02 Sep 2005

Copyright and implied licences - when do they arise?

By Peter Knight

If you are commissioned to create copyright material, even without a written contract, it is usually assumed that there is an implied licence given to the person who commissioned the material to use it for the purposes made known at the time it was commissioned. Copyright remains with the person who created it, in the absence of a written assignment, signed by the creator. A recent decision has thrown doubt on this assumption, so written agreements should be carefully drafted to ensure a licence to use the work is granted, or copyright is assigned.

It's not unusual for the copyright in commissioned works to remain with the creator; the person who commissioned it is usually assumed to have an implied licence to use the work. A common example of this is in the construction industry, where architects are often part of the development consortium and provide the plans for the project without charging professional fees. But is this assumption wrong? A recent decision of the Federal Court of Australia Full Court suggests it is, with troubling implications not only for the construction industry but also anyone who commissions work.

Background

The decision in Parramatta Design & Developments Pty Ltd v Concrete Pty Ltd [2005] FCAFC 138 arose from a falling out among property developers. The owner of the plaintiff architectural firm, a Mr Fares, formed a company, Landmark Building Developments, with a solicitor Mr Barrak. Landmark and other company, Toyama, bought a property in Nelson Bay for $565,000.

For the purpose of obtaining planning approval, Parramatta Design created architectural plans for a 14-unit development of the property. There was no agreement for any specific payment for these plans (although Parramatta Design had been paid $27,000 for a previous set of plans for a smaller development for the same site) – the parties were, in effect, co-venturers.

Planning approval having been obtained for the 14-unit development specified in the plans, the parties fell out, as a consequence of which Toyama applied for and obtained orders the Supreme Court for the appointment of trustees, in whom the property was vested for the purposes of sale. The trustees were unclear as to their rights in respect of the plans created by Parramatta Design, and Parrramatta Design had made clear to the trustees its view that the plans, in which copyright undoubtedly belonged to it, were not available for use by any third party, and the trustees made clear to the purchaser in due course that a dispute existed as to "the existence of any licence to make use of the copyright in those plans …" and accordingly gave no warranty in that regard.

The property was sold in due course to another developer, the defendant Concrete, for $2,760,000. Concrete argued that, notwithstanding that the claim of Parramatta had been brought to its attention, it paid the price it did in the belief that Parramatta's claim was unjustified, and that a licence to use the plans was included in the price it paid.

The trial judge was most dissatisfied with the evidence of the architect, Mr Fares, and the solicitor, Mr Barrak, that was to the effect that no licence was granted to use the plans, even though the development approval for the land was obtained in reliance upon them, and that Parramatta Design should be paid a further fee for such licence, in addition to the substantial profit they had made upon the sale of the land to Concrete, with the development approval.

The trial judge concluded:

  • there was an implied licence granted by the architect to Landmark and Toyama to use the plans to construct the buildings for which development approval was obtained; and
  • even though the trustees did not necessarily have the benefit of that licence (after all, they were not entitled to use the plans to carry out the development, they were only empowered to sell the land), the trustees "stood in the shoes" of the licensee so as to assign it. Alternatively, the implied licence followed the development approval as the development approval followed the land.

Decision of trial judge overturned by Full Court

In a somewhat surprising decision, the Full Court disagreed with the trial judge on just about every issue – and found that the decision of trial judge had been tainted by "apprehended bias", to boot.

The decision of the Full Court is strange in many aspects:

