TABLE OF CONTENTS:
My enquiry revolves around the interaction of copyright and contract law. Copyright law and contract law interact, with the one establishing property law principles, and the other enabling parties to commercialise their intellectual property assets.
The early 21st Century has been described as the Information Age. It is a period in which the most valuable resources are the access to and control over information. As a result, copyright and other intellectual property laws are of increasing significance.
However, the digital world is vastly different to the print world within which our copyright laws originated. Dramatic growth in broadband communications, convergence of technology systems, digitalisation of content and the globalisation of human interactions have changed the context within which copyright operates.
Commentators in Australia and elsewhere are concerned that these developments will affect the longstanding relationship between contract law and copyright law. (1)
There are particular concerns about the possibility of online licensing contracts restricting access to and use of copyright material even when such access and use is subject to free use provisions under the Copyright Act. (2)
The question therefore arises as to whether and to what extent the pre-existing statutory regime of copyright protection can validly be replaced by a private regime of contractual protection for the benefit of copyright owners.
I will begin with a summary of principles in the conveyance of copyright interests, first in negotiated contracts which follow the conventional contract model, then in the online model used mainly to license the use of computer software.
I will further examine how general principles of contract law and competition law place limits on the ability to enforce some contract terms.
In the concluding section, I will attempt to provide an overview of current theories on the interaction between copyright and contract law in the light of technological changes, the “digital dilemma”.
Conventional licensing contracts
Copyright can loosely be defined as the rights acquired when creative effort is reduced to a material form or expression.
In Australia, copyright has been seen very much as an economic right, focusing on the protection of commercial activities designed to exploit work for profit. (3). It is entirely a creature of statute, all such rights being regulated by the Copyright Act 1968 (“the Act).
Since December 2000, the Act provides not only for ‘economic’ rights, including exclusive rights to reproduce or communicate copyright material, but also for ‘moral’ rights, to prevent certain non-authorised uses of recordings or broadcasts of a performance. (4)
Because copyright arises upon creation of the work, the question of initial ownership is not complicated, as is the case with patents. Subject to certain exceptions, the first owner of copyright is the author of the original work, or the maker or publisher of the film, sound recording or published edition (5)
The exploitation of economic interests in copyright material is, fundamentally, a matter of contract between copyright owner, on the one hand, and copyright user on the other. The copyright owner can transfer or withhold transfer of his property against the background of the copyright rules.
The copyright owner has the right of commercial exploitation or may give the information away for free and relinquished any right in whole or in part in an open forum. By and large, open forum uses of information, such as the “Creative Commons” or “Open Source” license formats are non-contractual or based on non-profit principles of distribution.
The World Wide Web has developed as a predominantly open forum showing that such altruistic motivations do inspire the creation and making available of significant quantities of digital content.
All of the relationships and distribution choices involved in commercialisation of information assets involve contracts. Contracts have a central role in achieving the basic goals of copyright and define the value received and property right conveyed. Property rights are routinely assigned, transferred, waived, released and licensed under contract law.
Copyright contracts fall commonly into four classes:
- A joint venture between artist and publisher under a profit sharing agreement;
- The publication of a work on fixed commission paid under an agency agreement;
- An outright disposal of copyright by way of assignment;
- The exploitation of copyright by way of licensing.
A sale of copyright – and of other intellectual property rights – is usually called an assignment. Assignments of copyright must be in writing, signed by or on behalf of the assignor, (6) though an informal assignment may be given effect in equity.
Once an assignment takes effect the assignor, absent express provision to the contrary, is divested of any control over the copyright assigned. Thus, unless otherwise specified, the assignor has no greater right to infringe the copyright than any other person and cannot prevent the assignee from further assigning or licensing all or part of the copyright or from altering the work or subject matter in any way.
A license provides permission or consent to do something. (7) It does not create any estate or interest in property but only makes an act lawful which would otherwise be unlawful.
A licence need not be in writing, unless it is an “exclusive licence” as defined in s 10(1) of the Act. An exclusive licence is a licence coupled with the grant of a proprietary interest. Under such a licence, the licensee obtains the exclusive right to do some or all of the acts which the copyright owner is entitled to do..
Licensing arrangements fall into two categories, statutory and voluntary.
Statutory (compulsory) licences are licences which exist under legislation and which allow persons to perform acts in respect of certain types of copyright without the need for the copyright owners’ consent. In order to rely upon a statutory licence, users of copyright material (i.e. ‘licensees’) must meet the specific requirements set out in the Act. (8)
Voluntary licences may be express, implied or compulsory. A licence granted by a copyright owner binds both the grantor and the grantor’s successors in title, even as against a subsequent assignee. (9) The same applies to licences of future copyright. (10)
Contracts normally contain terms relating to intellectual property rights but will also contain a broad array of issues. The issues differ depending on the type of information involved and the chosen method of distribution.
The scope of an information contract includes: (11)
- Product Issues: Defining the subject matter of the transaction, what rights are transferred or withheld, and what fee, royalty or price is charged for that product;
- Liability Issues: Defining the allocation of risk for errors, defects, third party claims for libel, defamation or the like, associated with the informational subject matter;
- Performance Issues: Defining how the transaction will be performed, when it will be completed, what laws apply and other issues associated with establishing the relationship between the parties.
For example, licenses may contain any of the following terms:
- a) Reproduction:
- if the object is reproduced, it must be reproduced in its entirety. (Note that this may create difficulties for the licensee if the object comprises multiple distinct components);
- if the object is reproduced, each reproduction should include reference to the copyright-owner’s copyright notice. This can be made convenient by embedding the licence terms within the materials, and/or providing a long-term, ‘persistent’ URL;
- the object may / may not be adapted, and derivative works are permitted / precluded;
- the object may / may not be reproduced;
- if the object is reproduced, each reproduction may be used only by the licensee / may be made available to any student undertaking a course conducted by the licensee / may be made available to anyone, provided that no fee is charged / may be made available to anyone, provided that any fee that is charged is no more than the cost of reproduction and distribution / may be made available for a fee to any person enrolled in a training course run by the licensee, with the proviso that 20% of that fee is remitted to the copyright-owner / etc.;
- the copyright-owner undertakes to give consideration to any request by the licensee for a licence to reproduce the object under circumstances not permitted by the licence.
- b) Publication:
- c) Adaptation:
- the object may / may not be republished;
- if the object is republished:
- it may / may not be republished in the form of printed paper / a web-page / a CD-ROM / a DVD / a file downloadable over a telecommunications link;
- it may / may not be republished by incorporation within a larger object;
- the republisher is to / may / is not to use technical measures to obstruct, restrict, record or control access to, or further reproduction of, the copy;
- the copyright-owner undertakes to give consideration to any request by the licensee for a licence to republish the object under circumstances not permitted by the licence.
