd v Bristol-Myers Co (No 2) [1980] 1 NZLR 192, at p 232, the Court held that obviousness is to be judged from the viewpoint of a "notional" person who is:

  • Skilled in the "art"; and
  • Knowledgeable in all relevant literature; but
  • Incapable of a "scintilla of invention".

Obviousness is judged as at the priority date of the patent. Thus, an opponent cannot rely on ex post facto reasoning to prove obviousness (i.e. the assessment must be undertaken without the benefit of hindsight).

The test for obviousness most often applied is that set out in Windsurfing International Inc v Tabur Marine (GB) Ltd (1985) 102 RPC 59 (CA) where Oliver LJ described, at pp 73-74, the process as follows:

"The first [step] is to identify the inventive concept embodied in the patent in suit. Thereafter the court has to assume the mantle of the normally skilled but unimaginative addressee in the art at the priority date and to impute to him what was, at that date, the common general knowledge in the art in question. The third step is to identify what, if any, differences, exist between the matter cited as being 'known or used' and the alleged invention. Finally the court has to ask itself whether viewed without any knowledge of the alleged invention those differences constitute steps which would have been obvious to the skilled man or whether they require any degree of invention."

Therefore, under the Windsurfing test, if the difference between the prior art and the invention claimed would be obvious to the "notional addressee", the ground of obviousness is made out.

Documents cited in support of obviousness will often lack features of the invention. Therefore to arrive at the claimed invention the opponent may need to rely on several documents considered simultaneously. This is known as "mosaicing". Mosaicing is permitted if the documents are of a type that the "notional addressee" would, if researching the subject, normally find together.

In Ancare NZ Ltd v Cyanamid of NZ Ltd [2000] 3 NZLR 299 (CA) Gault J stated, at para 43, that:

"the test [for obviousness] is well established. It postulates a person (or, where appropriate, a team) skilled in the field but not inventive, invested with the common general knowledge or prior use relied upon. Prior documents may be looked at together if that is what the skilled person or team would do. It asks whether to that person or team the alleged inventive step would be obvious and would be recognised, without bring to bear any inventiveness, as something that could be done or is at least worth trying. That is a question of fact. If any embodiment within the scope of the claim is obvious the claim is invalid.

Statutory definition of an invention

The definition of an invention as recited in s2(1) Patents Act 1953 requires that the subject matter:

  • Is a manner of new manufacture;
  • Is novel, and
  • Includes an inventive step.

At present, there is only one statutory bar to patentability. Under s 17, the Commissioner may refuse to grant an application for patent protection if he or she deems that use of the invention claimed in the specification would be contrary to morality. However, the following subject matter is also barred from patentability at common law:

  • Naturally occurring products;
  • Pure discoveries;
  • Mere information (for example, a mathematical formula); and
  • Methods of medical treatment.

Computer software

Computer software was first held to be patentable in New Zealand in Clark's Application (Commissioner's Decision No P12/1993, 30/6/93, Commr Burton). The patent application related to the use of a computer to produce patterns for shoe manufacture. Although the Commissioner expressed reservations regarding the patentability of the subject matter, he granted the patent.

The issue was laid to rest in Hughes Aircraft Co's Application (Commissioner's Decision No P03/1995, 3/5/95, Commr Popplewell), which involved computer programs for calculating conflict alert status in aircraft. Applying the IBM case, the Commissioner found the computer program was patentable as it resulted in improved air traffic control, which was deemed to be a commercially useful effect.

The test currently applied is that formulated by Burchett J in International Business Machines Corp v Commissioner of Patents (1992) 22 IPR 417. This test requires the computer software to:

  • Embody a novel concept; and
  • Have a commercially useful affect.

The invention at issue in the IBM case was an improved method and apparatus for representing curve images in computer graphic displays. The Court held, at p 425: "the formula is applied to achieve an end, the production of the improved curve image. A method of producing that by computer, which is novel and inventive, is entitled to the protection of the patent laws."

