Pearson Australia Group Pty Ltd v Rangitoto College

[2016] NZHC 2603

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-001294 [2016] NZHC 2603

UNDER THE

Copyright Act 1994

IN THE MATTER OF

an application for pre-commencement discovery

BETWEEN

PEARSON AUSTRALIA GROUP PTY LTD

Applicant

AND

RANGITOTO COLLEGE Respondent

Hearing:	27 October 2016
Appearances:	G Hazel and S Aymeric for Applicant S Wheeldon for Respondent
Judgment:	2 November 2016

JUDGMENT OF VENNING J

This judgment was delivered by me on 2 November 2016 at 10.00 am, pursuant to Rule 11.5 of the

High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           James & Wells, Auckland

Armstrong Murray, Auckland

Copy to:            S Wheeldon, Auckland

PEARSON AUSTRALIA GROUP PTY LTD v RANGITOTO COLLEGE [2016] NZHC 2603 [2 November

2016]

Introduction

[1]      Pearson Australia  Group  Pty Ltd  (Pearson) seeks  an  order for discovery before proceeding against Rangitoto College (Rangitoto).   Pearson is one of the largest educational companies and one of the largest book publishers in the world. Pearson holds copyright in a number of educational resources.  Pearson believes that Rangitoto has breached its copyright.  Pearson intends to seek injunctive and other relief against Rangitoto including an inquiry as to damages.

[2]      Pearson  seeks  discovery  to  enable  it  to  particularise  the  infringement  it considers Rangitoto is guilty of.  It says it is unable to formulate its claim without access to the documents for which it seeks discovery.  Pearson seeks the following order :

1.(a)   Within 10 working days of service of the orders sought Rangitoto College   will   file   an   affidavit   stating   whether   the   following documents or any document of that class is or has been in its possession, custody, power or control, and if it has been but is no longer in its possession, custody or power, when it parted with it and what has become of it:

i.     A list of all material, including textbooks, workbooks and other materials whether in printed hard copy or electronic format (“Learning Resources”) purchased by Rangitoto College since June 2006, including Learning Resources published by Pearson whether in printed hard copy or electronic format;

ii.    A list of all Learning Resources, including Learning Resources published  by  Pearson  used  by  Rangitoto  College  for  each course in each year since June 2006;  and

iii.   Documents   identifying   the   Learning   Resources   used   by

Rangitoto College for each course since June 2006, including:

1.   Learning Resources which contain (in whole or in part) Learning Resources published by Pearson; and

2.   Learning Resources created by Rangitoto College using digital technologies such as scanning for distribution to or online or similar access by students.

[3]      Rangitoto denies infringement and opposes the order for pre-commencement discovery.

Jurisdiction for the application

[4]      The application is made under r 8.20:

Order for particular discovery before proceeding commenced

(1)      This rule applies if it appears to a Judge that—

(a)       a person (the intending plaintiff) is or may be entitled to claim in the court relief against another person (the intended defendant) but that it is impossible or impracticable for the intending plaintiff to formulate the intending plaintiff's claim without reference to 1 or more documents or a group of documents; and

(b)       there are grounds to believe that the documents may be or may have been in the control of a person (the person) who may or may not be the intended defendant.

(2)      The Judge may, on the application of the intending plaintiff made before any proceeding is brought, order the person—

(a)      to file an affidavit stating—

(i)        whether  the  documents  are  or  have  been  in  the person's control; and

(ii)      if they have been but are no longer in the person's control, the person's best knowledge and belief as to when the documents ceased to be in the person's control and who now has control of them; and

(b)      to serve the affidavit on the intending plaintiff; and

(c)       if the documents are in the person's control, to make those documents available for inspection, in accordance with rule

8.27, to the intending plaintiff.

(3)      An  application  under  subclause  (2)  must  be  by  interlocutory application made on notice—

(a)      to the person; and

(b)      to the intended defendant.

(4)      The Judge may not make an order under this rule unless satisfied that the order is necessary at the time when the order is made.

[5]      To obtain an order under r 8.20 Pearson must establish:

(a)       that it is or may be entitled to claim that Rangitoto has breached its copyright;  and

(b)it is impossible or impracticable for Pearson to formulate its claim without the documents sought;  and

(c)       there are grounds for belief that the documents may be in Rangitoto’s

possession.

[6]      The issue in the present case is whether Pearson is or may be entitled to claim relief  against  Rangitoto  for breach  of copyright.    If  it  is,  the second  and  third requirements follow.   It would be impossible or impracticable for Pearson to formulate its claim without access to Rangitoto’s records and there can be no issue that the relevant records are held by Rangitoto (or at least records for some of the period sought).