- the object may / may not be adapted;
- if the object is adapted:
- the adaptations must be performed in such a manner that the changes made to the original object are clearly distinguishable;
- the adapted object may not be published to any party other than the copyright-owner / may not be published to any party other than the copyright-owner until it has been reviewed and approved by the copyright-owner;
- the copyright in the adapted object vests in the copyright-owner of the original object / the licensee;
- the adaptation must not be damaging to the honour or reputation of the individual creators of the object. (This is a requirement under copyright law provisions relating to moral rights);
- the copyright-owner undertakes to give consideration to any request by the licensee for a licence to adapt the object under circumstances not permitted by the licence, and to publish the adaptations; but indicates that it will most likely impose terms designed to both protect the copyright-owner, and to ensure the open availability of the enhancements and information about them;
- d) Conditions Restricting Use:
- subject to the terms in this licence, the intention is to place no restrictions on the licensee’s freedoms to read the object, study it, analyse it, exercise it for any purpose, including to understand its behaviour and its interaction with other objects, and to copy it in order to perform those activities;
- the licence is / is not for a fixed duration;
- the licence is / is not revocable by the copyright-owner, under such conditions as any infringement of the licence-terms / elapse of time / non-usage of the licence;
- the licence is / is not subject to a one-time licensing fee;
- the licence is / is not subject to a fee for each reproduction;
- the licence is / is not subject to a tiered fee scale that varies depending on the number of reproductions made;
- the licence is / is not subject to geographical or ‘territorial’ restrictions (in particular, within one or more particular countries, or States within a country);
- the licence is / is not subject to restrictions relating to categories of persons;
- the licence is / is not subject to restrictions relating to the purpose to which it is to be put (e.g. education, research, promotion);
- the licence is / is not subject to restrictions relating to the field of endeavour (e.g. science, cultural pursuits, sport, gambling, pornography).(12)
Traditionally, courts have been slow to imply licences or permission to reproduce copyright works in the absence of clear expression to do so by the copyright owner.
However, licences may be implied from the circumstances in which the owner deals with the work or subject matter or by reference to a “particular class of contract”.
For example, one of the classes of contract that in the past has been identified in this way is the commissioning of architectural plans. Where a client commissions architectural plans for a building, if the parties do not provide otherwise, the architect will generally be the owner of copyright in the plans. (13) Such a licence will only be implied, however, where “business efficacy” demands it.
In Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd (14) the question for the court was whether the purchaser (Concrete) could make use of architectural plans that had earlier been submitted for development approval against the objection of the architect (Parramatta), the owner of the copyright.
The parties had not set out the terms of the license in the commissioning document. Accordingly, an implied license was required. The High Court, on appeal from the Federal Court, restated the principles and confirmed that an implied license arises either by conduct, or in a particular type of contract or it is being implied to provide business efficacy.
In the digital economy, it remains to be seen how the courts will deal with the question of implied licences, for example where material is placed on the Internet in circumstances where there is often full knowledge that the material could be copied. (15)
Australian copyright follows a regime of infinite divisibility. Copyright can be transferred as a complete package or selectively and the owner may license or assign any bits of it as it suits. The agreement must therefore specify with some precision what is being granted.
Splitting up copyright in this way is contemplated in s 196 (2) of the Act which allows for an assignment of copyright to be “limited in any way”, including as to the class of acts that the copyright owner has the exclusive right to do. A person who acquires a limited copyright in this way is treated as the owner of a separate copyright for that particular purpose.
The fact that copyright is divisible in a number of ways may be relevant for both parties to the agreement as these contracts do more than slice up the copyright pie. They can make the pie itself larger by allotting exclusive rights among those licensees best placed through talent or specialization to put the literary or artistic work to its most profitable use in each and every market. (16)
Section 197 of the Act allows for an assignment of future copyright, so that copyright material not yet in existence may be sold before it is even created. Well known authors will have such an arrangement with publishers, or songwriters with a recording company, for “advance” rights to future works.
In certain circumstances rights owners have a de facto obligation to administer their rights through collecting societies. Collecting societies are private organizations which provide owners with an administrative option for more effectively enforcing rights, in relation to copyright use and for the collection and distribution of copyright licence fees.
Such organisations either acquire copyrights from their members or act as their agents to enforce copyrights.
From the point of view of composers of music and owners of musical copyright, the system has great advantages, in that no individual composer or copyright owner can, in practice, secure adequate protection for his work.
However, collecting societies are natural monopolies and their operations have added to existing concerns regarding the statutory monopoly created by copyright law. Therefore, their arrangements may risk breaching the competition provisions of the Trade Practices Act and the prohibition on misuse of market power under Part IV of the Trade Practices Act.
Online Licensing Contracts
Online licensing contracts have become the usual method in the conveyance of computer software. Computer software is a set of instructions written in a programming language in a form known as human readable “source code” or in machine-readable language referred to as ‘object code’. The instructions direct a computer to perform a required data-processing task.
Computer programs have been protected under copyright law in Australia since 1984 when the Act was amended to bring them within the same category as literary works. Copyright protection extends to both the source code and the object code of the computer program. (17)
In Data Access Corporation v Powerflex Services Pty Ltd & Ors the High Court (18) found that a compression table in a computer program was a literary work, confirming that copyright protects the expression of system or methods but does not protect their functionality, which falls within the province of the patent system.
This extension of the scope of copyright law has been confirmed in Article 10(1) of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) 1994, which is binding on all members of the WTO. It provides: “Computer programs, whether in source or object code, shall be protected as literary works under the Berne convention”.
The initial development of software systems can be extremely expensive, and commercial returns uncertain. For example, the development and marketing of its video game console Play Station reputedly cost Sony Computer Entertainment over $600 million. (19)
Computer software developers depend almost entirely on copyright protection and resultant licensing to commercialise and exploit their intellectual capital. Not surprisingly, developers are concerned about protecting their rights from possible user infringement because of the ease of duplication of digital products.
“Imagine products so useful that people pay hundreds of dollars to buy them, yet so easy to steal that a child could do it with ease and impunity. Then think of a way to stop the thievery.” (20)
It is widely acknowledged that that the mass market distribution of copyrighted work, such as computer software, would be impractical if rights owners had to conclude individual contracts with end users. This is because transaction costs are too high. (21)
In such circumstances, economic efficiency demands that alternate ways, such as standard term contracts, are to be found, which significantly lower the transaction costs of mass distribution to end users, saving firms the cost of negotiating the terms of each contract individually. (22)
According to economic theory, when high transaction costs make bargaining between individual copyright owners and potential users of copyrighted material impossible or prohibitively costly, market failure is said to occur. It is called “market failure” because of the theory that a free market would result in the best possible set of outcomes. (Ironically, while copyright law is designed to remedy the market failure of the “public good” it can create another type of market failure, that of “monopoly”).
In Australia, the Digital Agenda Act 2000 introduced the right to “communicate” the work to the public (23) which enables computer programs to be sold or licensed over the internet. As a result, it is becoming possible to protect material from unauthorised copying through instantaneous contractual agreements between the publisher and user.
As the software industry cannot rely upon the copyright law to protect its products, it has to go beyond the language of copyright law to provide it with additional rights. These rights are contained in licensing agreements, usually called an End-User License Agreement (EULA) which is attached to the software and becomes binding in one of several ways. In her article: “Shrink-Wrap. Open Source and Copyright”, (28) the author describes the end user’s experience.
First, there is the shrink wrap license, which lists on the outside of the software package the licensing agreement and has a small sticker that usually states, “Breaking this seal indicates your acceptance of the license agreement on the back of this package.”
According to these shrink-wrap licenses, once the plastic wrap has been removed from the software, the buyer has agreed to the contents of the license. The only way to reject the license is to return the CD without opening the shrink-wrap, meaning that investigating the content of the CD in order to make an informed choice is impossible. Shrinkwrap license agreements are the most common method of protecting mass marketed software.
Second, the license may appear on the inside of the packaging and state that installing the software implies acceptance of the license. Their terms are written on the inside of the CD jacket cover. To read the licensing agreement the software owner would have to open the CD and pull out the jacket cover. For this product, installation or use of the software package activates the contract.
