Court sees folly in 'copying' claim

By Helen Paterson, Emily Hawcroft and John Fairbairn

 

A recent decision of the Federal Court provides a cautionary tale for persons tempted to make allegations of intellectual property infringement, including via personal social media posts.

 

In Seafolly Pty Ltd v Madden [2012] FCA 1346 the Federal Court found that Leah Madden, the principal of the swimwear label White Sands, had engaged in misleading and deceptive conduct by posting Facebook statements and sending emails representing that Seafolly, a competing swimwear brand had copied her designs.

 

Madden's statements

 

Madden posted various comments, both on her personal Facebook page and the White Sands Facebook page, suggesting that Seafolly had copied her swimwear designs by sending someone to pose as a buyer and take photos of the swimwear. Examples of these comments include:

1. 'Seriously, almost an entire line-line ripoff of my Shipwrecked collection'; and
2. 'Ripping off is always going to happen, but sending in a dummy 'buyer' to get photos is super sneaky!'

Madden also posted an album on her personal Facebook page headed 'The most sincere form of flattery?' which contained 8 photos of models wearing Seafolly swimwear appearing alongside photos of models wearing White Sands swimwear. Each pair of photos had the caption 'White Sands as seen at RAFW in May – Seafolly September 2010' or 'White Sands 2009 – Seafolly 2010'.

 

Madden then sent an e-mail to certain news and fashion publications with the subject 'The most sincere form of flattery?' followed by 'Is it just us, or has Seafolly taken a little to [sic] much 'inspiration' from White Sands?' This email contained the 8 comparison photos posted on Madden's personal Facebook page. 

 

These statements were made in circumstances where, in fact, the evidence showed that the Seafolly garments were either already on the market or in the process of being designed prior to the buyer taking photos of the White Sands swimwear.

 

Claims

 

Seafolly sued Madden claiming:

1. misleading and deceptive conduct and false representations;
2. injurious falsehood; and
3. copyright infringement arising out of Madden's posting of photographs of Seafolly's range.

Seafolly could not rely on defamation laws given the operation of uniform defamation laws, which prevent companies (other than non-profit organisations or small businesses) from suing for defamation.

 

Injurious falsehood and copyright infringement 

 

Seafolly's claim for injurious falsehood failed as it did not provide adequate evidence of actual economic loss suffered by it. The copyright infringement claim also failed as Seafolly did not own the copyright in the photos of the swimwear at the relevant time (which was assigned to Seafolly after Madden posted the photos).

 

Seafolly had sought general damages of $500,000 and additional damages of $500,000 for the alleged copyright infringement. Tracey J stated that, had it been necessary to consider damages for copyright infringement, the quantum claimed was 'grossly excessive in the circumstances', particularly given that the photos were only displayed on Facebook for a short time and there was no evidence of actual damage flowing from their use. 

 

Misleading and deceptive conduct and false representations

 

The claim for misleading and deceptive conduct and false representations was brought under sections 52 and 53(a) of the Trade Practices Act 1974 (Cth) as the relevant conduct occurred before the commencement of the present Competition and Consumer Act 2010 (Cth). 

 

Seafolly argued that Madden's statements were misleading and deceptive as they falsely represented that Seafolly had copied Madden's swimwear designs, that Seafolly was not the creator of the original Seafolly designs and that Seafolly had used underhanded means to obtain photos of the White Sands swimwear. 

 

In reply, Madden argued that:

1. she did not contend that Seafolly copied her swimwear designs; and 
2. her statements were merely expressions of her opinion and not statements of fact.

Tracey J rejected these arguments. His Honour found that Madden's language was intended to and did convey to her readers that Seafolly had, as a matter of fact, copied her swimwear designs and that this copying had been made possible by Seafolly's access to the photos taken by the buyer. In light of the evidence that the Seafolly garments predated those of White Sands, Madden's statements were false.

