Video: Robert Austin talks to the AFR about the Centro decision

Posted by Nicholas Stewart

VIDEO

Senior Legal Consultant at Minter Ellison and former Judge of the Supreme Court of New South Wales, Robert Austin, is Head of Minter Ellison's Corporate HQ Advisory Team. He spoke to James Eyers of the Australian Financial Review about the judgment of Middleton J in Australian Securities and Investments Commission v Healey [2011] FCA 717 (Centro decision).

Bob explains why this is such an important decision and why it raises the bar for company directors.

Also see Bob's analysis of the Full Court of the Federal Court of Australia's decision in Australian Securities and Investments Commission v Fortescue Metals Group Ltd [2011] FCAFC 19.

Partner: Charles Alexander

Nintendo takes on FlashBoy – and wins.

Posted by Nicholas Stewart

Do you remember Nintendo's Game Boy handset? It followed Nintendo's Game & Watch series and brought versatile hand-held gaming to kids and adults around the world. Indeed, the Game Boy and Game Boy Colour handsets were powerhouse brands for Nintendo; 185.48 million of the handsets were sold in the United States between 1989 and 2005.

How do you think Nintendo reacted then when Adar Golad applied in February 2006 to register the mark FLASHBOY for 'plug and play interactive games of a virtual reality comprised of computer hardware and software' in International Class 9 and 'hand-held units for playing video games and electronic games, namely, stand alone video game machines' in International Class 28? After a bit of consideration, Nintendo filed opposition proceedings, of course!

On 31 May 2011, the United States Patent and Trade Mark Office's Trade Mark Trial and Appeal Board agreed with Nintendo, holding that Nintendo's opposition to the "FLASHBOY" trade mark should be sustained (Nintendo decision) on the basis that it was likely to cause confusion with Nintendo's GAMEBOY trade mark. The following factors were inherent to the Judges' finding:

• Famous marks are accorded more protection because they are more likely to be remembered and associated in the public mind than a weaker mark.

• Sales and revenue are relevant to determining whether a mark is famous.

• "GAMEBOY" is a famous mark for video game hardware, evidenced by the large volume of sales of Game Boy handsets between 1989 and 2005 and the fact that Nintendo has spent hundreds of millions of dollars advertising Game Boy products between 2000 and 2005.

• As the goods described by the "FLASHBOY" application are in part identical to those covered by "GAMEBOY", the channels of trade and classes of purchasers are the same with the effect that consumers would be more likely to be confused.

• The marks are sufficiently similar in terms of their overall commercial impression because the goods overlap and "GAMEBOY" 'enjoys the "wide berth" of fame', notwithstanding that the terms "GAME" and "FLASH" do not look or sound alike.

• Adar Golad did not have a bona fide intent to use the "FLASHBOY" mark. This finding turned on the fact that Adar Golad had no business plan or agreements to manufacture, distribute, create, or market any product under the mark.

How does this case affect upcoming gaming entrepreneurs?

For a start, they should be mindful that well-established brands will not tolerate piggy-backing. Sure, there is room for new players, however, entrants to any new market would benefit from significant research and preparation, as well as an original, non-perplexing mark that signifies autonomy. The Nintendo decision is prescriptive in its illustration of how a new player might go about successfully registering a United States trade mark in their chosen industry.

Partner: Charles Alexander

The days of the local video store may be numbered

Posted by Lucy McGovern

Technology has brought a wealth of issues for copyright owners. An issue presently facing film makers is online streaming and the operations of US company, Zediva.

Zediva is at the centre of a furore fuelled by its online service through which customers can stream films at bargain basement prices. The question at the heart of the debate is – Does streaming a movie for a fee differ from renting a movie from the local video store?

Zediva

Zediva operates by buying numerous DVD copies of new release movies and 'renting' those movies online to paying customers. For a mere $1.99, customers can rent a physical disk and DVD player. The movie is then streamed across the internet enabling the customer to watch it online, provided that no other customer is watching the same physical movie at the same time. For example, if Zediva has purchased 20 copies of a film, only 20 people will be able to watch that film at a time.

