A CAFFEINE BOOST FOR RESTRAINT OF TRADE CLAUSES | by James Carnie & Anna Shackwell, Clendons

The investment of time and money in training new staff is an outlay that employers seek to protect and benefit from. Obviously it is not good for business if an investment gives no returns and, worse still, if that investment in human capital is applied in the establishment of competition (e.g. a former employee setting up a competitive business in the same vicinity using the knowledge and skills obtained during their former employment). In order to safeguard from this (albeit temporarily), employment contracts commonly have restraint of trade ("ROT") clauses.

Traditionally ROT clauses have included promises:
> Not to join or assist a competitor; and
> Not to solicit the former employers customers; and

ROT clauses vary as to the duration of the ROT, the geographical area covered, and the particular actions prohibited.

ROT clauses have commonly been ruled unenforceable or invalid by the Courts. However, the recent Court of Appeal decision in Fuel Espresso Ltd v Victor (Chi-Huan) Hsieh [2007] NZCA 58 has provided a significant boost to the validity of ROT contractual arrangements and the "sanctity of contracts" made.

ROT clauses will be upheld and enforced by the Courts provided that the employer has a sufficient business interest to protect, the restraint is reasonable in the circumstances and valuable consideration is given for the restraint.

The Facts

Fuel Espresso Ltd ("Fuel") operates 10 coffee carts and espresso outlets in Wellington City. Fuel offers training programmes to employees where they learn the coffee and barista trade as well as the way Fuel's business is run. Fuel's employment agreement contains a ROT clause that prevents an employee from working in a competing espresso bar, café or coffee company for three months after termination of their employment. The ROT is geographically limited to:
> a 100m radius of a Fuel operation in the case of other employment; or
> a 5km radius if the employee is setting up a competing business

Victor Hsieh was a barista for Fuel and on 7 January this year, he resigned his employment. On 15 January he began working at a competing coffee cart situated 70m away from a Fuel outlet. In February, Fuel applied for an interim injunction against seeking orders that Hsieh cease working for or operating the coffee cart until on or after 7 April 2007. The basis of the claim was that Hsieh had breached the ROT clause in his employment agreement.

Employment Court Decision

The Employment Court applied the usual tests that apply in an application for an interim injunction
relating to a restraint of trade:
(a) Is there an arguable case as to the enforceability of the ROT; and
(b) Whether the balance of convenience favours one side or the other.

The Court determined that the principal issue was whether or not the restraint of trade clause was enforceable and noted that there were three aspects of enforceability:
1. Are the terms of the ROT enforceable? The Court found that they were not too wide and were confined to areas around Fuel operations and as such were enforceable;
2. Does Fuel have a proprietary interest that needs to be protected? The Court found that there was an arguable case that there was an interest in Fuel customers in a small area where they come to get their coffee, which could be taken by a competing business. This was arguably a proprietary interest to protect.
3. Has there been any consideration? It was on this point that the employer's argument failed in the Employment Court. The Court noted that valuable and legal consideration was a prerequisite for an enforceable restraint of trade.

The Court observed that Hsieh was paid the basic wage for a café employee and there was nothing in his employment agreement that showed he was paid anything more for the restraint. The Court held that "the law is that if you are going to require an employee to be restrained there must be some extra payment for that".

Consequently, the restraint of trade was held to be unenforceable and therefore, an injunction could not support it.

Less than three weeks after the decision of the Employment Court, the parties were before the Court of Appeal. The question before the Court of Appeal was whether there had been consideration for the restraint of trade.

Court of Appeal Decision - "Agreements are made to be kept "

The Court observed that the Employment Court appeared to have relied on M A Watson Electrical v Kelling [1993] 1 ERNZ 9 for the proposition that "extra payment" was required for the restraint of trade. However, the Court pointed out that in that case, a ROT clause was inserted into an employment agreement after the employee had been working for the employer, and by reasons of the particular facts of the case, it was held that there was no consideration for the ROT. Therefore Hsieh's situation was very different as the ROT clause had been in his employment contract from the beginning of his employment.

The Court noted that consideration requires that there be something of value to be given, and is either some detriment to the promise (in this case the employer) or some benefit to the promisor (in this case the employee). The Court found that "the law does not enquire into the adequacy of the consideration, nor, as the Judge seems to have thought, does it require an extra "premium" for a restraint of trade clause".