 

In relation to Madden's expression of opinion arguments, his Honour noted that the relevant consideration was the readers' perception of the statement, not the subjective purpose of the maker of the statement. In addition, his Honour stated that expressing an opinion could contravene section 52 if that opinion was not honestly made. Applying these considerations, his Honour concluded that:

1. Madden's statements, when read in context, would not have been understood by readers as mere expressions of Madden's opinion, given that her language conveyed that copying had, as a matter of fact, occurred; and
2. even if Madden's statements could be understood as opinions, she had been reckless in forming them. In particular, his Honour noted that as Madden's allegations were against a competitor and had the potential to harm Seafolly's reputation, Madden should have adopted a cautious approach. Instead, Madden posted her comments within hours of seeing the photos and failed to take steps to determine if the swimwear designs were in fact copies (such as making enquiries as to when Seafolly's swimwear was placed on the market).

Madden also denied that her conduct was in 'trade or commerce', presumably on the basis that she was merely commentating on industry matters. However, Tracey J rejected this argument finding that Madden's statements were in 'trade or commerce', as the principal of White Sands, she had sought to influence the attitudes of customers and potential customers of Seafolly, a trade competitor.

 

Accordingly, Tracey J found Madden liable for misleading and deceptive conduct.

 

Orders

 

Tracey J ordered that Madden:

1. pay Seafolly limited damages of $25,000 (for reputational damage only, as Seafolly had failed to establish any economic loss);
2. be restrained from reproducing or authorising the reproduction of the Seafolly photos without Seafolly's consent;
3. be restrained from making, or aiding, abetting, counselling or procuring the making of, similar statements, representations or claims to third parties; and
4. pay Seafolly's costs.

In coming to the decision only to award limited damages, Tracey J noted that the Facebook postings were only accessible to a relatively small number of 'friends' for less than two days. This was in contrast to the email to the publications, which had the potential for wide distribution. However, this email did not in fact lead to any significant publicity in the mainstream press.

 

Conclusion

 

This case provides a cautionary tale for those tempted in the heat of the moment to publically allege that their intellectual property rights have been infringed. While fabric and clothing designs may appear similar, that can arise for reasons other than 'copying'. The matter needs to be investigated, and if necessary, legal advice sought, before public statements of infringement are made.

'SUNNY ROO' infringes 'SUNNY BOY'

Posted by Charmain Panickar and Peter Kearney ● Partner: Paul Kallenbach

A recent decision by Perram J in the Federal Court case Solar Technology AG v Beyond Building Systems Pty Ltd [2012] FCA 1483 provides some instructive illustrations of the law of passing off and trade mark infringement.

The case concerned use of the trade marks 'SUNNY BOY' and 'SUNNY ROO' in relation to solar inverters.

Crowd funding in Australia

Posted by Alberto Colla

Crowd funding is currently receiving significant media attention in Australia, with today's edition of The Australian Financial Review devoting commentary to this topic with a prominent article on page 3 [registration required]. 

Crowd funding broadly encompasses schemes that seek to raise funds for projects and ‘start up’ companies through donations from internet users. 

In return, crowd funding schemes may offer a variety of incentives to invest ranging from discounts and product samples to debt or equity interests in the business.  While crowd funding is not specifically prohibited or legally regulated in Australia, a number of Australian technology start-up companies are urging the Australian Securities and Investments Commission (ASIC) to relax the current rules governing crowd funding, on the basis that the current rules were simply not designed with crowd funding in mind.  To date, ASIC appears cautious that small investors may be scammed or burnt by crowd funded companies, particularly if it is extended to start-up companies in exchange for equity.

You can read a more detailed explanation of the Australian regulatory regime relevant to crowd funding here.

Our TMT predictions for 2013

Posted by Tarryn Ryan and Paul Kallenbach

2012 has been a big year in the TMT space. We've had Apple and Samsung fighting it out across the globe over patent rights, the highly anticipated High Court judgment in Roadshow Films v iiNet,[1] and even the announcement of Google Glasses. So what exciting things does 2013 have in store for us, and what will the fallout be from the major events of 2012? Here are some predictions for the coming year.

