Copyright Industries continue to be a significant contributor to the Australian Economy 27/04/2015
Today the Australian Copyright Council (ACC) released a report on the Economic Contribution of Australian Copyright Industries 2002-2014. This is the fourth report of its kind that the ACC has commissioned from PwC.
The report showed that in the most recent year for which data was available (2014) copyright industries make a significant contribution to the Australian economy:
• Employed just over 1 million people (specifically, 1,000,167 people), which constituted 8.7 per cent of the Australian workforce.
• Generated economic value of $111.4 billion, the equivalent of 7.1 per cent of gross domestic product (GDP).
• Generated just over $4.8 billion in exports, equal to 1.8 per cent of total exports.
Chair, Professor Michael Fraser AM noted that since the last study in 2011, copyright industries have moved from the 7th biggest industry in the Australian economy to the 4th biggest. He went on to add:
“It is important to appreciate that while the focus of this report is on the economic activity which relies on the institutional support provided by copyright law, there are a range of cultural and social benefits that flow from the creation of copyright protected material that are not captured in the reported figures. Original and distinctive creative expression in the arts, games and beyond in new fields of creativity are an important part of Australian life.”
Fiona Phillips, Executive Director of the ACC observed that:
“In this changing and challenging environment it is good to see copyright industries continuing to make an important contribution to Australian cultural and economic prosperity.”
Go to The Economic Contribution of Australia’s Copyright Industries 2002-2014 full report.
Dallas Buyers Club LLC v iiNet 08/04/2015
On the day before an industry code to address online copyright infringement was due to be lodged with the Australian Communications and Media Authority, Justice Perram of the Federal Court handed down his decision in Dallas Buyers Club LLC v iiNet Limited.
The case concerned an application for preliminary discovery by the owners of copyright in the 2012 film Dallas Buyers Club against six Australian internet service providers (ISPs). Preliminary discovery is a mechanism by which a prospective applicant can obtain an order from a court against another person that they assist the prospective applicant to ascertain the identity or description of a prospective respondent. In this case, Dallas Buyers Club LLC sought an order against six ISPs to provide the details of 4726 account holders of IP addresses they believe had infringed copyright in their film using BitTorrent.
While this was largely a procedural matter, the ISPs challenged the application on a range of grounds. There was, therefore, several issues for the Court to determine. These issues related to the expert evidence, the methodology of discovering the IP addresses, who owns copyright in the film, and the scope and exercise of the court’s discretion to order preliminary discovery.
A contested issue was the weight given to evidence provided by two German experts, Dr Simone Richter and Mr Daniel Macek. Dr Richter had provided a detailed expert report on the nature of BitTorrent and the Maverik Monitor software used by Dallas Buyers Club LLC to monitor for infringements online. Dr Richter’s evidence was not cross-examined by the ISPs. Mr Macek provided evidence, under cross examination, on how he used the software to identify IP addresses of users sharing the film through BitTorrent. Noting Mr Macek’s cross-examination found its way into negative media coverage of the proceedings, the Court could not find any criticism of his evidence.
De minimis infringement
The ISPs argued that, due to the nature of BitTorrent, the identified IP addresses revealed only a download of a “very small sliver” of the film. While the Court accepted that argument, it rejected the ISP’s more substantive argument that this “very small sliver” was an insubstantial part and therefore not infringing. The Court noted the right of a copyright owner in a film to communicate the film to the public, and the definition of “communicate” which is to “make available a work or other subject matter online”, and found to its comfortable satisfaction that the users had infringed copyright in the film.
Ownership of the film
Another contested issue was who owns copyright in the film. The court concluded that Dallas Buyers Club LLC owned copyright in the film and that the only other possible owner of copyright in the film was Voltage LLC, Dallas Buyers Club LLC’s parent. The Court permitted Dallas Buyers Club LLC to join Voltage to the proceedings and determined that alternatively or combined, each had standing to make a claim for copyright infringement.
Nature, scope and exercise of preliminary discovery
The Court then examined the nature and scope of preliminary discovery and found that it applied in these circumstances. The next issue was whether the Court should exercise its discretion.
The ISPs put forward eight reasons why the Court should not exercise its discretion to order preliminary discovery. The Court did not accept that these eight reasons precluded the orders sought by Dallas Buyers Club LLC. However, the Court did accept that they impacted on the terms of the orders. The most significant of these was Voltage’s past practice of “speculative invoicing” in the United States. Speculative invoicing involves sending a letter indicating an infringement has occurred and liability for extensive damages, but offering a settlement for a smaller (but still substantial) sum. To some degree, the nature of these letters in the United States are informed by the statutory damages regime in that country. Australia does not have statutory damages. Moreover, it should be noted that invoicing by copyright owners for infringements of their work is not an unusual method of dealing with infringement.