Zediva has not acquired licences from the relevant copyright owners of the films for the right to provide this service. Rather, Zediva claims it operates under an exception to copyright infringement in the US called the 'first sale' doctrine (First Sale Doctrine). The First Sale Doctrine allows a purchaser of a legal copy of a copyrighted work to lawfully sell, lend or give that copy away. Whilst there is no direct equivalent in Australia, in a similar manner in Australia a person is able to rent a DVD of a film without infringing copyright (the Australian position is discussed in further detail below). On this basis, Zediva argues that it is simply a DVD rental service.

Zediva's business model appears to be the logical progression from the traditional video rental store, and the newer 'Netflix' (which is a DVD rental service which mails DVDs out to paying customers). However, the key difference between Zediva's service and that of its predecessors is the use of streaming over the internet. Whether or not this catapults Zediva's operations into the realm of a 'public performance' of a copyright work (being one of the exclusive rights of the copyright owner) will be resolved in the courts.

Filing suit

In June, major studios Warner Bros, Disney, Columbia, 20th Century Fox, Paramount and Universal sued Zediva for alleged copyright infringement, saying that Zediva's comparison to a traditional rental store was 'disingenuous' (Warner Bros. Entertainment Inc., et al v. WTV Systems, Inc. et al, 11-CV-02817 (CDCA, April 4, 2011)). In the words of the film studios, '[R]ental stores do not transmit performances of movies to the public "over the internet using streaming technologies."'

Counting against Zediva is the early case of Columbia Pictures Industries v Redd Horne 749 F.2nd 154 (3d Cir. 1984). In this case, a video store rented booths at the back of its store for a fee. Customers could select a film and an employee of the video store would play the customer's selected movie in the rented booth. The court there held that the video stores' activities amounted to a public performance and that the First Sale Doctrine had no application.

Zediva has focused attention on cases such as Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F. 3d 121 (2nd Cir. 2008) (Cablevision). In that case, customers were able to store films in 'cloud' servers and access the television shows at a later time. The court found that the recording and playing back of these programs did not constitute copyright infringement as each customer recorded their own unique and distinct copy of the show. However, Cablevision is shaky ground for Zediva to rely upon in light of Zediva's use of only one copy of the films which is watched successively by paying customers. At least on this basis, Zediva faces an uphill battle.

The Australian position

But would Zediva fare any better under Australian law?

In Australia, the owner of copyright in a film doesn't have an exclusive right to rent a DVD of that film, but does have the exclusive right to publically perform the film and to communicate the film to the public (that is, making a film available online or electronically transmitting it). Had the film studios brought such an action against Zediva in Australia, one of the key issues would be– did Zediva infringe the film owners' communication right?

Under Australian common law, a private setting does not, per se, evidence that the communication was not made 'to the public'. The High Court case of Telstra Corporation Ltd v Australasian Performing Right Association Ltd (1997) 191 CLR 140, makes clear that a communication in a closed setting may nevertheless be a communication to the public if the communication occurs in a commercial context. The 'copyright owner's public' concept recognises that an audience is more appropriately to be seen as a section of the public where a work is performed in a commercial setting. The court applied this concept in Rank Film Production Ltd v Colin S. Dodds [1983] 2 NSWLR 553 at 559. There, the court held that a motel infringed copyright by playing movies in the motel rooms for its guests, as the service was open to the paying public. Relevantly, the size of the audience and the privacy of the surroundings were not decisive of whether the communication was 'to the public'.

It is unlikely that restricting access to a film (by allowing only one viewer at a time watch the film) would not be enough to save Zediva in the Australian courts.

Fighting back

Whether or not the film studios win in the US courts, they are already fighting back in more ways than one. To counter business models such as Zediva, film studios have begun their own online distribution services. For example, Warner Bros has recently trialled a paid streaming service through Facebook. This area will certainly be one to watch.

Partner: Charles Alexander

Moral slights: failure to credit developers shows gaming's dark side

Posted by Frances Stephenson

Image courtesy of wlodi

It could be the plot of a PlayStation game: a group of maverick developers, their talents unrecognised after years of labour, take on the industry and fight for their rights to be credited for their work. But that's the situation some former members of Australian gaming powerhouse Team Bondi have found themselves in since discovering their names were left off the credits of new blockbuster game LA Noire. One aggrieved developer who goes by the alias TK Rose has set up the website lanoirecredits.com, which he says contains the full and accurate credits for the game. There has (as yet) been no response from Team Bondi or from Rockstar Games, the company that produced LA Noire.

