August 2005
COPYRIGHT INFRINGEMENT - GROKSTER'S CASE: IMPLICATIONS FOR AUSTRALIAN BUSINESS
Australian businesses and individuals need to be aware that they can be held legally liable for the provision of devices which can be used by others to infringe copyright. Such devices can be software or hardware, and include photocopiers, iPods, VCRs and peer-to-peer (P2P) file sharing software [1] . Therefore, if an employer/university provides an employee/student with computer facilities, and the employee/student uses the facilities to download music from a P2P file sharing site that does not pay royalties to copyright holders (which is an infringement of copyright), the employer/university could face legal action for copyright infringement if they have failed to take reasonable steps to prevent the employee/student from infringing copyright. Similarly, the owner of a retail store will infringe copyright if he or she allows their staff to play copyright protected music for the benefit of customers, without the licence of the copyright owner(s). This newsletter discusses Australian copyright laws with respect to these matters and how they may be affected by the recent decision by the US Supreme Court in Metro-Goldwyn-Mayer Studios Inc. v Grokster ("Grokster's case") [2] .
IN THIS ISSUE - A SYNOPSIS
The US Approach: Secondary Liability and the Effect of the Decision in Grokster's case
The recent US Supreme Court decision in Grokster's case, which was handed down on 27 June 2005, held that two suppliers of P2P file-sharing software were liable for the copyright infringements of their subscribers who used the software to share copyright protected music and video files without authorisation of the copyright holder. Although the P2P file-sharing software was capable of both lawful and unlawful uses, the suppliers were held liable for their subscriber's copyright infringements because they distributed the software with the object of promoting the software's use for the unlawful sharing of copyright material.
The Australian Approach: Infringement by Authorisation
At present there has not been a determination by Australian courts on the issue of whether the supply of P2P file-sharing software which enables users to infringe copyright, amounts to copyright infringement by the supplier. There is currently before the Federal Court the case of Universal Music Australia Pty Ltd v Sharman Licence Holdings Ltd (the Kazaa case) [3] which has similar facts to those in Grokster's case. The decision of the court is expected to be delivered shortly. Although Australian courts have regard to US decisions, the Federal court is bound to determine the liability of the defendant under the Australian concept of "infringement by authorisation", which differs to the US copyright law. As the copyright law currently stands in Australia, a company or an individual will be liable for copyright infringement if they authorise someone else to infringe copyright when they are not the copyright owner and do not have the licence of the copyright owner [4] . The Copyright Act 1968 (Cth) requires the courts to have regard to the following matters in determining whether or not a person has authorised infringement [5] :
(1) The extent of the person's power to prevent the infringement [6] ;
(2) The nature of any relationship existing between the person and the person who infringed [7] ;
(3) Whether the person took any reasonable steps to prevent or avoid the doing of the act, including whether the person complied with any relevant industry codes of practice [8] .
DETAILED REPORTS:
The US Approach: Secondary Liability and the Effect of the Decision in Grokster's case
Although the US Copyright Act does not expressly render anyone liable for another's copyright infringements, a doctrine has developed in US case law which has established that where a person distributes a device to someone who uses it to infringe copyright, the person can be held secondarily liable for contributory and/or vicarious infringement [9] .
The defendants in Grokster's case, Grokster and Streamcast, were suppliers of P2P file-sharing software who were alleged to have engaged in contributory copyright infringement by "knowingly and intentionally distribut[ing] their software to enable users to infringe copyrighted works". The users (or primary infringers) directly infringed copyright by sharing copyright protected music and video files, without the authorisation of the copyright holders.
A person can only be found liable for contributory copyright infringement if they possess actual knowledge of the specific copyright infringing acts of the primary infringer, or where they are considered to have "constructive knowledge" (or reason to know) of the infringement, due to the circumstances of the situation. The defendants in Grokster's case denied that they possessed either actual or constructive knowledge.
Grokster and Streamcast argued that they lacked actual knowledge of their users' copyright infringements, because the software they provided, enabled users to share files directly between themselves, which meant that the defendants did not know which copyright material was copied and when. The decentralised nature of the software distinguished the defendants from the infamous P2P file-sharing software supplier, Napster, which was held to be liable for contributory copyright infringement in A & M Records, Inc v Napster (Napster's case). Unlike Grokster and StreamCast, Napster was found to have actual knowledge that specific copyright infringing material was available using its system, because it had a centralised database that listed its users' music files that were available for sharing (most of which were protected by copyright).
