Payroll appeal dismissed

The Court of Appeal has dismissed an appeal by New Zealand Payroll Software Services against a ruling awarding copyright in a software package to Auckland software house Advance Management Systems.

The Court of Appeal has dismissed an appeal by New Zealand Payroll Software Services against a ruling awarding copyright in a software package, to Auckland software house Advance Management Systems (AMS).

The case stems from 2001, when AMS won a legal battle against the Ministry of Defence over copyright ownership of the system it originally developed for the navy. It took the government to court over the software package, Leader, which it wrote for the Devonport naval dockyard 12 years before at a cost of more than $1 million.

AMS and Defence had negotiated an agreement giving AMS the exclusive right to on-sell Leader. It was agreed that AMS would pay for ongoing development of the package. In 1999 NZ Payroll offered to buy 82% of AMS but the offer was rejected. NZ Payroll also approached NZ Defence, which had taken over the Leader contract from the Ministry of Defence, and in July 2000, the Defence Force sold Leader for $10,000 and assigned its agreement with AMS to New Zealand Payroll Software Systems, a subsidiary of NZ Payroll. It did so without notifying AMS.

AMS took Defence to court contending that although the MOD owned copyright in Leader as originally developed and installed in 1989, subsequent changes to the system were such that it should now be regarded that AMS owned 85% of the copyright with the MOD owning the remaining 15%. It also claimed Defence was not entitled to assign its interests in the marketing rights agreement or the original development contract without the consent of AMS.

The High Court at Auckland decided that AMS’ ownership amounted to 75%, the other 25% being owned by the Crown. It also found that the Crown was not entitled to assign its interest in Leader without the consent of AMS and in doing so had breached the contract and had infringed AMS’s copyright. AMS was awarded costs of $175,000.

Last year NZPSS appealed against this decision, but the Court of Appeal found that the navy and AMS couldn’t have intended the copyright in Leader to be assignable at any time without the written consent of either party.

Therefore the Crown’s purposed assignment to NZPSS without the consent of AMS was a breach of contract between those parties.

The court found that the Crown’s attempt to assign to NZPSS its copyright in Leader and its other contractual rights was ineffective. The consequence was that NZPSS never had any title to the copyright in Leader enabling it to contest the High Court decision that AMS had 75% ownership of the copyright in Leader. Therefore NZPSS had no right to appeal against that decision. NZPSS was order to pay AMS costs of $10,000.

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