Landmark Australian case creates uncertainty for cloud based services

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May 8, 2012

As the outcome hinges on the technology used, based on the current decision there is room for lengthy technical arguments in future cases to test the interests of rights holders against new technology.

The ongoing struggle of copyright holders against new technologies has been highlighted in a landmark Australian case. While the dispute is expected to reach the High Court, a recent Full Court of the Federal Court of Australia (the FCAFC) decision has provided considerable legal uncertainty for providers of cloud based services. Although the decision is a victory for rights holders, the rest of the audience may struggle in differentiating between “traditional” technologies such as VCRs (video cassette recorders) or DVRs (digital video recorders) and the purpose of the cloud based service in question, the decision being predicated upon the nature of the technology used instead of the intended purpose of the action.

In the April 2012 decision, the FCAFC found in favour of rights holders to the broadcasting of a number of Australian Football League (AFL) and National Rugby League (NRL) games. The case was an appeal of the decision by Justice Rares of the Federal Court who had found in favour of Optus (SingTel Optus Pty Ltd and Optus Mobile Pty Ltd) in February 2012. It was alleged that Optus had breached copyright laws by enabling the recording of free-to-air rugby league matches by subscribers of its TV Now service. The rights to the broadcast of these games are held by AFL, NRL and Telstra Corporation Limited. Telstra holds the exclusive licence to broadcast the games to the public (through the Internet, mobile devices and free-to-air television). The TV Now service allowed subscribers to record the programmes for playback at a time chosen by a subscriber on his / her computer or mobile device.

The first primary issue for consideration on appeal was determining the identity of the maker of the cinematograph film / sound recording / copy of the matches when a recording was made (for the purposes of the Australian Copyright Act). The rights holders contended that Optus, or Optus and the subscriber jointly, were the makers of the recordings. Optus claimed that it was the respective subscribers who had made copies of the broadcasts and that Optus had merely provided the automated service that made this possible. The FCAFC disagreed with the approach taken by the United States Court of Appeals, Second Circuit, which in the Cartoon Network decision [1] stated that volitional conduct was an important factor in determining direct liability:

In determining who actually “makes” a copy, a significant difference exists between making a request to a human employee, who then volitionally operates the copying system to make the copy, and issuing a command directly to a system, which automatically obeys commands and engages in no volitional conduct.

The approach in the Cartoon Network case was not followed by the FCAFC:

Whatever utility the volitional conduct concept has in distinguishing the two forms of infringement (given the need to do so in US jurisprudence), its adoption in this country would, in our view, require a gloss to be put on the word “make” in s 86(a) and s 87(a) and (b) of the Act. … It equally is not apparent to us why a person who designs and operates a wholly automated copying system ought as of course not be treated as a “maker” of an infringing copy where the system itself is configured designedly so as to respond to a third party command to make that copy … Optus’ role in the making of a copy – ie in capturing the broadcast and then in embodying its images and sounds in the hard disk – is so pervasive that, even though entirely automated, it cannot be disregarded when the “person” who does the act of copying is to be identified. The system performs the very functions for which it was created by Optus.

While Justice Steven Rares in the February 2012 decision had found in favour of Optus, the FCAFC concluded differently:

The maker was Optus, or in the alternative, it was Optus and the subscriber. It is unnecessary for the present purposes to express a definitive view as between the two … they were jointly and severally responsible for the act of copying. That is our preferred view.

The second primary issue was whether section 111 of the Copyright Act applied to Optus if its actions would otherwise violate the copyright of the rights holders. The FCAFC held that Optus could not, whether as a maker alone, or as a maker with a subscriber, fall under the ambit of section 111. This section exempts a maker from copyright violations if the cinematograph film or sound recording of a broadcast is created solely for private and domestic use by watching or listening to the material broadcast at a time more convenient than the time of the broadcast. The FCAFC stated that there was nothing in the language of the section suggesting that it was intended to cover commercial copying on behalf of individuals.

The FCAFC however pointed out that its decision was limited to the particular circumstances of the case:

We accept that different relationships and differing technologies may well yield different conclusions to the “who makes the copy” question.

In the matter of technological neutrality the FCAFC stated that it was not up to the court to re draft the exception in s 111 to “secure an assumed legislative desire for such neutrality” and that “no principle of technological neutrality can overcome what is the clear and limited legislative purpose of s111”.

While Optus has disabled its TV Now service in the interim, it has also stated, as expected, that it will appeal the decision to the High Court of Australia. The case is of significant public interest as pre-existing intellectual property rules are being tested against new technology. The interests of rights holders are being weighed against those of cloud computing, innovation and technology as well as the end-user. As already stated by the FCAFC, different relationships and technologies may lead to different conclusions on the primary issues of the case. As the outcome hinges on the technology used, based on the current decision there is room for lengthy technical arguments in future cases to test the interests of rights holders against new technology. It is yet to be seen how the High Court will rule on the matter and whether the legislature will intervene to provide more certainty.

[1] Cartoon Network LP, LLLP v CSC Holdings Inc 536 F 3d 121 (2nd Cir 2008).