1.  Device wars to intensify

With the demand for mobile devices so high, the device wars will only intensify over the next 12 months. Recently we've seen the launch of the iPhone 5 and iPad Mini, new Nexus devices from Google and Galaxy and Note devices from Samsung, and Microsoft's foray into the market with the launch of its Surface tablets in concert with its touchscreen-centric Windows 8 operating system. As the battle begins to move to enterprise – thanks in part to the BYOD ('Bring Your Own Device') to work trend – the focus will move away from the 'look and feel' of these devices, to the software and services that power them.

Prediction: Competition in the mobile device market will intensify, with software and services becoming the main battleground. NDP predicts that sales of tablet devices will soon overtake sales of laptop PCs, while according to Strategy Analytics, the number of smartphones worldwide has just passed one billion. Rapid hardware and software innovation, downward price pressure, ever-faster telecommunication networks and closer integration with ubiquitous web services will ensure that consumers will ultimately triumph in the device wars.

2.  BYOD growth will need to be managed by enterprises

BYOD is reflective of the current shift to more flexible work practices. Its uptake has also been assisted by the fact that mobile devices are increasingly better equipped for use in the corporate sphere. However BYOD raises a number of security and legal issues for enterprise. Data security and confidentiality are of concern, particularly with devices that readily connect to public clouds (think iCloud, Dropbox and many others besides). Intellectual property protection is another issue, as BYOD may blur the line between what someone does in his or her personal capacity and in their capacity as an employee. Other issues include employee privacy, software licensing, insurance and employment issues. Nevertheless, it's clear that many employees bring their own devices to work regardless of whether their employer has a formal BYOD policy in place.

Prediction: The uptake of BYOD will continue to increase over the next 12 months. As it does, expect to hear more about the problems and risks facing enterprises. Gartner predicts that BYOD devices will be affected by malware at more than double the rate of corporate owned devices. Organisations need to get on the front foot and ensure that they have effective BYOD policies and technical controls in place to regulate the use of BYOD devices within their workplace and on their internal network and systems.

3.  Uptake of social media policies as legal and reputational risks start to hit home

These days businesses have a lot to lose by ignoring social media. Not only do consumers expect businesses to have a social media presence, but their competitors are already there, taking advantage of the benefits of building an online community of advocates around their products and services. As organisations begin to feel their way around social media platforms, they need to be aware of how the law is responding to new media. Last year the Federal Court found that a company was responsible for misleading third party content posted on its Facebook page once it had become aware of that content and chose to do nothing about it.[2] A determination of the Advertising Standards Bureau earlier this year went even further, stating that organisations are required to actively monitor their social media pages.[3] And most recently, the Supreme Court found Google to be liable in defamation in connection with content appearing on its search results pages.[4]

And it's not just third party content that is proving problematic. Employee use of social media has thrown up challenges for employers and the courts alike. In a number of recent incidents, employees have used Facebook and other social media platforms to post negative comments about their employer, their co-workers and their employer's customers – apparently forgetting that social media is a very public forum. In some instances, such conduct has led to termination of employment.

Prediction: Expect there to be more developments in 2013 in the areas of responsibility for third party content and employee use of social media. As the legal and reputational risks hit home, there will be an increased focus by organisations on implementing and enforcing social media policies. This will include policies governing how people within the organisation should use social media (both during and after work hours), as well as policies directed at third parties, such as 'house rules' on company-branded social media pages setting boundaries for acceptable third party content.