The evidence

[7]      Pearson has led evidence from a number of witnesses.   David Barnett, the Managing Director of Pearson Australia confirms Pearson’s position in the market as one of the largest education companies and one of the largest book publishers in the world.

[8]      Edify  Ltd  (Edify)  has  been  Pearson’s  exclusive  representative  in  New Zealand since 2013 and provides print and digital content to the educational sector in New Zealand.   Adrian Keane, the Chief Executive Officer of Edify confirms that schools  purchase  Pearson’s  resources  through  Edify  or  other  suppliers  such  as School Supplies Ltd, Academy Book Company or Abacus Educational Book Supply. Mr Keane says Edify experienced a dramatic drop in sales from 2010 to 2015.  He is suspicious Rangitoto may be copying material.  He provided evidence of the limited purchases  of  Pearson  resources  by  Rangitoto  from  Edify  from  2013  to  2016 compared to the previous purchases made directly from Pearson between 2007 until

2013.  He notes that on a number of occasions Rangitoto purchased only one copy of numerous titles.

[9]      Richard Chisholm is the Managing Director of Rakino Publishing Ltd which trades as Academy Books.  It is New Zealand’s largest online academic bookstore. Mr Chisholm gave evidence of his company’s limited sales to Rangitoto.

[10]     Other publishers such as Mark Sayes of ESA Publications NZ Ltd and John Durow, Finance Director and Chief Operating Officer of Cengage Learning Australia Pty Ltd gave evidence of their sales of study guides and workbooks to Rangitoto.

[11]     The  principal  evidence  to  support  Pearson’s  application  is  from  Paula Browning, the Chief Executive Officer of Copyright Licensing Ltd (CLL).   CLL represents the interests of publishers and authors in New Zealand and grants educational licences which permit multiple copies to be taken of resources.

[12]     Ms  Browning  has  sworn  two  affidavits.    In  her  first  affidavit  she  gives evidence of her communication with Rangitoto which followed an instance of apparent breach of copyright by a Rangitoto teacher.  She expresses the opinion that, after analysing the costs charged to students, the types of materials that the costs are supposed  to  cover,  and  the  workbooks  used  “it  is  difficult  to  see  how  such workbooks could be produced without incorporating Pearson Resources”.  Also, her review of Rangitoto’s 2016 Senior Students’ Handbook shows that a number of the courses use photocopied material and/or workbooks.  In her opinion that confirmed to her that Rangitoto “must be infringing copyright by photocopying and/or scanning copyright material for distribution to its students without a licence”.

[13]     Ms Browning also made a second affidavit.  In it she replied to the evidence given  by  Rangitoto’s  principal  Mr  Hodge.    She  also  annexed  further  material obtained from other entities that had supplied resource material to Rangitoto.

[14]   Mr Hodge denies Rangitoto has breached copyright.   He considers the application is largely an attempt by CLL to put pressure on Rangitoto to purchase a licence when, in his view, none is required.

[15]     Rangitoto held a licence with CLL until June 2006 when a decision was made to cease purchasing the annual licence.

[16]     Mr Hodge  says  Rangitoto  respects  copyright  and  that  the  College has  a formal copyright policy included in the College’s staff handbook.  Each department of the College has copies of the copyright guidelines from the Ministry of Education

website and an “important copyright notice” is displayed in the vicinity of all major copiers and printers at the College.  His explanation for the College’s reduction in the purchase of Pearson resources material is that a College the size of Rangitoto is well able to write its own educational resources without copying external resources. He rejects Ms Browning’s opinion that self produced workbooks usually include extracts from a variety of sources.  He also noted that Rangitoto spent approximately

$170,000 a year on workbooks purchased from external sources.  In the seven and a half year period to May 2016 the College spent just over $1,356,000 on workbooks.

[17]     Mr Hodge rejects Ms Browning’s allegation and specifically addressed and explained the materials used in the courses she referred to in her affidavit to support her opinion.

[18]     There are two further evidential issues to address.   First, Rangitoto sought leave to file a further affidavit by Mr Hodge effectively in reply to the affidavits filed in reply by Pearson.   That was formally opposed.   However, having reviewed the affidavits in reply I accept Ms Wheeldon’s submission that the affidavits in reply did introduce fresh detailed evidence.  To the extent that Mr Hodges’ second affidavit addresses those issues of detail which were raised for the first time in the affidavits of reply I propose to admit it and read it.

