The plaintiff had sought continuation of orders obtained as part of an interim injunction application restraining the defendant (its licensee) from marketing the plaintiff’s recordings in New Zealand. At the time of the hearing, the defendant had been placed into receivership.

On 14 January 2008, the plaintiff had entered into a licence agreement with the defendant allowing  the defendant to market the plaintiff’s recordings (on DVD’s and HD discs) in New Zealand. Clause 8 of the General Terms and Conditions of the licence agreement was headed “Ownership of Intellectual Property Rights, DVD Recordings, High Definition Recordings and Other Materials”. This expressly stated that title to any and all intellectual property and other rights in the recordings remained the sole and exclusive property of the plaintiff. Further that the defendant did not have rights to the recordings other than to engage in rental or sale activities expressly covered by the agreement. The plaintiff also had the right to request that the defendant return all materials and all recordings pursuant to the agreement. This agreement however was not registered under the Personal Properties Securities Act 1999 (the “PPSA”).

As part of the licence agreement, the defendant was required to obtain a letter of credit for US$4,755,484. The defendant’s banker, ASB, provided the letter of credit and secured this against an “all obligations” General Security Deed on 27 February 2008. The General Security Deed was registered under the PPSA on 4 March 2008. Clause 3.1 of the General Security Deed granted to ASB a security interest in all of the defendant’s “right, title and interest (present and future, legal and equitable) in, to, under or derived from the defendant’s present and after-acquired personal property” and granted a charge over all the “Other Property” of the defendant. “Other Property” was defined as including “Personal Property”. “Personal Property” was defined in s16 of the PPSA to include, amongst other things, “intangibles”.

When the defendant went into receivership, the receivers sought to sell the stock of imported DVD’s and HD discs so as to recover on its security.

On 16 July 2009, the plaintiff was successful in obtaining an interim injunction restraining the receivers from selling the stock. This hearing was to determine the continuation of those orders made.

The plaintiff alleged (inter alia) breach of copyright.  Andrews J at first instance held that whether there was a serious question to be tried as to copyright infringement depended on two questions:

• Would a sale of the stock be a breach of copyright?; and 
   
• What was the effect of ASB’s perfected security?

(a)  Breach of copyright

The licence agreement expressly provided the defendant with the right to market, sell and rent the plaintiff’s recordings. It was conceded by the defendant’s receivers that any marketing and sale of the stock after receivership and termination of the licence agreement, may amount to breach of the licence. However, the Court accepted that this was a contractual issue between the plaintiff and the defendant and was not determinative of whether marketing and sale of the stocks would in fact be a breach of copyright. 

To be liable for breach of copyright under s36 of the Copyright Act, an infringement of copyright depended on the object sold being an “infringing copy”.

Sections 12(2) and (3) of the Copyright Act provide that an object is an “infringing copy” if its making constitutes an infringement of copyright in the work in question. The Court held that it was not (and could not be) argued that the stock in the present case constituted an infringement of copyright when it was made. Accordingly, the DVDs could not be “an infringing copy” for the purposes of either sub-section (2) (when the DVDs were made) or sub-section  (3) (when the DVDs were imported into New Zealand). Therefore the sale of stock could not constitute an infringement of copyright. 

The Court rejected the plaintiff’s submission that stock could be “non-infringing” at the time it was imported by the defendant but become “infringing copies” for the purposes of sales by the receivers. The Court rejected this in light of the clear wording of ss 12(2) and (3) that whether an object is “an infringing copy” depends on its “making”. Further, s12 does not provide that an object can be an “infringing copy” for some purposes but not for others.

(b) The effect of ASB’s perfected security

The plaintiff submitted that its proprietary interest in copyright in the recordings could be enforced “against all-comers” including ASB. The Court rejected the submission. Under the licence agreement the recordings were to be provided to the defendant to market and sell and the defendant to use its best endeavours to derive the maximum revenues.

The Court held that in order for the plaintiff’s retention of title over stock to be enforceable “against all-comers” and to have priority over any other interests , the provision of the licence agreement was required, as a security interest, to be perfected by registration under the PPSA. The licence agreement had not been so registered so the plaintiff’s retention of title stock remained unperfected. Further, the stock was properly in the possession of the defendant and was subject to a security for its funding from ASB. As ASB had registered its general security deed under the PPSA on 4 March 2008, it had a perfected security interest which attached to the stock. Accordingly, ASB’s security was enforceable against the stock, and it had priority over the plaintiff’s retention of title in its licence agreement (no registered). The consequence was that the receivers of the defendant could not be prevented from selling the stock.

Copyright in the recorded works

The Court then went on to separately consider the plaintiff’s copyright in the recorded works, as distinct from title to the physical recordings comprising the stock in issue. Andrews J held that ASB’s perfected security gave it priority over the stock (and enabled the receivers to sell it) but did not impinge on the plaintiff’s copyright in the recorded works. The copyright remained with the plaintiff and the plaintiff’s ownership of the copyright in the recorded work subsisted.

The plaintiff had submitted that this issue was “inextricably connected” with the copyright issue considered earlier. The plaintiff had further submitted that if the receivers purported to deal with the copyright works, without a licence to do so, they would be in breach of copyright under the Copyright Act. The plaintiff relied on s31 (regarding infringement by issue of copies to the public) and s9 of the Act (in relation to the meaning of “issue of copies of a work to the public”).

The plaintiff also contended that s9(1)(d), which excepted from the definition of “issue to the public” the distribution of imported copies that are not infringing copies within the meaning of s12 subsequent to their importation into New Zealand, applied only to parallel imported goods and not the goods the subject of the litigation here.

The Court rejected the plaintiff’s submission and held that s9(1)(d) of the Copyright Act should not be interpreted in the limited manner put forward. Rather s9(1)(d) should be interpreted according to its wording. The Court held that the meaning of the words is clear. If imported copies are not “infringing copies within the meaning of s12”, then their distribution after importation into New Zealand would not constitute “the issue of copies of a work to the public”, so as to be in breach of copyright under ss 29 and 31. Nor would it constitute “possessing or dealing with infringing copies” so as to be in breach of copyright under s36 of the Act.  The Court found that consideration of the plaintiff’s copyright in the works, independently of the licence agreement, did not lead to any different conclusion from the copyright issues addressed earlier.

Appeal

The plaintiff subsequently sought an application for stay of the judgment pending the hearing of a substantive appeal to the Court of Appeal. This was on the grounds that the trial judge had unnecessarily determined the substantive copyright issues of the proceeding in the context of an interim injunction hearing.

The Court of Appeal noted that where there is a genuinely arguable case, the Court should not embark on a premature determination of the appeal.

The Court however found that there was in fact not a genuinely arguable case. The plaintiff’s (i.e. appellant’s) substantive proceedings were designed to inhibit or defeat what would otherwise be ASB’s unquestionable right for its receivers to sell the defendant’s stock, over which it had priority through its perfected security. The Court also found that the obligations imposed on the defendant’s receivers to realise the secured stock in a timely fashion for the benefit of the creditors tilted the balance of convenience in a stay application to the receiver’s favour.

Finally, the Court held that the claims of the plaintiff were essentially ones in damages. The Court of Appeal agreed with the trial judge that from the receiver’s perspective, the next few months represented the best opportunity to obtain the best price for the stock. The receivers had also agreed to hold the sales proceeds of the DVDs undisbursed until the appeal outcome was known.  Given this undertaking, the Court found that the conventional weighing of factors necessary in a stay application brought the balance decisively against granting a stay.