Facts

One of the causes of action in the counterclaim of the defendant (Karum) was that the plaintiff (FPF) had infringed its copyright in a software program known as CMS software. In the closing stages of trial and subsequent to the hearing, Karum sought to address questions raised by FPF as to Karum’s standing to assert the claim of breach of copyright. Karum applied for leave:

(a)  To amend its counterclaim to plead in the alternative that Karum was the exclusive licensee of CMS software; and

(b)  To bring the proceeding in the absence of the copyright owner or to grant leave to join the copyright owner as a party under s124 of the Copyright Act 1994.

The CMS software was first developed by Zale. In 1988, Zale and PRJ& (the predecessor of Karum) formed a partnership to enhance, further develop and market the CMS software developed by Zale. A partnership agreement was entered into between a Zale subsidiary (ZRMC2) and PRJ&. Zale granted a licence of the CMS software to the partnership (the original licence). The partnership then created enhancements to the CMS software (the ‘enhanced CMS software’).

In 1992, following the filing of bankruptcy proceedings against Zale and ZRCM2, the partnership was dissolved and a dissolution agreement entered into between the two partners and Zale. The dissolution agreement terminated the original licence in favour of the partnership and granted two new licences of the CMS software to ZRMC2 and PRJ&. Zale and ZRMC2 also merged. Karum was the successor to PRJ&.

In Fisher & Paykel Financial Services Limited v Karum Group LLC (No. 2), Rodney Hansen J made rulings on the interpretation of documents relied on by Karum to establish its right to bring the counterclaim. Karum had argued that the original licence from Zale was, in substance, an assignment of title to the CMS software to the partnership. 

This contention was rejected and Rodney Hansen J found that:

(a)  The parties intended that Zale should retain ownership of the original CMS software;

(b)  Clause 4(a) of the dissolution agreement granted a new licence to the original CMS  software to each partner (i.e. ZRMC2 and PRJ&) on the terms of the original licence, excluding a requirement to pay a reasonable royalty. The submission that clause 4(a) “in substance” effected an assignment of the original CMS software was rejected;

(c)  Clause 4(b) of the dissolution agreement granted to each partner the right to continued use of the enhanced CMS software while making it clear that only PRJ& had the exclusive right to commercially exploit the software;

(d)  The reference to enhanced CMS software in clause 4(b) of the dissolution agreement included the original CMS software to the extent that it was incorporated in the software developed by the partnership.

Parties’ submissions following the (No. 2) ruling:

Following objection of its assignment contentions, Karum then argued at a subsequent hearing (in order to support its claimed standing to sue) that it was an exclusive licensee of copyright in the original and enhanced CMS software and in particular that:

(a)  The licence granted to PRJ& under clause 4(b) of the dissolution agreement was an exclusive licence, notwithstanding that Zale retained copyright in the original CMS software and that Zale subsidiaries had rights to use (though not to exploit) the software;

(b)  Under the Copyright Act 1994, Karum, as exclusive licensee, had the same rights and remedies in relation to an infringement of copyright as if the licence were an assignment; [12]

(c)  In the alternative, Karum was exclusive licensee because under clause 4(a) of the dissolution agreement, the two partners, ZRCM2 and PRJ& were each granted a new licence on the same terms as the original licence, excluding the requirement to pay a reasonable royalty. As the original licence was itself an exclusive licence, what remained following the merger of Zale and ZRCM2 was also an exclusive licence to PRJ& of the original CMS software. [26]

FPF submitted that:

(a)  The right to commercially exploit the software was not a right which could be the subject of an exclusive licence under the Copyright Act 1994;

(b)  Nor was it a right alleged to have been breached;

(c)  The retention by Zale of rights in the original CMS software under clause 4(a) of the dissolution agreement told against the grant of an exclusive licence.

Held, granting Karum’s application to amend to plead that Karum was the exclusive licensee of CMS under the dissolution agreement:

Exclusivity under dissolution agreement

(1)  An implied equitable statutory licence may rise even though the licensor has retained other rights associated with ownership of copyright. [21]

(2)  An exclusive licensee has the same rights and remedies (except against the copyright owner) as if the grant of licence were an assignment, so that rights capable of being assigned may likewise be the subject of an exclusive licence. It followed that the “slice” of rights which a copyright owner may assign by partial assignment can also be the subject of an exclusive licence. [21] 

(3)  Karum’s right to commercially exploit the enhanced CMS software was capable of being the subject matter of an exclusive licence if it was a right that would otherwise be the exclusive right of the copyright holder and there is no overlap between the rights retained by the licensor and those granted to the licensee. [22]

(4)  The right to commercially exploit the CMS software was demonstrably exercisable only by the owner. That right included the exclusive rights set out in ss 16(1)(a), (b) and (g) of the Copyright Act 1994. (Breaches of those provisions were relied on by Karum in its counterclaim that FPF had infringed its copyright.)  As the exclusive rights of the owner, those rights could be subject to an exclusive licence. [23]

(5)  There was no overlap between the rights retained by Zale and those granted to Karum. Zale retained only limited rights to use the CMS software. It retained no rights which would permit it to commercially exploit the software. [24]

(6)  The fact that Zale retained ownership of the copyright in the original CMS software was accordingly not a bar to Karum suing as exclusive licensee. Its concurrent rights simply required (as Karum sought) that it obtain leave to proceed unless Zale was joined to the proceedings as a party. [25]