4.  Patent litigation fuels trend away from monopoly rights of patentees

Patent infringement litigation exploded in the mobile space around the world in the last 18 months. The most well known example is, of course, the Apple v Samsung proceedings in courts across the EU, the United States and elsewhere (including Australia). But what will be the fallout? Some tech experts suggest it will mean longer waits for new product launches, as developers are forced to start from scratch rather than building on existing technology. From a policy perspective, these lawsuits are fuelling the push towards providing for more equitable access to patented inventions. There is growing concern that patent law (particularly in the US) may have gone too far in protecting 'look and feel', rather than the actual inventiveness. The effect of this, along with the expense of drawn out patent infringement litigation, is potentially stifling on competition and innovation.

Prediction: 2013 will see a trend away from a focus on the monopoly rights of patent holders in Australia, towards more equitable access to patented inventions. This has already begun to some extent with the 'Raising the Bar' reforms to the Patents Act 1990 (Cth). Watch out for the Productivity Commission's review of the current regime for the compulsory licensing of patents (which is widely regarded as being ineffective). The final report is due out in March 2013. Our tip is that we could be looking at an interoperability exception to patent infringement (similar to the exception that exists for copyright).

5.  ISPs and copyright owners unlikely to agree on solution to online copyright infringement but promise of more legitimate content

Copyright owners and ISPs have been in discussions mediated by the Federal Attorney General for over a year now, in a drawn out attempt to develop an industry scheme to address online copyright infringement. However, the High Court's recent decision in Roadshow Films v iiNet, where it held that ISP iiNet had not authorised copyright infringement by its subscribers in their downloading of movies and TV shows, has left ISPs less willing to compromise in these consultations. In Roadshow Films v iiNet, the High Court stated that the issue of illegal downloading would be best addressed by legislative change, and noted that the government has in the past been receptive to making amendments to the Copyright Act 1968 (Cth) as new technologies emerge. However, even with government intervention, the problem of coming up with a workable monitoring and enforcement scheme remains. Many have suggested that the answer lies not in enforcement or litigation, but in making the content users want available quickly, in the format they want, and at a reasonable price. This might sound simplistic, but one need only look at the success of iTunes, and more recently Netflix, Spotify and Pandora, to see that consumers are willing to pay for reasonably priced content.

Prediction: We're unlikely to see an industry or legislative scheme relating to online copyright infringement up and running in the next 12 months. The current ALRC inquiry into Copyright and the Digital Economy is not due to report back to the Attorney General until November 2013, and discussions between copyright owners and ISPs have all but stalled. However, expect to see ISPs (and others) working on making legitimate content more widely available. Recent comments by the managing director of the Australian Federation Against Copyright Theft suggest that rights holders may be beginning to warm to this approach.

6.  Cloud technology to mature and offer more enterprise-grade services

Cloud services offer enterprise a range of advantages including flexibility, workforce mobility, reduced capital costs, and the freeing up resources which can be reallocated to the core activities of the business. However concerns such as privacy, lack of control and performance have so far held some businesses back from embracing the technology. Yet approximately 58 percent of Australian organisations have moved to the cloud in some manner, meaning that many have found that the benefits, along with the dangers of being left behind by their competitors, outweigh these risks. With service providers already working on addressing the concerns of organisations considering adopting the cloud, we can expect the scale to tip further in this direction over the next 12 months.

Prediction: Cloud services will mature in 2013 with an increase in enterprise-grade service offerings. Gartner predicts that in the next year spending on cloud technologies in Australia will increase by 22 percent, up to more than $3 billion. In particular more businesses will be moving their IT infrastructure offsite and turning to co-location services.

7.  Potential of big data beginning to be harnessed by enterprise

Big data refers to unstructured data that is either too big, too fast, or too complex to be processed by traditional database technology. In our increasingly digital world, data production has skyrocketed in recent years, to the point where there is now 2.7 zettabytes of data in existence, growing at a rate of 60 percent per year. Forrester puts the current rate of growth of corporate data at 94 percent. But rather than being overwhelmed by the growth on such a massive scale, the IT industry has developed methods of storing and analysing this data, giving enterprises access to valuable information they did not even know they had. Big data is already and integral part of corporate giants such as Google, Walmart, Amazon and Facebook, but big data solutions are becoming increasingly more affordable.

