Copyright Law Review Committee

INTERNATIONAL INTELLECTUAL PROPERTY ALLIANCE

To view the word document: IIPA

August 9, 2001

The Director
Copyright Law Review Committee Secretariat
Attorney-General's Department
Robert Garran Offices
National Circuit
Barton ACT 2600
AUSTRALIA


Dear Director:

The International Intellectual Property Alliance (IIPA) appreciates the opportunity to submit the following comments on the CLRC's June 2001 Issues Paper on 'Copyright and Contract.' Consent is hereby given to the Secretariat to make IIPA's submission available in digital form.


1. Interest of IIPA and Summary of Submission


The IIPA is a coalition of seven trade associations -- the Association of American Publishers (AAP), AFMA, the Business Software Alliance (BSA), the Interactive Digital Software Association (IDSA), the Motion Picture Association of America (MPAA), the National Music Publishers' Association (NMPA) and the Recording Industry Association of America (RIAA) -- that collectively represent the U.S. copyright-based industries -- the motion picture, music and recording, business and entertainment software, and book publishing industries -- in bilateral and multilateral efforts to improve copyright laws and enforcement around the world. These associations represent over 1,900 U.S. companies producing and distributing materials protected by copyright laws throughout the world - all types of computer software including business applications and entertainment software (such as videogame CD-ROMs and cartridges, personal home computer CDs and multimedia products); motion pictures, television programs, home videocassettes and DVDs; music, records, CDs and audiocassettes; and textbooks, tradebooks, reference and professional publications and journals (in both electronic and print media). The U.S. copyright industries play a major role in the U.S. economy.[1]

Both directly and through our member associations, IIPA has a long history of involvement in the development of copyright law and enforcement policy in Australia, including the submission of detailed comments on the discussion paper on "Copyright Reform and the Digital Agenda" in 1997, the Exposure Draft of the digital agenda legislation in 1999 and the Copyright Amendment (Digital Agenda) Bill in 1999. While the Australian affiliates or international bodies of some of our member associations have also submitted comments focusing on aspects of the CLRC"s Issues Paper on "Copyright and Contract" that are of particular interest to them, IIPA appreciates this chance to provide reactions to the Issues Paper from the perspective of the copyright-based industries as a whole.

The Issues Paper begins by correctly noting that "licenses to use copyright works ... may contain clauses that purport to exclude or modify the statutory exceptions to copyright infringement." The Committee summarizes the main questions before it as "the extent to which this occurs and whether it should be permissible." IIPA's brief answer to these questions is that contracts have always provided a complement to copyright law -- filing in gaps and adjusting rights and responsibilities between parties based on their respective desires. The essential purpose of contracts is to provide clarity and predictability, thus providing a vehicle for both avoiding disputes and points of reference for addressing them if those disputes do arise.

The copyright law creates a generalized set of rules, which balances two public policy goals: providing incentives for creative persons to express themselves, and the interest of the public at large to have access to these creative expressions. These interests are neither static nor homogeneous. The evolution of social thought, consumer preferences and expectation, and technological change are but a few of the factors that affect dynamic change in how works are created, disseminated, used and enjoyed. Much as these changes require periodic updating and adjustments in the copyright law, they also drive parties to adjust their relationships through contracts.

These are not new developments. Authors and their publishers have long spelled out specific terms of their relationship through contracts, in the course of the author granting certain rights of commercialization - through distribution, reproduction, translation, etc. Similarly, consumers, whether private parties or commercial entities, have not only accepted, but often sought, specific terms for their use and enjoyment of these works, based on individual desires. This reflects the basic fact that use and enjoyment of works varies from context to context, both in respect of authors and those making use of their works. The copyright law cannot -- nor should it -- anticipate and codify every such context. To do so would constitute an Quixotic quest which elevates stability and predictability at the cost of consumer and marketplace choice and progress.

Ample historical and recent evidence makes clear that licenses with terms that vary --from transaction to transaction -- including from exceptions anticipated and codified in the copyright statute, can be expected to become more common. This practice should not only be considered permissible but, in most instances, beneficial. Put another way, proposals to interfere with or restrict contractual freedom in the licensing of access to or use of copyrighted materials should be greeted with great skepticism, including those proposals deriving from perceived inconsistencies between license terms and statutory exceptions to copyright. Maximizing contractual freedom in this sphere is in the best interests of copyright owners and the general consuming public alike.

IIPA's submission centers on the following three main points:


2. The Changing Dissemination Paradigm

The first sentence of the Issues Paper states that "copyright is all about striking an appropriate balance between the need to provide incentives for innovation and creativity and the need to encourage the dissemination of information and ideas." We agree that this is a correct articulation of the basis public policy goal. But striking the right balance between these goals changes over time, and it is not possible to strike the right balance without a thorough understanding of the dramatic changes now transforming both sides of that balance. In other words, "the dissemination of information and ideas," as embodied in works of authorship and the other subject matter of copyright[2], is being carried out through means that underscore the importance of maximizing contractual freedom and minimizing statutory restrictions on the terms of those contracts.