There is no indication that the developers intend to take legal action. However, if they did, the most obvious cause of action would be for infringement of their moral rights. The Copyright Act 1968 establishes a regime that gives artists and writers a number of moral rights, including the right of attribution – that is, the right to be identified as the author of their work or film. A person who reproduces, publishes, performs, communicates or exhibits to the public, or makes an adaptation of a work or film without attributing it to the author will infringe that author's moral rights.

If the developers were successful in an action for infringement of their moral rights, they could ask a court for remedies such as an injunction, damages, a declaration that their moral rights have been infringed, or even a public apology.

However, it seems to us that there is probably a reason the developers haven't threatened legal action. Where an author has consented to an act or omission in writing in respect of a particular work, that act or omission won't constitute an infringement of his or her moral rights. And where there's an employment relationship, the Copyright Act specifically says an employee may give a consent to his or her employer in relation to all the works the employee makes in the course of his or her employment. We can assume that the issue of moral rights would not have escaped Rockstar's legal team, and that the developers' contracts likely include a broad consent for their works to be used without attribution.

If this is the case, the moral rights regime won't help these developers. However, Rose has said that his intention was to draw the public's attention to the poor crediting procedures that he claims are rife in the gaming industry – and he has certainly managed that. One hundred bonus points to him, and to the other uncredited developers of LA Noire.

Partner: Paul Kallenbach

Flying High: how hot news is getting cooler in the United States

Posted by Nicholas Stewart and Lucy McGovern

In a country where capitalism is at its most pure, how do courts in the United States of America decide on the protection of property rights in time-sensitive information? Are there any property rights in strictly factual material?

In a recent decision from the US Court of Appeals for the Second Circuit, Barclays Capital Inc. v. Theflyonthewall.com, Inc., 10-1372-cv (2d Cir. May 19, 2010) (Barclays), the Court of Appeals has significantly narrowed the scope of the "hot news" misappropriation doctrine (Hot News Doctrine). The Court held that the news aggregator, theflyonthewall.com, Inc (Fly), should not be restrained from reproducing stock market recommendations of major financial institutions.

Readers should bear in mind that no Hot News Doctrine currently exists in Australia. The following commentary is based on cases decided pursuant to federal copyright law and state and common laws covering misappropriation and competition in the United States.

Where it all began

The Hot News Doctrine has developed as a limited exception to the operation of the United States Copyright Act 1976 (as an instance where federal law does not 'pre-empt' state law). The Hot News Doctrine essentially seeks to protect, for a limited time, an author's rights over a breaking news story.

The doctrine evolved from the 1918 Supreme Court decision, International News Service v. Associated Press, 248 U.S. 215 (1918) (INS) which held that a company who lifted factual news stories from Associated Press (AP) bulletins and retransmitted those factual stories to its members was engaging in conduct that amounted to common law misappropriation of AP's property under state law. The Court also confirmed that there could be no copyright in facts.

The Hot News Doctrine was then formulated in the New York Second Circuit decision National Basketball Association v. Motorola, 105 F.3d 841 (1997) (Motorola) in which the Second Circuit proffered a five point test to determine whether a plaintiff should be attributed property rights in certain information. The test is:

1. a plaintiff generates or collects information at some cost or expense;
2. the value of the information is highly time-sensitive;
3. the defendant's use of the information constitutes free-riding on the plaintiff's costly efforts to generate or collect the information;
4. the defendant's use is in direct competition with a product or service offered by the plaintiff; and
5. the ability of other parties to free-ride on the efforts of the plaintiff would so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened.

In Motorola, the Court did not grant injunctive relief against Motorola for selling a pager device called "SportsTrax" which broadcast details and statistical data of NBA basketball games on a near real-time basis. Although the Court recognised that INS itself is no longer good law, it accepted that an INS-like claim survives pre-emption.

The Barclays Decision

Major financial institutions, Barclays, Merrill Lynch and Morgan Stanley (Firms) sought to invoke both copyright law and the Hot News Doctrine to restrain Fly from reproducing recommendations contained in the Firms' investor reports. The Firms publish, on a daily basis, investor reports to their clients and potential clients containing extensive research about publically listed companies together with the Firms' recommendations based on that research (Recommendations).

