Penalties and technology contracts after Andrew v ANZ

Post by Paul Kallenbach

We've previously commented on the High Court's landmark decision in Andrew v ANZ [2012] HCA 30, which concerned the law of contractual penalties in the context of various fees and charges levied by the ANZ bank on its customers.  

 

Old ground …

 

The case confirms what every law student is taught in Contract Law 101:

• a provision in a contract that is considered to be a 'penalty' will be unenforceable; 
• a provision will be considered to be a penalty (and therefore unenforceable) where it is in the nature of a 'punishment'; and
• since at least the 19th century, the test that the Courts have laid down in determining whether a provision is a 'punishment' – or alternatively whether it will pass muster – is to consider whether the compensation required to be paid under the provision represents a 'genuine pre-estimate' of the damages that would be suffered by the claimant: see Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79, subsequently affirmed by our own High Court in Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71. 

… and new

 

In Andrews, the High Court further expanded the application of the penalty doctrine.  

More specifically, the Court held that fees or other amounts can be unenforceable penalties even where the provision requiring the payment is not triggered by a breach of contract. That is, a fee or other amount that is payable on the occurrence (or non-occurrence) of an event may still be an unenforceable penalty even where the event itself is not a breach.

 

For example, in the context of bank fees, such fees may still be a penalty even where they are expressed (in the relevant contract with the bank) to be invoked on the occurrence of some event – for example, the customer exceeding his or her credit or withdrawal limits – and this event is not a breach of the customer's contract with the bank. In Andrews, the High Court said that whether the dishonour, non-payment and over-limit fees were penalties was a matter for further trial in the Federal Court.

 

What limits apply to this expanded penalty doctrine?

 

The High Court did identify some limits around this expanded penalty doctrine. It found that the penalty doctrine will not be invoked where the contractual provision in question gives rise to an 'additional obligation'. That is, a provision will not be a penalty if a party is required to make the payment in question in exchange for some service, accommodation or other benefit.

 

The example given by the High Court (which is from the NSW Court of Appeal's judgment in Metro-Goldwyn Mayer v Greenham [1966] 2 NSWR 717) nicely illustrates this distinction. In that case, the contract in question permitted Greenham to exhibit only one screening of a film, and went on to provide that Greenham was obliged to pay an amount for each additional screening equal to four times the original contract fee.  

 

The NSW Court of Appeal construed the relevant provision as an option to conduct further screenings in exchange for the payment of the additional amount. In other words, the required payment was not in the nature of a penalty, but rather was required to be made in exchange for an additional benefit (namely, an option to exhibit additional screenings).

 

What does this mean for technology contracts?

 

Technology contracts sometimes require a party to pay a specified amount should certain events occur. This may include, for example:

• 'liquidated damages' should the supplier fail to meet one or more milestones;
• 'service credits' should the supplier fail to meet certain specified service levels; and
• a 'payout' amount should the customer terminate the agreement for convenience before a particular time. 

In the first two examples above, the payment of 'liquidated damages' and 'service credits' usually also constitutes a contractual breach (ie the supplier has failed to perform to the requisite standard under the contract), so these examples fall within the traditional penalties doctrine. A court would then need to determine whether the liquidated damages or service credits are a 'genuine pre-estimate' of the supplier's loss (otherwise they are unenforceable penalties).

 

In the third example, however, the obligation to pay the 'payout' amount does not arise from a breach. Rather, termination for convenience is simply a right exercised by the customer that triggers a payment obligation. Nevertheless, on the basis of Andrews, it seems that this may fall within the expanded penalty doctrine – unless the supplier can show that the customer is required to make that payment in exchange for some service or other benefit.

 

This leaves the enforceability (or otherwise) of termination for convenience payments in a state of some uncertainty. One thing that suppliers could do would be to expressly describe in their contracts the service or benefit that customers obtain in exchange for the termination fee (for example, discounted pricing in exchange for a committed term). However, whether that's enough to avoid the penalties doctrine remains to be seen.

