Is there a copyright work and who owns it?
Rees J, sitting in the NSW Supreme Court, had to grapple with some unusual, but basic, issues in finding that Metstech owned copyright in a range of works made by a Mr Chou. However, it did not own copyright in software made by Mr Martin; instead having an exclusive licence over that copyright including the right to access and modify the source code.
Some background[1]
Metstech designs and distributes telecommunications systems for underground mines. (The specific technology was a ‘leaky feeder system’ which allowed two way radios and mobile phones to communicate over long distances underground where ordinarily such radio communications were not possible.[2])
Metstech was formed by four individuals including Jefferson, Park and Chou. They or their family companies were the shareholders. Jefferson was the CEO and Park the General Manager. Park and Chou had experience in electrical engineering and had ideas about how a new and improved system to replace the poorly functioning existing systems. Jefferson provided the funding, to the tune of $700,000 over time.
In addition to being a founding director, Chou became an employee and was paid a salary after a short initial period when Metstech did not have funds. Part of Chou’s job included placing orders for the manufacture of Metstech’s products which he arranged through a family company and his company was permitted to charge a marked-up price to Metstech over the price charged by the manufacturer.
Although Martin was offered initial shares in Metstech and an employment contract, he did not take up either offer due to legal issues he was experiencing at the time. Nonetheless. in 2018, Martin designed the Raspberry Pi Software controlling the Metstech system. He was not paid for this work. He provided it to Jefferson including access to the source code for use by Metstech including permission to modify it.
Later, in 2019, Martin did become an employee of Metstech and made some further modifications of the Raspberry Pi Software at that time.
In addition to the funding provided by Jefferson, another company, Challenger, eventually contributed a further $750,000 towards funding the product development in return for the promise of a 20% shareholding and a nominee on the board of directors.
The development of Metstech’s products proceeded well and substantial orders were coming in. Jefferson came into dispute with the other directors over repayment of his funding and their demands for increased salaries. Challenger also became frustrated with the delays in issuing its shares.
Park, Chou and some associates “staged a coup” and replaced Jefferson as CEO excluding him from access to the company’s bank accounts. To fend off Jefferson and Challenger, they also engaged in a number of schemes to transfer Metstech’s assets and related IP to a “phoenix” company. In addition, in the process of decamping they deleted from the Metstech Google Drive accounts all the data and documents relating to PCB assemblies, source code, concept designs, PCB schematics and PCB layouts, firmware source code, manufacturing files, bills of materials and test results.
After Jefferson and Challenger got wind of some of the conduct, they initiated a deed of company arrangement and, after regaining control of Metstech, brought these proceedings seeking orders relating to its ownership of the copyright, remedies for breaches of obligations of confidence and tortious conspiracy to injure the plaintiffs by unlawful means.
The plaintiffs largely succeeded on their copyright claims and breach of confidence. The claims for tortious conspiracy to injure by unlawful means failed however.
Copyright in the Metstech “products”
The plaintiffs claimed copyright in various designs for printed circuit board (PCB) assemblies as artistic works[3] and, as either original literary or artistic works, PCB schematics, manufacturing documentation – source code, concept designs, PCB schematics and PCB layouts, firmware source code, manufacturing files, bills of materials and test results – and Metstech “firmware” which was installed in micro-processor units in various components.
(A graphical representation of a PCB layout (on the left) and the corresponding PCB (on the right))
The plaintiffs also claimed ownership of the copyright in the Raspberry Pi software and later revisions.
Were there copyright works
It will be recalled that the defendants had deleted all the data and documents from their Google Drive accounts when decamping and, it appears, none of them produced anything by way of discovery or otherwise in evidence. According to the defendants, or at least Park and Chou, they did not have any documents because the products had been designed by the third party manufacturer.
The first problem confronting the plaintiffs, therefore, was that they did not have copies of the works over which they claimed ownership. Who was the designer, and hence the author of the works, was the second problem.
