Ipsofactoj.com: International Cases [2001] Part 8 Case 9 [NZCA]


COURT OF APPEAL, NEW ZEALAND

Coram

Powerbeat International Ltd

- vs -

Attorney General

THOMAS J

DOOGUE J

SALMON J

18 APRIL 2000


Judgment

Salmon J

(delivered the judgment of the court)

  1. This is an appeal against a High Court judgment dismissing the appellant’s claim for general and special damages arising out of the execution of a search warrant which it is claimed was invalid.

    BACKGROUND

  2. On 22 September 1998 members of the New Zealand Police executed a search warrant under the provisions of s 198 of the Summary Proceedings Act 1957 at the appellant’s premises in Hamilton. The application for the warrant alleged the commission of offences under s 131(1)(c) of the Copyright Act 1994 and against s 266A of the Crimes Act 1961. The application also alleged offences against s 30 and s 131(1)(b) of the Copyright Act, but those claims were abandoned at the hearing.

  3. The maximum penalty for the offence alleged under the Copyright Act is a term of imprisonment of three months. Section 266A of the Crimes Act provides for a maximum penalty of 10 years’ imprisonment.

  4. The facts alleged to support the allegations of the commission of these offences arise out of the copying in New Zealand of a computer programme purchased in the US. For the purpose of this appeal the facts and the consequences said to flow from them are sufficiently set out in the affidavit filed in support of the application for the warrant. Because that affidavit is central to the issues raised on behalf of the appellant it is set out in full.

    I, Christopher Ian PAGE, Detective, of HAMILTON make oath and say as follows:

    (1)

    Police have received a complaint in relation to a breach of copyright of a computer programme. The complaint originates from Mr Alan COOP, the General manager of the New Zealand Company INTERCAD. INTERCAD held, (prior to the parallel imports amendments) the exclusive right to sell and market the Computer assisted design programme "SolidWorks".

    (2)

    SolidWorks is in fact a Company in the United States that produces and markets this programme under the programme name of SolidWorks. The programme is available world wide and is used in manufacturing design and advanced design requiring specialist design techniques or advanced engineering. As with most computer programmes, this programme was subject to copyright, and compliance with copyright forms part of the sales contract.

    (3)

    SolidWorks has an organised distribution structure that includes exclusive sales and marketing areas which it carefully monitors. INTERCAD had the exclusive import and marketing rights for the programme SolidWorks. To purchase this programme through INTERCAD would incur a cost of $5000 US dollars. INTERCAD quotes the costs in US dollars because of the constant change in the foreign exchange rates.

    (4)

    Copies that are available outside the United States of America have what is known as a hardware lock. This feature requires the use of a physical key known as a "Dongle" to be inserted into the rear of the computer. Without this device it is not possible to operate the programme. The hardware lock forms part of the copyright protection Copies purchased in New Zealand will have a hardware lock for each programme or licence purchased.

    (5)

    Programmes purchased within the United State do not have a hardware lock. The copyright protection is reliant on the honesty of the users and the threat of the Breach of Copyright Laws in the United States. In addition to this part of the Conditions of purchase are that the programme is not for export out of the United States.

    (6)

    The cost of purchasing the SolidWorks programme in the United States is $4000 US dollars.

    (7)

    POWERBEAT International Ltd is a Hamilton company now listed on the Share Market. It first came to being when it was used to market the new POWERBEAT battery for cars. The creator and managing director of POWERBEAT is Peter WITEHIRA who was the inventor of the POWERBEAT battery. Since its inception some years ago the company now has a manufacturing plant overseas and was attempting in 1996/97 to open offices in the United States.

    (8)

    At some stage in either late 1996, or early 1997 WITEHIRA organised through this United States branch to purchase a copy of the SolidWorks computer programme. His associate in the United States was Rob BELBIN who was tasked to purchase the programme and to courier it back to New Zealand.

    (9)

    Employed at the Hamilton Office is BELBIN’s brother David BELBIN who is the company’s systems administrator and responsible for the administration of the computer systems.