Third, if one downloads software from the Internet the first thing that will appear during the installation process is the license with a button at the bottom that asks you to accept the terms of the contract. If you click on the button to proceed, you have agreed to all the terms listed in the contract. The only other option is to disagree with the license terms and abort the download.
However, it is not necessary to read the license to be held to the terms of the license. Even if the buyer does read the license, in many cases the software has been purchased and opened before the terms of the license are made available, making return unlikely.
Where the license appears on the back of a shrink-wrapped disk the buyer may see the terms, but has no opportunity to view the software and/or content prior to accepting the terms of the license. In other instances, the license may not appear until the installation process has begun.
In any case, the buyer is put into the position of accepting the terms of a license without having seen the product it will cover. It is very likely that the consumer will not read the license because they have already bought the software and returning the package unopened without installing the program on a machine would defeat the purpose of the initial purchase in the first place. (24)
Shrink-wrap licenses create a catch-22 for software purchasers. One must usually open the wrapping to see the full terms and conditions of the licensing agreement. However, by opening the wrapping, the software buyer has already agreed to the terms and conditions of the license. The software vendor’s intention is that by opening the plastic wrap and using the software, customers will be bound by the terms of the license. (25)
In virtually all cases, the end user has not bought computer software, but has licensed it from the software company. Accordingly, one could say that “the license is the product”. (26 A)
The Adobe End-User License Agreement makes this clear in Section 2 of their license on Copyright, “This Agreement provides the terms and conditions under which you are licensed to use the Software. It is not an agreement for the sale of the Software to you.”
Similarly, the Corel WordPerfect Suite 8 license agreement clarifies what the software purchaser has actually bought: “this is a license, not a sale.” It states in Section A under License: “COREL provides you with storage media containing a computer program which may also include “online” or electronic documentation, license, and other printed materials and grants you a license to use the Product in accordance with the terms of this License.” Thus, Corel has provided a storage unit, presumably a CD, which the consumer owns, but the content remains the property of Corel. (28)
License agreements can severely limit the rights of the end user to use the product as they see fit. For example, Adobe states in Section 3 on Transfer rights, “You may not rent, lease, sublicense, or lend the Software.”
Microsoft uses virtually identical language, “You may not rent, lease, or lend the software product.” A licensee may not rent, lease lend or host products. (27)
Even Netscape, a free open source product requires the user not to “… sell, rent, lease, sublicense, or otherwise transfer rights to the Product … without Netscape’s prior written consent.”(28)
Thus, although online contracts may be termed ‘licence’ agreements, they often appear to be more in the nature of ‘access’ agreements. For example, to gain access to a file, the user may agree to certain conditions. These terms may prohibit reproduction or further dissemination of the material, or other limitations imposed by the publisher/ provider.
The International Intellectual Property Alliance (29) in a submission made to the CLRC, stated: “the paradigmatic form of dissemination of copyright materials through the outright sale of tangible copies is rapidly shifting to a model featuring the licensing of access of intangible copies”.
It predicts that this could occur: “…with or (increasingly) without transfer of any tangible object” and that terms of access”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 IIPA characterised this shift to licensing of access as “a marketplace reality, resulting from changes in the ways that consumers use works and technology.”
There have been challenges to these EULAs, specifically as unconscionable contracts of adhesion. Contracts of adhesion are agreements drafted by one party and offered on a “take it or leave it” basis.
Under the contract law rule in L’Estrange v Graucob (F) Ltd (30), once you sign a document. knowing it to contain contractual terms (at the time you accept the offer) you are bound by those terms, whether you actually have read them or not. However, this does not apply to a situation where you have to take the product home to be able to read the terms of the agreement.
In a typical example of a contract of adhesion, a US court in Specht et al v Netscape Communications Corp et al (31) considered that acceptance by mouse click was sufficient to create a contract. However, the case stands for the proposition that, after acceptance has been communicated, only those terms that are expressed in the offer will be binding upon the offeree. The case highlights the need for online vendors to ensure that all terms are brought to the attention of the prospective customer. Netscape had failed to capture the necessary evidence on their website of the customers’ acceptance of all terms and conditions.
For years, the US courts have held shrink wrap licenses to be unenforceable on the ground that a party cannot be bound by terms that are brought to the buyer’s attention after the completion of the sales contract. (32)
The question of enforceability of shrink-wrap licenses was finally addressed, among other issues, by the United States Court of Appeals for the Seventh Circuit in the controversial decision of ProCD Inc. v Matthew Zeidenberg and Silken Mountain Web Services Inc. (33)
ProCD had spent millions of dollars to produce a massive “phone book” data base of nationwide scope. ProCC sought to limit contractually the right of users to distribute information contained in a data base.
Matthew Zeidenberg had bought a personal copy of the database for around $150 and used the data to create his own directory that he uploaded to the Internet. The copy Zeidenberg purchased came inside a shrink-wrapped plastic covering that contained a licensing agreement describing the manner in which the database could be used.
ProCD sued Zeidenberg for violation of the licensing agreement that barred Zeidenberg from making commercial use of the software he had purchased. The main issue under consideration was whether contractual relations that broaden the bundle of rights granted by copyright law are enforceable. In his defence, Zeidenberg argued that the shrink-wrap license was unenforceable because he was unaware of the contents at the time of the sale.
At first instance, the District Court found no binding contract between the parties, because Zeidenberg had not accepted the terms of the license.
The Court of Appeal disagreed. It found that, unless the terms of the license are unconscionable or otherwise excused by contract law, and these terms were not, then the buyer was required to honor the terms of the license. The court held that “terms and conditions offered by contract reflect private ordering, essential to the efficient functioning of markets”.
The reasons the software contract was enforceable:
- the box indicated it was subject to a license;
- the purchaser had the opportunity to read the license;
- the purchaser had the opportunity to return the software and get a refund;
- the purchaser manifested assent by keeping the product.
The ProCD decision has been seen by some commentators as having broad implications for the delivery of software to mass market consumers through in-store sales telephone and mail order, and via the internet. (34)
The decision has been heavily criticized (26) for upholding a shrink wrap license that extended contractual protection against copying subject matter that the Supreme Court had already declared uncopyrightable. (35)
Following the ProCD decision, other courts have held shrink-wrap licenses enforceable on the question of manifestation of assent and the decision had a major impact of the proposed Uniform Computer Information Transactions Act (UCITA) in the USA. (36)
In its report, the CLRC (2) generally accepted that such contracts are legally enforceable in Australia and that the law in Australia does not place click wrap contracts in any different position to traditional contracts.
However, the report noted that whether clickwrap, shrinkwrap and browsewrap agreements might be enforceable in Australia must await final judicial clarification. In the absence of such clarification, the Committee considered that clickwrap agreements are likely to be enforceable, although it held that the enforceability of browsewrap and possibly shrinkwrap agreements was open to much greater debate. (37)
It is predicted that new methods of electronic commerce will shift the emphasis away from present software licensing contracts to imbedded works known as rights management information. (38)
The on-line license models envisioned involve the licensing of rights on a per-transaction, per-access, per-work or other pay-per-use pricing systems. An example of a pay-per-use license is the LEXIS-NEXIS database access at the UTS university library.
It is expected that the International Preservation of the Integrity of Rights Management Information, defined by Article 12 of the WIPO Copyright Treaty, will eventually provide a new medium for online license conditions, going beyond those present in current “shrink wrap” licenses. (39)
Limits to Freedom of Contract
In Australia, as in most western countries, freedom of contract is a cornerstone of the legal system based on the principle that a contract freely entered into by an adult is binding.