Rees J was prepared to infer (at [591] to [603]) that there had been original works made by Chou in which copyright subsisted:
- Metstech led expert evidence about the process and steps involved in designing and manufacturing products such as the PCB Assemblies including the need to document things such as functional specification, electrical schematic, PCB layout and manufacturing files, firmware code listing and compiled version of the firmware code (if applicable), bill of materials, assembly and testing instructions, troubleshooting guide, service manual, packaging information, data sheets and sales brochures. Much of this documentation would be required by the manufacturer to make such complex products
- the design and specification of such PCB assemblies also required the use of specialised computer software such as Altium Designer and RhinoCAD. Metstech had bought or reimbursed Chou for purchases of this software and Chou was at all times anxious to ensure he had properly licensed copies of this software
- Metstech bought or reimbursed Chou for the tools and equipment that would be used in developing and constructing models and prototypes.
Accordingly, at [603] Rees J held:
…. The disputed works must have been created and insofar as they are original literary or artistic works (or both) and that to the extent that they still exist, the employer owns them. ….
I am not sure about her Honour’s limitation “to the extent that they still exist”. Under the Act, the requirement is that the work be made in the sense of reduced to writing or some other material form.[4] The continued existence of the documents, however, would be relevant to orders for delivery up and provision of access.
Who was the author
As noted above, Park and Chou claimed that the PCB assemblies and other products were designed by the manufacturer and so, in the absence of any agreement to the contrary or assignment, any copyright belonged to the manufacturer.
Rees J rejected this claim. A number of factors led her Honour to this conclusion including:
- Metstech’s products were original and not mere copies of existing products: [585]
- Chou had the necessary skills to design the products: [583]
- it was Chou who came up with the idea for the various products: [584]
- there was voluminous correspondence describing Chou as the designer or in which he claimed to be the designer or attending to the design: [571] – [586]
- Chou also spent hours explaining the intricacies of the system and the products to others: [586]
- the purchase of the specialised software and the provision of the tools and equipment such as Altium Designer and RhinoCAD
- Park and Chou first claimed that the manufacturer was the designer only when Metstech first went into administration. Prior to that, the voluminous contemporaneous correspondence such as emails repeatedly referred to Chou as the designer
- not a single document was produced identifying the manufacturer as the designer.
Who was the owner
Rees J noted that it was not sufficient for Metstech to establish that Chou was the author and an employee. As the terms of s 35(6) make clear, Metstech also had to establish that Chou made the works in pursuance of his employment and not in the course of some extracurricular activities; at [564] adopting the question posed by Moore J in EdSonic v Cassidy:
did the employee make the work because the contract of employment expressly or impliedly required or least authorised the work to be made.
The volume of material referred to by her Honour in concluding that Chou was the designer left Rees J at [587] in “no doubt” that the answer to that question was “yes”.
There was one qualification to this conclusion at [588] – the work designing a splitter which Chou had done before he became a full-time employee being paid. While Chou was a director, Rees J doubted he qualified as an employee for the purposes of s 35(6) at that time.
However, Rees J held Chou was estopped from denying that Metstech was licensed to use these materials having regard to the circumstances in which he made the design and continued to develop the design for Metstech’s use after he became an employee.
A final issue insofar as the works made by Chou are concerned was whether Metstech or Metstech IP Pty Ltd (one of the defendants) owned the copyright.
In a not uncommon arrangement, the directors of Metstech, including Jefferson, Park and Chou, had set up Metstech IP to hold the intellectual property. The directors and shareholders of both companies were the same. Metstech IP had applied for R & D grants in respect of the development of the Metstech technology and, in the books of the companies, Metstech charged Metstech IP a fee for the development work. While that fee was not paid, Metstech IP had remitted tax rebates to Metstech.
While Metstech IP had been set up to hold the intellectual property, however, there was no formal assignment of intellectual property rights in writing from Metstech to Metstech IP. As Chou had made the works as an employee of Metstech (and not Metstech IP) and in the absence of a signed, written assignment in conformity with s 196(3), Rees J held at [606] that Metstech was the owner of the copyright.
Copyright in the computer software made by Martin
The Raspberry Pi Software was a different case. When Martin wrote it, he was not an employee and had chosen not to become a director or shareholder. Nor was he paid for his work although he believed (at [106]) that “one day I might be compensated by the company if and when it was successful.”
When pressed by Jefferson, Martin transferred a copy of the source code and other documentation into a Metstech account and agreed that Metstech could amend the software as required.
Although Martin had not been engaged for reward to write the software, Rees J found ([231] – [233]) the circumstances gave rise to an implied unlimited and exclusive licence in Metstech’s favour which included the right to alter the software as need. (See also [161 and [623]])
Later, in July 2019, Martin was allotted 5% of the shares in both Metstech and Metstech IP. Jefferson and Park both considered this allocation was to secure the intellectual property in the software. Martin denied this.