The Firms claimed that these reports give investors an informational advantage in stock market trading and draw revenue by 'spurring investors into making an immediate trading decision' as investors place trades with the Firms. It is no wonder that the Firms objected to Fly's reproduction of the Recommendations on its subscriber-based website.

Although wholly succeeding on the copyright claims, the Firms continued to pursue their claim on the grounds of the Hot News Doctrine before the Court of Appeals. However, the Court rejected the claim, holding that the Hot News Doctrine did not apply. As the parties had agreed to the application of the five point test laid out in Motorola, the Court approached the case on this basis (even though it hinted at its temptation to do otherwise). It held that the Hot News Doctrine did not apply because:

• the Recommendations were not efforts akin to reporting (rather, the Firms were 'making the news' by publishing the Recommendations);

• Fly was not 'freeriding' as it was not selling the Recommendations 'as its own' but was attributing the Recommendations to their source; and

• there was insufficient evidence that Fly was diverting profits away from the Firms at the point where the profit was reaped (the Firms conceded that profit was derived when investors placed a trade).

The Court concluded that

'a Firm's ability to make news – by issuing a Recommendation that is likely to affect the market price of a security – does not give rise to a right for it to control who breaks that news and how'.

The Upshot

While the Barclays decision and the narrowing of the Hot News Doctrine might be good news for online news aggregators, who are seeking to reduce the obstacles to sourcing and publishing factual material, it will be of concern to newspaper publishers whose business models depend on cutting edge news reporting.

Partner: Charles Alexander 

Australian Consumer Law: new repair notice obligations come into effect next week

Posted by Sarah Barker

From 1 July 2011 new requirements to give consumers notice relating to the repair of goods will come into force under the Australian Competition and Consumer Regulations 2010.

 

Specifically, from 1 July 2011:  

• any business which repairs goods that are capable of retaining user-generated data must give consumers a notice stating that the repair of goods may result in loss of the data; and
• if the repairer sometimes supplies refurbished goods as an alternative to repairing goods or refurbished parts in the repair of goods, the notice to consumers must state: 'Goods presented for repair may be replaced by refurbished goods of the same type rather than being repaired. Refurbished parts may be used to repair the goods'.

Given that these Regulations were passed in late 2010, the ACCC is likely to take the view that there has been adequate time to prepare for their implementation.  If these requirements are relevant to your business, you should ensure that you are in a position to comply with them from Friday 1 July 2011.

 

Partner: Geoff Carter

Parody on blogs: it's all fun and games until someone gets sued

Posted by Frances Stephenson

Earlier this year international fast-fashion retailer Forever21 decided to issue blogger Rachel Kane with a cease-and-desist letter requiring her to shut down her parody site WTForever21.com. The site contains pictures of Forever21 clothing along with such comments as, 'If you bought this, sort your life out, IMMEDIATELY'.

In its letter Forever21 asserts that the site constitutes 'trade mark infringement, copyright infringement, unfair competition and dilution'. It also takes umbrage at the name of the site, which it says 'refers to an abbreviation for a colloquial expression that the general public may find offensive.'

Forever21's claim, however, has a few issues. In the US, the doctrine of fair use provides a defence to trade mark and copyright infringement actions - and parody and criticism are recognised fair uses. Additionally, there is little likelihood of confusion (we think) between the Forever21 clothing brand and Kane's website. However, the likely difference between the parties' financial positions may mean that the dispute will never reach a courtroom.

The case is not as unique as it might seem. Similar disputes are popping up all over the internet, for example in the ongoing trade mark fight between Facebook and the parody website Lamebook, and in the suit filed by clothing brand 'North Face' against a Missouri teenager for his clothing line 'South Butt'. How might these issues be resolved by an Australian court?

There is no broad fair use defence in Australia (as there is in the US). However, in order for a trade mark to be infringed, the alleged infringer must be using the mark 'as a trade mark'. This is often described as use as a 'badge of origin', to indicate where goods or services have come from.  It is likely that Kane's use of Forever21's name would not constitute use as a trade mark, since Kane is not using the name to indicate the trade origin of goods or services.  Alternatively, a court might find that 'WTForever21' is not substantially identical or deceptively similar to 'Forever21'. It would be difficult to imagine that a consumer could be deceived or confused by the similarity, or wonder whether Forever21's clothing and Kane's satirical website came from the same source.