The defendants relied upon the principle from Sony Corporation v Universal City Studios (Sony's case) [10]to assert that they also lacked constructive knowledge of their user's copyright infringements. In Sony's case, the Supreme Court held that the defendants, who were manufacturers and retailers of VCRs, were not liable for contributory infringement, even though they were aware that the VCR could be and was used by purchasers to infringe copyrighted television programs, because the VCR was capable of "commercially significant non-infringing uses". The ruling established the principle that persons who distribute devices capable of both lawful and unlawful uses, cannot be found to have constructive knowledge of users' copyright infringements, solely because they distribute the device with the mere understanding that copyright infringement could and probably would occur. A more acute degree of fault was required on the part of the alleged contributory infringers, to make it fair to attribute them with constructive knowledge that copyright infringement would occur and consequently reach a finding of contributory infringement.
The Supreme Court found this required degree of fault present in the defendants in Grokster's case and consequently held that the defendant's could not escape liability for contributory infringement under the exception in Sony's case. The Supreme Court held that although the defendants' software was capable of non-infringing uses, such as swapping research information or digital photos, they had constructive knowledge (or reason to know) of their users' infringements since "they distribute[d] [the product] with the object of promoting its use to infringe copyright" and they were therefore liable for contributory infringement. The Justices referred to this formulation as "the inducement test" and stated that it required evidence of intention to induce copyright infringement to be shown by the defendant clearly expressing such an intention or taking steps taken to foster infringement [11] .
Consequently, on 27 June 2005, the Supreme Court, unanimously ruled that Grokster and StreamCast were liable for contributory infringement and remanded the matter for full trial. The determination was premised on the fact that both defendants had clearly expressed the objective that recipients use the software to download copyright material and they took active steps to encourage copyright infringement which included: [12] :
· Marketing themselves as alternatives to Napster, an established source of copyright infringement;
· Deriving financial benefits from their user's infringements by selling advertising space on their websites;
· Failing to take steps to prevent the infringement of copyright material.
Practical situations where a technology distributor could be viewed as taking steps to induce copyright infringement could include advertising a copyright infringing use of a device or instructing a user on how to use a device to engage in an act that infringes copyright. Conversely, ordinary acts incident to product distribution such as offering customers technical support or product updates, would not be viewed as inducing copyright infringement.
The Australian Approach: Infringement by Authorisation
At present, there has not been a determination by Australian courts on the issue of whether the supply of P2P file-sharing software which enables users to infringe copyright, amounts to copyright infringement by the supplier. There is currently before the Federal Court the case of Universal Music Australia Pty Ltd v Sharman Licence Holdings Ltd (the Kazaa case) [13] which has similar facts to those in Grokster's case. The defendants in the Kazaa case, Sharman Licence Holdings ("Sharman Parties"), supply a decentralised P2P file-sharing software called Kazaa, which has been utilised by Kazaa's subscribers to illegally share copyright protected material. Sharman Parties are alleged to have authorised the copyright infringements of their subscribers, because they failed to prevent their users from illegally sharing copyright material by deleting the material from the search results that list which files are available for downloading by users. However, the defendants contend that effective filtering of the copyright material is not possible and that since the software has legitimate non-infringing uses, they should not be held liable for their user's copyright infringements [14] . Since Sharman Parties were also defendants in Grokster's case (although not parties to the appeal to the Supreme Court), it will be interesting to see the extent to which the Federal Court will rely on that decision. Although Australian courts have regard to US decisions, the Federal Court is bound to determine the liability of Sharman Parties under the Australian concept of "infringement by authorisation", which differs to the US copyright law.
Under the Australian Copyright Act [15], copyright is infringed by a person who, not being the owner of the copyright and without the licence of the owner of the copyright, does or authorises the doing of in Australia, any act comprised in copyright [16] . This is subject to the fair dealing exceptions contained in the Act, which include fair dealing for the purpose of research or study, criticism or review and reporting the news [17] . Unlike the US law, suppliers of devices used to infringe copyright are liable for directly infringing copyright, rather than contributing to or vicariously engaging in it.
The Copyright Act 1968 (Cth) requires the courts to have regard to the following matters in determining whether or not a person has authorised infringement [18] :
(1) The extent of the person's power to prevent the infringement;
(2) The nature of any relationship existing between the person and the person who infringed;
(3) Whether the person took any reasonable steps to prevent or avoid the doing of the act, including whether the person complied with any relevant industry codes of practice.