    (10)

    Later in 1997 at a POWERBEAT open day attended by Mr COOP, COOP noticed that POWERBEAT was using the SolidWorks programme. He was aware that POWERBEAT had not purchased the programme through INTERCAD who had the sole distribution rights.

    (11)

    He spoke with WITEHIRA and requested him to sort the matter out by obtaining a New Zealand licence.

    (12)

    At this time INTERCAD had recently commenced the marketing of SolidWorks, and was actively seeking business with POWERBEAT.

    (13)

    At a subsequent open day at POWERBEAT it was noticed that the SolidWorks programme was operating on more than one computer. Again there had been no purchase of programmes through INTERCAD.

    (14)

    As part of their sales and marketing drive to POWERBEAT, INTERCAD organised and ran a training day at the SolidWorks programme in an effort to convince them that it was a suitable programme for them to purchase and would be of great assistance to them. At the end of the training day and other discussions with the sales and marketing staff there was still no purchase by POWERBEAT through INTERCAD of the programme.

    (15)

    INTERCAD had heard of occasions when POWERBEAT had allegedly breached the copyright attached to the SolidWorks computer programme by copying the programme internally. This was subsequent to the training day. COOP could not take this matter any further.

    (16)

    On the 1st of October 1997 a former employee of Powerbeat, Per ANDERSEN wrote to INTERCAD. ANDERSEN wrote to advise and confirm phone discussions that WITEHIRA had organised and instructed the copying of the SolidWorks programme that had been purchased from the USA. A copy of his letter is attached as Appendix 1.

    (17)

    Police spoke to ANDERSEN on the 2nd of September 1998. ANDERSEN held the position of Design Manager, Research and Development. He reconfirmed the contents of his letter and further outlined that he had organised with INTERCAD a training session. For this training session he had obtained approval to copy the computer programme onto a number of machines for training purposes and that those computer programmes would be
    de-installed at the end of the training session. This undertaking was given so that no breach of copyright would occur.

    (18)

    ANDERSEN states that he spoke with David BELBIN and requested that the company sort out its copyright breaches, and purchase the appropriate licences. BELBIN advised him that he would speak with WITEHIRA about it. Later, some time after the training day, BELBIN when confronted advised that the additional licences would not be purchased, and the SolidWorks copies remained in use. ANDERSEN states he was outspoken about these flagrant breaches, and this was a contributing factor to his departure from the company.

    (19)

    The purchase of the programme from the United States enables two things.

    (i)

    The saving of approximately $1000 US dollars per programme.

    (ii)

    The programme to be copied and then to be able to be used without the hardware lock that exists on all copies outside the United States.

    Therefore this would allow for a financial benefit in the form of a saving of $5000 US dollars per copy.

    (20)

    To copy a computer programme subject to a copyright condition such as the SolidWorks programme is an offence against Section 30 of the Copyright Act 1994. It is also an offence under Section 131(1)(b) and (c) to import into New Zealand otherwise than for that persons private and domestic use or possess in the course of a business with a view to committing any act infringing the copyright. These offences are punishable under Section 131(5) of the Copyright Act 1994 and upon conviction liable to a term of imprisonment of three months or a fine.

    (21)

    In addition to this act of copying a computer programme is an offence against Section 266A of the Crimes Act 1961, being reproducing a document with intent to defraud.

    Subsection 1, paragraph b states ".... with intent to defraud, by any means, makes a document that is a reproduction of the whole or any part or parts of another document ...."

    In terms of the Crimes Act 1961 a computer programme has been defined as a document. This can be found at Section 263(1)(d) & (e).

    In circumstances such as these the intent to defraud is found by circumventing the sale distribution rights of INTERCAD to obtain a number of copies of a computer programme and to only pay for one copy at $4000 US dollars instead of obtaining a number of copies at $5000 US dollars EACH. From this there is a financial benefit and gain of which the companies INTERCAD and SolidWorks are deprived.