Consequently, the Court of Appeal held that not only was there an arguable case for consideration, but in this instance, there was consideration.

The Court then went on to consider the balance of convenience question and made the important statement that "Agreements are made to be kept". It further observed that Mr Hsieh was employed and trained, but then left and undertook an activity which a clear contractual provision prevented him from doing. The Court held that in the absence of an interim injunction, any relief to Fuel would be nugatory.

Accordingly, the Employment Court decision was overturned and the interim injunction allowed, preventing Mr Hsieh from working at the coffee cart until after 7 April 2007.

Lessons to be Learnt

For a ROT to be enforceable, it must be reasonable. The Court of Appeal commented that the adequacy of the consideration might be relevant to whether a restraint is reasonable in more extreme situations. For example, a low salary, set against a harsh restraint was said to be relevant to the exercise of the Court's discretion.

Separate consideration is not necessarily required for a ROT to be enforceable. However, where the employer seeks to introduce a ROT as a new term in an employment agreement (after employment has commenced), identifiable consideration will be necessary.

An important aspect of the Court of Appeal decision was its statement that "Agreements are made to be kept". This provides some welcome support to the time-honoured concept of the sanctity of contract and strengthens the argument for the enforceability of a ROT that is agreed between the parties.

The reasonableness of an ROT also depends upon:
> The activity/s to be restrained;
> The geographical limits;
> The length of the restraint period;
> Whether a restraint is appropriate to protect a particular business interest;
> The nature of the former employee's job; and
> The inability to obtain other work

There are a number of factors to consider when preparing a ROT clause. While ROT clauses are an important tool used by employers to protect various aspects of their business, the clauses should be carefully drafted to ensure that they will be enforceable should the need arise.

This article has been supplied by Clendons, an Auckland based law firm specialising in copyright and intellectual property issues. The firm is a sponsor and representative of various New Zealand visual arts organisations including AIPA, NZIPP and DINZ.

Photo: © Miz Watanabe

THE RIGHT TO PRIVACY IN NEW ZEALAND | by James Carnie & Gabrielle Lourens, Clendons

"I've never seen anything which so clearly demonstrates the nature of the work. But while some see them as a powerful essay on the job, others are offended by the sight of an elderly, frail and ulcerated body - it is quite shocking." - The Press, 16 May 2006

The recently distributed images of three partially naked elderly citizens has generated varied responses from the New Zealand public. There is no doubt the images have effectively conveyed the central message: That nurses and caregivers have a demanding and time consuming job. But has this been proven at the expense of the privacy of these elderly individuals?

An individual's right to privacy is primarily found in the Privacy Act 1993. However, the Act can be complex and its application unclear in some settings.

The general rule is that anyone collecting personal information about a person (including a photograph) will be covered by the Privacy Act. Certain ‘disclosures' need to be given to clients at the time when personal information is collected.

‘Information', including (when appropriate) a photograph, cannot be disclosed to anyone outside the collecting agency or used for any other purpose than that disclosed at the time of collection.

It is the role of the Privacy Commissioner to receive written complaints from the public outlining potential breaches of privacy. The Act enables the Commissioner to either disregard or investigate the complaint and assess whether the grounds amount to a of breach privacy.

An action for breach of privacy may be brought by the Commissioner where a breach has occurred and that breach has caused;
(a) Loss, detriment, damage or injury to the complainant; or
(b) The rights, benefits, privileges, obligations of the complainant to be adversely affected, or may do so; or
(c) Significant humiliation, loss of dignity or injury to the complainants feelings, or may do so.

For example, a complaint was made in March 2006 after a man was photographed, by a professional photographer, in a shopping mall and later saw two photographs of himself in a business directory, promoting the mall. The Privacy commissioner treated the photographs as personal information. However, the complainant fell short of proving a breach of privacy, as he was unable to show he had suffered any adverse effects as a result of the information being published.

Exercising the Right to Privacy in New Zealand

In the 2004 case of Hosking v Runting, the New Zealand Court of Appeal confirmed the existence of the tort of breach of privacy. For a claim for interference with privacy to be successfully brought, it must be shown that:

> In the particular circumstances, there is a reasonable expectation of privacy; and
> Those circumstances are publicised in a manner that would be considered highly offensive to an objectively reasonable person.

