“Free design” and the commissioning rule
A recent copyright case gives an interesting ruling from the Court of Appeal on the commissioning rule. The case, Oraka Technologies Limited v Geostel Vision Limited [2010] NZCA 232, involved a dispute over the ownership of industrial drawings.
In short, a customer had engaged an engineering firm to produce designs for an industrial machine. Unfortunately the terms of the engagement were unclear, and a dispute arose (some years later) between the customer and the engineering firm as to who actually owned the designs. The customer claimed that because it had commissioned those works, and provided an implied agreement to pay for them, and the designs were made pursuant to that commission, it (the customer) owned the copyright, by virtue of the commissioning rule. The engineering firm denied there had been a commissioning as defined in the Copyright Act, and that it therefore remained the owner of the designs.
The Court noted the orthodox position that:
Whether a work is “commissioned”; what the scope of that commission is; and the date on which the commission arises are all necessarily questions of fact in each case.
And it offered the following sage advice:
Patently, the better practice is to have a written agreement, and software developers and purchasers would be well advised to see that sound industry contracting procedures are put in place.
The critical issue was whether or not the customer had agreed to pay for the works – a requirement of the commissioning rule. Normally, payment (or an agreement to pay) is not in question, but was complicated in this case by the engineering firm claiming that it had provided a “free design service” in order to attract new customers. Because the designs had been provided for free, it claimed, the customer had not agreed to pay for the work and there could not have been a “commissioning” as defined in the Copyright Act.
The Court of Appeal rejected the engineering firm’s argument (which had been accepted in the High Court). It said that the engineering firm had offered “free design” on the basis that it would get to do the subsequent manufacturing work (which wasn’t free), and this was sufficient to create an intended-to-pay commissioning. The Court said it was “everyday commercial sense” that such an arrangement would be regarded as two parts of the same deal, and the customer had “agreed to pay” for the design work as part of the overall design-and-manufacture arrangement. It would be artificial to divide the “free design” and the subsequent intended manufacturing into two separate transactions. The Court therefore ruled that the copyright in the works was owned by the customer.
This is a useful case that demonstrates a pragmatic and commercially realistic substance-over-form approach to what was a murky factual situation. But, as the Court noted, these very costly disputes are easily avoidable by having a simple, appropriate agreement in place.