    (22)

    The penalty for making and reproducing a document under Section 226A of the Crimes Act 1961 is punishable by a term of imprisonment of 10 years.

    (23)

    In my two years as a Company Fraud investigator, I have found it common to have a particular Company name as a public image, but in fact the real trading and work is completed by subsidiary or related companies or partnerships, using the popular company name as a public façade. For this reason, I seek the precaution of including premises which are subsidiary companies of Powerbeat International Ltd situated on Airport Road, Hamilton. This information identifying such companies would not be outwardly obvious until investigated with principals, which would of course advertise any Police interest. It is likely that should this situation exist, that there will be evidence that Police seek as outlined in paragraph 24.

    (24)

    Police therefore seek to obtain a Search Warrant to search the premises of POWERBEAT International Ltd, and any of its subsidiaries situated on Airport Road, Hamilton. Police seek to search for and seize the original US version of the SolidWorks programme, the computer upon which it is installed, the manuals relevant to the SolidWorks programme, and any computer system that holds a copy of the SolidWorks programme being a copy of the original. Police also seek to search for and seize any End User Licence Agreement, documentation in relation to the sale and purchase of the original programme, any guarantee or warranty cards or details in respect of the original programme, and any other correspondence relating to the obtaining of any SolidWorks programme.

    I THEREFORE APPLY for a search warrant to be issued in respect of the said building, aircraft, ship, carriage, box, vehicle, receptacle, premises or place situated at Airport Road, Hamilton, occupied by Power Beat International Ltd or any of its subsidiary companies

    SWORN etc.

  5. In the High Court, Hammond J. correctly identified the issue for determination as being whether there was a basis on which the Registrar who issued the search warrant could have formed the view that there were reasonable grounds for thinking that an offence punishable by imprisonment had been, or would be, committed; and that there was evidence going to them at the premises of the company. By the time the matter reached this Court the issue had been further narrowed to the question whether or not the affidavit provided the Registrar with the reasonable grounds referred to.

  6. For the appellant, Mr Henry’s submission was that the facts alleged in the affidavit did not support the commission of either of the two offences referred to above. It is appropriate to deal with each of the alleged offences separately.

    COPYRIGHT ACT 1994

  7. The affidavit in support of the application refers to the commission of offences against s 30 of the Act and against s 131(b) and (c). In the High Court counsel then appearing for the Attorney-General acknowledged that s 30 does not give rise to criminal responsibility and abandoned any argument based on s 131(1)(b). It is also recorded that counsel abandoned arguments based on s 131(1) (d) leaving for consideration s 131(1)(c) which provides as follows:

    (1)

    Every person commits an offence against this section who, other than pursuant to a copyright licence, —

    ....

    (c)

     

    Possesses in the course of a business with a view to committing any act infringing the copyright; ....

    an object that is, and that the person knows is, an infringing copy of a copyright work.

  8. Section 12 of the Copyright Act defines infringing copy: Subsection (2) is relevant for the purposes of this case. It provides:

    An object is an infringing copy if its making constitutes an infringement of the copyright in the work in question.

  9. It seems that the argument that was made in the High Court, and accepted by the Judge, was that Powerbeat must have copied the software supplied for the purpose of using those copies to make further copies.

  10. Mr Henry submitted in this Court that the affidavit did not allow that conclusion. He submitted that the copy of the work in the possession of the appellant, which it was alleged was copied onto other machines, was the original work purchased in the United States and so was not an infringing copy. He submitted that even if that original copy had been brought into the country contrary to the provisions of the licence, that did not make it an infringing copy.

  11. Mr Pike, for the respondent, submitted that the facts outlined in the affidavit allow the conclusion that the infringing copy is the copy downloaded into other computers and it is the intention to use those downloaded copies which infringes the copyright.

  12. He also argued contrary to the contention of Mr Henry, that the copy purchased in the US became an infringing copy once it was brought into New Zealand in contravention of the terms of the licence pursuant to which it was sold.

