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Brief Counsel

Court decision establishes limits of copyright

29 September 2009

Yes, receivers can sell copyright goods even without the consent of the copyright holder provided the goods are genuine and were legitimately acquired and subject of course to the usual priority rules.

These parameters were established in a recent High Court decision.  This Brief Counsel looks at the case and what it may mean for others.

The case

Viacom is a subsidiary of the movie giant Paramount.  It markets and distributes popular entertainment products including movie DVDs.  Viacom had an exclusive licensee in New Zealand called Scene 1.  Scene 1 paid Viacom a licence fee to distribute DVDs in New Zealand. 

The copyright in the DVDs never shifted from Viacom.  Viacom had retained title, but it had not taken the extra step of registering its security interest on the Personal Property Securities Register (PPSR).

The ASB appointed receivers to Scene 1 under a General Security Agreement (GSA), prompting Viacom to terminate its licence arrangement with Scene 1.  Scene 1’s stock naturally enough included a large number of DVDs.  The receivers wanted to sell them.  Viacom objected and sought an interim injunction to stop any sale, arguing that copyright was an “unusual or unique property right” which was greater than any rights secured under ASB’s GSA.

According to Viacom, while the receivers might have rights to possess the DVDs, if they tried to sell them they would be infringing Viacom’s copyright by “issuing the works to the public”, which is an act only the copyright owner can approve.

The Judge dismissed Viacom’s application and declined to grant an injunction. 

The Judge found that sale of the DVDs would not breach Viacom’s copyright and that ASB had a perfected security interest which had priority over Viacom’s unregistered retention of title claim.  If the sale of the DVDs breached the licence agreement, that would be a contractual matter between Viacom and Scene 1.

The decision is notable for two reasons. 

One:  it provides a welcome confirmation that copyright is a property right like any other and is not beyond the reach of the Personal Property Securities Act (PPSA). 

Two:  it confirms that the receiver would not be committing copyright infringement by selling the DVDs.  Copyright infringement can be “primary” or “secondary”.  Primary infringement is doing something the copyright owner has the exclusive right to do, like copying a DVD or putting it on the market for the first time.  Secondary infringement is, for example, knowingly trafficking in a pirated copy of a DVD. 

The receivers weren’t doing either.  They had come into possession of genuine DVDs which had been shipped to New Zealand with Viacom’s blessing.  The Court confirms that the issue turned on whether the DVDs were “infringing copies” of Paramount movies; they weren’t – they were genuine copies made and shipped with full authority from the copyright owner.  Once the copyright owner has made and shipped the copyright goods, their subsequent sale isn’t against the law.

Next step

Viacom apparently intends appealing the High Court decision.  No doubt any appeal will focus on the question of precisely when a copyright holder has “exhausted” its rights by placing goods on the market.

Chapman Tripp will continue to follow this case and will report any developments of interest or significance.  For further information, please contact the lawyes featured.

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