[19]     The second issue is the criticism by Mr Hazel of Rangitoto’s failure to call any of the authors of the materials Mr Hodge says Rangitoto produced itself or to produce examples of such materials.   He submitted that in the circumstances the Court was entitled to draw an inference that such witnesses would have given evidence either contrary to Mr Hodge’s assertions or in support of Pearson’s case,

relying on Perry Corporation v Ithaca (Custodians) Ltd1  and a recent case in a

copyright context Burden v ESR Group (NZ) Ltd.2

[20]     This is not a case where an adverse inference can properly be drawn from the state of the evidence and the failure of Rangitoto to obtain further affidavit evidence.

The recent case Mr Hazel relied on of Burden involved a quite different fact scenario

1      Perry Corporation v Ithaca (Custodians) Ltd (2003) 16 PRNZ 1055 (CA).

2      Burden v ESR Group (NZ) Ltd [2016] NZHC 1542 at [238]–[239].

where the witness had been briefed, would have been able to give direct evidence on the issue but for its own reasons the party who had briefed the witness chose not to call them.  The present case is quite different.  Mr Hodge as principal of Rangitoto is entitled to and indeed would be expected to give the evidence on behalf of the College.  This is an interlocutory application.  It is not necessary to lead evidence by affidavit from every person at the College that may have had a role in producing workbooks.   Mr Hazel’s objection really is that Mr Hodge’s evidence is not corroborated or is not sufficiently detailed.   That is a matter for the weight to be given to Mr Hodge’s evidence but the fact it is not supported by other witnesses does not provide a basis for any adverse inference to be drawn against Rangitoto.

The applicable principles

[21]     Counsel are agreed on the principles that apply to consideration of whether Pearson may have a claim against Rangitoto.  In Exchange Commerce Corporation Ltd v New Zealand News the Court of Appeal stated:3

Not much difficulty can arise in the case of an intending plaintiff who makes it appear to the Court that he is entitled to claim relief against another but cannot formulate his claim without reference to a particular document or class of document. This must we think embrace circumstances where the actual defendant is not known as well as cases where some date, figures or other fact or circumstance is necessary in order to plead the claim as the rules require. This part of the rule postulates that the plaintiff has a claim but cannot adequately formulate it or name the defendant.

More difficulty arises when the intending plaintiff seeks to make it appear to the Court that he or she may be entitled to relief against another but cannot formulate a claim without reference to such document or class of documents. The words "may be entitled" cannot be read as enabling any disgruntled person to obtain a discovery in the hope that it may provide material to mount a claim. Apart from the fact that it is inherently unlikely that such a thing would ever be intended it seems clear from the rule itself. What must be shown is an inability to refer to a particular document or class of documents which inability inhibits formulation of the applicant's claim. It follows that the words "may be entitled" contemplate evidence of circumstances showing at least the real probability of the existence of a claim against someone.

(emphasis added).

3      Exchange Commerce Corporation Ltd v New Zealand News [1987] 2 NZLR 160 (CA) at 164.

And in Welgas Holdings Limited v Petroleum Corporation of New Zealand Ltd

McGechan J described it as the need to show a:4

"sufficient substratum of fact". … which takes matters beyond mere fishing;

mere trawling or speculation, …

[22]     I accept Mr Hazel’s submission that the real probability of the existence of a claim is not about the probability of success.  It is about having a real as opposed to a speculative claim.  The focus is on pleading not on proof.5    A cause of action for breach  of  copyright  necessarily  involves  clear  and  accurate  identification  of copyright work in respect of which the defendant is said to have infringed.6

[23]     I return to the principal issue in this case, namely whether the evidence shows Pearson has at least the real probability of a claim against Rangitoto as opposed to a speculative claim.

[24]     Pearson relies on:

(a)       the example of the breach of copyright by a teacher from Rangitoto; (b)           Rangitoto’s cancellation of the CLL licence in 2006;

(c)       Ms Browning’s opinion that a school the size of Rangitoto could not operate without breaching copyright;

(d)      some specific “suspicious” purchase figures;

(e)       the reference in the Rangitoto 2016 Senior Students’ Handbook to

workbooks and photocopying;  and

(f)       Pearson’s sales have decreased over recent years.

4      Welgas Holdings Ltd v Petroleum Corporation of New Zealand Ltd (1991) 3 PRNZ 33 (HC) at

43.