The court will normally not reopen a contract merely because the court thinks that the terms are unreasonable or unfair. However, in certain circumstances, the law of contracts may limit the exploitation of copyright to correct an imbalance of bargaining power between the contracting parties. (40)
The interests of the parties and of the public may both involve considerations of public policy. The respective bargaining power of the parties and notions of fairness may be considered, if not in terms of public policy, then as relevant to whether an agreement is reasonable between the parties.
Traditionally, authors were presumed to be the weaker party to agreements
and these limits were cited to prevent a copyright owner from losing their rights, for example, in arrangements between an author and a publisher.
However, the creation of direct contractual relationships between the copyright owners and end-users may change that view. The law may now be required to prevent a copyright owner from abusing his rights vis-à-vis end users who can be considered the weaker party to standard contracts.
One could consequently view this evolution as a paradigm shift from an author-centred to a user-centred conception of copyright law. (41)
Contract law provides traditional legal and equitable remedies developed to restrain inequitable practices. For example, a court may challenge the validity of an inequitable contract by applying the doctrine of ambiguity, or “contra preferentem”, which holds that ambiguities in contracts are strictly construed against the party that stipulates the terms.
It was against this legal background, that the High Court said in Darlington Futures Ltd v Delco Australia Pty Ltd: (42)
“… the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity”.
The exercise of legal rights arising under a contract can be restrained in equity if the exercise would be contrary to conscience. The equitable doctrine of unconscionable conduct provides the most likely basis upon which agreements which exclude or modify the copyright exceptions could be successfully challenged in equity.
The equitable doctrine of unconscionable conduct applies to procedural unconscionability: the process of taking advantage of a superior bargaining position. However, inequality of bargaining power alone is not a sufficient basis for invoking the doctrine. Nor does the doctrine apply to substantive unconscionability (i.e. the imposition of harsh contractual terms) although a harsh outcome and/or inadequacy of consideration may constitute evidence of unconscionable conduct.
Equitable defences such as delay (laches), acquiescence and want of clean hands are also available to resist an action for an equitable remedy, for example, an injunction to restrain a breach of contract. The defence of delay is available if the plaintiff has engaged in unconscionable delay in seeking a remedy, for example, by encouraging the defendant over a long period to believe that they would not seek to rely on their strict legal rights under a contract.
Restraint of Trade
Contracts in restraint of trade are a particular type of contract which may be held unenforceable on public policy grounds. The public policy which underpins the doctrine has generally been held to be the promotion of free trade, which must be weighed against the competing public policy of promoting freedom of contract. The courts have indicated that they will examine such contracts carefully and may require them to be justified before they can be enforced.
Broadly speaking, a contract will be in restraint of trade if it affects a person’s future ability to carry on his or her trade, business or profession. If so, the contract is unenforceable unless the restraint can be justified as being reasonable in the interests of both parties and the public.
In Schroeder Music Publishing Co Ltd v Macaulay, (43) a decision of the House of Lords, the plaintiff, a young songwriter who had not previously published, entered into a publishing agreement with the defendant, a large American music publishing corporation. The contract was in a standard form and included an assignment by the plaintiff to the defendant of “the full copyright for the whole world” in every musical composition “composed created or conceived” by him alone or in collaboration with another person for five years, with a possible extension to ten years if the royalties exceeded £5000 for the first 5 years.
The plaintiff was to receive no payment (apart from an initial £50) unless his work was published, and the publisher was under no obligation to publish. If he did not publish the plaintiff could not terminate the agreement or have the copyrights re-assigned to him but the publisher could terminate the agreement. Also the publisher had complete power to assign but the plaintiff was prohibited from so doing.
Their Lordships classified the contract, whereby the plaintiff had accepted restrictions upon his ability to earn money as a song writer, as a contract in restraint of trade. Their Lordships were unanimous in concluding that the contract in this case was unduly restrictive and was unenforceable.
Where contractual terms are harsh or unconscionable, in a situation where there is a clear inequality of bargaining power, the terms may be held to be unenforceable.
According to Mason J of the High Court in Commercial Bank of Australia v Amadio, (44) unconscionable conduct may be found in equity ‘whenever one party by reason of some condition or circumstance is placed at a special disadvantage vis-a-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created’.
The classic example of unequal bargaining oppositions is where the original copyright owner, such as an author, is offered a standard form contract by a publisher on a “take or leave it” basis.
If a disadvantageous bargain is the result of the exercise of undue influence, the court may set the bargain aside. In order to have a contract set aside, it must first be shown that the parties are in a relationship in which one person has influence over another. That is, it is necessary to demonstrate a “dominating influence”.
In O’Sullivan v Management Agency & Music Ltd ,(45) the plaintiff, Gilbert O’Sullivan was a composer and performer of popular music who had entered into a sole agency agreement with the defendant. O’Sullivan had no independent advice and placed complete trust in Mills who was a substantial shareholder in the defendant companies.
Disagreements arose and in 1976 O’Sullivan commenced proceedings seeking to have the agreements set aside. It was held that the agreements were void and unenforceable because they were in restraint of trade on the basis of Schroeder v Macaulay, and because they had been obtained by undue influence.It was held that the companies were in a fiduciary relationship to O’Sullivan. The chairman and the managing director of the companies had taken advantage of the ignorance, youth and lack of experience of O’Sullivan to tie him to their organisation on “bargain basement” terms.
The CLRC commented that unconscionability is unlikely to apply to most contracts the subject of their enquiry: “…this is particularly so in the case of mass-market agreements and/or agreements entered into online, which require few or no preliminaries between the parties. As the defendant must be at least constructively aware of the plaintiff’s particular disadvantage, the doctrine would be limited in its application to these transactions. That is because the enquiry about the reasonable character of a use restriction of copyrighted material is often reduced to an assessment of what the buyer’s expectations were under all the facts and circumstances”. (46)
In the US, pr-emption and misuse doctrines apply to render such contracts unenforceable. In Lasercomb Am Inc v Reynolds (47) the leading case on copyright misuse, the licensee was restricted (beyond copyright norm) from developing die-making products for 99 years.
Australian courts have been cautious in establishing even the existence of an implied duty of good faith in commercial contracts.
The case of Meridian Retail v Australian Unity Retail Network (48) is a recent Australian example of the courts considering whether a term requiring good faith was implied into a (franchise) agreement. The Victorian Supreme Court made some informative general comments:
- The High Court has not yet endorsed an implied term of good faith into commercial contracts and, where lower courts have done so, opinions have varied as to the rationale for the implication.
- The position in Victoria is spelled out by the Court of Appeal in Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL (Receiver and Manager Appointed), (49) namely:
- the courts should be reluctant to imply a term of good faith as a legal incident of commercial contracts;
- the preference is for ‘ad hoc implication’;
- if implied, the term might impose nothing more than an obligation to act reasonably in the performance and enforcement of contractual obligations;
- whatever the basis for implication of the term and whatever its content, the term probably operates to protect a vulnerable or disadvantaged party ‘from exploitative conduct which subverts the original purpose for which the contract was made’.
- It may be appropriate to imply an obligation of good faith into franchise agreements where the relationship ’embodies a significant disparity of bargaining power’
The judicial review of terms under the unconscionability doctrine mainly serves as a consumer protection measure and it would in principle not apply to other categories of users of copyrighted material such as small businesses, libraries, archives, educational institutions and the like.
Presumably, end users of copyright, as weaker parties to a mass market transaction, could evoke the doctrine of good faith and a court may consider a contract to be invalid because it is unreasonably burdensome.