In a more recent development, the data structures that enable computer systems to process information have also been deemed patentable in New Zealand on the basis that the data structure may enable data to co-operate with a computer programme in a more efficient way — which can be a commercially useful effect: Microsoft Corp's Application (Commissioner's Decision No P04/2007, 5/3/07, Asst Commr Popplewell).

Business methods

Business methods are currently patentable within New Zealand. To be patented, a business method must:

  • Produce a commercially useful effect; and
  • Produce an artificially created state of affairs.

Ordinarily the business method will interact with some tangible apparatus, or other material, to fulfill the "artificially created state of affairs" requirement. For example, a customer loyalty program that interacts with a smart card as part of a business method will be considered patentable, whereas a pure method that is not associated with apparatus will not.

Ownership

Section 7 Patents Act 1953 lists those who can make an application for a patent. They are:

  • Any person claiming to be the true and first inventor;
  • The assignee of the inventor (whether that be an individual, company or other incorporated body); or
  • The legal representative of a deceased person who, immediately before their death, was entitled to make an application: s 7(3).

An application can be made by any person listed above, either alone or jointly with another or others. Under common law, applicants may also include:

  • Anyone to whom the invention was communicated from abroad: Wegmann v Corcoran (1879-1880) 13 Ch D 65 (CA); The NZ Development Authority v Griffith Thomas (Commissioner's Decision No P04/1982, 20/4/82, Asst Commr Burton); and
  • The true and first importer: Bernard Charles Sherman's Application (Commissioner's Decision No P13/2000, 1/8/00, Asst Commr Hazlewood); Edgeberry v Stephens 1 WPC 35.

Inventorship

The "true and first inventor" is the deviser of the actual invention or the person who made the inventive step to arrive at the invention. There can be more than one "true and first inventor". For example, a research team working cooperatively on a project could collectively be the true and first inventor of any new invention that results from their research.

Infringement

By virtue of the Deed of Letters Patent, the registered proprietor of a granted patent has the exclusive right to:

  • Manufacture the patented invention;
  • Use the patented invention;
  • Exercise the patented invention;
  • Vend (i.e., sell or license) the patented invention; and
  • Import the patented invention.

The Patents Act 1953 does not define "infringement" or acts amounting to "infringement".
However, it is generally accepted that a patent will be infringed by any act done in contravention of the exclusive rights conferred by the Deed of Letters Patent.

Legal action can only be taken against a patent infringer once the Deed of Letters Patent has issued. Legal proceedings for patent infringement must be commenced in the High Court.

Remedies to infringement:

If infringement of a patent is established, the following principal remedies are available to the patentee:

  • An interim and/or permanent injunction restraining the infringing conduct;
  • Delivery up or destruction of infringing product(s);
  • Delivery up of any machinery adapted to make infringing product(s); and/or
  • An account of profits earned by the infringer, or damages suffered by the owner of the patent.

Exceptions to infringement:

There are a number of defenses to infringement, including:

  • The use of a patented invention for the purpose of bona fide research and experiment (i.e. to determine if an improvement can be made to the patented invention). This defense excludes experimental use of an invention for commercial advantage: Monsanto Co v Stauffer Chemical Co (No 1) (1984) 1 NZIPR 518, at p 531
  • The use of a product for the purpose of obtaining regulatory approval: s 68B. For example, the importation of a generic drug to obtain governmental approval will not infringe a current New Zealand patent for that drug.
  • The making and selling of separate components of a combination for which there is a patent. For example, in Dunlop Pneumatic Tyre Co Ltd v Moseley & Sons Ltd (1904) 21 RPC 274 (CA), the sale of pneumatic tyre covers without wires did not infringe a patent for pneumatic tyre covers with wires.
  • The acts were done with the implied license or consent of the patentee, for example, the parallel importation of patented product for resale in New Zealand.
  • The making and selling of articles that are not of themselves protected by a patent but that can be used for the purposes of infringement: Beecham Group Ltd v Bristol Laboratories Ltd (1978) 95 RPC 153 (HL). And
  • The doing of any of the exclusive acts in relation to a patented invention outside New Zealand. However, a decision of the English Court of Appeal (Menashe Business Mercantile Ltd v William Hill Organisation Ltd (2002) 119 RPC 950) has held that this may not be the case if infringement occurs over or via the internet.