Legitimate Public Concern

The Courts have recognised a possible defence for breach of privacy (both statute and tort based). If publication is justified by a legitimate public concern for the information, the photographer will be justified in releasing the images to the public. However, the court clearly distinguishes between "interest or curiosity to the public" and information or images of "legitimate public concern".

An example where this defence was asserted involved information regarding a public figure being treated for psychiatric problems. The accused, having released this information to the public, sought protection from the charge of breach of privacy under this defence. The Court recognised that had the psychiatric problems impaired the judgement of the public figure in performing public duties, the information would have been of legitimate public concern. In this case, however, the information was of no concern to the public, as there was no evidence of these problems affecting the capacity of the applicant to fulfil his duties.

The right to privacy in New Zealand is an inherent right incorporated in many statutes and common law doctrines. It is important, not only as a photographer, but as a trusted custodian of personal information and images, to understand the implications of releasing personal information into the public realm.

If an individual considers that their personal reputation has been misappropriated in some way, there may also be other routes open, such as the tort of "passing off".

This article has been supplied by Clendons, an Auckland based law firm specialising in copyright and intellectual property issues. The firm is a sponsor and representative of various New Zealand visual arts organisations including AIPA, NZIPP and DINZ.

Photo: © Colleen Tunnicliff

MONEY FOR NOTHING (AND YOUR KICKS FOR FREE) | by James Carnie & Gabrielle Lourens, Clendons

In various realms of professional photography deposits, bonds, down payments in advance and similar pricing mechanisms are adopted to solemnise a contract between photographer and client, and to protect the photographer's allocations of time and resources to a project in advance of the schedule.

As a matter of practical importance the legality and enforceability of such arrangements, where the client cancels and the photographer wishes to retain the initial payment, is therefore a matter of some practical significance.

The issue then arises; following cancellation of a contract, can a photographer legally retain any initial payments received, to compensate them for the cancellation?

The Law of Penalties in New Zealand

Incorporating a non-refundable booking fee into an agreement between photographer and client is, in theory, good business practice, as the penalty for breach/ cancellation is stipulated at the outset. However, the Court will not enforce a penalty if the amount required upon breach exceeds what is deemed ‘a genuine pre estimate of loss'.

In general a non-refundable fee (deposit) is likely to be enforceable if it is assessed having specific regard to the nature of the engagement and the extent of the resources allocated by the photographer, prior to cancellation.

Deposits OK if Reasonable

Despite a general prohibition on penalties, deposits have generally been regarded as a valid method of requiring the client to make a non-refundable commitment to the engagement.

The general rule is that upon default or cancellation of a contract, a deposit (if reasonable) will generally be retainable, as a form of penalty, without having to establish any loss as a result of the breach.

The right to retain the deposit need not be express in the contract. However, the payment must be in the nature of a deposit in order for it to be retained upon default. Whether the payment is in the nature of a deposit will be assessed according to the true nature of the payment, to secure performance of a contract.

The quantum of the deposit payable must however, be in line with the requirement of the law of penalties in that it must amount to ‘a genuine pre estimate of loss'. If it is excessive and/or unreasonable, it may be construed as being part payment of the final fee. In such a case, the right to retain the money as a deposit will be forfeited, and any right to a deposit will not be substituted.

Implications for Photography Agreements

Incorporating a non-refundable initial fee into an agreement is a good means of ensuring there is some form of compensation when a contract is not performed, as well as securing the client's commitment to the contract. Nonetheless, this sum must be reasonable for it to constitute a deposit (within the legal meaning of that term).

The right to forfeit the deposit (as a form of penalty) if the client cancels is exercisable even if (after cancellation by a client) the appointment time is used for another sitting (and the photographer thereby suffers no actual loss).

For example, in relation to the sale and purchase of property, a reasonable deposit is one which is 10% of the purchase price. However, this figure is based on what is reasonable within the particular industry, and the nature and norms of professional photography will have a bearing on this 10% threshold.

Therefore, the law does enable some form of financial relief in the event of client breach/ cancellation, provided that the relief levied amounts to "a genuine pre estimate of loss", and the terms of the contract are appropriately written to support such a construction and avoid the legal stigma of a "penalty".