The Court observed that the euphemism “speculative invoicing” was “what may appear to be abusive practices” and contemplated whether it would be lawful practice under the Australian Consumer Law or the Australian Securities and Investments Commission Act 2001. As a result, the Court proposed to impose conditions on the applicants to prevent this practice of speculative invoicing. This condition is proposed to require Dallas Buyers Club LLC to submit to the Court for approval a draft of the letters it proposes to send to account holders. Further, having regard to privacy concerns, the Court proposes to constrain the use of the information elicited through preliminary discover to purposes related to recovery of compensation for infringement.
The ISPs also argued that the Court should not exercise its discretion because of the impending industry code to address online copyright infringement. The Court dismissed this argument because it remained a draft, it was not yet registered with ACMA and it has no “sensible chance” of coming into force in the next few months. The code is due to commence before 1 September 2015.
Justice Perram ordered that the matter be listed on 21 April 2015 for further orders and concluded he will:
? order the ISPs to divulge the names and physical addresses of the account holders of the 4726 IP addresses;
? impose upon the owners of Dallas Buyers Club that this information only be used for the purpose of recovering compensation for the infringements and no other purpose;
? also impose a condition that the owners of Dallas Buyers Club submit a draft of the letter they propose to send to account holders; and
? order that the owners of Dallas Buyers Club pay the costs.
The parties are due to exchange their views on the content of these orders by 14 April.
This high-stakes and high-profile application for preliminary discovery involves an Oscar-winning film, six ISPs ranging from very small to very large, German experts, BitTorrent and 4726 Australian account holders. While similar preliminary discovery order has been made against an ISP in another area of law, this is the first decision involving copyright infringement in Australia on this scale.
The Court’s decision to grant preliminary discovery was not done lightly. While this was due in large part to the contested nature of the application, the Court imposed conditions to safeguard users’ privacy and prevent potential speculative invoicing by Dallas Buyers Club LLC. That the court ordered that it approve the content of any letters sent by Dallas Buyers Club LLC is not uncommon, particularly where communications with consumers are involved, for example in corrective advertising.
In his decision, Justice Perram criticised the approach of both parties to different degrees and to sections of the media that reported on the proceedings. Justice Perram noted that the ISP’s cross-examination of Mr Macek, which was ventilated in the media, was “largely of entertainment, as opposed to forensic, value”, and that the attempt to undermine the witness’s credit did not succeed. Justice Perram found the criticisms of the witness were “ill-informed”. Justice Perram also expressed some frustration with the ISP’s approach in objecting to “nearly everything in issue”. With regard to Dallas Buyers Club LLC, Justice Perram noted the film had not been made available in the Australian market, and that in determining potential damages, which may be limited to a foregone licence fee, the damages for single instances of infringement are likely to be modest. Justice Perram also expressed reservations about Dallas Buyers Club LLC’s practice of speculative invoicing.
This decision is an important example of how effective judicial discretion can be. It is significant given that facilitated preliminary discovery is an option for rights holders after a final notice is issued in the proposed industry code. The decision also raises questions whether fetters on judicial discretion in the proposed site blocking legislation, currently being considered by the Senate Legal and Constitutional Affairs Legislation Committee, are necessary.
 Dallas Buyers Club LLC v iiNet Limited  FCA 317.
 Section 86(c).
 Section 10.
 Para 48.
 Para 90.
 Richard Harold Smith v ACTEW Retail Ltd (unreported, NSWSC, No 15029/06) where the plaintiff obtained through preliminary discovery an order that an ISP provide the name and address of a user that had posted defamatory comments on a forum under a pseudonym.
 Para 23.
 Para 4.
 Para 76.
Competition Policy Review: Final Report Released 31/03/2015
The Government has today released the final report of the Harper Panel. The Report represents the most significant review of competition policy in Australia for two decades. The Report covers a broad range of issues. Intellectual property is identified as a priority area for reform. It states:
“Given the influence of Australia’s IP rights on facilitating (or inhibiting) innovation, competition and trade, the Panel believes the IP system should be designed to operate in the best interests of Australians.”
Its recommendations in relation to intellectual property remain largely the same as in the Draft Report released in September 2014 (see our news alert Competition Policy Review: Draft Report Released, 22/09/2014).
It recommends abolition of the exemption for licences of intellectual property in s 51(3) of the Competition and Consumer Act. It however suggests extending the block exemption powers (recommendation 39) to safe harbours.
It also recommends abolition of the remaining restrictions on parallel importation (which apply, for example, to films and books).
The Report recommends an overarching review of intellectual property be undertaken by the Productivity Commission.