Breaking down the Facebook copyright post that went viral

Posted by Tarryn Ryan and Paul Kallenbach

 

You may have seen the Facebook post that went viral over the last week or so, supposedly invoking copyright protection over everything you've ever uploaded to Facebook. There were similar posts on privacy rights going around earlier this year when Facebook was floated on the stock market. 

 

 

As you may have realised, the post does not mean very much.  There has been a lot of reporting on this, but we thought it would be a good idea to go through the post and break it down to show you why it lacks any real legal significance. 

 

In response to the new Facebook guidelines I hereby declare that my copyright is attached to all of my personal details, illustrations, literary works, professional photos, videos, etc. (as a result of the Berner Convention) 

 

Apart from a few inaccuracies, this first statement is not really wrong, just redundant. Yes, you do own the copyright in your photos, videos, and any other copyright works that you might post. This is explicitly stated in Facebook's Statement of Rights and Responsibilities, which forms part of the terms and conditions that you agree to when you sign up for your Facebook account: 

2. Sharing Your Content and Information

You own all of the content and information you post on Facebook, and you can control how it is shared through your privacy and application settings.

Copyright is a protection that comes into existence with the creation of certain types of work (for example, literary works and artistic works).  In Australia, it is implemented under the Copyright Act 1968 (Cth). Automatic protection of copyright works is one of the key requirements of the Berne Convention (yes, it's the Berne Convention, not Berner).  Over 160 countries (including Australia and the United States) are signatories to the Berne Convention, which was one of the first international agreements on copyright.  Now its provisions are also binding on member States of the WTO by reason of the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement. Consequently, there is no need to register anything, or 'declare' anything, in order to obtain copyright protection for your copyright works.

 

However, not all the information that you put on Facebook will constitute a copyright work. For something to be a copyright work, it must be 'original'.   Facts and information are not 'original' enough to be protected by copyright (see, for example, IceTV Pty Ltd v Nine Network Australia Pty Ltd [2009] HCA 14 and Tonnex International Pty Ltd v Dynamic Supplies Pty Ltd [2012] FCAFC 162).   This means that you can't claim copyright over the personal details that you put up on Facebook, like your date of birth or your email address.   What rights you may have in relation to that kind of information is a privacy issue, not a copyright one. 

 

For commercial use of the above, my written consent is needed at all times!

 

By the present communiqué, I notify Facebook that it is strictly forbidden to disclose, copy, distribute, disseminate, or take any other action against me on the basis of this profile and/or its contents. The aforementioned prohibited actions also apply to employees, students, agents and/ or ANY staff under Facebook's direction or control. 

 

When you sign up to Facebook, you accept the terms contained in its Statement of Rights and Responsibilities.   If you don't accept the terms, you simply don't not get an account.   If you do accept the terms, you have a contract with Facebook.   What you've agreed to under that contract, in relation to Facebook's use of your content, can be found in section 2.1:

For content that is covered by intellectual property rights, like photos and videos (IP content), you specifically give us the following permission, subject to your privacy and application settings: you grant us a non-exclusive, transferable, sub-licensable, royalty-free, worldwide license to use any IP content that you post on or in connection with Facebook (IP License). This IP Licence ends when you delete your IP content or your account unless your content has been shared with others, and they have not deleted it. [emphasis added]  

The buzz words here are transferrable, sub-licensable and royalty-free.   What this means is that when you sign up, you give Facebook the right to use any of the content that you post at any time throughout the world, as well as giving it the right to allow others to use that information for free and without any further consent from you.   Unfortunately, unless you can renegotiate your contract with Facebook (which is extremely unlikely), the only way to stop Facebook from using your content is not to put it up there.  

 

The content of this profile is private and confidential information. 