However, litigation is not regarded as a practical option. The CLRC examined the remedies that may be of use to user’s party to licenses:
“Even where remedies are theoretically available, in practice, there are very considerable disincentives to users ever seeking to defend their rights while there are very powerful incentives for copyright owners to seek to enforce what might otherwise be objectionable terms. “It is impractical to expect copyright users to assume the risk of expensive litigation to maintain the copyright exceptions where individual contracts purport to exclude or modify them. While this may be worthwhile for some institutional users and in respect of some exceptions, more often than not, risk management practices will dictate that organisations simply refrain from exercising the exception or pay for the right to use copyright material although they may be entitled to make that use under the Act. This is particularly likely in the case of small to medium size enterprises (SMEs)”. (50)
Enforcement procedures would need to be conducted within the confines of private international law principles where questions such as residency, place of business and jurisdiction arise. These jurisdictional issues seriously complicate the prosecution of rights. Although regulated by a number of international treaties, copyright law is basically national. Each legislated regime is different and there are many countries that have not ratified the primary treaties.
The application of the Part IV of the Trade Practices Act
The information industry, by the nature of its goods and services, is one based on layered proprietary standards which do not easily accommodate substituted products or processes and hence it is an industry populated by powerful monopolists.
For example, a monopolist in the software industry may prevent competitors from entering the market by a variety of technical measures coupled with powerful intellectual property protection such as copyright and overlapping and inter-related patents.
Part IV of the Trade Practices Act 1974 generally prohibits contracts, arrangements and covenants which have an anti-competitive tendency as well as more specific manifestations such as exclusive dealing arrangements and price-fixing. Many standard provisions in licensing and assignment agreements have the potential to fall foul of Pt IV.
Under Section 45, provisions in contracts arrangements and understandings which restrict the supply or acquisition of goods or services to a person or class of people or which lessen competition are unenforceable.
Section 46 in Part IV proscribes misuse of market power by corporations which have a “substantial” degree of power in the market. This section prohibits corporations with a substantial degree of market power from using that power to:
substantially damage or eliminate a competitor;
substantially damage or eliminate competitors generally, a class of competitors or any particular competitor; or
prevent or deter anyone from engaging in competitive conduct in any market.
Section 46 is said to have a number of difficult thresholds to be satisfied, including the showing of a “substantial degree of power in a market” (which requires a functional analysis, not simply a legal enquiry into, for instance, the existence of intellectual property rights) and the “use” of this power (generally thought to entail conduct that would not occur in a competitive market)
In Universal Music Australia Pty Ltd v ACCC (2003) (51) the ACCC failed in its claim that copyright holders Universal Music Australia Pty Ltd and Warner Music Australia Pty Ltd had breached s 46 in seeking to impose restraints on music retailers. The Full Federal Court found that the record companies, which together held about 40% of the Australian market for wholesale recorded music, at most enjoyed temporary monopolies in relation to particular CDs rather than any “persistent” condition of substantial market power.
However, contracts dealing with intellectual property rights occupy a unique position in relation to the regulation of restrictive trade practices.
Section 51(3) of the TPA exempts licences and assignments of intellectual property from the provisions of Part IV of the Act (other than those relating to misuse of market power (s. 46) and retail price maintenance (s. 48)) in so far as they relate to ‘the work or other subject matter in which the copyright subsists’.
Accordingly, s 53 excludes conduct engaged in relation to copyright material from the operation of some of its provisions, but the exclusion does not cover s.46 and therefore, misuse of market power cannot be justified by reference to an intellectual property agreement.
Using a purposive interpretation of s 53, one of the leading Australian authors on intellectual property law (52) explains the practical effect of the section thus:
“the intellectual property owner is allowed to license and assign his intellectual property which subsists in the named objects without risk of contravening Part IV of the Trade Practices Act. At the same time, the section tries to prevent the intellectual property agreement from being used as a cover for imposing restrictive trade practices outside the legitimate exercise of the intellectual property owner’s rights subsisting in the objects”.
The Australian Competition Tribunal appears to have accepted that intellectual property laws do not necessarily clash with competition laws. It has argued that, both competition policy and copyright law share the common economic goal of maximising wealth by producing what consumers want at the lowest cost. In this way, there is maximum allocative efficiency (making what consumers want and productive efficiency (making the goods with the fewest scarce resources). (54)
In addition, in its competition policy review of Australian IP laws, the Intellectual Property and Competition Review Committee (Ergas Committee) recognised that harm to competition cannot be inferred from the mere existence of an exclusive IP right, there should be no presumption that IP rights create market power.
The Ergas Committee concluded that intellectual property rights are
sufficiently different from other property rights and assets to warrant special exemptions from the general provisions of the TPA. (55) In accepting this recommendation in part, the CLRC acknowledged that intellectual property rights should continue to be accorded distinctive treatment under the TPA.
The “Digital Dilemma”
Copyright exists to regulate the use of content and to balance the rights of creators and the general public, and it is a widely held belief that this balance should be maintained in the digital environment. (56)
However, in the digital domain, there is some uncertainty whether copyright is the most suitable regime to undertake this function and there are widespread concerns about the impact of digital technology on the copyright balance. “The copyright balance has never been under as much strain as it is today”. (57)
This is associated with several factors:
The rise of powerful multinational corporations involved in the design and distribution of computer software and in search engine technology;
The expansion of copyright at an international level, with an increase in the duration of copyright and the expansion of the worldwide enforcement system for copyright under TRIPS, which was made binding on all of the members of the World Trade Organisation (WTO);
The mass market direct contracting methods using standard licensing agreements which impose restrictions on the use, reproduction, and modification of the software by the consumer.
CLRC: “ The Committee has found that commentators frequently remark that the digital environment is faced with a new challenge in providing copyright owners with the same level of protection against unauthorised use of their work as in the analogue environment, while protecting the interests of users in light of their fears that copyright owners’ responses to these perceived risks could lead to a “digital lockup”. The Committee notes that the literature refers to this phenomenon as the ‘digital dilemma”. (58)
A university law library, for example, which acquires an electronic reference work, is not liable for infringement of copyright if the library makes the material available online within the library premises (s 49). Under a licensing agreement with the publisher of the electronic work, however, the publisher may limit such access to university students or staff so that neither local practitioners nor casual library users can access the work. This effectively prevents the university library from performing one of its traditional roles of being an information resource for its local community. (59)
Under copyright law, once the item is sold, its use is determined by the first sale doctrine, which provides the purchaser of a copyrighted product with certain rights over the product once purchased. However, because software developers do not want their products subject to the first sale doctrine, they can avoid this “problem” by claiming that the product has been leased, not purchased.
There has been considerable debate about whether some transactions used to regulate trade in electronic materials are effectively sales of goods masquerading as licences in order to avoid the first sale doctrine. (This issue arose in Soft Man Products Co. v. Adobe Systems (60) where a US District Court cast doubt on a software licensor’s ability to prevent software packages from being split up and sold as individual units by the licencee/purchaser).
Another example of a consequence of software licensing is the dependance of licensees on receiving upgrades and patches from the vendor. Traditionally, upgrades enabled a licensee to purchase modifications when, and as they saw fit. Microsoft ‘s Software Assurance scheme now requires a user to buy an upgraded subscription as part of the license of a product. Critics claim that this upgrade scheme applies a fee to a licensee even though an upgrade is not required. A New Zealand company, Infraserv Ltd has made a formal complaint about the impact of this new “software as service” paradigm. (61)
The shift to privatized agreements leads to a further concern – the ability to use contracts as a form of censorship. One such right that can now be contracted away is the ability to criticize a product. Offering criticism of a product may be prohibited by license, even though such a practice would be allowed under copyright law as a legitimate and necessary practice that benefits the general public.
