The interesting intersection of intellectual property rights and relationship property

The New Zealand Court of Appeal has had the opportunity to consider the novel issue of whether copyright is relationship property in terms of the Property (Relationships) Act 1976 (PRA) following the breakdown of a relationship and found that it is.¹

While the default position under the PRA is that the parties are entitled to share equally in the relationship property, this does not mean that each type of property need to be equally shared as long as there is equal division of relationship property overall.

Background

The Appellant is a painter who produced artworks before, during and after her 20-year marriage to the Respondent, those artworks being a significant source of income for the family.

While the parties agreed that the Respondent could retain ownership of specified artworks, there was disagreement about who should own the copyright in those artworks and other artworks. Both parties wanted ownership of copyright to maintain a source of income though the exploitation of that copyright. The Appellant additionally wanted to retain ownership of all copyright to protect her reputation, protect the value of the artworks and to achieve a clean break from her ex-husband, avoiding future conflict following the end of the marriage.

The matter was first heard by the Family Court in which Grace J found that:²

The Copyrights were property for the purposes of the PRA; and
The Copyrights were severable from the work created. Although the work itself was relationship property, the Copyrights derived from the Appellant’s skill and authorship. Consequently, they were appropriately classified under the PRA as the Appellant’s separate property, rather than as relationship property.

The Judge went on to state that even if he was wrong to conclude that the Copyrights were the Appellant’s separate property, he would not have ordered a transfer of any of the Copyrights to the Respondent.

Following an appeal by the Respondent to the High Court, Isac J found that:³

The Copyrights fell within the definition of “property” in s 2 of the PRA; and
Judge Grace had erred in classifying the Copyrights as the Appellant’s separate property. They were properly classified as relationship property under the PRA.

The issue of how best to achieve an equal division of the remaining Artworks and the Copyrights was remitted to the Family Court. Isac J noted, however, that the Family Court has a broad discretion in relation to vesting orders and that “there is no requirement that copyright in a work must follow an order vesting the work in one party or the other”.

The Appellant sought and was granted leave to appeal to the Court of Appeal with the following approved questions to be considered by the Court on appeal:

Are the Copyrights “property” for the purposes of the PRA?
If the Copyrights are property, how should they be classified in terms of the PRA? (In other words, should they be classified as relationship property or separate property?)
If the Copyrights are property, how should they be treated in terms of the PRA? (In other words, how should they be allocated between the parties?)

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Is copyright “property” for the purposes of the PRA?

Property is defined in s 2 of the PRA as follows:

property includes—

(a) real property:

(b) personal property:

(c) any estate or interest in any real property or personal property:

(d) any debt or any thing in action:

(e) any other right or interest

There was no dispute between the parties that the physical paintings themselves fall within the definition of property in the PRA.

However, there was disagreement as to whether the Copyrights associated with those artworks also fall within that definition. Judge Grace considered that the Copyrights would fall within para (c) of the definition of “property”. Alternatively, if the Copyrights were not captured by para (c), he was satisfied that the Copyrights would fall within para (e). Isac J also considered that copyright would fall within the s 2 definition, specifically para (e).

Under New Zealand law, Copyright is created by statute – namely by the Copyright Act 1994. Section 14(1) of that Act states:

(1) Copyright is a property right that exists, in accordance with this Act, in original works of the following descriptions:

(a) literary, dramatic, musical, or artistic works:

(b) sound recordings:

(c) films:

(d) communication works:

(e) typographical arrangements of published editions.

It is plain on the wording of s14 that copyright is a property right. This has previously been confirmed by the Court of Appeal:⁴

As to the juristic nature of copyright, the “great debate”, which “has been conducted, largely over the unconcerned heads of copyright owners” (Phillips and Firth, Introduction to Intellectual Property Law (1st ed, 1986) para 10.3), is futile. The Act is conclusive. Copyright is a sui generis form of “personal property”. It is a bundle of rights conferred by law. It is given the status of property, on the terms laid down in the statute. ...

In this case the Court of Appeal⁵ concluded that in the previous decision, Judge Grace and Isac J were correct to find that the Copyrights fell within the s 2(e) of the PRA definition of property – namely that it was “any other right or interest”. Additionally, on the basis that copyright is a sui generis form of personal property the Court of Appeal concluded that Judge Grace, in the Family Court, was also correct to find that the Copyrights also fall within the s 2(c) definition — “any estate or interest in any ... personal property”.

Are the Copyrights separate property or relationship property under the PRA?

The PRA recognizes that contributions to a relationship are not solely financial. Any non-monetary contributions by a party are given equal importance to financial contributions when it comes to dividing property. It is therefore consistent with this purpose, that the default position is that the parties are entitled to share equally in the relationship property, unless there are extraordinary circumstances that would make equal sharing repugnant to justice.

Relationship property is defined in s 8 of the PRA. In general terms, relationship property will generally include essential family items (such as the family home and chattels); all jointly owned property; and (most relevantly for present purposes) property acquired during the relationship.