 

There is certain information which will always be public on Facebook.   This includes your name, profile pictures and cover photos, networks you are in, your gender, and your username and user ID. Facebook sets this out in its Data Use Policy, which also forms part of the terms and conditions you agree to when signing up.   Even where you have used the strictest privacy settings for the rest of your information, Facebook can still use this information because, as already explained above, you have already consented to that use. 

 

It is also questionable whether you would have any privacy rights that are enforceable against other parties unrelated to Facebook.   Certainly in the United States there have been a number of cases where the courts have held that a user does not have a reasonable expectation of privacy in relation to information posted on social networking sites – see, for example, People v Harris (N.Y. Crim. Ct. June 30, 2012) in relation to the expectation of privacy in a tweet.  

 

In Australia the courts have barely begun to scratch the surface in this area.   But it is important to remember that in Australia you cannot sue someone for breach of privacy.   The closest cause of action we have is breach of confidence.   While courts have liberalised their approach to breach of confidence in recent years, there are still substantial hurdles that you would have to overcome in order to convince a court that the information you posted on Facebook was confidential information.   For example, confidential information must have the required 'quality of confidence', and case law shows that information in the public domain will not satisfy this requirement. 

 

The violation of my privacy is punished by law (UCC 1 1-308-308 1-103 and the Rome Statute) 

 

The first reference here is meant to be to sections 1-103 and 1-308 of the United States Uniform Commercial Code (UCC).   The UCC has been adopted (with some local variations) in all 50 States in the United States.   However, it deals with commercial law and contracts, not privacy.  

 

Section 1-103 deals with how the UCC is to be interpreted.   Section 1-308 is supposed to allow a party to a commercial transaction to accept the other side's ongoing performance without waiving a right which it might have to make a claim for breach of contract.   Somehow this section has come to be seen by some in the US as a get-out-of-jail-free card, with people citing the section next to their signature and thinking that it will get them out of anything that they sign their name to.  The only way section 1-308 could be of any use to you is if you were able to show that Facebook had breached your contract by using your information in a way that was contrary to its Statements of Rights and Responsibilities.   Then you might be able to invoke it to preserve your right to sue for breach of contract while still continuing to use Facebook's services.   However it is highly questionable whether expressing this reservation of rights in a Facebook post would be effective. 

 

The reference to the Rome Statute is even more unhelpful.   The Rome Statute is the international treaty that established the International Criminal Court (ICC).  Under the Rome Statute, the ICC has jurisdiction to hear only the most serious international crimes.   These are the crime of genocide, crimes against humanity, war crimes, and the crime of aggression.   Prosecuting Facebook for misuse of your information is not something that you'd be doing before the ICC under the Rome Statute.

 

Facebook is now an open capital entity. All members are recommended to publish a notice like this. If you do not publish a statement at least once, you will be tacitly allowing the use of elements such as your photos as well as the information contained in your profile status updates. 

 

Facebook's status as a publicly listed company, or an 'open capital entity', has no impact on your rights in relation to copyright or privacy.   How Facebook uses your information continues to be governed by the Statement of Rights and Responsibilities and other terms and conditions that you agreed to when you signed up (as well as any amendments that Facebook may make from time to time). 

 

Anyone reading this can copy this text and past it on their Facebook Wall; this will place them under protection of copyright laws.

 

As previously mentioned, copyright protection is automatically conferred when a copyright work is created.   Therefore you are already protected by copyright law in relation to all of your copyright works on Facebook.   Posting a statement on your wall to this effect is not necessary to invoke that protection.

Copyright, compilations, originality and IceTV: Tonnex International v Dynamic Supplies

Posted by Tarryn Ryan and Paul Kallenbach

In the wake of the High Court's decision in IceTV Pty Limited v Nine Network Australia Pty Limited [2009] HCA 14 (IceTV), a recent decision of the Full Federal Court has provided some helpful guidance on when a compilation will be an original literary work protected by copyright.