A generation ago, there were two main channels through which copyrighted materials were made available to the public. In the performance channel, embracing theatrical exhibition of films, television and radio broadcasts of music and audio-visual materials, live stage performances of music and drama, and the like, there was no transfer to members of the general public of a tangible object embodying a copy of the work of authorship. By contrast, in the sale channel, such tangible objects -- such as books, sound recordings, and, later, videocassettes -- were commonly transferred to members of the public in a mass market through a complete alienation of ownership of the object in question.

Today all this has changed. Of course the performance and sale channels still exist, and can be expected to continue for the indefinite future; but a third way of disseminating works to the public is gaining ascendancy. This channel depends, not upon exhibition without a physical transfer nor upon an outright sale, but upon the granting of licensed access to copyrighted material, with or (increasingly) without transfer of any tangible object. The terms of that access, defined in a contractual instrument, may vary with respect to a number of factors. For example, these may include for how long the access endures; from where (geographically or with respect to technological platforms) the access may take place; the transferability, if any, of the right to access the materials; and the degree to which the accessing party is allowed to retain all or part of the material after the initial period of licensed access.

The paradigmatic example of this new channel is Internet distribution of copyrighted materials. Whether we speak of an electronic book, a sound recording (or the music it embodies), an audio-visual work, an interactive entertainment product, or a business software application, the advent of online digital distribution is driving the market for copyrighted materials to the model of dissemination through licensed access arrangements. Even market segments such as business software, where licensing has been a common mode of dissemination of tangible products for some years, are being transformed by this new model, as the growth of application service provider mechanisms amply demonstrates. These are developments driven by the marketplace, reflecting substantial changes in how consumers use and enjoy works, as well as the ways that authors, publishers and producers chose to meet these marketplace developments.

The success of this new environment depends entirely on a complementary and evolving relationship between copyright and contract. Copyright remains essential as the set of default rules which spell out the scope of exclusive rights, and of exceptions or limitations thereto, in the absence of agreement to the contrary. Increasingly, however, there will be an agreement in place between the copyright owner and the consumer of copyrighted materials, and sometimes that agreement will be "to the contrary" with regard to statutory exceptions and limitations. More precisely, the license agreement may well draw the lines between permitted and prohibited conduct more specificity than the law does, and in different places as well. It may allow the user to make copies of the material under circumstances which the copyright law, in the absence of contract, would not permit; or, conversely, it may restrict the privilege of the user to redisseminate the material to others in ways that would not apply had the transaction involved an outright sale, after which the rights or the parties were governed solely by copyright law.

3. The Licensing Regime Benefits All Parties

While adaptation to this new paradigm inevitably brings with it adjustments in the relationship between copyright owners and consumers of copyrighted materials, the licensed access model produces benefits for both sides. Three examples may illustrate the mutual advantages of this model.

First, the availability of a licensing alternative between "pure" performance and outright sale promotes the authorized dissemination of more copyrighted material in the digital networked environment. It is a truism that the advent of the Internet enables every user to easily become a potential pirate, empowered to disseminate an unlimited number of perfect digital copies to all the reaches of the globe. It is not surprising that copyright owners hesitate to introduce their most valuable products into that environment if the only legal control they can maintain is what is provided by national copyright laws, which may be difficult or costly to enforce in many jurisdictions. The fact is that some of these works will not be made available online except within the framework of a licensing regime that the copyright owner can reasonably conclude will be enforceable. To the extent that national laws discourage or weaken such regimes by limiting contractual freedom, the online digital marketplace in that nation may fall short of its full potential as a rich source of authorized works. Clearly legitimate users have a stake as well in a legal environment that encourages copyright owners to make full use of this uniquely powerful, yet uniquely risky, dissemination channel.

Second, in the absence of contract, the extent to which a customer may reproduce or make other uses of copyrighted material is governed by statutory standards such as "fair dealing" (in Australia) or "fair use" (in the U.S.) which are by design flexible in order to retain meaning in a changing world. A licensing structure offers the parties the opportunity to draw with much greater clarity the line between permitted and excessive uses. As the Issues Paper notes, the applicability of the statutory exceptions to copyright in Australia turns upon the case-by-case interpretation of general concepts such as "reasonable portion," or "fair for the relevant purpose," or upon judicial definitions of what constitutes "criticism or review" or "news." To the extent that a license agreement is able to define permitted uses more clearly at the outset, both parties can proceed with the transaction with greater predictability and confidence that their legitimate interests will be protected. This is so even if the lines drawn in the agreement are not precisely congruent with those contained in the copyright statute.