The Report also recommends that trade negotiations should be informed by an independent and transparent analysis of the costs and benefits to Australia of any proposed IP provisions.
The Report is available here.
The Government has called for further consultation on the Report. More information is available at The Treasury website.
The ACC’s submissions in response to the Issues Paper and the Draft report are available on our website.
Disembodied electrons and incorporeal transmissions: Federal Court finds no copyright in a data signal. 11/02/2015
Seven Network Ltd v Commissioner of Taxation  FCA 1411
This case concerned the subsistence of copyright in a data signal used by Seven in its live coverage of the Olympic games.
The signal was provided to Seven by the IOC pursuant to broadcast rights agreements. The signal comprised live coverage of different fields of play contested at the Games.
The question for the Court was whether the signal could be protected by copyright as a cinematograph film, in so far as it consisted of an ‘aggregate of visual images embodied in an article or thing’: s 10(1). The case turned on the meaning of ‘embodied’.
This question arose in the context of a dispute between Seven and the Commissioner of Taxation in relation to Seven’s liability to deduct royalty withholding tax from payments made to the IOC in relation to Seven’s use of the signal.
Under the relevant double taxation agreement between Australia and Switzerland, liability to deduct withholding tax is imposed upon an Australian resident where they make payments to a Swiss resident in consideration for the use of intellectual property (including copyright) in Australia. The issue was thus whether the fees paid by Seven to the IOC (a Swiss resident) in respect of the signal amounted to a royalty in relation to which withholding tax was required to be deducted.
Seven’s argument was that the relevant payments did not attract royalty withholding tax as the transaction did not involve a dealing with intellectual property. As the signal was not an ‘article or thing’ in which something can be embodied, it was not capable of being protected by copyright as a cinematograph film. It followed that Seven was not acquiring any right to use intellectual property, but merely a right to access a stream of data. Accordingly, the liability to deduct withholding tax did not arise.
The Commissioner of Taxation argued that the visual images and sounds comprising the live coverage of the Games were ‘embodied’ in the signal (and therefore protected by copyright as a cinematograph film) because those sounds and images were capable, with the aid of a receiving device, of being reproduced from the signal. The transaction between the Seven and IOC could therefore be characterised as the payment of consideration for the use of intellectual property, and thus one to which the liability to deduct withholding tax arose.
What is meant by “embodied”?
In order for the data signal to be characterised as a cinematograph film, the Commissioner of Taxation needed to show that the signal was an ‘article or thing’ which ‘embodied’ the Games coverage. The Copyright Act provides that sounds or visual images shall be taken to have been embodied in an article or thing if the article or thing has been so treated in relation to those sounds or visual images that those sounds or visual images are capable, with or without the aid of another device, of being reproduced from the article or thing: s 24.
In Seven’s view, s 24 had no relevance to the case because it is concerned with articles or things in physical format (such as discs and tapes) that have been treated so that they are capable of reproducing sounds or visual images. Further, although the images were ultimately shown on television, this was irrelevant because there was no embodiment of the images and sounds in the signal.
The Commissioner of Taxation argued that “embodiment” does not require that the article or thing must be tangible, and extends to an aggregate of visual sounds and images capable of being shown as a moving picture irrespective of the means of embodiment.
The Court held that, on the facts, there was no embodiment of an aggregate of visual images in the signal since no visual images or sounds in any form were capable of being reproduced from it. The Court drew a distinction between the signal’s capacity to produce sounds and visual images (which was accepted on the facts) versus the signal’s capacity to reproduce sounds and visual images (which was not accepted on the facts). The Court emphasised that what was required by the terms of s 24 was a capacity for reproduction. Although the Court accepted that the signal, upon reception, enabled Seven to produce its own broadcast, it found that since no picture, image or sound was permanently recorded in the signal, it was impossible to reproduce the sounds and images from the signal prior to reception. Accordingly, the signal was incapable of ‘embodying’ the visual images and sounds in the relevant sense. In the words of Bennett J:
The signal is more in the nature of the fleeting use of a medium of communication than an aggregate of sounds and visual images that may convey a cinematograph film of the Olympic event to the viewer.
As the data signal was not protected by copyright as a cinematograph film, the Court found that the amount paid to access the data signal was not a payment which attracted the liability to deduct withholding tax under the relevant double taxation agreement.
In this case, the Court cited with approval previous judgments which emphasise that provisions of the Copyright Act should be interpreted broadly in order to protect technological developments not contemplated or understood at the time the provisions were enacted, provided the relevant new technology satisfies the words of the provision, liberally construed. However, in this instance, the Court appears to have taken a narrow view of “embodiment”, focusing on the means adopted to relay sports coverage, rather than the end product.