(Sections 36(1A) and 101(1A) of the Copyright Act 1968 (Cth))
The three considerations are essentially codified from case law and are not an exhaustive list. They assist Australian courts in determining whether the secondary infringer had a sufficient degree of control over the primary infringer which is required for them to be liable for "authorising" copyright infringement. The emphasis on control differs to the US law's primary concern with the extent of knowledge of the secondary infringer. In Australia, although knowledge is viewed as a necessary element for a finding of infringement by authorisation, it will not suffice alone. Justice Gibbs in University of NSW v Moorhouse ( Moorhouse's case) [19] asserted that there could be no liability for authorisation where the defendant did not know and had no reason to know that copyright infringements were occurring. Therefore, in Australia, Internet Service Providers (ISPs) with knowledge of, but no control over their user's infringing activities, have been able to escape liability for providing software that enables users to infringe copyright, such as P2P file-sharing software.
The leading Australian authority on copyright infringement by authorisation is the High Court judgement in Moorhouse's case, where a university was held to have authorised an infringement of copyright, when a student made a copy of a book on a library photocopier. In this case, although the university was unaware of the student's copyright infringement, they were held to have authorised it, since they provided the photocopier, knew or had reason to suspect it would be used to infringe copyright and failed to take reasonable steps to limit its use to legitimate purposes. This amounted to an implied invitation to users to infringe copyright. In holding this, the court interpreted "authorise" to have its dictionary meaning of "sanction, approve, countenance". Some other examples of where Australian courts have found authorisation by infringement include where a club or organisation have arranged for a public performance of copyright protected songs to be provided by a band [20] or juke box [21] . However, it has been held that the manufacturers of blank cassette tapes do not authorise the copyright infringements of purchasers, over whom they have no control [22] .
The Copyright Act 1968 (Cth) provides defences against infringement by authorisation for:
(a) Libraries and archives that provide a notice in prescribed form near machines that can be used to make infringing copies, that reminds users that the obligation is on them to ensure they are not infringing copyright [23] .
(b) Persons who provide facilities for making or facilitating a communication (including ISPs [24] ) merely where another person uses the facilities to infringe copyright [25] . But as a consequence of the Australia-US Free Trade Agreement, Australia has introduced a regime requiring ISPs to comply with conditions set out in s 116AH of the Act in order to avoid liability for the infringing actions of their subscribers [26] . Now, ISPs must adopt and implement a policy that provides for the termination of accounts for repeat copyright infringers and comply with any relevant industry codes of practice. Additionally, with respect to the ISP activities of storing copyright material at the direction of a user and referring or linking users to an online location (e.g. through hyperlinks), ISPs must expeditiously remove or disable access to copyright material on their system upon becoming aware the material infringes copyright.
Although the Australian copyright laws differ from the US law, they are influenced by US decisions like Grokster's case. The influence of US laws has been strengthened by the introduction of the Australia-US Free Trade Agreement in 2004, which promotes the harmonisation of Australian and US intellectual property laws. The Fair Use Review currently being undertaken by the Attorney-General's Department indicates Australia's willingness to adopt US copyright laws. The Fair Use Review is examining the desirability of introducing into Australia the US concept of "fair use" as a defence for private copying. Currently, under Australian copyright law (unlike in the US) all private copying is an infringement of copyright, including taping television programs to watch at a more convenient time and copying a CD onto an iPod. If this defence is implemented, it will drastically reduce the instances in which a person can be held liable for authorising copyright infringement.
Copyright infringement claims can result in substantial damages being awarded by courts. Businesses that supply or propose to supply devices which can be used for illegal copying of copyright works should take all reasonable steps to prevent or avoid infringement from occurring. What constitutes " reasonable steps" will vary from case to case and therefore legal advice should be obtained. For example, in the case of businesses that provide employees with computer facilities, they should implement tools such as computer and internet usage policies, employee training, electronic warnings and filtering, and that they monitor their employees' online activities [27] .
Stephens Lawyers & Consultants have an extensive practice in copyright law and IT and are well positioned to advise.
For further information contact:
Stephens Lawyers & Consultants Level 3, 530 Lonsdale Street Melbourne VIC 3000 Phone: (03) 8636 9100 Fax: (03) 8636 9199 Email: stephens@stephens.com.au Website: www.stephens.com.au All Correspondence to: PO Box 13286 Melbourne Law Courts Melbourne VIC 8010* Written by Jacqueline Guthridge. Edited by Katarina Klaric.