In Tonnex International Pty Ltd v Dynamic Supplies Pty Ltd [2012] FCAFC 162 the Full Federal Court upheld the primary judge's finding that Tonnex International Pty Ltd (Tonnex) had infringed the copyright of Dynamic Supplies Pty Ltd (Dynamic) in a compatibility chart for printer and computer consumables.

This compatibility chart was embodied in an electronic file called the 'March 2008 CSV file' which was used to upload the chart to Dynamic's website.  It featured certain product information arranged in columns, laid out to facilitate cross-referencing and customer searches via the website.  All of the information in the chart had been taken from the one source, Dynamic's inventory database (the Navision database). 

Dynamic's case was that by copying information from Dynamic's website, Tonnex had reproduced a substantial part of the March 2008 CSV file in compatibility charts accompanying various price lists released by Tonnex in 2008, 2009 and 2010.

The key issue at trial and on appeal was whether the March 2008 CSV file was an original literary work within the meaning of section 32 of the Copyright Act 1968 (Cth).

Was the March 2008 CSV file an original literary work?

At first instance, Yates J identified three key principles for determining whether a compilation is an original literary work.  These principles were endorsed by the Full Federal Court on appeal, and drew on recognised authorities, including (in particular) the decision in IceTV.  The principles were:

1. original works must come from authors (in the sense that they cannot have simply been copied);
2. the work must be the result of human intellectual endeavour, which means: 
• the work 'must have required some independent intellectual effort or exercise of sufficient effort of a literary nature for its creation'; but
• the work need not show any 'literary merit nor novelty or inventiveness as understood in patent law'; and
3. copyright will protect the particular form of expression that is the compilation, but will not protect 'mere facts, ideas or information contained in a compilation'. 

Had the work come from an author?

Dynamic initially sought to argue that the March 2008 CSV file was the result of the joint authorship of two Dynamic employees, Mr Campbell and Ms Sacristan.  It also argued that a number of other employees could be joint authors because of their involvement in entering product information into the Navision database.  The gist of Dynamic's argument was that it was unnecessary to make a definitive decision on the identity of the authors of the March 2008 CSV file, as all possible authors were Dynamic employees and so Dynamic would in any event, own the copyright by virtue of section 35(6) of the Act.

Yates J did not accept this argument at trial, though instead concluded that while Ms Sacristan and other employees had played a part in the creation and maintenance of the Navision database, the compatibility chart had been authored by Mr Campbell alone. 

Was the work the result of human intellectual endeavour?

This second issue formed the basis of Tonnex's main ground of appeal. Tonnex argued that the primary judge had erred in finding that Mr Campbell had exercised more than a negligible amount of skill and judgment in creating the March 2008 CSV file (this being sufficient to make it an original literary work).

Yates J held that it was irrelevant that the information in the compatibility chart had only come from the Navision database. Mr Campbell had still exercised judgment by selecting which information would be useful to customers searching a website for product information, and by arranging that information in a way that would be most convenient for customers.

On appeal, Tonnex challenged the evidence Mr Campbell had given at trial, saying that the thrust of his evidence had been that the intellectual effort was exerted in relation to the compiling of the Navision database, not the compatibility chart.   The Full Federal Court rejected this submission, saying that Tonnex had misunderstood the effect of Mr Campbell's evidence.   Their Honours stressed that it was Mr Campbell's selection and arrangement of the information (in the CSV file) that was decisive in this case, not the information itself.

Was the form of expression more than just mere facts, ideas or information?

Dynamic's arguments on the subsistence of copyright were bolstered by evidence of other compatibility charts that were laid out in very different ways, while still containing the same basic information. Yates J held that here, unlike in IceTV, the particular information did not dictate the form it was expressed in.   His Honour remarked:

... simplicity itself may be a virtue and does not deprive a work of originality for copyright purposes, unless that simplicity is a demonstration of the absence of skill or effort in the circumstances.