Registered Designs:

What is a design?

Under s 5 Designs Act 1953, a design may be registered in respect of any article or set of articles specified in the application. The word "design" is defined in s 2 to mean:

"features of shape, configuration, pattern, or ornament applied to an article by any industrial process or means, being features which in the finished article appeal to and are judged solely by the eye; but does not include a method or principle of construction or features of shape or configuration which are dictated solely by the function which the article to be made in that shape or configuration has to perform."

Thus, a design consists of two-dimensional (pattern and ornamentation) or three-dimensional (shape and configuration) features of an article. As the features protected are judged solely by the eye of a prospective customer or user of the article to which the design is applied the design must have at least some element of aesthetic or visual appeal that is not directly dictated by the function to be performed by the article. Ordinarily a design will be applied to a single article of manufacture.

Traditionally registered designs have been used in the IT field to protect the physical appearance of items (such as computer monitors and peripherals). However more recent decisions have tested the boundaries of design law, notably the acceptance of a set of icons displayed on a computer screen as a valid registered design.

Ownership

Under s 6 Designs Act 1953 the applicant for a registered design may include:

  • The designer (or author);
  • The assignee of the designer; or
  • A person for whom the design was made in return for consideration.

There is no requirement for an applicant to specify in his or her design application whether he or she obtained his or her right to apply from another party.

Infringement

A design registration is infringed by the unauthorised manufacture or importation for sale (or for use for the purposes of trade or business) or the unauthorised sale, hire (or offering to sell or hire) of articles incorporating or embodying the registered design in New Zealand.

Legal action can only be taken against an infringer once the Certificate of Registration has issued. Court proceedings are initiated in the High Court. Appeals are possible to the Court of Appeal. The case is heard and decided by a Judge alone, with no jury involvement.

For an article to infringe a registered design it must be an article to which the registered design, or a design not substantially different from the registered design, has been applied. Putting it another way, it must have substantially the same appearance as the design in question. The question of infringement is a question for which the eye must be the judge. Courts will apply both a side-by-side test and an imperfect recollection test, and will also consider actual usage of the design in question.

The degree of novelty between the prior art and the registered design must also considered.

In UPL Group Ltd v Dux Engineers Ltd [1989] 3 NZLR 135 (CA), at p 139, the Court commented as follows:

"There is also a relationship between the degree of novelty or originality of a registered design and the issue of infringement. If there is substantial novelty or originality small variations in the article alleged to infringe will be unlikely to save the defendant. On the other hand if the features of novelty or originality are but little removed from prior art small differences may avoid an infringement."

Side-by-side test: The side-by-side test involves comparing the alleged infringing design with the registered design in a side-by-side comparison in order to determine whether one is an obvious imitation of the other. As with novelty, infringement is to be judged by the eye. The leading New Zealand case in this area is UPL Group Ltd v Dux Engineers Ltd [1989] 3 NZLR 135 (CA) where Somers J, delivering the judgment of the Court, stated, at p 139, that:

"The test is whether the article alleged to be an infringement has substantially the same appearance as the registered design. This involves a comparison between the article complained of and the representations of the article contained in the application for registration. It is not always easy to compare a two-dimensional design with a three-dimensional object. That difficulty and the fact that a design means features of shape etc applied to an article by industrial process makes it evident, and it has been so held (see Dunlop Rubber Co Ltd v Golf Ball DevelopmentsLtd (1931) 48 RPC 268, 277, 280 and Benchairs Ltd v Chair Centre Ltd (1974) 91 RPC 429, 441, 442) that articles manufactured by the plaintiff which embody the design may be compared with the artifact said to infringe."

Imperfect recollection test: Products to which the registered design and the alleged infringing design have been applied will not always be sold or viewed side by side. The Court may therefore also compare designs as if they had been viewed at different times. This is known as the "imperfect recollection" test. The imperfect recollection test was first described in Valor Heating Co Ltd v Main Gas Appliances Ltd (1973) 90 RPC 871, at pp 878, where it was held:

"This court has taken the view that you must consider infringement not merely upon the basis of a side by side comparison, but also upon the basis of having had a look 293 at the registered design, then having gone away and come back and perhaps been [sic] put in a position of deciding whether some other article is the one you originally saw."

