Copyright Law Review Committee

Australian Information Industry Association

Copyright and Contract

Issues Paper, June 2001

Response to Copyright Law Review Committee

To view Word Format of this document: AIIA Date: 20 August 2001

Prepared By: Australian Information Industry Association

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Table of Contents

1 AIIA *

2 Executive Summary *

3 Issue 1 *

4 Issue 2 *

5 Issue 3 *

6 Issue 4 *

7 Issue 5 *

8 Issue 6 *

9 Issue 7 *

10 Issue 8 *

11 Issue 9 *

 

1. AIIA

The Australian Information Industry Association (AIIA) is the peak national body representing suppliers of information technology and telecommunications goods and services.

AIIA has over 370 member companies that generate combined revenues of more than $40 billion, employ over 100,000 Australians and have exports of over $2 billion.

Many of our member companies are directly or indirectly involved in the creation, development and supply of copyright based materials, particularly software.

2. Executive Summary

AIIA is of the view that, in the absence of convincing evidence of market failure or harm in this area, change is not required to -

Certainly, it is not an issue that the ICT industry, in particular, our members, have raised as being one of priority concern in the scheme of things.

The ICT industry has been affected significantly by recent copyright amendments, and would, in particular, not want to see any further development of provisions relating to circumvention devices, permitted purposes and temporary copying.

Copyright law is already sufficiently complex and is not well understood by many affected by it. Contract law already provides a range of broad well established exceptions that can be applied to appropriate cases concerning dealings with copyright based material.

Principles relating to freedom of contract must be upheld as far as possible, particularly in an emerging market where many licensing models are still in an experimental phase. Premature intervention may discourage the development of flexible business models before the market has had an opportunity to determine their viability.

3. Issue 1

Extent that electronic trade in copyright material is subject to agreements that try to exclude or modify limitations to the exclusive rights of copyright owners provided in the Act. Examples.

It is essential to recognize at the outset that trading by electronic means in copyright material is still relatively new. For this reason, most copyright based industries, both emerging and traditional, are still experimenting with online content licensing models. It is simply too early to state that any particular practices are developed, and in AIIA's view, similarly too early to consider further regulation in this area.

AIIA is not aware of widespread use of agreements in the ICT industry that purport to exclude or modify limitations to the exclusive rights of copyright owners. In any case, the recent amendments in relation to computer programs specifically prohibit the exclusion or limitation of certain exceptions (s. 47H). In many cases, agreements in fact grant greater rights than those granted under Act. In other cases, agreements are simply silent on this issue. In some cases, agreements are limited to the extent permissible.

We are unable to provide specific examples given the short time available. However, we understand that the CLRC is undertaking some research of its own and would be pleased to assist as the reference proceeds, if required.

4. Issue 2

Is the situation any different in relation to trade in copyright material that occurs offline ? Examples.

AIIA is not aware of any difference in the ICT industry in the extent to which agreements purport to exclude limitations to the exclusive rights of copyright owners between the online and offline environments.

In some cases, agreements previously used offline have simply be transferred online. In other cases, modifications may have been made to take account of differences between the online and offline environments eg. ease of retranmission or to reduce the contract length and complexity to facilitate online access.

Again, we are unable to provide specific examples given the short time available. However, we understand that the CLRC is undertaking some research of its own and would be pleased to assist as the reference proceeds, if required.

5. Issue 3

Views on the nature of any such difference.

Not applicable.

6. Issue 4

Whether the express prohibition on contracting out in s.47H suggests that provisions elsewhere in the Act can be overridden by contract. Should it be possible to achieve this result by contract ? Should all exceptions be treated alike ?

6.1 Section 47H and Contracting Out

In AIIA's view, the fact that there is an express prohibition on contracting out in s. 47H may infer that provisions elsewhere can be overridden by contract. In particular, s. 47B(2) expressly provides that s. 47B(1) can be overridden by contract. Similarly, it is clear which provisions in the Trade Practices Act cannot be overridden by contract.

6.2 Contracting Out Generally

As a matter of principle, AIIA believes that, where not specifically stated to the contrary, contractual provisions should prevail to the extent that they are inconsistent with statutory provisions. The rules governing commercial relationships must be flexible and clear to both parties, particularly in a dynamic industry.