As there was no written agreement formally recording the assignment, Rees J considered at [320] that s 196 precluded an assignment under the Act. Rees J also rejected at [324] Metstech’s argument that Martin understood the shares were in compensation for the transfer of ownership in the software. Her Honour appears to have considered the allotment was consistent, or at least equally consistent, with a payment to secure Martin’s continued involvement in the business.
Martin did become a full-time employee of Metstech and, in the course of his employment, he later made some further modifications to the software.
Distinguishing J R Consulting, Rees J held that the computer programs in this amended form were not new copyright works in which copyright subsisted. Martin’s evidence was that the changes were only “bug-fixes and minor enhancements”. Although the change logs showed 21 changes were made to the software in the relevant period, Metstech did not satisfy her Honour that they were more than trivial. At [620], her Honour explained:
The plaintiffs submitted that the changes made by Mr Martin were more than trivial, I am in no position to say one way or the other. I note that 21 changes were made from July 2019 to July 2020. Beyond that, I do not know. I am not satisfied that the changes made to the software after Mr Martin commenced his employment with Metstech were “original” in the requisite sense such that copyright in new versions of the software are a new work in which copyright subsists and is held by his employer, Metstech.
Thus, Metstech was left with its exclusive licence. However, this was enough for her Honour to direct that Martin continue to provide Metstech with access to the source code under the exclusive licence.
Confidential information and Conspiracy to injure
Rees J found misuse of Metstech’s confidential information on conventional grounds.
The plaintiffs alleged that the defendants (other than Metstech IP) had engaged in a tortious conspiracy to injure the plaintiffs and Metstech IP by unlawful means.
Rees J dismissed this claim, however, not as a result of any exoneration of the defendants’ conduct. Rather, damages are the gist of the action. Thus it is necessary for the plaintiff to plead that it has or will suffer pecuniary loss as a result of the conspiracy.
While the alleged conspiracy was pleaded at length, damages were neither alleged nor particularised. Nor did the plaintiffs’ evidence establish any pecuniary loss. Accordingly, at [659] her Honour dismissed the claim.
Her Honour’s decision serves as a useful warning about the risks of not documenting transfers of intellectual property in writing. That is not necessary in the case of an employee if you can prove they did the work in the course of their employment. The decision also provides a range of indications to consider if it becomes necessary to try to prove the existence and authorship of copyright works in the absence of documentary evidence.
Metstech Pty Ltd v Park [2022] NSWSC 1667
- As her Honour’s narration of the facts is some 550 paragraphs, this is necessarily a very “potted” outline. ?
- The system consisted of long lengths of coaxial cable (serving as the antenna) strung along the shafts, with a headend controller (a Raspberry Pi computer), a number of bi-directional amplifiers (BDAs) and splitters, the BDAs (at least) including printed circuit boards (PCBs) custom-designed for the system). ?
- At [551], her Honour identified the claim as being to PCB assemblies as artistic works and, at [558], her Honour noted that text and numerals on the a PCB, in engineering drawings and installation instructions could be both artistic works and, “to the extent the figures are deployed”, literary works citing Lumen Australia Pty Ltd v Frontline Australasia Pty Ltd [2018] FCA 1807; (2018) 137 IPR 189 at [206]-[209] (per Moshinsky J); Anacon Corp Ltd v Environmental Research Technology Ltd [1994] FSR 659 (per Jacobs J) (circuit diagram). The parties do not appear to have raised issues about the exclusion of circuit layouts from the definition of artistic work in s 10 of the Copyright Act 1968 or of “corresponding designs” under s 74 and the copyright / design overlap provisions of the Copyright Act or of the effect, if any, of the exclusion by Designs Act 2003 s 43 (but not in reg. 4.06) from registration of integrated circuits as a design although, from the description of the PCB assemblies in the judgment, it would appear they did not constitute “integrated circuits” on the reasoning of Moshinsky J in Lumen Australia Pty Ltd v Frontline Australasia at [298] – [311] and of course, as Moshinsky J found, the copyright / design overlap provisions do not apply to literary works. ?
- Copyright Act 1968 s 32 and s 22(1) ?
Is there a copyright work and who owns it? Read More »