On the other hand, separate property is generally retained by the owner and excluded from division. Separate property under the PRA can be broadly categorized into three types:⁶

property acquired prior to the relationship or after the date of separation;
gifts or inheritances from third parties or distributions from a trust (subject to intermingling); and
specific types of property such as heirlooms, taonga, and gifts from the other spouse.

In the Family Court, Judge Grace found that the Copyrights were separate property and therefore vested solely in the Appellant as the person who created the Artworks.

The Judge noted that each of the Artworks had two distinct (and severable) property rights attached to it, the rights to the physical painting itself and the associated copyright. That although the Artworks created during the relationship were relationship property, the Copyrights in those Artworks were not. The Judge summarized the argument for treating the Copyrights as separate property as follows:⁷

... that the artistic skill that rests in [the Appellant] to create the art is a personal skill or qualification particular to her, and a skill which she had prior to the relationship, that it remains her separate property. This approach is consistent with s 16 of the Copyright Act which vests the copyright in the author of the art.

Both parties were not involved in the creation of the artworks. They were created solely by [the Appellant] as the artist. The work created is relationship property, but her skill in the creation is not. It is her separate property.

In the High Court, Isac J acknowledged that it is the Appellant’s “artistic skill that allows the [Copyrights] to exist”, but went on to say that:

... the skill, and copyright that arises from that skill, are distinct. And a focus on the skill, rather than the property it creates, is not where the focus should lie in the division of relationship property.

Isac J concluded that as the Copyrights came into existence during the relationship it became relationship property. Therefore, the Copyrights were not the Appellant’s separate property but relationship property.⁸

In the Court of Appeal, the Appellant argued that copyright comprised a bundle of rights and interests and that even if some of the bundle were acquired during the relationship, the relevant bundle of rights and interests also includes (or is inextricably linked to) other property rights and interests that pre-date or post-date the relationship. The inclusion of these rights and interests takes the Copyrights outside the definition of relationship property and requires that they be categorised as separate property — namely property acquired prior to the relationship or after the date of separation.

The Appellant submitted that the Copyrights are inextricably linked to (and are a product of) her artistic skills and qualifications. These unique skills are personal to her and were acquired prior the relationship. The submission was that this context justifies treating the Copyrights as separate property for the purposes of the PRA.

The Court of Appeal was of the view that although the Appellant’s personal skills and qualifications as an artist were used in the creation of the Artworks, they are distinct from the Copyrights which attach to the Artworks (as Isac J found). The Court of Appeal concluded that that Appellant’s personal skills and attributes are not “property” for the purposes of the PRA and are not relevant to how the Copyrights should be treated.⁹

The Court of Appeal did not accept the Appellant’s submission that if the Copyrights were relationship property that she, as the author and first owner of the copyright under s 21 of the Copyright Act, would not be able to give good title in the transfer of the copyright from her to a third party. Comparing copyright with other forms of property, such as vehicles and real estate, which might be held in the sole legal ownership of one partner despite being relationship property, the Court did not consider that copyright was any different.¹⁰

The Court of Appeal agreed with Isac J, that there was nothing in either the Copyright Act or the PRA to suggest that Parliament intended to remove intellectual property from the reach of the PRA and that such property rights should not be treated any differently from any other sort of property produced or acquired by a partner during the relationship.¹¹

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How should the Copyrights be treated under the PRA, to ensure an equal division of relationship property?

Having found that the Copyrights were relationship property, the final issue for the Court to decide was how they should be divided. Should they be divided between the parties, or should the Appellant retain ownership of the Copyrights with a compensating adjustment being made from other relationship property to ensure an equal division of the relationship property overall?

In the Family Court, Grace J found that the Copyrights vested solely in the Appellant as her separate property but if he was in error on this front, he would not have ordered a transfer of any of the Copyrights to the Respondent.¹²

By contrast, in the High Court, Isac J emphasized the importance of the presumption of equal sharing under the PRA. His Honour did not consider that there was any basis for this presumption to be rebutted in this case. In remitting the matter back to the Family Court for valuation of the Copyrights, Isac J noted the Family Court’s broad discretion in any vesting orders it might make and specifically noting that the Court could, for example, vest all the Copyrights in one party with an adjustment to the division of the proceeds of sale of the family home to obtain overall equality of division of the relationship property.¹³

In the Court of Appeal the Appellant sought an order that she retain sole legal ownership of the Copyrights as part of the overall division of the relationship property. The Appellant acknowledged that vesting all of the Copyrights in her as part of the overall division of relationship property would require a compensatory adjustment be made to the Respondent from other relationship property. Conversely, the Respondent sought an order that the Copyrights be divided equally between the parties. Further, he specifically sought the transfer of the Copyrights associated with the Artworks the parties had agreed that he could keep as part of the division of the relationship property.

The Respondent wanted to be able to exploit the Copyrights whereas the Appellant was strongly opposed to the Respondent commercializing the Copyright.