Third, licensing regimes facilitate making materials available on the precise terms that best meet the demands of a particular market for the work. The advantages to users are obvious and widespread. A consumer who wants the right to view an audio-visual work only once, or three times, need not pay the same tariff as the person who wants to view it an unlimited number of times. A researcher who wishes to acquire a single article need not pay for the entire journal. Consumers of music, software, or other works can "try before they buy" through a low-cost, limited-duration license. An online gamer who intends to play from home is not required to subsidize, through his license fee, his fellow contestants who have also acquired the right to play from the office, from mobile devices, or from multiple continents. A business needing only intermittent access to a specialized software application saves money in comparison to another business that needs it 24 hours a day, seven days a week. On the other side of the bargain, copyright owners are able to reach market niches that might be priced out of the market or missed altogether under the "all or nothing" outright sale paradigm. The result, once again, is greater access by a wider public than would otherwise be achievable, an outcome that is also threatened by legislative restrictions on freedom to contract.

The close relationship between the licensing model and the use of technological protection measures (TPMs) by copyright owners is also suggested by the Issues Paper. TPMs (such as digital rights management systems) are often used to spell out contractual restrictions agreed to by the parties. The treatment of TPMs in the recently adopted Australian digital agenda legislation reinforces the importance of preserving contractual freedom in the copyright licensing context. As the Issues Paper points out, Australia, unlike many of its trading partners, has declined to prohibit the act of circumvention of TPMs under virtually any circumstances. This gap makes it all the more important that the copyright owner have the right to enforce a contractual agreement whose terms are frustrated by the act of circumvention and the behaviors -

including unauthorized access to copyrighted materials - that such an act enables. This right should be respected without regard to whether the terms of the contract align precisely with the default rules set forth in the Copyright Act.

4. Mass Market Licenses

The Committee is correct in its observation that "increasingly, mass-market agreements are being used to grant access to copyright material," but in one sense this is hardly a new development. Access by individuals to performances of copyrighted material in cinemas, theatres, and on subscription television channels, for example, has long been commonly granted on the basis of a "mass market" agreement whose terms are predetermined and as to which case-by-case negotiation is not a viable option. The same could be said of countless other areas of contemporary social and economic activity, from buying airline tickets to renting an automobile to almost any transaction carried out through use of a credit card. The "click through" or "click wrap" agreements that often govern the terms of access to copyrighted materials online are also frequently used, as the Committee paper notes, for transactions "the subject of which may be tangible products or services." The inescapable fact is that standard form contracts are ubiquitous in our world today. To treat them as of dubious validity or enforceability would have widespread detrimental impacts on the economy.

Under U.S. law, agreements such as shrink-wrap or click-through licenses have been held fully enforceable. In the relatively rare cases where enforcement has been denied, that result has been achieved by applying standard legal tests of contract formation, capacity to contract, unconscionability, and similar concepts flowing from the general law of contract. While we are not as familiar with similar case law in Australia, we are informed that the validity of shrink wrap licences has not been tested in Australian courts. Nevertheless, we know of no reason to think that any special rules are needed to deal with mass-market agreements. The issues remain the same as in the case of a fully negotiated agreement: whether a contract has been validly formed, and, if so, whether its enforcement should be denied on the basis of restraint of trade, consumer protection or competition laws, misrepresentation, duress, or similar legal principles of general applicability. If a contract has been formed, even without negotiation of any terms, and if no legal basis for voiding it or avoiding its obligations is presented, then it should be enforceable.

* * *

Thank you for this opportunity to present the views of the IIPA on this important topic. Please let us know if we can provide further information or if you have questions about this submission.


Respectfully submitted,

Steven J. Metalitz
Vice President and General Counsel
International Intellectual Property Alliance
1747 Pennsylvania Avenue, N.W., Suite 825
Washington, DC 20006-4604
United States of America

(tel) 202.833.4198; (fax) 202.872.0546

(email) metalitz@iipa.com 

 


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[1] In December 2000, the IIPA released an economic report entitled Copyright Industries in the U.S. Economy: The 2000 Report, the eighth such study written by Stephen Siwek of Economists Inc. This report details the economic impact and contributions of U.S. copyright industries to U.S. Gross Domestic Product, employment and trade. The latest data show that the "core" U.S. copyright industries (those industries that create copyright materials as their primary product) accounted for 4.9% of U.S. GDP, or $457.2 billion in value-added in 1999. In the last 22 years (1977-1999), the core copyright industries' share of GDP grew more than twice as fast as the remainder of the economy (7.2% vs. 3.1%). During these 22 years, employment in the core copyright industries more than doubled to 4.3 million workers (3.2% of total U.S. employment) and grew nearly three times as fast as the annual rate of the economy as a whole (5.0% vs. 1.6%). In 1999, the U.S. copyright industries achieved foreign sales and exports of $79.65 billion, a 15% gain from the prior year. The copyright industries' foreign sales and exports continue to be larger than exports of almost all other leading industry sectors, including automobiles and auto parts, aircraft and agriculture. A summary of this study is available on the IIPA website at http://www.iipa.com.

[2] In general, references to works in this submission embrace subject matter other than works in which copyright is recognized in Australia.