This article has been supplied by Clendons, an Auckland based law firm specialising in copyright and intellectual property issues. The firm is a sponsor and representative of various New Zealand visual arts organisations including AIPA, NZIPP and DINZ.

Photo: © Chris Sisarich


After developing your work, you are astounded. A rush of adrenalin drives through you as you admire how your work reflects the image and light perfectly. These are the photographs you have aspired to produce since the beginning of your career. You are sure they will be worth a substantial amount.

But are they your photographs to sell?

The issue of copyright ownership often arises in creative industries. Questions and disputes regarding who becomes the owner of an image illustrate there remains some confusion in the photographic industry, notwithstanding the laudable efforts of AIPA and NZIPP in educating their members and the profession generally.

The general rule regarding copyright ownership is encompassed in the Copyright Act 1994. The Act provides that a photographer will own copyright of a photograph if it is not:
(a) Taken in the course of employment (in which case copyright vests with the employer); or
(b) "Commissioned" by a third party (in which case, it is the third party who is entitled to copyright ownership). This rule is referred to as the "commissioning rule".

The commissioning rule has been the root of an ongoing series of disputes, indicating that the current law is proving to be problematic in practice and suggesting that reform is required.

There are common scenarios where the commissioning rule becomes consistently problematic. For example, when an image intended for one use is used for an alternate purpose. This scenario contributes to unfair commercial exploitation of works with no financial relief for the photographer.

Another arises in an unwritten engagement, where the photographer purports to reserve copyright on the product delivered. This is often by way of copyright statement upon delivery of the work. However, the contract is formed at the time of the unwritten agreement. Therefore, the photographer is generally unable to impose terms after contract formation, regarding copyright ownership or otherwise, without the agreement of the client.

After years of sustained lobbying by stakeholders in the photographic industry, the Ministry of Economic Development released a Discussion Paper in March 2006, testing the water for a possible change to the commissioning rule.

Some of the key issues recognised in the MED paper were the unequal bargaining power when photographers are negotiating with commercial clients. Furthermore, there is concern that a contract for the commission of work for a particular purpose fails to take into account any future use when establishing price. As a result, photographers are not receiving financial gain that reflects their effort but rather are having their work exploited by those who own copyright.

The deadline for submissions to the Ministry of Economic development was 31 st May 2006. Comprehensive submissions were made by both NZIPP and AIPA, amongst others. Several submissions favoured the repeal of section 21(3) of the Copyright Act, resulting in the ownership of copyright vesting in the creator.

Where to from here?

After consideration of the submissions received, the Ministry of Economic Development will submit a report to cabinet, recommending whether a change in the law should occur. If a change is approved, the legislation amendment process would then, we expect, take its usual course.

In the meantime, suppliers of photographic services are encouraged to be vigilant in protecting their key rights and entitlements on an engagement-by-engagement basis, in particular, by contracting out of the commissioning rule as part of the formulation of the contract of engagement.

This article has been supplied by Clendons, an Auckland based law firm specialising in copyright and intellectual property issues. The firm is a sponsor and representative of various New Zealand visual arts organisations including AIPA, NZIPP and DINZ.

Photo: © Becky Nunes

DIGITAL RIGHTS MANAGEMENT FOR VISUAL ART CREATORS | by James Carnie & Gabrielle Lourens, Clendons

What is Digital Rights Management (DRM) and why is it important?

Digital Rights Management is the term given to describe techniques implemented to control access to copyright material and provide information to users about terms and conditions to access the material. DRM takes many forms, with differing purposes including providing protection, tracking and monitoring, providing copyright description, and identifying material.

In this digital age, the reproduction of imagery and information is becoming more efficient than ever before. By simply selecting "copy" and "paste" Internet users are often able to appropriate works (unlawfully in many cases) without seeking the permission of, or notice to, the copyright holder. The issue therefore arises, what can be done to combat the exploitation of copyright material and how can creators protect themselves and their works?

The answer lies - at least partly - in the implementation of DRM systems.





The legalities and the practicalities of DRM

Copyright law plays an important part in authorising and controlling the use of original works. Section 226 of the Copyright Act 1994 has incorporated the use of devices "designed to circumvent copy protection" for copyright works in electronic form. The inclusion of this section in the statutory regime illustrates the legislative framework is responding to the rapidly emerging digital technologies.