  13. We have concluded that the affidavit did provide the Registrar with reasonable grounds for thinking that an offence against s 131(1)(c) had been or, would be committed. We consider that that conclusion is a reasonable inference to draw from the contents of the affidavit together with the letter from Mr Anderson which accompanied it.

  14. Mr Anderson was an ex-employee of Powerbeat. He wrote to Intercad New Zealand Ltd, the New Zealand agents for solid works. In that letter he recorded that once the single set of software had been received it was copied onto a number of computers. The affidavit itself records that Intercad had heard of occasions (plural) when Powerbeat had allegedly breached the copyright by copying the programme internally. The affidavit does not say that all the copying was done directly from the original CD ROM. The affidavit records that copies of the programme sold in this country have what is known as a hardware lock. This requires the use of a physical key known as a "Dongle" which must be inserted into the rear of the computer. Without this device it is not possible to operate the programme. The copies sold in the US do not have this feature making it possible, as was done in this case, to copy the programme from one computer to another. It is thus reasonable to draw the conclusion that the infringing copy or copies made from the original CD ROM were themselves possessed with a view to committing a further infringement by copying.

  15. This conclusion is further justified by a consideration of the following additional factors:

    1. It is a breach of copyright to distribute in the course of business an infringing copy of a work (s 36(d)). The facts disclosed in the affidavit provide reasonable grounds for the conclusion that the appellant possessed an infringing copy with a view to distribution within the appellant’s business.

    2. It is relevant in this context that Powerbeat is a commercial operation. Powerbeat purchased the original programme and made copies for business purposes.

    3. The affidavit provides evidence of SolidWorks commercial value. SolidWorks has an organised distribution structure and is available worldwide. The affidavit provides evidence of the appellant’s intention to by-pass that structure.

  16. We have also concluded, despite Mr Henry’s arguments to the contrary, that in the context of an application for a search warrant it is not appropriate to conclude that the importation of the CD ROM to New Zealand did not itself constitute an infringement of copyright. While there may be strong arguments by reference to s 12(3) and (6) that this is not so, it must be remembered that the standard at the application for search warrant stage is "reasonable grounds for belief that an offence punishable by imprisonment had been or would be committed".

  17. For the sake of completeness, reference should be made to Mr Henry’s argument that even if the facts outlined did indicate the commission of such an offence, the provisions of subs (8) of s 131 would apply with the effect that no offence was committed. Subsection (8) provides:

    Nothing in subsection (1) of this section applies in relation to a work that has been made, copied, published, adapted, or distributed, in an overseas country, by or with the licence of the owner of the copyright in the work in that country.

  18. Mr Henry’s argument was that because the work had been made in an overseas country by the owner of the copyright any of the acts otherwise proscribed by subs (1) could be undertaken without committing an offence.

  19. We are satisfied that that argument cannot succeed. Once an infringing copy has been made in this country that infringing copy is not a work made in an overseas country, so that subs (8) does not apply to it.

  20. Mr Henry also submitted that the affidavit provided insufficient evidence as to ownership of the copyright. He says it is not clear whether the copyright is owned by an American firm or owned outside the US.

  21. We reject this argument. The affidavit provides ample evidence from which it can be at least inferred that the copyright is owned by the US company SolidWorks.

    THE CRIMES ACT

  22. Section 266A(1)(b) provides:

    Every one is liable to imprisonment for a term not exceeding 10 years who with intent to defraud —

    (b)

    By any means, makes a document that is a reproduction of the whole or any part or parts of another document, or of the whole or any parts of 2 or more documents, or of any combination of any of those things.

  23. Subsection (2) provides that an offence against subs (1) is complete as soon as the document is made with such intent.