For example, Netscape’s license specifically limits criticism without permission. They state, the “licensee may not… publish any results of benchmark tests run on the Product to a third party without Netscape’s prior written consent.” The clause in the Netscape contract suggests that even if it may be in the best interest of the public to know how Netscape performs, it is not necessarily in the interest of Netscape. Thus, the Licensor can attempt to limit knowledge about the product through licensing restrictions.
The widespread use of technical protection devices might result in the de facto creation of new information monopolies. Digital encryption will prevent those who have not bought a disencryption key from having access to the work. This would be especially problematic in regard to public domain materials. (62)
Online dissemination and technological methods of licensing will allow the replacement of copyright law by a contractual regime. This regime will leave little room for bargaining between owners and users and will raise barriers to an extent that would be socially undesirable. As a result, although users may agree to restrict their use privileges in return for access to information, such restrictions may impose costs on society as a whole. (63)
It is argued that the protection of constitutional rights and user’s fundamental right to privacy is under threat as new technology allows owners to control the use of their works right into each individual’s home. Rights owners can track the use of their work and acts of infringement by placing an electronic module inside the work to record every use made by a given person, as well as the frequency and duration of such use. (64)
The production and dissemination of information is a legitimate and vitally important goal of public policy. Random access to information allows people to share in political and social deliberations, it stimulates further creation, is essential for self-realisation and the ability to participate in a social dialogue we broadly call culture.
Freedom of expression is one of the cornerstones of democracy. It includes the freedom to communicate, and to gather information, a fundamental right under the Universal Declaration of Human Rights and incorporated thereafter in article 19 of the International Covenant on Civil and Political Rights (ICCPR). (65) Public domain in its broadest sense is essential for the realisation of this freedom. (66)
Many commentators recognize the potential conflict between copyright policy and freedom of contract in the digital age:
In an article entitled: “Intellectual Property: The Attack on Public Space in Cyberspace” (67) one commentator expresses concern about the lengthening of the copyright period and the transformation of information into a consumer product as detrimental to the
information commons, a diverse public space for free speech and creativity. The article warns that the powerful content industry will use licensing of access to create nearly unlimited economic rights which will reduce the size of the public domain: “The internet and digital technology is expanding the public domain beyond the norms of limitations or contractual forms.”
The lengthening of the copyright period from 50 years to 70 years under the US Free Trade Agreement Implementation Act 2004 has been widely critizised. “One must question the policy reasons supporting such an increase…it is difficult to support these long protection periods from a policy point of view…one can only imagine that it is large corporations and publishing houses …that are driving this rather irrational growth.” (68)
A prominent author on this topic (69) predicts that contracts will become larger than the copyrights they convey, and will have the capacity to disconnect the production and distribution of information from the balanced norms of copyright. Such contracts will substitute effectively for copyright and for the internal balances that define copyright.
Prompted by concerns about the possibility of contractual arrangements disturbing the balance between copyright owners and users, the Copyright Law Review Committee, a specialist advisory body established to report to the Commonwealth Government on specific copyright law issues, was presented with the task of inquiring into the relationship between contract and copyright.
After many months of deliberation, the Copyright Law Review Committee (CLRC) released its Report on Copyright and Contracts in 2002:
“Copyright has always been based on a notion of balance. That is, balance between encouraging competition and providing incentives in the areas of innovation and creativity on the one hand, and ensuring access to information on the other. The Government regards it as important that Australian copyright law maintain an appropriate balance between the rights of copyright owners and the rights of copyright users.” (70)
The Committee noted that judicial clarification is needed in respect of enforceability of “clickwrap”, “browsewrap” and “shrink wrap” licenses as uncertainty surrounds these types of agreements, though the Committee expressed the view that “clickwrap” agreements are more likely to be enforceable than the latter two. (71)
The Committee accepted that there is an economic argument in support of standard contracts. Sometimes it will be impractical to conclude a copyright contract because the transaction costs are insuperably high relative to the value of the desired use.
Amongst the submissions, users and owners alike, there was general consensus that agreements which purport to exclude or modify the copyright exceptions are prima facie enforceable, although the issue remains ultimately unclear at law.
“It is apparent from that discussion that the enforceability of contracts purporting to exclude or modify the copyright exceptions is unsettled as a matter of domestic law. In the event that all contracts of this type are enforceable, the Committee considers that there would be a displacement of the fundamental copyright balance”. (72)
The CLRC agreed with the views of one contributor (APRA) who had expressed the view that copyright owners ought not, through technical means or by contractual conditions associated with giving access to a work, be able to enforce conditions of use that conflict with copyright exceptions. In APRA’s view the enforcement of such conditions in such circumstances defeats Parliament’s intention in defining the balance of interests involved. (73)
The main recommendations of the CLRC were to the effect that contracting out of the principal exceptions to the exercise of owner’s rights is not to be permitted:
“It follows that it should not be possible to alter that balance by means of contract. That is, it should not be possible to extend the ambit of copyright, as set out in the Copyright Act, by means of contract. Put another way, the public interest in the preservation of the copyright balance, as set out in the Act, takes precedence over the public interest in freedom of contract”. (74)
One of the distinctive features of Australian copyright law is that there is no general fair use exemption to infringement of copyright, such as s 107 of the US Copyright Act. The Committee decided in favour of retaining the Australian statute which allows “fair dealing” with copyright material only for the specific purposes of research or study, criticism or review, reporting news and seeking professional advice. (75)
The Committee examined the options for addressing what it has identified as a displacement of the copyright balance. The Committee used the term ‘mandate’ as referring to the avoidance of an agreement, or a provision of an agreement, that excludes or limits or has the effect of excluding or limiting the copyright exceptions insofar as they relate to lawful users of copyright material.
The Committee considered a range of options, from mandating all exceptions
(except where there are practical reasons not to do so) to only mandating some of the exceptions, for example, particular instances of fair dealing.
The CLRC quoted this passage from Dr Lucie Guibault’s book:
“One possible option would be to declare a number of statutory limitations mandatory, at least in standard form contracts. Like the limitations of the European Computer Programs and Database Directives have been declared mandatory to preserve free competition, such limitations as the right to quote or make reproductions for the purposes of comment, criticism, research, or parody, could be made imperative to preserve the user’s freedom of expression”.
“Another possibility would be to extend the regulations concerning unfair consumer contract terms to cover copyright matters, For instance, a term included in a standard form contract could be presumed unfair if it departs from the provisions of the Copyright Act. Such a presumption of unfairness would have the advantage of having a broader application than the first option, since it would not be limited to a certain number of specific limitations”. (76)
However, in undertaking the enquiry, it soon became apparent to the Committee that it would not be possible to mandate all the exceptions, as many copyright user interests and the Law Council had submitted, if for no other reason than pure pragmatism.
In the end, the Committee reached a consensus that the traditional fair dealing defences and the provisions relating to libraries and archives which permit uncompensated copying and communication to the public within specified limits, and which embody the public interest in education, the free flow of information and freedom of expression, should be made mandatory.
Accordingly, the Committee recommended that any provision that seeks to exclude the operation of defences provided under ss 40, 41, 42, 103A, 103B, 103C (fair dealing) ss 43 and 104 (professional advice and judicial proceedings) s 43A and s 111A, (temporary reproductions or copies in the course of communications) or ss 48A, 49, 50, 51AA, 51A, 52, 110A and 110B (library usages) of the Copyright Act, 1968 should have no effect.