However, DRM not only assists greatly in supplementing/ evidencing the legal rights of creators, but at a more practical and fundamental level to prevent, or at least strongly dissuade, unlawful conduct.

Types of DRM available

DRM comes in various different forms, ranging from simply providing copyright information with material, to implementing programmes to accompany the data, restricting access unless specific conditions are satisfied.

Imposing a License Agreement terms is becoming more common as a means for placing contractual limits on the use of works. The limitations may include the type and extent of reproduction permitted, and time limitations specific to the purpose of the license.

Under such licenses, access to the material may only be made available to the licensee once payment for the right to use the material has been made and received. For example, upon payment the licensor will provide a form of password, key card or access code for the user. Until such time, the material may remain protected by DRM systems, which will vary depending on the types of works and the level of risk associated with its use.

Security features and software protection

Examples of Software developments in the protection of digital works include:

Installing an encryption element into DRM systems has the effect of scrambling an image so, without a password or access authority, the image is unable to be used.

Personalisation of material involves tailoring particular works (often from a series of works) into a package for a particular user. For example, an online photo gallery may require a small number of images to include on their website. The creator and gallery may enter a Licence Agreement in which all images would be accompanied by metadata and a form of encryption may also be implemented to restrict the use of the image. These particular terms and conditions would be specific to this agreement.

Under a DRM system a Visual artist is able to deliver small parts of their Work to a user who then uses these parts to create new works. The use of granularity is an example of a way in which digital reproduction is making it more efficient and cost effective to create new creative Works.

However, if a creator opts to licence a part of an existing work the continuing existence of copyright protection, as well as any moral rights, should be considered.

Digital Watermarking and Metadata
Systematic inclusion of Watermarks and/ or metadata are methods of ensuring that a fixed set of descriptive data accompanies the works to inform users of key attributes of the work, such as the copyright status of the image and the owners of that copyright. Its purpose is two fold. Firstly, to capture and stipulate the data protected by copyright and secondly, to provide contact information for users wishing to copy the image.

The effect of including metadata with an image is not only to dissuade users from copying protected material, but also to assist in the enforcement of legal rights under copyright and other laws (including fair trading). Furthermore, metadata can remove potential arguments over knowledge, ownership, copyright status and permitted use.

The current copyright regime requires that a defendant must have knowledge of infringement to be found liable under the Copyright Act 1994. This may be in the form of actual knowledge or, what the Courts label as, constructive knowledge (where a reasonable person would have acquired or possessed the knowledge).

Without any information of the copyright status of the work, the requisite knowledge or constructive knowledge of a user will be more difficult to establish, meaning the elements of the breach may be difficult to prove.

In addition, from a practical perspective, numerous minor breaches by a few users, although amounting to a substantial degree of loss to the copyright owner, will be expensive and time consuming to litigate. Effective use of DRM, as well as providing a disincentive for misappropriation, can assist greatly in the enforcement of property rights in copyright works.

Incorporating metadata with an image will provide users with copyright information, meaning that where an author of works seeks damages for loss caused by a breach, the requisite knowledge would be easier to prove.

The types of information metadata should incorporate includes:
> General Right Information including the copyright and publication status of the Work, dates regarding the year of copyright creation and renewal, copyright statement and country of publication or creation;
> Details of the Visual Artist, copyright holder and (where relevant) licensed Publisher;
> Administrative data such as contact information.

It is also worthy to note that works generated in New Zealand are not immune from treatment under other laws, if a work is delivered to a user in that jurisdiction.

Adopting DRM: practical considerations for visual artists

The most important aspect of a successful DRM system is assessing which protection systems will most effectively meet your needs in terms of the works being produced, the risks associated with distributing the works and the proportional value and cost of DRM and works being distributed. The challenge for visual artists is to utilise DRM systems to keep trace of digital works and retain/ enhance profit from its commercial use.

Options for DRM systems include:
> Developing an in-house system of DRM, specific to the distribution of your works;
> Purchasing a DRM software package that best suits your objectives and requirements;
> Outsourcing to a hosted server.

These options each carry with them advantages and disadvantages. However, the end decision will depend on strategy and security decisions made by the creator.

DRM, in particular, the use of metadata accompanying works, should be considered as a matter of systematic business process in conjunction with License Agreements and Terms of Trade. A properly considered DRM system will enable a creator to better secure their rights as author and profit from the works they produce.