The test was further refined in Sommer Allibert (UK) Ltd v Flair Plastics Ltd (1987) 104 RPC 599 (CA), at p 624, where the hypothetical customer through whose eyes the Court was looking was identified as a customer interested in the design of the particular type of article being purchased, instead of one who is content to purchase any such article, without regard to its design.

The imperfect recollection test has been applied in New Zealand in UPL Group Ltd v Dux Engineers Ltd [1989] 3 NZLR 135 (CA).

Actual usage: Actual usage of the registered design may be considered by the Courts to determine whether the alleged infringing design and the registered design will look similar when the articles carrying the design are in use. For example, if a Court were considering a design to be applied to a clothing item, the Court may take into consideration the eye appeal of the garment while being worn.

Copyright and IT:

Copyright is a right which subsists automatically in original artistic, literary, dramatic or musical works.

Since the enactment of the Copyright Act 1994, computer software has been expressly included in the definition of "literary work" and protection will usually last for 50 years from the first publication date or the death of the author. There is no definition of "computer programme" itself in the Act. This is generally regarded as a deliberate decision to ensure the Act has wide application.

The definition of "literary work" also includes "compilations". Compilations may consist:

  • wholly of works or parts of works;
  • partly of works or parts of works; or
  • of data other than works or parts of works,

and therefore encompass databases, multimedia works and websites (although note that the images and sounds which are used in a multimedia work might be capable of protection in their own right as artistic or musical works).

In University of Waikato v Benchmarking Services the New Zealand Court of Appeal approved a decision of the Australian Federal Court (Desktop Marketing) concerning the copying of the data in telephone directories. Both cases have subsequently been applied by the New Zealand High Court in YPG IP Ltd v yellowbook.com.au - a case involving reproduction of the data in the New Zealand Yellow Pages directory. The case is notable for the comment that, with infringement of factual compilations, there is no need for visual similarity between the competing databases for infringement to occur. This is consistent with the overall policy of copyright protection – to prevent one person trading on the effort of another. Where the compilation of raw data involves the exercise of time, labour, skill and judgment, the data will be protected separate from the form in which it is expressed. Translating that back to the IT context, both the raw data in, and method of presentation of, a database will attract copyright protection if sufficiently "original".

Originality

Copyright only subsists in "original" works. A work is original to the extent that it is not a copy of any other work (including other works of the same author) and results from the author's own time, labour, skill and judgment (often referred to as the "sweat of the brow" doctrine). Hence the threshold is low.

At first glance the requirement that works not be copied might be seen to cause problems in the IT field, where much code is either open source or derivative (ie based on earlier code/applications of the same author). However in Callista Group v Zhang the High Court confirmed that copyright would subsist in such works, provided sufficient time, labour, skill and judgment had been expended in the production of the new programme. Callista successfully sued a former employee (Zhang) for unauthorised use of programmes developed by Callista from a combination of original code and code derived from third parties.

On the facts Zhang was found to have made use of the Callista code as a template which was held to be an unauthorised adaptation and hence an infringement. The conclusion might have been different had Zhang used his own skills to modify that code in its reuse. That is because, while there is a very low threshold of originality for subsistence (ie showing that you have a copyright work), the extent of originality of a work will be relevant to the question of infringement. See for example the comments of McGechan J delivering the judgment of the Court of Appeal in Land Transport Safety Authority of New Zealand v Glogau [1999] 1 NZLR 261, 271:

"Where the originality is low, it is to be expected that anything other than almost exact reproduction will not support an inference of copyright amounting to infringement, whereas where there is a higher degree of originality in the work an inference of copying will more readily be drawn even where the degree of similarity is less. In this way, the reward in the scope of protection will tend to be related to the degree of originality. Retaining a low threshold for protection therefore presents no real harm."

Had Zhang modified the code to a significant extent, the Court may have been required to look into the extent of originality of Callista's code, and then determine whether the changes made by Zhang were sufficiently extensive to avoid infringement. In all cases this will be a question of fact based on a comparison between the copyright work and the alleged infringing code.