This finding distinguished the case from IceTV, where the High Court held that there was no originality in the form of expression of a television program schedule, as 'a chronological arrangement of times at which programmes will be broadcast is obvious and prosaic, and plainly lacks the requisite originality'.

Other grounds of appeal

On appeal, Tonnex also sought to have the matter remitted to the trial judge in light of what it claimed was further evidence about the authorship of the another file which Mr Campbell had referred to in his evidence at trial (the tab delimited file).  The tab delimited file was a price list issued by Dynamic featuring a compatibility chart which Tonnex argued had substantial similarities in composition to the March 2008 CSV file.

The Full Federal Court declined to remit the matter to the trial judge, but nevertheless made some observations about the tab delimited file and the March 2008 CSV file.  Their Honours observed that possibly one of these works was created from the other, or perhaps they were both originally created as one work, but either way there was no reason why both works could not be copyright works.   Their Honours said that, at the very least, copyright subsisted in one of these works and Tonnex had infringed the copyright in that work.

Conclusion

This case provides some much needed guidance in the wake of the High Court decision in IceTV. Yates J's reasoning, approved by the Full Federal Court, followed the High Court's approach by considering whether the form of expression of the compilation is the result of some 'independent intellectual effort' on the part of the author (or authors).  Unlike IceTV, here the Court found that the author had exerted intellectual effort in selecting and arranging information, and that that effort was not negligible.

Tobacco plain packaging: when a taking is not an acquisition

Posted by Genevieve Watt and Paul Kallenbach

Introduction

Image courtesy of xoxoryan

On 5 October 2012 the Australian High Court handed down its decision in JT International SA v Commonwealth of Australia; British American Tobacco Australasia Limited v The Commonwealth [2012] HCA 43, better known as the tobacco plain packaging case. 

The case concerned separate challenges by JT International SA (JTI) and British American Tobacco Australasia Limited (BAT Australasia) to the Tobacco Plain Packaging Act 2011 (Cth), which were heard at first instance by Gummow J in the original jurisdiction of the High Court. The joint case came before the Full Court of the High Court on several reserved questions.

The first challenge was brought by JTI, a Swiss-based company that manufactures cigarettes under brands including Camel and Old Holborn, and the second challenge by three related plaintiffs, BAT Australasia (incorporated in Australia), British American Tobacco (Investments) Limited (incorporated in England and Wales), and British American Tobacco Australia Limited (collectively, BAT).  BAT imports, sells and distributes cigarettes under the brand names Winfield and Dunhill. 

Phillip Morris Ltd, Van Nelle Tabak Nederland BV and Imperial Tobacco Australia Ltd intervened in the BAT matter in support of the plaintiffs. The Northern Territory and the ACT intervened for the Commonwealth. 

Although the parties each raised several arguments, the essential question under consideration was a simple one: had the Commonwealth, by imposing restrictions on the design of the plaintiff's tobacco product packaging, acquired the plaintiffs' intellectual property (including their trade marks, patents, and get up and associated goodwill) otherwise than on just terms contrary to the Constitution? Six of the seven judges found that this was not the case.

Victorian Parliament considers regulation of R18+ computer games

Posted by Tarryn Ryan and Paul Kallenbach

A Bill which would regulate the availability of R18+ computer games in Victoria is currently before the Victorian Parliament.

 

The Classification (Publications, Films And Computer Games) (Enforcement) Amendment Bill 2012 (Vic) follows legislation passed by Federal Parliament earlier this year creating an R18+ classification for computer games, which will come into effect on 1 January 2013.  The Guidelines for the Classification of Computer Games that will be used by the Classification Board were published in September. 

 

The creation of the new classification for computer games is seen by many as well overdue.  In 2009, when the Commonwealth Attorney-General called for submissions in response to a discussion paper on the introduction of an R18+ classification, 98% of the 58,437 submissions received were in favour of the proposal.  An adult classification for computer games already exists in many other countries including the United States, Canada, New Zealand, the European Union, Singapore and Japan.   