Kane may also have a defence against the copyright infringement claim in Australia, on the basis that her use of Forever21's copyright material is a fair dealing for the purpose of criticism or review, or for the purpose of parody or satire.

Whether Forever21's suit against Kane is successful or not, Kane has already emerged the clear winner. WTForever21 now proudly displays links to over 40 articles discussing the dispute, as well as a PayPal account where supporters can donate to Kane's legal defence fund.  It seems like Forever21, like Facebook, North Face, and Ryan Giggs, may have forgotten the Streisand Effect: those who try to suppress criticism online find that the internet usually evens the score.

Partner: Paul Kallenbach

When is an exclusion clause not an exclusion clause?

Posted by Jessica Childs

Image by Jason Pier

The High Court recently handed down its decision in Insight Vacations Pty Ltd v Young [2011] HCA 16, in which it dismissed Insight Vacations Pty Ltd's (Insight Vacations) appeal against Australian traveller, Mrs Young. 

Mrs Young claimed that Insight Vacations had breached an implied duty to act with due care and and skill under section 74(1) of the Trade Practices Act 1974 (TPA) (now the Competition and Consumer Act 2010) after she was injured whilst travelling on a motorcoach as part of the package purchased through Insight Vacations.  Despite the fact that there was an exclusion of liability clause in the contract between the parties, the High Court found that Insight Vacations was liable to Mrs Young. 

The case is yet another salutary lesson on the importance of carefully crafting exclusion clauses - a principle that applies as much in technology contracting as it does to contracts for travel or other services.

The (unfortunate) facts

Mrs Young was travelling around Europe with her husband on a motorcoach.  Somewhere between Prague and Budapest, she stood up to retrieve something from her bag which was stowed in the overhead luggage shelf.  The coach braked suddenly; she fell backwards and suffered injury. 

She sued Insight Vacations in the District Court of NSW, asserting that the company was liable for her injuries because it had breached an implied term in the contract between them that it would render services with due care and skill.

In response, Insight Vacations sought (amongst other things) to rely on an exclusion clause contained in the contract between the parties. The clause stated:

Where the passenger occupies a motorcoach seat fitted with a safety belt, neither the Operators nor their agents or co-operating organisations will be liable for any injury, illness or death or for any damages or claims whatsoever arising from any accident or incident, if the safety belt is not being worn at the time of such accident or incident.

How did the High Court construe this clause?

The High Court did not find it necessary to finally decide whether Insight Vacations could rely on the exclusion clause as drafted.  This is because it knocked the exclusion clause out for other reasons (namely, it found, in essence, that the exclusion clause was rendered ineffective because of section 68 of the TPA).

However, as courts sometimes do, it went on to consider the effectiveness of the clause (as drafted) anyway. 

The Court focussed on the first part of the clause: 'Where the passenger occupies a motorcoach seat fitted with a safety belt' [emphasis added].  It held that these words should be given their ordinary meaning - with the result that the exclusion clause would only apply to those times where the passenger occupies his or her seat.  That is, the clause did not operate protect Insight Vacations from liability where a passenger stands up to move about the coach or retrieve some item from the overhead shelf. 

It observed that, if the contract had omitted the word 'seat', things might have been different (that is, the exclusion clause might have applied whether Mrs Young was seated or not).  But this was not how the clause was drafted.  Quite simply, Mrs Young was not sitting in her seat when she fell - and so the exclusion clause did not apply.

Implications for technology contracting

This is a clear example of how courts will read down exclusion clauses where they can (particularly where personal injury or death is involved). 

If you are a supplier of technology goods or services, you should carefully consider your limitation and exclusion clauses.  Ask yourself: are they too narrowly cast or ambiguous?  Do they expressly refer to all of the heads of liability that you wish to completely exclude (for example, loss of profit, loss of revenue, loss of customers, loss of goodwill and loss of data)?  Do they take into account recent changes to the Competition and Consumer Act 2010 (formerly the Trade Practices Act)? 

And if those clauses have been hanging about in your contracts for a while (a bit like old luggage?), perhaps it's time to revisit them.

Partner: Paul Kallenbach