First, this objective of flexibility is best achieved through contract law, which can be tailored on a transactional basis, with statute "filling the gaps" as necessary. We note that "contract choice" is already subject to a variety of well understood and well established legal doctrines that affect the validity and enforceability of contracts with consumers. These provide consumers with broad protections against misrepresentation, duress, undue influence, unconscionable conduct and the like. Little can be achieved by imposing an additional layer of rules on contracts relating to copyright. Indeed, this is likely to over-complicate arrangements for consumers and business.

Secondly, in many cases, it will be easier for the parties to refer to one place, their contract, to ascertain their rights and obligations in respect of a particular transaction. The average consumer and business does not have the legal expertise, let alone the resources, to navigate and accurately interpret the complex network of laws relating to contract and copyright.

6.3 Treating Exceptions Alike

Whilst it would be tempting in the interests of clarity and consistency, AIIA does not believe that all exceptions should necessarily be treated alike. Many exceptions, including Part III Division 4A (computer programs) are sectoral specific and have been developed over time to meet the particular practices and idiosyncrasies of identified industries. Therefore, it is not appropriate to apply the same approach to all exceptions. There are different expectations, different industry practices, different substantive policies, and different commercial backgrounds. To treat all exceptions alike may unsettle delicate balances, as well as adding significant costs by requiring amendment of existing practices.

7. Issue 5

  1. Are there legal remedies other than those outlined above to protect against the use of agreements to override copyright exceptions granted under the Act ?
  2. Do the existing legal remedies provide adequate protection against the use of agreements to override copyright exceptions granted under the Act ?

AIIA is not aware of any significant legal remedies, in addition to those outlined, to protect against the use of agreements to override copyright exceptions granted under the Act. However, we are strongly of the view that the remedies available are adequate and there is no need for any additional remedies. The existing remedies are rarely used in relation to copyright contracts, indicative of the fact that there is no significant problem.

The existing remedies are sufficiently broad and flexible to apply to a range of circumstances affecting the validity and enforceability of contracts. They are based on well-established and understood principles. In addition, there are also non legal forces which help provide protection, namely competitive pressure, consumer awareness and various self regulatory practices. We are of the view that there is simply no case for introducing copyright specific remedies to protect against the use of agreements overriding copyright exceptions.

8. Issue 6

Whether there should be any limitations to the enforceability of mass market agreements. For example should mass market agreements be treated as a special category and subject to special rules as to validity and enforcement ?

As a matter of principle, AIIA does not believe that there should be any limitations to the enforceability of mass market agreements. They should be subject to the same principles as any other agreement. In particular, we do not believe there is any evidence of market failure that would justify the treatment of mass market agreements as a special category and subject to special rules as to validity and enforcement. There are, in fact, many cogent reasons not to afford them any special treatment, as discussed below.

8.1 Efficacy of Mass Market Agreements

Mass market agreements may be relatively new to copyright based industries, however, from a consumer perspective, standard form or mass market agreements have been used across a wide range of industries for many years since mass marketing commenced eg. insurance products. It is well understood that they are necessarily a "one size fits all" deal. Consumers know that they will receive a product that is subject to specific terms and conditions. If they want a different product, or are not satisfied with the terms of conditions, a customized solution may often be reached. However, customized products and terms of use will inevitably involve the expenditure of greater time and resources, which will ultimately be borne by the customer to some extent. By contrast, the use of mass market agreements helps keep transaction costs down, resulting in lower prices to consumers. It is an efficient means of conducting business.

8.2 Impact of Market Forces

The fact that a mass market agreement is not negotiated by the parties does not mean that consumer interests are not taken into account in drafting the terms of such an agreement. To the contrary. There are strong market pressures on licensors to provide reasonable terms and conditions and no commercial impetus to try and dupe the consumer. In today's society, information travels fast and a customer?s poor experience can quickly become a very damaging experience for the company.

Increasingly, companies provide well set out "user friendly" guides to terms and conditions governing the use of a product and consumers are taking a greater and more discerning interest in these. Some offer service helplines etc to assist prospective customers with queries. If the terms and conditions are not acceptable to a consumer, in a competitive market, the consumer will simply take their business elsewhere.