Prediction: Expect to see enterprise beginning to harness the potential of big data. However these organisations will have to grapple with issues such as the governance and management of big data, as well as finding people with the right combination of skills to work with it and make the most of what it has to offer.

8.  Wearable tech industry to grow, but Google Glasses still some way off

Wearable technology hit the headlines in April this year when Google made its announcement about Google Glasses, developed as part of Project Glass. But wearable technology is already here. Particularly popular at the moment are devices that allow users to track training sessions and fitness data such as Nike+ and Jawbone Up. While these sorts of devices are easing consumers into the world of wearable tech, researchers and developers are more excited about the possibilities of head-mounted displays, such as Google Glasses. The buzz around these products was fuelled when fashion designer Diane von Furstenberg had her models wear prototypes of the Google Glasses to film the audience at her runway show at New York Fashion Week. Despite the hype, these products are unlikely to become available to the general public in the immediate future, with Google saying that Google Glasses will not be available for general sale until at least 2014.

Prediction: We'll be hearing a lot more about wearable technology as the market grows. Juniper Research estimates that by 2014, the wearable tech market will be worth over US$1.5 billion, almost double its current worth. However don't expect to see people walking down the street in their Google shades just yet.

[1] [2012] HCA 16
[2] ACCC v Allergy Pathway Pty Ltd (No 2) [2011] FCA 74
[3] Case number 0271/12 (Fosters Australia, Asia & Pacific - VB), 11 July 2012
[4] Trkulja v Google (No 5) [2012] VSC 533

Instagram's backflip

Posted by Tarryn Ryan and Paul Kallenbach

The past few days have been eventful to say the least for Instagram and Instagram users. On Monday, Instagram proposed new changes to its privacy policy and terms of service that sent users on a war path. Just as remarkable was Instagram's rapid response and backflip following the outcry.

In a post uploaded to the Instagram blog a few hours ago, Instagram co-founder Kevin Systrom acknowledged the response from Instagram users and promised to 'fix any mistakes, and eliminate the confusion' around the proposed changes.

The changes that sparked this series of events were scheduled to come into effect on 16 January 2013, and included the following new terms being added to Instagram's terms of service:

 

RIGHTS

1. Instagram does not claim ownership of any Content that you post on or through the Service. Instead, you hereby grant to Instagram a non-exclusive, fully paid and royalty-free, transferable, sub-licensable, worldwide license to use the Content that you post on or through the Service, except that you can control who can view certain of your Content and activities on the Service as described in the Service's Privacy Policy, available here: http://instagram.com/legal/privacy/.
2. Some or all of the Service may be supported by advertising revenue. To help us deliver interesting paid or sponsored content or promotions, you agree that a business or other entity may pay us to display your username, likeness, photos (along with any associated metadata), and/or actions you take, in connection with paid or sponsored content or promotions, without any compensation to you. If you are under the age of eighteen (18), or under any other applicable age of majority, you represent that at least one of your parents or legal guardians has also agreed to this provision (and the use of your name, likeness, username, and/or photos (along with any associated metadata)) on your behalf. 

The language used in section 1 is essentially identical to that used in the terms and conditions of Instagram's new parent company, Facebook. (We've previously written about Facebook's terms and conditions in the context of the viral Facebook copyright post.)

Although the licence set out in section 1 is arguably broad enough to give Instagram the right to use posted images in advertising without compensating the user, this licence is qualified by reference to Instagram's Privacy Policy.  Presumably, Instagram chose to explicitly spell out its right to commercialise images in section 2 because section 2 is not qualified in this way. Also, although the reference to metadata in section 2 appears as something of an afterthought, it is significant because it refers to information such as where the photo was taken and the type of device used, which is embedded in the image. 