5      Hetherington Ltd v Carpenter [1997] 1 NZLR 699 (CA) at 705.

6      Henkel KGaA v Holdfast New Zealand Ltd [2006] NZSC 102, [2007] 1 NZLR 577.

The breach by the teacher

[25]     There is an example of infringement of Pearson’s copyright by a teacher of the College, Ms McKay.  However, the circumstances of that breach are particularly relevant.  Ms McKay was attending an Auckland Geography Teachers’ Association meeting and in the course of that meeting presented course material which she had been given by a teacher from another (not Rangitoto) school.  Some of the material in the presentation appears to have been copied from a Pearson publication.

[26]     The teacher had not used the materials at Rangitoto College nor had she prepared them herself.   When the issue was raised during the course of her presentation she realised the underlying material belonged to someone else and that she should not have been presenting it.  She acknowledged her error.

[27]     The email chain between Ms McKay and the teacher at Onehunga High School who provided the material to her makes it clear that Ms McKay obtained the material from that other teacher.   She was aware of the material because she had herself taught at Onehunga in 2012.

[28]     When the matter was drawn to Mr Hodge’s attention by Ms Browning he investigated the matter and obtained a report from Ms McKay’s head of department. He then responded to Ms Browning by email, including the response he had received from Ms McKay’s Head of Faculty:

“Claire presented at an Auckland Geography Teachers Association meeting last Monday. The event/PD has nothing to do with Rangitoto.  She presented material that she had been given from a colleague at another school.  She has not used/does not use the material at Rangitoto as part of her classroom teaching material.  She realised (as the matter was raised during the PD) that the material belonged to someone else and therefore she should not have been presenting it, or should have acknowledged this.  The AGTA has dealt with the matter at their end, and Claire as the treasurer of the AGTA is aware of this.  Therefore we see no further action needing to be taken by Rangitoto College given the College had no direct involvement with the PD.”

All staff at Rangitoto College are made aware of the copyright regulations. The regulations are set out in the staff manual. All staff are also reminded of them annually.  Heads of Faculty are also required to ensure that copyright regulations are followed.

I consider the matter now closed.

[29]     There  is  nothing  in  the  circumstances  of  that  particular  incident  which supports any inference that Rangitoto and its teachers are breaching copyright in the presentation of courses at Rangitoto.

[30]     Ms Browning herself acknowledges that the use of the resources by the

Rangitoto teacher was “only a side issue to the present application”.

The cancellation of the CLL licence in 2006

[31]     Mr Hodge explained that prior to his appointment as principal a decision had been made to cancel the CLL licence when it expired in June 2006.  The decision was made after careful consideration of what the College gained by payment of the licence fees and after taking legal advice.  Even without a CLL licence an unlicensed school may carry out limited copying in accordance with s 44 of the Copyright Act

1994.    The  following  table,  supplied  in  Ms  Browning’s  affidavit,  sets  out  the

differences.

Type of work	Licensed School	Unlicensed school – s 44 Copyright Act 1994
Book	10% of the book or a whole chapter (whichever is the greater) may be copied	3% or 3 pages of the book (whichever is the greater) may be copied
Book of short stories or poetry book	Entire short story or poem and up to 15 pages of the book may be copied	50% of each short story or poem may be copied
Pictures from a book	Whole picture may be copied	50% of the picture may be copied
Poem	Whole poem may be copied	50% of the poem may be copied
Periodicals	1 whole article (more if articles are on the same subject)	50% of an article may be copied
Newspapers	5 whole articles per newspaper (per issue)	50% of an article may be copied

[32]     Mr Hazel submitted that 88 per cent of schools within New Zealand held licences with CLL.  He accepted however that of course that did not mean that the balance of 12 per cent of schools were in breach of copyright.

[33]     The fact that Rangitoto cancelled its licence with CLL in 2006 again does not support any inference that since that date it has been in breach of copyright.

Ms Browning’s evidence

[34]     The high point of Ms Browning’s evidence from the applicant’s point of view is her stated opinion that, in her view a secondary school, let alone one the size of Rangitoto, “cannot legally operate without a CLNZ Education Licence”.

[35]     There is force in the submission made on behalf of Rangitoto that if the applicant is entitled to the orders in this case on the basis of that assertion then it could obtain orders for pre-commencement discovery against any organisation or school which did not purchase a licence from CLL, regardless of the activities that took place in the organisation and without evidence of infringement.  Further, it is contrary to the sensible concession by Mr Hazel that it cannot be said the remaining

12  per  cent  who  do  not  hold  licences  actually  have  breached  copyright.    Ms

Browning’s statement to that effect is no more than an assertion.