Ownership

The general rule is that the author of a copyright work is the owner of the copyright in that work. However this is subject to three exceptions:

  • Where the work was created by an employee during the course of employment it will be owned by the employer;
  • Where the work is a photograph, computer programme, painting, drawing, diagram, map, chart, plan, engraving, model, sculpture, film or sound recording and was commissioned it will be owned by the commissioning party; and
  • Ownership may be determined by agreement between the relevant parties.

It follows that the circumstances surrounding the creation of the work will be important. The commissioning rule is a common fish hook - as not all works can be commissioned and not all "commissions" meet the legal requirements for title to pass (for example a work cannot be commissioned after the author has started to create it). Note also that literary works (except computer programmes) are excluded from the commissioning rule. This means that if you are commissioned to write a computer programme and a manual then, subject to any agreement to the contrary, the client will own the copyright in the computer programme but not the manual.

The commissioning rule is currently being reviewed by MED and is likely to be either extended to all categories of work or abolished. For the time being however best practice is to deal with the ownership of copyright works up front and in writing before the work commences. In the cases of employment contacts the contract should:

  • Clearly state that all IP developed by the employee during the term of employment (whether on the premises or during work hours or otherwise) belongs to the employer;
  • Contain a waiver of moral rights by the employee;
  • Impose obligations of confidence on the employee including a requirement to return all forms of confidential information following termination of employment.

In commissioning arrangements it would be a good idea to settle a written agreement before any work commences identifying:

  • What work is going to be performed, by whom and when;
  • Remuneration;
  • Ownership of IP in the resulting work (and any limitations – such as reuse of code by the developer);
  • Deliverables – if the customer owns the copyright how is the code to be delivered in a usable form?

Problems will almost certainly arise without this: see for example Perry Group v Pacific Software.

Infringement

The ownership of copyright in a work gives the owner the exclusive right to:

  • Copy the work;
  • Issue copies of the work to the public, whether by sale or otherwise;
  • Perform the work in public;
  • Play the work in public;
  • Show the work in public;
  • Broadcast the work or include the work in a cable programme service;
  • Make an adaptation of the work;
  • Do any of the exclusive acts in relation to an adaptation of the work; and
  • Authorise another person (or company) to do any of the exclusive acts. Therefore, a company director may be personally liable for the actions of his or her company.

Those rights are infringed by anyone who does so without the owner's consent. However, for a plaintiff to succeed in an action for infringement of copyright they must satisfy the four-part test established by Chilwell J in P S Johnson & Assocs Ltd v Bucko Enterprises Ltd [1975] 1 NZLR 311, at p 315, by proving that:

  • There is a work in which the copyright can subsist;
  • Copyright does subsist in the work;
  • The plaintiff owns the copyright in the work; and
  • Copyright in the work has been infringed.

To establish primary infringement of copyright under the Copyright Act 1994, three elements must be proved:

  • Reproduction of either the entire copyright work or a substantial part;
  • A sufficient objective similarity between the infringing work and the copyright work or a substantial part; and
  • A causal connection between the copyright work and the infringing work, in that the copyright work is the source from which the infringing work is derived.

Substantiality: One of the indicators of infringement is the degree of similarity between the copyright work and the alleged infringing work. It is not necessary for the work to be copied in its entirety. It is sufficient to establish that similarity exists between a substantial part of the copyright work and the alleged infringing work. Whether the part of a copyright work that has been reproduced is a substantial part must be decided by its quality rather than by its quantity: University of Waikato v Benchmarking Services Ltd (2004) 8 NZBLC 101,561 (CA)

Objective similarity: Even if the alleged copy takes a substantial part of the original, it is still necessary that the copy looks objectively similar to the original in order to establish copyright in the work has been infringed. Whether there is objective similarity is largely a matter of impression for the Court. As one Judge phrased it "a copy is a copy if it looks like a copy": Thornton Hall Mfg Ltd v Shanton Apparel Ltd (No 2) (1988) 13 IPR 463, at pp 470-471.