  • In their joint judgment, the Full Court appeared to be critical of the trial judge for not setting out the express terms of the contract between the architect and Landmark for the creation of the plans, so that this contract could be construed to find the required copyright licence, nor dealing with the question of consideration for this contract. This is strange because there is no reason why the bare permission required should be found in a contract, provided it does not contradict the express terms of a contract between the parties. There is very substantial authority for the existence of such an implied licence when an architect is commissioned to create plans for construction, in the absence of any express agreement in that regard between the architect and his client; see Beck v Montana Constructions Pty Ltd (1963) 80 WN (NSW) 1578; 5 FLR 298; [1964-5] NSWR 229; Blair v Osborne [1971] 2 QB 78; [1971] 2 WLR 503; [1971] 1 All ER 468.
  • The Full Court dealt with the principles of interpretation, but focussed on the supposed contract under which the creation of the plans was engaged, and not the terms of the implied licence, if any. Since there was no need for a finding of any contract for the creation of the plans in the first place – even if the plans are created gratuitously, an implied licence may exist - this appears to have been an incorrect focus.
  • The Full Court appeared to treat the proposition of Concrete and the trial judge as if it were that in all cases of architects' drawings that it was necessary to find an implied licence in an express contract and an implied term permitting assignment [par 17-19]. The Court referred to Stovin-Bradford v Volpoint Properties Ltd [1971] 1 Ch 1007; [1971] 3 WLR 256; [1971] 3 All ER 570, as showing this not to be the case. However, in that case, a prominent architect was engaged for a nominal fee to prepare plans solely for the obtaining of planning approvals, but at the time of commissioning, and given such nominal fee, he emphasised the restriction on the commission by noting on the invoice that the plans were not to be reproduced without express permission. In these circumstances, the court would not imply a licence to use the plans for another purpose. This was, therefore, not a case establishing that special circumstances must be established by the defendant in order to justify the finding of an implied licence, but rather one where the general implication was set aside expressly by the architect at the time of engagement.
  • The Full Court was influenced by the fact that there had been no payment of the architects in this case: "If the architect has not been paid for the work or has only been paid a nominal fee, there is no reason why the client should be allowed to take the full benefit of that work". However, this is plainly inconsistent with well-regarded and long-standing authority, such as Ng v Clyde Securities Ltd [1976] 1 NSWLR 443, in which the failure to pay the architect's fees did not result in a termination of the implied licence to construct the building in accordance with the plans supplied decisions referred to above, the architect was not entitled to terminate that licence and it was assigned by the mortgagee in possession of the land. Again the Court referred to Stovin-Bradford v Volpoint, but again that was an exceptional case, in which the architect had made it known at the time of commissioning that, because of the nominal fee, no licence was granted for any purpose other than the obtaining of development approval. Furthermore, as the trial judge had found, the architect profited handsomely from the improvement in the value of the land with the benefit of the development approval which, whilst not exactly as it may have intended in the first place, was of the same kind of exploitation. It is well established that the scope of the permission granted may be extended by implication to acts beyond those anticipated by the parties to the transaction. This may occur when commercial necessity requires such a licence to make use of goods supplied. So, for example, in Solar Thomson Engineering Co Ltd v Barton [1977] RPC 537, it was found that the supply of a conveyor system carried with it an implied licence to make spare parts required for an overhaul of the system, and to reproduce the drawings for those parts in the process of doing so, notwithstanding an express reservation of copyright in all drawings by the vendor. Such an implied licence does not, however, extend to making further parts than required for such limited purpose, or the commercial exploitation of such parts, and may not extend to replacement of the entire article purchased.
  • The Full Court also seems to have suggested that it needed to find any implied right to assign the benefit of the implied licence. Under the general law, a licence as a chose in action is assignable in the absence of agreement, express or implied, to the contrary, or if the licence is tied to a contract for the provision of personal services. The Full Court referred to Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 37 IPR 477; (1993) 113 ALR 225, but that was a case in which it was found that the nature and the express terms of an engagement of an architect were such that no assignment of the benefit of the licence to use the plans was possible. In Ng v Clyde Securities Ltd, it was found that the benefit of an implied licence in architects' drawings commissioned by a property developer was transferred under the terms of a mortgage to the mortgagee in possession of the property, so as to enable the mortgagee, or its assignee, to complete the construction of a building in accordance with the drawings.
  • The Full Court was on somewhat firmer ground when it observed that the trustees for sale did not purport (and made this clear) to assign the benefit of a licence in the architect's plans, and indeed the right to do so was not necessarily vested in them by the orders of the Supreme Court appointing them. The trial judge's conclusion that the relevant licence could exist and be transferred independently was criticised by the Court, suggesting that such an implied licence must be one given "to the world at large". However, there seems no reason, in principle, why the trial judge's reasoning – that the land was assigned with the development approval, and the development approval comprised the architects' plans (upon which it is based) – should be found to be incorrect. The licence granted was not "to the world at large", but to the holder of the development approval only, and in the circumstances could not be terminated.
  • Furthermore, the Court said, "Even if, by some new doctrine, there were such a licence, in the absence of any consideration or preclusion, it would be revokable at will". Even an implied copyright licence, while terminable at will, will need reasonable notice to be given, and that such reasonable notice might be very long indeed. For example, in Bourke v Filmways Australasian Distributors Pty Ltd (unrep, 9/10/1979, SC NSW), an author who had been engaged to create a scenario for a film was found to be unable to terminate the licence given for the general distribution and public screening of the film, notwithstanding that a dispute had arisen regarding the payment of his fees, and the same was found in respect of architect's plans in Ng v Clyde Securities.

It is particularly unsatisfactory that the trial judge should be criticized for trying to deal with witnesses who, in his view as the tribunal of fact, were giving evidence which was disingenuous. Litigation before our courts is already excessively slow and excessively costly, without further limiting the role of trial judges so that they are forced to be entirely passive as absurd evidence is presented. It may be that the Full Court in this case should have been more cautious in exercising its power to determine matters before it on appeal de novo, when it has not had the witnesses before it in person.

So what do you do if you're commissioning work?

For the construction industry, this is a surprising and troubling decision. It's not uncommon for architects to be part of a development consortium, and for their plans to be used in the project without the payment of a specific professional fee. If the Full Court is right, the consortium does not have an implied licence if the fees are not paid. The solution is to ensure that there is a written agreement about the use of the plans by the developers.

The same applies to the broader IT industry as well. Relying upon an implied licence to use commissioned works might not be the most sensible strategy in the light of this decision. If you're commissioning works, you should review your written agreements to ensure either that you hold the copyright, or that it is assigned to you in writing.

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