[36]     Ms Browning relied on her analysis of Rangitoto’s 2016 Senior Students’ Handbook and the references to the use of photocopied materials and/or workbooks in that handbook to support her conclusion that Rangitoto must be infringing copyright by photocopying and/or scanning copyright material without a licence.

[37]     However Mr Hodge has given a reasonable and credible response in his affidavit to the issues raised by Ms Browning.  First, Mr Hodge makes the point that a college the size of Rangitoto is able to write its own educational resources.  Next, it is correct that many of the courses listed in the 2016 handbook use workbooks.  Mr Hodge produced evidence to show that Rangitoto had spent approximately $170,000 a year on average for workbooks purchased from external sources.  As far as the reference to photocopied workbooks goes, Mr Hodge explained the workbooks were copies of the school produced workbooks.  He noted that on a case by case basis the teacher or teachers may write their own material for one or more sections of the course if they feel they can do it better than the external workbook being used, which is reflected in the description of a school produced workbook.   The reference to

photocopied workbooks is a reference to workbooks created internally by Rangitoto staff.

[38]     Ms  Browning’s  assertion  that  self-produced  workbooks  usually  include extracts  from  a  variety  of  sources  is  made  without  any  particular  background evidence to support it.  As Ms Wheeldon noted, Ms Browning describes no expertise in the preparation of school resources.

[39]     There is insufficient evidence before the Court to support Ms Browning’s conclusion that Rangitoto must be breaching copyright on the basis of Rangitoto’s Senior Students’ Handbook.

Specific “suspicious” purchase figures

[40]     In the course of his submissions for Pearson, Mr Hazel submitted that there were suspicious purchase figures.   He relied in particular on the further evidence filed in reply by Mr Durow.  Mr Durow attached Cengage’s sales to Rangitoto for the years 2015 and 2016.  Mr Hazel noted there were a significant number of instances of sales of single workbooks.

[41]     In his second affidavit in reply to that new evidence Mr Hodge explained each of those entries.  For example:

(a)      In some cases the relevant invoices disclosed that single purchases related to texts.  There is nothing suspicious about individual copies of texts being held for a library.

(b)Next as Mr Hodge noted, distributors or publishers often send copies of texts or workbooks for teachers to view and then either purchase or return.  Two of the single items noted were in that category and were returned.

(c)      Next, at times invoices and deliveries were split or books were placed on back order.  Again that explained the apparent supply of a number of individual books and a limited supply of two books.

(d)Finally, a number of purchases were for IB text and workbooks which were purchased to enable teachers to review the material to determine whether they were suitable for the particular courses. The IB Diploma was to be offered as a new programme commencing February 2016.

[42]     Ten of the 11 instances of purchases of one book relied on as “suspicious”

were readily explained by Mr Hodge in his affidavit in reply.

The workbooks’ photocopying

[43]     As noted the applicant relies on the references in the 2016 handbook and Ms

Browning’s analysis of that. That has already been addressed.

Pearson’s declining sales

[44]   As Ms Wheeldon submitted, there are many possible reasons such as competition from other publishers and on-line resources to explain the decline in Pearson’s sales over recent years.  In addition, larger schools such as Rangitoto are able to create their own resources.   Importantly there is evidence of Rangitoto’s spend in this area with other suppliers.

[45]     Mr Hazel conceded properly, that he was not able to point to one instance of breach of copyright by Rangitoto.  The applicant’s case is based on suspicion.  On the basis of the evidence before the Court at present, the Court cannot be satisfied that there is a real probability Pearson has a claim against Rangitoto for breach of copyright.

[46]     Mr Hazel submitted that Pearson was in an impossible position and if it had one example of infringement and commenced proceedings it would be faced with the same  response,  namely  that  it  was  fishing  if  it  sought  discovery  of  further documents.  However, if Pearson had one example of infringement of copyright by Rangitoto that would provide support for an application such as the present one.  But there is no such evidence on the material before the Court.   The evidence of the teacher’s infringement is explained.  It did not relate to the school.  There is no other

direct evidence of infringement by or on behalf of Rangitoto nor any evidence which would enable the Court to infer there was a real probability of such infringement.

Result

[47]     The application is dismissed.

Costs

[48]     Rangitoto is entitled to costs.  It is to have costs on a 2B basis together with disbursements.     I  am  satisfied  that  the  second  affidavit  of  Mr  Hodge  was appropriately admitted as a response to fresh, detailed material arising from the affidavits in reply. There should be no reduction in costs for the granting of leave for

the filing of that second affidavit in reply.

Venning J