Can more than one person own copyright in one software program? Can separate copyright attach to modifications to an existing software program? When a software program is commissioned, who owns the copyright in subsequent modifications or enhancements? These were some of the issues examined in the recent High Court decision of Advanced Management Systems Ltd v The Attorney General for New Zealand and New Zealand Payroll Software Systems Ltd.

In 1989 Advanced Management Systems (AMS) developed a payroll and personnel computer software program known as LEADER under a contract with the Crown. During the course of development of LEADER, AMS and the Crown negotiated a marketing rights agreement giving AMS the exclusive right to sell LEADER to others in return for royalties to be paid to the Crown. Both parties recognised that modifications and enhancements to LEADER would be necessary to market the LEADER software program. It was agreed that AMS would make modifications and enhancements to the software program at AMS's (or the new purchaser's) expense.

During the period when LEADER was being marketed and modified the parties had a disagreement over the royalties to be paid and over the proportion of Crown/AMS ownership in LEADER. This disagreement came to a head in 2000 after the Crown assigned all its interest in LEADER and its agreements with AMS to New Zealand Payroll Software Systems Ltd. NZPSS then asserted that it owned 100% of LEADER including all modifications and enhancements. AMS objected to this assertion and went to the High Court contending among other things that AMS owned copyright in the enhancements and modifications to LEADER.

In his decision, Justice Randerson recognised that the Crown owned the copyright in the original LEADER program. This was by virtue of the wording of the original development contract which provided for the Crown to own intellectual property in the work performed by AMS and by virtue of its rights under the Copyright Act 1962 (which was in force when the original software program was developed). The Copyright Act 1962 and the Copyright Act 1994 both contain special provisions relating to Crown copyright. These provisions provide for the Crown to be the first owner of copyright in works made by a person under direction, employment or engagement with the Crown subject to any contrary agreement with the author.

The Crown argued that the modifications and enhancements to LEADER could not be separate copyright works as the incremental changes involved copying the original LEADER program or a substantial part of it each time. In addition the Crown argued that the development of LEADER infringed the Crown's copyright in the original software program. It argued that each change amounted to an unauthorised copy of the Crown's copyright in the original LEADER.

Rejecting these arguments, Justice Randerson found that AMS was not directed, engaged or employed by the Crown to make the modifications and enhancements under either of the agreements and that the Crown had not only authorised AMS to make future modifications and enhancements but that the Crown had agreed that AMS would own those changes and copyright in them.

In addressing the issue of originality in the modifications, Justice Randerson said the question was not whether AMS had established a whole new copyright in LEADER (as modified) but whether it owns copyright in the modifications. He found that it was well established (and provided for in the Copyright Act 1994) that different people could own different aspects of copyright in a work.

Justice Randerson stated that whether independent copyright is created in individual changes to a copyright work with the necessary originality, depends on the degree of skill, labour, and judgement applied in carrying out the change and is a question of degree. While accepting that not every change made by AMS to LEADER would attract copyright protection, Justice Randerson went on to find that by its nature, the creation or modification of a software program involves the input of labour, skill, judgement and original thought in a way which attracts the protection of copyright. He found that the work carried out by AMS on LEADER was sufficient to attract separate copyright in the modifications and that the current version of LEADER only holds a small fraction of the original program. At the time of the hearing, Justice Randerson assessed AMS's share in LEADER to be 75% and the Crown's 25%.

Parties who commission copyright works such as a software program or who are commissioned to develop such works need to give careful consideration to who holds rights in any future modifications or enhancements to the work.

This is a general summary only and should not be taken as a substitute for specific advice.

Contact:
Earl Gray, Partner
Alan Potter, Partner
Sean Murphy, Associate

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