© Stephens Lawyers & Consultants, August 2005
[1] Peer-to-peer (P2P) file sharing refers to the "free software that allows computer users to share electronic files through peer-to-peer networks, so called because the computers communicate directly with each other, not through central servers" that store the files: Metro-Goldwyn-Mayer Studios Inc. et al. v Grokster, Ltd. et al. 545 US (2005) at p. 1 per Justice Souter. P2P networks enable users to share any file, but have been exploited for downloading copyrighted music and video files without licence or the payment of royalties.
[2] Metro-Goldwyn-Mayer Studios Inc. v Grokster 545 US (2005).
[3] Universal Music Australia v Sharman Licence Holdings [2004] FCA 183.
[4] Copyright Act 1968 (Cth) sections 36 (1) and 101(1).
[5] Copyright Act 1968 (Cth) section 36 (1A).
[6] Copyright Act 1968 (Cth) sections 36 (1A) (a) and s 101 (1A) (a).
[7] Copyright Act 1968 (Cth) sections 36(1A) (b) and 101(1A) (b). Note: This consideration may "provide a basis from which to infer control or the power to prevent infringement": Lahore, J & Rothnie, W.A. Copyright and Designs: Volume 1 - Commentary, (Butterworths, Australia, 2004) p. 34,542.
[8] Copyright Act 1968 (Cth) sections 36 (1A) (c) and s 101 (1A) (c). In Moorhouse's case, Justice Gibbs said that the taking of reasonable steps to prevent a third party from infringing copyright would preclude liability for authorisation, even where the defendant had the necessary degree of control for liability to be otherwise imposed.
[9] Sony Corporation of America v Universal City Studios, Inc. 464 US 417 (1984) at 434. Note: The US Copyright Act is codified in Title 17 of the US Code. Chapter 5 deals with copyright infringement.
[10] Sony Corporation of America v Universal City Studios, Inc. 464 US 417 (1984).
[11] Metro-Goldwyn-Mayer Studios Inc. v Grokster 545 US (2005) p. 1 per Justice Souter.
[12] Metro-Goldwyn-Mayer Studios Inc. v Grokster 545 US (2005) p. 1 per Justice Souter.
[13] Universal Music Australia v Sharman Licence Holdings [2004] FCA 183.
[14] The defendants based this proposition on the House of Lords decision in CBS Songs Ltd v Amstrad Consumer Electronics plc which proposed the same principle as that in Sony's case. Both decisions have been cited with approval by the High Court of Australia in Australian Tape Manufacturers Association Ltd v The Commonwealth of (1993) 176 CLR 480.
[16] Copyright Act 1968 (Cth) sections 36(1) and 101(1) . The relevant acts comprised in the copyright are exclusive rights of the copyright holder and are set out in section 31 for original works as including the rights to reproduction, publication, performance, communication to the public and adaptation. In relation to sound recordings, the rights are set out in section 85(1) as the right to make a copy, to cause it to be heard in public, to communicate the recording to the public and to enter into a rental arrangement. The rights in relation to cinematograph films are set out in section 86 as including the rights to make a copy, to cause it to be heard in public and to communicate it to the public.
[17] Sections 40, 41 and 42 of the Copyright Act 1968 (Cth) respectively .
[18] Copyright Act 1968 (Cth) section 36 (1A).
[19] Universityof New South Walesv Moorhouse (1975) CLR 1 .
[20] Australian Performing Association Ltd v Miles [1962] NSWR 405; (1961) 3 FLR 146; Australian Performing Association Ltd v Canterbury-Bankstown League Club Ltd [1964-65] NSWR 138; (1964) 5 FLR 415.
[21] Winstone v WurlitzerCo Ltd [1946] VLR 338 at 347.
[22] Australian Tape Manufacturers Association Ltd and Others v The Commonwealth of Australia (1993) 176 CLR 480. The High Court approved of the House of Lords decision in CBS Songs Ltd v Amstrad Consumer Electronics plc [1988] AC 1013; (1988) 11 IPR 1 which also considered the liability of blank tape manufacturers for their users' copyright infringements. In this case, Justice Gummow cited the US decision in Sony's case with approval .
[23] Copyright Act 1968 (Cth) s39A. This provision was a codification of the decision in Universityof New South Walesv Moorhouse (1975) CLR 1. See regulation 4B and Schedule 3 of the Copyright Regulations 1969 for the prescribed form.
[24] The Australia-United States Free Trade Agreement defines an Internet Service Provider as a provider or operator of facilities for online services or network access.
[25] Copyright Act 1968 (Cth) s39B.
[26] Australia-US Free Trade Agreement Article 17.11.29.
[27] See the February 2004 edition of Stephens Newsletter titled "Legal Risks Associated with Email and Internet Use and Abuse by Employees".