The Committee also recommended that the government work actively to promote an international solution to private international law issues relating to agreements that purport to modify or exclude the copyright exceptions. (77)
Section 47H, dealing with the reproduction of computer programs, established by The Copyright Amendment (Computer Programs) Act 1999 and the Copyright Amendment (Digital Agenda) Act 2000, is important, in that it addresses concerns about the use of contract to override exceptions to copyright protection established by statute or judicial decisions.
The legislation shows that the Government can choose to proscribe contractual attempts to allow certain transactions to stand. (S 47 created specific exceptions to permit reverse engineering, copying occurring in the normal use of the software, and back-up copying).
However, to date, no specific action has been taken by the Australian government with respect to the CLRC recommendations in respect to copyright and contracts and the current Act is still silent as to whether agreements can displace provisions of the Act which provide for reasonable access to copyright material.
By comparison, in the European Union, the harmonisation directives of the European Union have specified that certain exemptions from copyright infringement may not be over-ridden by contract law. Article 9(1) of the European Software Directive of May 14, 1991 provides that any contractual provisions contrary to the decompilation provisions of the Directive shall be “null and void”.
The difficulty of this task for any government department is increased by the fact that the internet and digital commerce are constantly evolving and will certainly continue to do so at breakneck speed, modifying production and distribution methods of copyrighted works, as well as consumer habits.
Perhaps the delay in adopting the CLRC recommendations into legislation is due to the role of Australia’s international obligations in framing the exceptions in the Act and creating the current copyright balance, particularly the Agreement on the Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement).
Article 13 of the TRIPS Agreement sets out a 3-step test for exceptions to the exclusive rights of copyright owners:
‘Members shall confine limitations or exceptions to exclusive rights to certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the right holder.’
In applying the 3-step test as a means of assessing the applicability of the exceptions to the rights of copyright owners in the digital environment, strong arguments have been made that ‘digital is different’ and the balance that existed in the hard copy world should not be applied to the online world.
Such arguments point to the differences in publication, marketing and distribution of digital material as compared with print material, noting that what is ‘normal exploitation’ (to adopt the formulation used in the 3-step test) in the print sphere does not apply to the digital world.
Proponents of this argument have warned that failure to allow the digital marketplace to evolve before legislating to protect exceptions will put Australia in peril of failing ‘its international obligations, and, more importantly…Australian creators and industries’. (78)
Several commentators have made proposals to define the limits of freedom of contract in the context of copyright licensing transactions. The authors take opposing views over the extension of copyright law by contract. One group wishes to protect the public domain by extending copyright law, the other by the use of contract law, while a third approach favours judicial intervention.
“The single most important question that electronic contracts and digital encryption raise for lawmakers is whether these new mechanisms should be brought within copyright’s ambit, or should they exist as substitutes for copyright”. (79)
In Dr. Gibault’s opinion, neither copyright law nor the general principals of contract law offer any adequate remedy to correct the imbalance caused by the use of restrictive license terms in standard form contracts or to ensure that the functionality of the copyright regime is respected. “This may in the long term have dire consequences for the production, dissemination, and access to protected subject matter”. (80)
In Elkin-Koren’s opinion, the conflicting opinions by the two courts in the ProCD case decisions reflect different approaches to the regulation of information and demonstrate the potential conflict between copyright policy and freedom of contract. (81)
In her article, Elkin-Koren endorses the approach taken by the lower (district) court in ProCD which perceives copyright law as a comprehensive, mandatory arrangement that should restrict the freedom of the parties to contract around it. This approach is concerned with preserving the “social bargain” regarding the use of information as reflected by copyright law.
The author argues that dissemination and use should be maximised to allow the inclusion of non-payers on social grounds. “Because there is a need to secure general access to information, copyright rules must be maintained in the new contractual regimes”. (82)
Elkin-Koren disagrees with the opinion of the (higher) court of appeals in ProCD, which, by contrast to the lower court, reflects the perception of the parties to replace the statutory scheme with a contractual arrangement of their choice. This approach emphasizes “freedom of contact” as the primary means for reaching efficient functioning of the information market. (83)
However, viewed from the standpoint of copyright owners, the displacement of copyright law by contracts and technological protection measures is likely to be beneficial to their interests as copyright law might not give them enough protection in an age of digital decentralised (thus less controllable) networks.
Raymond Nimmer (84) supports this “freedom of contract” view in the appellate decision and argues that contracts may be a good alternative to statutory copyright protection because of the opportunity to submit the whole relationship to a single body of applicable law.
Raymond Nimmer’s emphasis on freedom of contract is essentially the view of a commercial lawyer. In practice, the underlying intellectual property rights are often relatively unimportant in the bargaining process of the open market.
The author does not support the proposition that contract will eliminate important facets of information policy and takes the view that intellectual property rules can be seen merely as “default rules”, that state a legal position that exists between the contracting parties, unless the parties otherwise agree”. (85)
In Raymond Nimmer’s view, electronic commerce is contractual in nature. As such, he argues that the general rules regarding contract construction are equally applicable in the on-line, as well as off-line, environment.
As the licensing of copyright material is, fundamentally, a matter of contract between copyright holder, on the one hand, and copyright user, on the other,
he contends that insofar as those contracts (whether made on-line or off-line) purport by their terms to exclude or modify a statutory exception for acts which would otherwise constitute copyright infringement, the preferable approach is to treat those exclusion clauses in the same way as other types of contractual provision. He argues that, ultimately, the application of exclusion clauses, as with all contractual clauses, depends on the intention of the parties as expressed in the contract.
Wolfson (86) supports Raymond Nimmers “freedom of contract” view. He argues that contract would seem to be the most flexible, narrowly tailored way to preserve economic initiatives for providing information products.
In his article, Wolfson cites the Lexis-Nexis portal as an example of licenses that limit fair use while providing important social benefits. He explains that it is a trade-off which, on balance favours the consumer: Lexis Nexis provides a high priced commercial service, normally far beyond the means of the law students who use it in the library. The publisher provides this service at a low price based on a “non-negotiable” license restricting its use to bona fide students.
He asks: “If these terms were to become unenforceable, because some of the content is “uncopyrightable”, how would Lexis Nexis protect its product?” In reply, he believes the publisher would be forced to discontinue access to academic libraries. The author suggests we should permit judges to interpret and apply (contract) law as they always have: “The beauty of the common law system is that judges are free to look at the entire body of law and find solutions and balances”.
Elkin-Koren is not convinced by the “pro-contract” arguments put forward by such authors and defines the separate roles of copyright and contract. (87)
In her paper she argues that it is the primary function of copyright to define initial endowment:
Copyright creates rights in rem, i.e. exclusive rights against the world – everyone else. Accordingly, copyright allows owners to impose restrictions on strangers. Therefore, copyright cannot be a default rule in the economic sense because copyright law seeks to remedy a market failure. (The inability to exclude non-payers from using the information)
A contractual right differs from copyright because it creates a right in personam which cannot constitute a right against the world, only to the parties to the transaction (because of the doctrine of privity of contract). Contractual rights govern only the transferability of rights already created. Accordingly, a contract cannot change initial endowment, only subsequent bargains.
Goldstein’s article (79) substantially expresses the same view. It argues that the new mechanisms should be subjected to the norms of copyright, as it is the best method to secure acceptable conditions of cultural and political life.