 

Despite the specific language, Systrom said that the documents have been 'misinterpreted' and that Instagram has no intention to sell users' photos, or allow them to appear in advertisements. He promised that 'the language that raised the question' would be removed from the new terms. It remains to be seen what the revised new terms will look like, and whether Instagram has managed to stave off a mass exodus of its users with its rapid response. 

The HathiTrust Digital Library case: digitisation, fair use and fair dealing

Posted by Tarryn Ryan and Paul Kallenbach

Image courtesy of elmorsa

In a recent decision of the District Court of New York, the HathiTrust Digital Library's 'digitisation' of literary works was held to fall within the fair use exception to copyright infringement because of the purposes behind the making of the reproductions. This decision has significant implications for the US fair use doctrine in the digital age.

What is the HathiTrust Digital Library?

The HathiTrust Digital Library is a service provided by the University of Michigan in partnership with other major universities, research institutions and libraries. Currently the HathiTrust Digital Library contains over 10 million volumes. Judge Baer in his judgment described the process by which the books are digitised:

[the HathiTrust partners] have entered into agreements with Google, Inc ("Google"), that allow Google to create digital copies of works in the Universities' libraries in exchange for which Google provides copies to the [Universities]....  After Digitization, Google retains a copy of the digital book that is available through Google Books, an online system through which Google users can search the content and view "snippets" of the books. Google also provides a digital copy of each scanned work to the universities, which includes scanned image files of the pages and a text file from the printed work....  After Google provides the Universities with digital copies of their works, the Universities then "contribute" these digital copies to the HathiTrust Digital Library.

The case 

The case involved a group of authors who brought proceedings against HathiTrust and those behind the service, claiming copyright infringement for alleged unauthorised reproduction and distribution of books held by the university partners. HathiTrust brought a motion for summary judgment on the basis that the conduct fell squarely within the fair use exception.

 

Judge Baer accepted HathiTrust's arguments, holding that a fair use defence was available based on the proposed purpose and character of the use of the reproductions. He identified the purposes of the reproductions as being:

 

(a) the protection of fragile books; 

(b) enabling print-disable individuals equal access to the works; and

(c) enhanced search capabilities.

His Honour also held that the character of the reproductions was transformative, and that where a use is transformative, fair use is likely to be made out. Here the use was transformative because the copies served an entirely different purpose to the original works. The new purpose was the enhanced search capabilities – rather than actual access to copyright material – and this was already enabling new and innovative techniques of academic inquiry.

Judge Baer's interpretation of the fair use doctrine to allow reproduction for transformative uses is an important development for organisations in the technology space. At least in the US, this decision may pave the way for organisations to rely on the fair use exception to enable copying of copyright works in circumstances where it is necessary in order to enable indexing, cataloguing, backing-up, searching and the maintenance of digital collections.  

The position in Australia

There is no broad-based fair use exception to copyright infringement under Australian law. However, there are some other provisions within the Copyright Act 1968 (Cth) that may offer a defence to copyright infringement where reproductions are being made for similar purposes to those in the HathiTrust case. 

Protecting fragile books 

In relation to the protection of fragile books, section 51A of the Copyright Act provides an exception to infringement for libraries and archives. The exception applies where the making of a reproduction of a work is done for the purpose of preservation, replacing a damaged or deteriorated work, or replacing a lost or stolen work.

Enabling print-disabled individuals to have equal access

Section 135ZN of the Copyright Act provides an exception for institutions assisting persons with a print disability. Where such an institution makes a reproduction of the whole or part of an edition of a published work for use in the provision of assistance to persons with a print disability, they will not infringe copyright. However, this provision is unlikely to be broad enough to capture the type of digital reproductions that were created in the HathiTrust case.

Enhanced electronic searching capabilities

The Copyright Act does not have a specific provision that exempts from copyright infringement reproductions made for the purpose of enhanced electronic searching. There are provisions in Division 5 of Part III of the Copyright Act that allow libraries and archives to make digital reproductions of works in their collections in certain circumstances. However these provisions are tightly constrained and would not extend to allowing such institutions to digitise their entire collections in order to provide enhanced public access.