  24. Section 263 provides a wide definition of document and includes:

    (c)

    Any disc, tape, wire, sound track, card, or other material or device in or on which information, sounds, or other data are recorded, stored, or embodied so as to be capable, with or without the aid of some other equipment, of being reproduced therefrom; or

    (d)

    Any material by means of which information is supplied, whether directly or by means of any equipment, to any device used for recording or storing or processing information; or

    (e)

    Any material derived, whether directly or by means of any equipment, from information recorded or stored or processed by any device used for recording or storing or processing information:

  25. Mr Henry argues that the document copied must be the same type of document as the original, for example, if the original is a CD ROM the copy must be a CD ROM. He refers to the High Court decision of Sibley v Police (1995) 13 CRNZ 29 as providing authority for that proposition. That was a case where there had been an agreement for the sale and purchase of a car which was replaced with another agreement containing different dates. The Judge held that in that case there was a replacement for, rather than a reproduction of, the original document so that there was no infringement of s 266A(1)(b). Mr Henry referred to a passage from the judgment at p 33 where the learned Judge said:

    Accordingly I respectfully disagree with the learned District Court Judge in his conclusion that a reproduction is not necessarily a copy, essentially for the reason that the word ‘reproduction’ is a word capable of different meanings; that a narrow meaning appears to meet the legislative intent; and that where there is an ambiguity a person should not be convicted unless the provision clearly and precisely applies to the proved circumstances ....

    Mr Henry placed particular emphasis on the reference to a narrow meaning.

  26. By reference to the context of the section in the Act counsel submitted that the legislature must never have intended to impose this criminal sanction in relation to breaches of copyright and in that regard he referred to the decision of this Court in Busby v Thorn EMI Video Programmers Ltd [1984] 1 NZLR 461. In that appeal the Court was considering the jurisdiction to make Anton Pillar orders. The defendants sought to rescind Anton Piller orders made ex parte on the grounds that answers given in compliance with them would tend to incriminate the defendants or expose them to a penalty. The appeal followed a High Court decision refusing the defendant’s application. In the course of his decision Cooke J had this to say at p 474:

    First, the Court can hold, as a general rule regarding criminal evidence, that the documents and information will not be admissible against such a defendant in any criminal proceedings for an offence relating to the intellectual property or other subject-matter of the action in which the order has been made. I would hold this to be the rule; it is a reasonable corollary of the order. Nor is there any threat to the public interest. Essentially what are being protected are the private property rights of the plaintiff. The law enforcement agencies of the State have no particular interest in prosecuting the defendant; the public peace and the protection of citizens from violence are not involved.

    Mr Henry refers particularly to the statement that the law enforcement agencies of the State have no particular interest in prosecuting the defendant as supporting the submission referred to above. That comment by Cooke J was not directed to the interpretation of s 266A and in our view is of no assistance to the appellant.

  27. In this case the police have thought it appropriate to bring a criminal prosecution and the question for the Court is whether the copying of the CD ROM into other computers was a reproduction in the sense described in s 266A(1)(b). We have no doubt that it was. There is nothing in the section which would support the submission that the reproduced document must be the same type of document as the original. Indeed, the wording of the section itself with its reference to part or parts of another document or parts of two or more documents suggests otherwise. So too does the very broad definition of "document" in s 263. In fact paras (d) and (e) of the definition envisage the "copy document" being in a different form to the original.

  28. We conclude, therefore, that s 266A(1)(b) is applicable and that the affidavit in support of the application for the warrant sufficiently discloses facts to support the view there were reasonable grounds for believing that there had been commission of an offence under that provision.

    CONCLUSION

  29. The appeal is dismissed. The respondent is entitled to costs which we fix at $3,000 together with reasonable disbursements (if any) to be fixed by the Registrar.


Cases

Sibley v Police (1995) 13 CRNZ 29; Busby v Thorn EMI Video Programmers Ltd [1984] 1 NZLR 461

Legislations

Summary Proceedings Act 1957; s.198

Copyright Act 1994; s.12, s.131, s.131

Crimes Act 1961; s.263, s.266A

Representations

B P Henry and K M Elcoat for Appellant (instructed by Clive Patterson, Kaitaia)
J C Pike for Respondent (instructed by Crown Law Office, Wellington)


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