Causal connection: In order to succeed in an action for copyright infringement under the Copyright Act 1994, a plaintiff must also prove that the defendant has directly or indirectly made an unlawful use of the plaintiff's copyright work. In other words, the starting point for the defendant's work must have been that of the plaintiff. This is known as a causal connection.

It is not necessary to show that the defendant has copied directly from the plaintiff's work. It is sufficient for the plaintiff to establish some chain of causation linking the plaintiff's copyright work with the defendant's alleged infringing copy: Wham-O MFG Co v Lincoln Industries [1984] 1 NZLR 641 (CA), at p 668. Usually this requirement is met by showing both similarity and proof of access (to the website, multimedia product, code etc). Many programmers also adopt the practice of introducing deliberate mistakes or dummy code which, if reproduced, provide direct evidence of copying.

Exceptions to infringement:

Note that there are a number of exceptions to infringement in the Act including:

Back up copy: under s80 of the Act it is not an infringement to make a back-up copy of software from an original copy.

Knowledge: to establish secondary infringement (ie where the infringer merely imports or uses a copy rather than making it him or herself) it is necessary to prove knowledge of the infringing activity. However in the case of computer programmes there will be a rebuttable presumption of knowledge against the defendant and the test is objective (ought they reasonably to have known?) which will catch most infringers.

Fair dealing: certain works can be reproduced for the purposes of criticism, review and news reporting, or research / private study. It remains open whether commercial reverse engineering of software amounts to research. Given the nature of the dealing, and the fact that some cases have suggested one of the critical enquiries is the extent to which the resulting work will compete with the original copyright work, reverse engineering in a commercial environment would almost certainly fail the "fair dealing" test. Note however that there is currently a Bill before the House (Copyright (New Technologies) Amendment Bill) which proposes a limited right to decompilation of computer programmes to observe, study or test the function.

Confidential information and IT:

Where IT embodies confidential information it may be protected under the law of confidential information / trade secrets. However it is usually necessary to prove three things:

  • That the information had a degree of confidence;
  • That it was communicated in circumstances importing an obligation of confidence; and
  • That there has been an unauthorised use of the information by the party it was communicated to.

The obligations sued upon can arise by agreement (in contract) or by virtue of the relationship between the parties (in equity): Attorney General v Guardian Newspapers (No.2) [1990] 1 AC 109, 255.

"The law has long recognised that an obligation of confidence can arise out of particular relationships. Examples are the relationships of doctor and patient, priest and penitent, solicitor and client, banker and customer. The obligation may be imposed by an express or implied term in a contract but it may also exist independently of any contract on the basis of an independent equitable principle of confidence: Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203..."

Broadly speaking, the scope of the obligations in equity are the same as those those in contract. However, some leading authorities have been careful to distinguish cases governed by contract. For example, in Saltman Engineering, Lord Greene M.R. stated that the "information must...apart from contract...not be something which is public property and public knowledge" (at page 415). Similarly, in Coco v A N Clarke (Engineers) Ltd Megarry J noted (page 47):

"In cases of contract, the primary question is no doubt that of construing the contract and any terms implied in it"

and when expressing the essential elements of the cause of action took particular care to exclude contract-based claims:

"In my judgment, three elements are normally required if, apart from contract, a case of breach of confidence is to succeed" (Emphasis added.)

Subjective v Objective Test for Confidentiality

An analysis of whether or not the relevant information is confidential is the natural starting point for any action for breach of confidence. If the information cannot be said to be confidential then there is no need for the Court to protect it.

From the above authorities it would appear that there is one fundamental and critical difference between the obligations of confidence arising in equity, and those arising under contract; the test for whether the information the subject of the obligation is confidential.

The general principle of confidentiality was succinctly stated by Lord Greene, M.R. in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203, 215:

"The information, to be confidential, must, I apprehend, apart from contract, have the necessary quality of confidence about it, namely, it must not be something which is public property and public knowledge. On the other hand, it is perfectly possible to have a confidential document, be it a formula, a plan, a sketch or something of that kind which is the result of work done by the maker on materials which may be available for the use of anybody; but what makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be produced by someone who goes through the same process." (Emphasis added.)