This article has been supplied by Clendons, an Auckland based law firm specialising in copyright and intellectual property issues. The firm is a sponsor and representative of various New Zealand visual arts organisations including AIPA, NZIPP and DINZ.

Photo: © Lewis Mulatero

COPYING vs UTILISING CREATIVE CONCEPTS | by James Carnie & Gabrielle Lourens, Clendons

Some years ago significant controversy arose in Australia when it was found that the winner of a leading art competition had painted the winning portrait from a photograph. Setting aside issues of ethics and otherwise, this (and similar examples) raise interesting copyright issues whereby the painting could well breach copyright in the photo, in the absence of a licence from the photographer.

It has long been established that copyright laws protect the expression of an idea, but not the idea itself. For example, the use of dramatic landscapes, specific animals, iconic landmarks or similar could never be reserved to one photographer only. However, one photographer can prevent others from copying their images, or as the case may be, copying of the juxtaposition of specific items within images. Therefore, any other photographer can use similar subject matter in their work, provided that the end result is not a copy of the first photographer's work.


The Application of Copyright Laws

The Copyright Act 1994 defines "copying" broadly, as including:
> Reproducing or recording work in any material form;
> The making of a copy in 3 dimensions of a two-dimensional work and the making of a copy in 2 dimensions of a three-dimensional work;
> The making of a photograph of the whole or any substantial part of any image forming part of the film, broadcast, or cable programme.

Furthermore, the Act provides guidelines as to what constitutes an infringement of copyright. Copyright in a work is infringed by a person who, other than pursuant to a copyright licence, does "any restricted act". A "restricted act" relates to either directly or indirectly to the copying of work, as a whole or any substantial part of it.

The basic elements constituting infringement of copyright, by copying works are:
> a sufficient degree of objective similarity between the two works; and
> some causal connection between the work infringed and the infringer's work (so that one could say that the latter was derived -consciously or subconsciously- from the work of the original author).

These factors need to be considered in conjunction with the Copyright Act 1994 and fairly balanced, based on the need to protect the rights of the original artist against allowing creative development.

The extent of "copying" required to constitute infringement has been discussed in several leading Court decisions. The main established principle is that it is the quality of what is adopted from the original work, not the quantity that dictates whether work has been copied. This will be a question of fact and degree examined in each case. In theory, 8 bars from a song, or one page from a book, can constitute infringement if these form a "substantial" part of the work.

The Da Vinci Code Case

The recent judgment of Baignet and Leigh v Random House Group Ltd has provided a recent insight into the application of copyright laws, when faced with an allegation of "copying". The case was bought against Dan Brown's publishers for alleged copying from the claimant's 1982 publication, entitled "The Holy Blood and the Holy Grail", and the incorporation of aspects of that work in The Da Vinci code.

The claimants alleged Brown had breached copyright of "The Holy Blood and the Holy Grail" by using "central themes" and theories presented in Brown's depiction of the story of Robert Langdon and Sophie Neuveuxs' search for the holy grail.

The Court dismissed the claim, ruling The Da Vinci Code was merely an expression of a number of facts and ideas which were not protected by copyright. The Court applied the principles discussed above, and affirmed that ideas and facts alone are not capable of being protected. Rather, it is the way in which they are expressed/ presented which may attract protection under copyright laws. Had the claimants been able to establish that Brown had copied a qualitatively substantial part of the original work, they may have been successful in their action against Random House.

Implications for Photographers

It is common practice in all industries to use concepts, precedents and images as inspiration for producing works. However, if one creative work is "inspired" by another, the following questions arise:
> How much work and creative ability has been expended by each author/ artist?
> Is the second work a reproduction of a substantial part of the first?
> Would an objective party perceive the second work as a copy of the first?
> Can a "causal connection" (i.e. ‘derived inspiration'), whether conscious or subconscious, be established or set aside?

The combination of these and related factors will be determinative of any claim that the second work is an unlawful breach of copyright of the first, and whether the second work is sufficiently original to attract copyright (in whole or in part) in its own right.

This article has been supplied by Clendons, an Auckland based law firm specialising in copyright and intellectual property issues. The firm is a sponsor and representative of various New Zealand visual arts organisations including AIPA, NZIPP and DINZ.

Photo: © Phillip Simpson