A purpose of the Copyright Act is to confer the benefits of copyright protection solely on the creator of the work thereby protecting and promoting creativity by granting the creator exclusive control over their original works including the rights to commercialize their works. The creator has the ability to control the output of their creativity, and the creation of new work is encouraged by ensuring that creators benefit economically from their efforts.¹⁴

Having considered this policy objective, the Court of Appeal found that this strongly supports the view that, where possible, the division of property under the PRA should “reflect the unique and personal nature of copyright, particularly where (as here) the original works that have given rise to the Copyrights are artistic works that are personal in nature”. The Court ruled that the Appellant should be able to continue to control the commercialization of the Copyrights:¹⁵

Although the Copyrights are relationship property, and therefore subject to the equal sharing regime in the PRA, that regime does not require that each specific item of property be divided equally. Rather, the overall pool of relationship must be divided equally. Here, transferring some of the Copyrights to [the Respondent} would be inconsistent with, and would undermine, the “clean break” philosophy of the PRA. In contrast, allowing [the Appellant] to retain ownership of the Copyrights would enhance the prospects of the parties being able to move on with their lives (including their financial lives) independently and with a minimum of ongoing conflict. The appropriate course, therefore, is for the ownership of the Copyrights to remain with [the Appellant], and for [the Respondent] to receive a compensatory adjustment from other relationship property to ensure an equal division of relationship property.

The matter will now be remitted to the Family Court to assess the quantum of any compensatory adjustment in the overall division of relationship property as there was no evidence before the Court as to the value of the Copyrights.

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Final thoughts

This case represents the first time that the Courts in New Zealand have had to consider whether an intellectual property right such as copyright is captured by the provisions of the PRA.

Throughout the case's history, it has consistently been found that copyright is property, as specified in s 14 of the Copyright Act and that as property it is captured by the PRA.

The Court of Appeal has determined that copyright is captured by both paras (c) any estate or interest in any real property or personal property and (e) any other right or interest of s 2 of the PRA.

Like any property acquired or created during the relationship, the Copyrights were relationship property. In coming to this conclusion, the Court of Appeal endorsed the finding of the High Court. As relationship property, the Copyrights were included in the pool of relationship property that was to be divided equally between the parties.

These propositions seem clear and of equal application in future cases. What is less clear is how the court may decide to divide the pool of relationship property between the parties in future cases.

In this case, it was clear that there was a high risk that if the Respondent acquired ownership of any copyright, he would commercialize those works and potentially harm the rights and earning potential of the Appellant leading to ongoing conflict. It is clear that the Courts were alive to this issue and wanted to protect the Appellant’s interests in the ongoing creation and exploitation of her rights.

In the Family Court, Grace J was particularly concerned about the possible implications of such a transfer, including the potential for ongoing conflict between the parties and the risk of undermining the Appellants’ future work and livelihood.¹⁶

Before remitting the matter back to the Family Court, Isac J made a point of commenting that given the Family Court’s broad discretion, it could not be assumed that the only option open to it was to vest the ownership of copyright in one party or the other. His Honour all but recommended that the Family Court could vest ownership in the Appellant and make an adjustment to the division of the proceeds of sale of the family home in order to obtain overall equality of division.¹⁷

The Court of Appeal was equally influenced by this overriding sense of fairness:

Here, it is our view that it is consistent with the overall policy objectives of the Copyright Act that [the Appellant], as the author and creative force behind the Artworks, be able to continue to control the commercialization of the Copyrights. It would be inappropriate and unfair to require her to transfer ownership of some of the Copyrights to [the Respondent] for a range of reasons…¹⁸

Those reasons included the Appellant’s ability to choose which works and when to commercialize them, to avoid her being in competition with herself if the Respondent was to reproduce works, to protect her reputation and personal brand as an artist and to avoid ongoing conflict between the parties.

While this overall desire to create fairness in the circumstances largely lead to the decision that all the Copyrights should vest in the Appellant, this may not be the outcome in other cases depending on the nature of the work in issue, the ongoing relationship between the parties, and whether there is other relationship property in the pool to be divided.

Elena Szentivanyi - March 2024

UPDATE MAY 2024: The Supreme Court has granted leave for an appeal of the Court of appeal decision. Please view our article on the update here.

1. Alalääkkölä v Palmer [2024] NZCA 24 (the Court of Appeal decision).

2. Alalääkkölä v Palmer [2020] NZFC 1635 at [23] (the Family Court decision).

3. Palmer v Alalääkkölä [2021] NZHC 2330 at [36] (the High Court decision).

4. Pacific Software Technology Ltd v Perry Group Ltd [2004] 1 NZLR 164 (CA) at [101].

5. Court of Appeal decision at [29].

6. PRA sections 9(4), 10(1) and (2) and definition of “family chattels” in s 2 and ss 9A and 10(2).

7. Family Court decision at [17], [19], [22] – [23] and [28].

8. High Court decision, at [30], [35] – [37].

9. Court of Appeal decision, at [42] – [45].

10. Court of Appeal decision, at [50] – [51].