What is clear from Saltman, and from subsequent authorities in which the Saltman principle has been cited is that the test as to confidentiality in equity is an objective one. Generally, equity will not protect information which is already in the public domain and/or information of a trivial nature.

Conversely, under contract the test is subjective. If two parties freely enter into an agreement by which one agrees to maintain the confidence of information supplied to it by the other, it does not matter that some or all of that information may be of a trivial nature and/or ascertainable from the public domain. In other words, under contract, if the parties say the information is confidential then it is.

It follows that best practice is always to prepare a written agreement in relation to confidential information which covers:

  • What the confidential information is;
  • Who it belongs to;
  • What rights the employee/client has to deal with the information;
  • When those rights cease and what should be done with the information on cessation; and
  • What happens in the case of breach / disputes.

Conclusions re: common law protection

Finally it is probably necessary to conclude with a cautionary note regarding placing too heavy reliance on common law protection of IP. While copyright and obligations of confidence provide a convenient, and relative cheap, means of protecting IP/IT, enforcement may be another matter entirely.

Unlike registered intellectual property rights there is no formal system of recording copyright and therefore no register to search and no deterrent effect from those rights. Also copyright does not protect ideas, merely the way in which an idea is expressed. It is perfectly legitimate to look at how anther person's product or software routine works, and to take the ideas embodied in them, so long as you exercise your own time, labour, skill and judgment translating those ideas into your own product. Only patents protect ideas, and they do so regardless of whether the infringer copied the patented product or developed the idea from scratch.

In terms of confidential information, the most significant draw back is that, once the confidential is in the public domain, there is usually no means to recover the information or remedy the loss except through the infringer. If the infringer has no financial means (the most common example being a breach by a current or ex-employee) then the owner of the confidential information will be left with no trade secret and no compensation. Also commercially many companies will now refuse to deal with service providers under a confidentiality agreement – some companies overseas will even now insist that the service provider declare that anything disclosed is non-confidential before dealing with them.

Finally, a number of recent decisions suggest that the holder of a registered intellectual property right (as opposed to a common law right) will have a significant advantage when applying to the court for an interim injunction (an order staying the alleged infringing conduct of a defendant pending full trial). The most extreme example to date has been Aktiebolaget Hassle & Anor v Novartis New Zealand Limited (1/5/03, Potter J, HC Auckland CP 51-SW/03). There the plaintiffs sought an injunction to restrain Novartis from manufacturing an omeprazole product, PROBITOR, which they believed infringed their Patent No. 220096 relating to their own similar product sold in New Zealand under the brand name LOSEC. Novartis resisted the application on a number of grounds including:

  1. That it was strongly arguable that the patent was invalid, the equivalent United Kingdom patent having already been overturned on the grounds of obviousness; and
  2. That it had contracted to supply Pharmac with PROBITOR, and was obliged to pay Pharmac $350,000 per calendar month it was unable to supply same (presumably to compensate Pharmac for being obliged to subsidise the more expensive LOSEC during that period).

While recognising the significant losses likely to be suffered by Novartis if injuncted, the Court nonetheless found that the balance of convenience and the overall justice favoured the granting of an injunction, commenting (at paragraph 43):

"There is a reality to be recognised in the case of the patent, that the patent confers a monopoly during its currency, the benefit of which runs over to the post-patent period because of the strong market position usually developed during the monopoly period. This was expressed by Eichelbaum J in Monsanto Chemical Co v Stauffer Chemical Co (No. 1) (1984) 1 NZIPR 540."

And later at paragraph 56:

"Premature interference with the monopoly position which the patent confers during its currency will also impact on the ability of the proprietor to create or confirm its own market after the expiry of the patent (the "bridgehead" opportunity)."

The decision of Justice Potter was upheld by the Court of Appeal in a decision of Justice Blanchard delivered on 4 July 2003.

Decisions like Aktiebolaget make a compelling case for registration.

22 February 2008 (a modified version of this article was first published by LexisNexis NZ Limited in the course materials to its e-Law Conference 2008)
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