In Goldstein’s view, all uses of literary and artistic works are ultimately individual uses and that a copyright balance is the only method that weighs author’s interests against the need for public access.
Another view is offered in an article by De Werra (88). The author tries to offer a compromise solution beyond the conflict between freedom of contact and copyright policies: “The internet and digital commerce raise multiple legal issues which calls for an adoption of an interdisciplinary approach in order to address legal problems efficiently”.
Acknowledging the mandatory nature of copyrights exceptions and limitations, de Werrra argues that copyright law will be unable to offer any solutions. For example, digital content that would not be protected under copyright law (because it is in the public domain) will still be licensed to users under overly-restrictive contractual conditions. This view is essentially that of Pamela Samuelson et al, (89) who argues in the famous “Manifesto concerning the Legal Protection of Computer Programs“ that the unique properties of software (expensive to develop and easy to imitate) make it ill-suited for protection under copyright law.
De Werra differs from the other “pro-contract” authors in that he proposes a global policy for information licensing based on a judicial model fashioned from the fair use doctrine. The model is also reminiscent of the doctrine of unconscionability. “What is needed is a global information policy that moves beyond the narrow confines of the conflict between freedom of contract and copyright policies, and balances protection of information with access to information in the digital environment.”
In conclusion, it is difficult to disagree with the reasoning of the “pro-contract” group of authors, who are uncertain whether copyright is the most suitable regime to tackle the digital environment, and who believe that many of the issues go beyond copyright law.
However, I am romantic enough to hope that the essence of copyright’s culture of mediation will not be lost to our legal system.
David Nimmer, Brown, Frischling (26) “passionate devotees of copyright”, remain convinced that copyright, the carefully constructed compromise between society’s disparate goals, reflects the delicate equilibrium invoked so often throughout the discussions.
The authors refer to the ongoing task of lawmakers to maintain the underlying balance of copyright, as expressed in Lord Mansfield’s admonition two centuries ago:
“We must take care to guard against two extremes equally prejudicial; the one that men of ability who have employed their time for the service of the community may not be deprived of their just merits and reward for their ingenuity and labour; the other that the world may not be deprived of improvements nor the progress of the arts retarded”. (90)
- Guibault Dr. Lucie M.C.R.: “Copyright Limitations and Contracts: An Analysis of the Contractual Overridability of Limitations on Copyright” Kluwer Law 2002, page 303
- Copyright Law Review Committee (CLRC). The CLRC is a specialist advisory body established in 1983 to inquire into and report to the Commonwealth Government on specific copyright law issues.
- McKeough, Stewart, Griffith: “Intellectual Property in Australia” LexisNexis Butterworths 3rd ed, 2004
- Reynolds Rocque and Stoianoff Natalie: “Intellectual Property Text and Essential Cases” The Federation Press, 2005, page 240
- Copyright Act, 1968, s. 35(2).
- Copyright Act, 1968, s 196(3))
- Reynolds, Rocque and Stoianoff, Natalie: “Intellectual Property Text and Essential Cases” The Federation Press, 2005 page 208
- Copyright Act, 1968, Part VA, Part VB, s 47
- Copyright Act, 1968 s 196 (4)
- Copyright Act 1968 s 197 (3)
- Nimmer, Raymond T: “Breaking Barriers: The Relationship between Contract and Intellectual Property Law” 13 Berkeley Tech. L.J. (1998) page 835
- Clarke, Roger: “Copyright: The Spectrum of Content Licensing” July 2003 http://www.anu.edu.au/people/Roger.Clarke/EC/CCLic.html)
- Copyright Act, 1968, ss.10,35
- Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd
- Media Technology Group, Allen, Allen & Hemsley, “Current Information Technology Issues in the Pacific Rim” at 14
- Goldstein, Paul: “Copyright and its Substitutes” 1997 Wis.L.Rev.865,(1997)
- Copyright Act, 1968, s 10 (1)
- Data Access Corporation v Powerflex Services Pty Ltd & Ors (1999)
- Sony Computer Entertainment v Connectix Corp 48 F. Supp.2nd, 1212, 1214 (N.D. Cal. 1999)
- Computer Software, Protection/Liability LJ Kutten, Clark Boardman Company, Ltd New York NY 1990)
- Goldstein, Paul: “Copyright and its Substitutes” 1997 Wis L Rev 865, (1997)
- Guibault Dr. Lucie M.C.R : “Copyright Limitations and Contracts: An Analysis of the contractual Overridability of Limitations on Copyright” Kluwer Law, 2002, page 79
- Copyright Act, 1968, (s 31(1) (a) (IV)
- Halbert, Debora PhD: “The Open Source Alternative: Shrink-Wrap, Open Source and Copyright” Software Protection, Volume 10, Number 4 (2003)
- Lemley, M.A. “Intellectual Property and Shrinkwrap Licenses” (1995) 68 Southern California Law Review, 1239
26A Fitzgerald Prof. Brian, Bassett, Graham and ors: “Legal Issues relating to Free and Open Software” J of Law and Inf Science Vol 2 no 2, (2001)
26B Nimmer, David; Brown, Elliott; Frischling, Gary N: “The Metamorphosis of Contract into Expand” 87 Cal L Rev 17 (1999) page 835
- Microsoft Open License Agreement v 6.0 October 1, 2001
- Halbert, Debora PhD: “The Open Source Alternative: Shrink-Wrap, Open Source and Copyright” Software Protection, Volume 10, Number 4 (2003)
- CLRC Report, Submission to the CLRC from the US based International Intellectual Property Alliance (IIPA) August 9, 2001
- L’Estrange v Graucob (F) Ltd (1934) 2 KB 394
- Specht et al v Netscape Communications Corp et al Communications Corp., 150 F. Supp. 2d 585 (S.D.N.Y.2001
- Guibault Dr. Lucie M.C.R : “Copyright Limitations and Contracts: An Analysis of the contractual Overridability of Limitations on Copyright” Kluwer Law, 2002, page 208
- ProCD Inc. v Matthew Zeidenberg and Silken Mountain Web Services Inc. 86.3rd 1447(7th Cir. 1997)
- Toedt: “Shrinkwrap License Enforceability Issues” The Computer Lawyer Vol 13 No 9 (Sept 96)
- Feist Publications, Inc v Rural Telephone Service Co.499 US 340 (1991) (not followed in Australia)
- Guibault Dr. Lucie M.C.R : “Copyright Limitations and Contracts: An Analysis of the contractual Overridability of Limitations on Copyright” Kluwer Law, 2002, page 30
- CLRC Report Page 144 (5.08)
- Guibault Dr. Lucie M.C.R : “Copyright Limitations and Contracts: An Analysis of the contractual Overridability of Limitations on Copyright” Kluwer Law, 2002, page 201
- Lai, Stanley: “The Role of Computer Software Copyright in Relation to New Media” Oxford: Hart Publishing, 2000
- Guibault Dr. Lucie M.C.R : “Copyright Limitations and Contracts: An Analysis of the contractual Overridability of Limitations on Copyright” Kluwer Law, 2002, page 151
- Guibault Dr. Lucie M.C.R : “Copyright Limitations and Contracts: An Analysis of the contractual Overridability of Limitations on Copyright” Kluwer Law, 2002, page 151
- (1986) 161 CLR 500 at 510
- A Schroeder Music Publishing Co Ltd v Macaulay  3 All ER 616
- (1983) 151 CLR 447
- CLRC Report page 151, 5.32
- Lasercomb Am Inc v Reynolds (47) 911 E2d 70 (4th Cir 1990)
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