  

In Australia, the highest classification is currently MA15+ and over recent years there have been a number of high profile 'bannings' of games that failed to fit within that classification.  These have included Mortal Kombat, Syndicate and House of the Dead: Overkill Extended Cut.  In the case of another game, Fallout 3, the Classification Board's decision to refuse classification famously led to the company behind it, Bethesda Softworks, modifying the game prior to its world wide release.  This prompted criticism of Australia's classification system from other parts of the world.      

 

The Classification (Publications, Films And Computer Games) (Enforcement) Amendment Bill 2012 (Vic), and its equivalents in other States and Territories, is the last step in the reform process.  It seeks to limit access to R18+ computer games to adults, and will make it an offence:

• to demonstrate R18+ computer games in a public place or in a manner that is visible from a public place;
• to privately demonstrate R18+ computer games in the presence of a minor;
• to sell or deliver R18+ computer games to a minor unless the person is a parent or guardian; and
• to leave an R18+ computer game in a public place or on private property without the occupier's permission.

The Bill also contains provisions restricting the advertisement of R18+ computer games, and imposes different penalties for existing offences where they involve R18+ computer games, such as copying a computer game with the intention of selling or demonstrating. 

 

New South Wales and the A.C.T. have already passed similar legislation and other States and Territories are set to follow. 

 

The Classification (Publications, Films And Computer Games) (Enforcement) Amendment Bill 2012 (Vic) will be debated in the Victorian Legislative Assembly at the end of October.

Federal Government considers mandatory data breach notification

Posted by Paul Kallenbach

The Federal Government has released a Discussion Paper on mandatory data breach notification.  You can read our alert here.

Federal Government announces Review of Pharmacuetical Patents

Posted by Daniel Fuller and Peter Kearney

On 15 October 2012, the Federal Government announced the appointment of an expert panel to review pharmaceutical patents in Australia (Review). 

The Review will focus particularly on the extension of term provisions in Chapter 6, Part 3 of the Patents Act 1990 (Cth). Those provisions currently allow the extension of pharmaceutical patents up to five years beyond their standard 20-year term. Medicines Australia has expressed concern that current patent terms are too short given the time taken for patent applications to pass through the Government's administrative processes. On the other side is the Generic Medicines Industry Association, whose view is that too lengthy patent terms and too regular extensions stifle innovation and competition.

The Terms of Reference of the Review specifically require it to 'consider whether there is evidence that the patent system is being used to extend pharmaceutical monopolies at the expense of new market entrants'. If such evidence is found, the Review must consider its impact on competition, innovation and investment. The panel must have particular regard to:

• The availability of competitively priced pharmaceuticals in the Australian market 
• The role of Australia's patent system in fostering innovation and hence to bringing new pharmaceuticals and medical technologies to the market
• The role of the patent system in providing employment and investment in research and industry
• The range of international approaches to extensions of term and arrangements for pharmaceutical inventions
• Australia's obligations under international agreements (including free trade agreements and the World Trade Organisation agreements)
• Australia's position as a net importer of patents and medicines

The Review comes as the Australian Government's Advisory Council on Intellectual Property (ACIP) continues its review of the innovation patent system in Australia. That review has also emphasised issues around patent terms, particularly the practice of 'evergreening' to effectively extend terms using secondary derivative patents. It is expected to produce an interim report this month.

The Review of Pharmaceutical Patents also comes in the wake of a number of other Government reviews and consultations on patents that have commenced since the 'Raising the Bar' reforms passed in March this year.

The Review panel is chaired by Tony Harris (former New South Wales Auditor-General and Parliamentary Budget Officer). Its other members are Professor Dianne Nicol (Associate Dean, Research, Faculty of Law at the University of Tasmania) and Dr Nicholas Gruen (CEO of Lateral Economics).

The panel will begin consulting stakeholders and invite public submissions in the coming months, before reporting in early 2013.