8.3 Impact of Self Regulation

A further important issue in considering mass market agreements is the impact of self regulatory mechanisms. There are a range of self regulatory regimes that some organizations adhere to, which guide them towards best practice in e-commerce transactions, including those involving copyright based material. Both good practice and visible adherence to these schemes will help build trusting relationships between consumer and organization, and will ultimately prove a key market differentiator.

For example, the Australian E-commerce Best Practice Model (see www.treasury.gov.au) requires that "business engaged in e-commerce ... provide enough information about the terms and conditions and costs of a transaction to enable consumers to make informed decisions." Further information should be "clear, accurate and accessible", and in a way "that gives consumers an adequate opportunity for review before entering into a transaction ...".

8.4 Equality of Bargaining Power

Objections to mass market arguments are often phrased in terms of inequality of bargaining power. We are of the view that this is simplistic. Whilst software companies do contract with individuals, it is often overlooked that, in many cases, they contract with other businesses or organizations that are significantly larger than itself. For example, the Australian Government is a significant purchaser of information related products, yet it is the government ie, the customer, not the supplier, that generally dictates the terms and conditions of the deal.

Most software companies have less than 15 employees and are not well resourced in terms of legal expertise. This must be taken into account in any discussions on equality of bargaining power.

8.5 Impact of Special Rules for Mass Market Agreements

In AIIA's view, there is no convincing reason to introduce special rules relating to the validity and enforcement of mass market licences. First, there are already adequate general laws relating to contract validity and enforcement, including trade practices, fair trading, duress, mistake, unconscionability etc.

Secondly, it would not be good policy to introduce any special rules that discouraged or excused consumers from reviewing contracts that they enter into. Contracting parties have a duty to read such contracts. This would lead to an unacceptable degree of uncertainty, and ultimately additional costs, associated with mass market contracts.

Thirdly, the imposition of special rules as to validity and enforcement is both unnecessary and inappropriate, given the current nature of the market. Their imposition may ultimately have the effect of increasing costs to consumers. In addition, they will impose additional costs on software developers, many of whom are SMEs with tight margins in a very competitive market.

Finally, it is highly questionable whether the imposition of special rules would result in the development of better software, for the benefit of all consumers. It is more likely that resources that could otherwise be allocated to software innovation would have to be allocated to managing contractual issues. The Internet and other online medium allow Australian SMEs to compete in a mass market with minimum access costs, increasing consumer competition and choice. If additional rules were imposed, it is likely to impact these companies the hardest, resulting in a less innovative, less competitive Australian ICT sector and reduced consumer choice with increased costs.

The best consumer safeguard is in fact a healthy and competitive software industry.

9. Issue 7

Whether jurisdictional issues are likely to result in copyright exceptions being overridden and, if so, suggested solutions.

There is a large range of jurisdictional issues affecting the ICT and copyright based industries, however the risk of copyright exceptions being overridden is only one in the scheme of things.

Jurisdictional issues can cause uncertainty regarding applicable law and enforcement in particular. To the extent that these issues can be clarified by the use of contractual terms, AIIA would support them. This may provide the licensor with some means of controlling the use of their material where the law of the recipient would otherwise allow it.

The real issue for ICT companies is the extent to which they lose control over the authorized use of their creations and investments through a variety of jurisdictional differences, most of which are not legislative, but broader. The issues of awareness and respect for intellectual property, adequately resourced enforcement, availability of effective technological protection measures and international harmonization are, in our view, issues that require urgent attention, and priority over consideration of specific issues concerning exceptions.

10. Issue 8

Whether any, and if so, what lessons can be learned from the overseas experience.

AIIA understands that Australia is the first jurisdiction to consider these issues in any detail. However, we query why effort is being expended on this issue where there does not appear to be any substantial market failure or other issues. We respectfully suggest that there are more significant issues that could be usefully addressed by the CLRC that would provide real benefit to the Australian economy.

11. Issue 9

Recommendations as to any specific action, legislative or otherwise, in relation to the issues raised in submission.

"If it ain't broke, don't fix it."

In the absence of any convincing evidence to the contrary, we are of the view that it is premature to introduce any amendments affecting the existing relationship between copyright and contract. As noted above, Australia should be focusing on encouraging a vibrant, competitive and successful ICT industry and information economy. This will facilitate informed consumer choice and competition.