Another option would be to argue that the use fell within one of the four fair dealing defences under the Copyright Act. Unlike in the United States, where a broad-based fair use exemption to copyright infringement exists, the Australian Copyright Act codifies four specific fair dealing defences. They are where the infringing act has been carried out for the purpose of criticism or review; parody or satire; reporting news; or research or study.

The most relevant defence for present purposes would be fair dealing for the purpose of research or study, which is found in section 40 (in respect of works and adaptations) and section 103C (in respect of audio-visual items) of the Copyright Act. This defence requires the court to first ask whether the purpose of the infringing act was research or study, and secondly whether the infringing act was fair in all the circumstances.

Courts give the terms 'research' and 'study' their ordinary dictionary definitions when considering whether the infringing act has been done for the purpose of research or study. When determining whether an infringing act is fair in the circumstances, the factors that Australian courts may have regard to are similar to those considered by US courts in relation to fair use, only they are more limited to the particular type of dealing. The factors to which Australian courts may have regard when considering whether the reproduction of a work or adaptation is a fair dealing for the purpose of research or study are set out in the Copyright Act, and include: 

(a) the purpose and character of the dealing;

(b) the nature of the work or adaptation;

(c) the possibility of obtaining the work or adaptation within a reasonable time at an ordinary commercial price;

(d) the effect of the dealing upon the potential market for, or value of, the work or adaptation; and

(e) in a case where part only of the work or adaptation is reproduced – the amount and substantiality of the part copies in relation to the whole work or adaption.

While these factors give some guidance on how the courts will approach the question of fairness, the defence remains uncertain in its application. In the end, whether the fair dealing for research or study defence applies comes down to impression, and must be determined on a case by case basis.  One significant problem that HathiTrust would have encountered had the case been brought in Australia is that the relevant purpose that the court considers is that of the person doing the infringing act, not an end user who might access a reproduction that has been made by the alleged infringer.[1] Consequently HathiTrust would not have been able to invoke the defence just by showing that its subscribers used the Digital Library for the purpose of research or study.

The final possible defence is the 'special cases' exemption in section 200AB of the Copyright Act. This section provides educational institutions, libraries and archives, and those with print disabilities with a defence to copyright infringement where the use in question does not prejudice the copyright owner's legitimate interests and ability to exploit his or her copyright material. The section will also not be available if the use is for a purpose of gaining a commercial advantage or making a profit. Section 200AB was only introduced in 2006 in accordance with Australia's obligations under the Berne Convention and the TRIPS (Trade-Related Aspects Of Intellectual Property Rights) Agreement. It is yet to be tested in this country and has also been criticised for its uncertainty.

Transformative use

The Copyright Act does not currently provide an exception to copyright infringement for the transformative use of copyright material, unless that use falls within one of the fair dealing defences or other exceptions under the Copyright Act. This means that the current position under Australian law does not adequately distinguish between the copying of content for the purposes of distribution, as opposed to copying for the purposes of facilitating digital content management systems. Unfortunately this is an area in which the legislation has not kept pace with advancing technology.

The ALRC inquiry

The Australian Law Reform Commission (ALRC) is currently looking at the issue of exceptions to copyright infringement as part of an inquiry into Copyright and the Digital Economy. More specifically, the ALRC has been asked to consider whether the current exceptions to infringement in the Copyright Act are sufficient in our increasingly digital environment. In the Issues Paper released by the ALRC earlier this year, transformative use and the digitalisation of works by libraries and archives have been identified as areas of particular interest to the inquiry. The ALRC is also considering whether a broad-based fair use exception, like that in the United States, should be introduced into the Copyright Act.

The ALRC is due to report back to the Attorney-General on 30 November 2013.

[1] De Garis v Neville Jeffress Pidler Pty Ltd [1990] FCA 218 at [28] - [34].

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.