Author: Michael Dorman, Fourth Year Bachelor of Arts/Law at Monash University
Suggest one or more new statutory exceptions for the Copyright Act 1968 (Cth), consistent with Australia’s international legal obligations, and explain why it/they should be introduced. Alternatively, explain why further exceptions should not be introduced.
The advent of the internet has brought tremendous benefits for Australian consumers. One of these benefits has been to put an unprecedented level of information in the hands of consumers. This has resulted in Australian consumers becoming aware of the practice of international corporations charging Australian consumers higher prices for identical products compared to those in overseas markets. The internet has enabled Australian consumers to respond to this by ordering products directly from overseas websites at these lower prices. In relation to copyrighted content, however, these gains, risk being lost in the move towards digital distribution. It will be argued in this essay that the Copyright Act 1968 (Cth) operates to prevent Australian consumers from obtaining digital content from overseas online digital content services. This is to the detriment of Australian consumers and therefore the Copyright Act should be amended to permit this conduct.
A. Policy Background
Over the past two decades, Australia policy makers have expressed a clear preference for Australians having access to wide and affordable access to overseas copyrighted content. This is shown by the vast number of reports from Parliamentary Committees, independent committees, the ACCCand the Productivity Commission in favour of commercial parallel importation. Although Australian consumers have long had the ability to import for personal use, the importation of most overseas copyrighted content for commercial resale was, until 2003, unlawful. In legalising the parallel import of copyrighted content for commercial resale, the Howard Government stated the purpose of the reforms as to ensure “Australians no longer have to pay higher prices in an unnecessarily limited market.” Further steps were taken to ensure the ability of Australians to parallel import when making the 2005 amendments to the Copyright Act. This is shown by the particular care taken to ensure that the new anti-Technological Protection Measures (TPMs) legislation did not affect the ability for Australian consumers to circumvent TPMs (such as on DVDs) for the purpose of avoiding region restrictions.These moves, in conjunction with the rise of the internet which has enabled Australians themselves to import content from overseas markets (as opposed to relying on a parallel importer), are likely to have had a beneficial effect on the pricing of overseas copyrighted content in Australia.
B. The Digital Problem
Those efforts by policy makers to ensure access to copyrighted content from overseas markets, however, are of increasingly little relevance. This is due to a trend which sees consumption of copyrighted content increasingly moving from physical-based media such as CDs and DVDs to digital-based distribution via the internet. In 2011, for example, digital sales accounted for 36.7% of the Australian music industry’s value. This was up from 27.2% compared to the previous year. Similarly, in the United States, more films are expected to be watched legally online than on purchased on physical disk-based media. In recognition of this trend, some rights holders are beginning to eschew physical-based media for a digital-only distribution strategy. In the software industry, this can be seen with Apple making its new “OS X Mountain Lion” operating system available exclusively through its online “Mac App Store”. Similar developments are also beginning to be seen in the music, television and video game content industries. These developments are likely to hasten with the construction of the National Broadband Network.
Technologically speaking, these restrictions imposed by online digital content providers do not pose a significant problem for consumers. The iTunes billing scenario, for example, is easily resolved through the purchase of a US-issued gift card from an American third-party seller. In the very common situation where providers impose restrictions based on a user’s Internet Protocol (IP) address, this is resolved by the user using a “Virtual Private Network” (VPN) service. Such services work by routing the consumer’s traffic to the service through a server in, for example, the US so that it looks like they are accessing the service from the US. These methods of evading region restrictions are very popular amongst technologically savvy people.
Although there are no technological barriers to the access of copyrighted content from overseas digital content services, it is submitted that there will generally such an act will often involve an infringement of copyright. This conclusion is based on the following analysis. First, one of the exclusive rights of rights holders is the right to reproduce the content in material form. This means that only the rights holder – or someone with a license to do so – can create a copy of the content.
In those circumstances, it cannot be said that there is an effectual licence to copy the content – to do otherwise would defeat the intention of the rights holder/service provider. Because the downloading of content from that service will necessarily involve the doing of one the rights holders’ exclusive rights (copying) without licence, it will therefore constitute an infringement of copyright. The fact that a user may have paid good consideration for access to the content will be irrelevant.
III The Proposed Exception
For reasons that will be discussed below, it is submitted that the Copyright Act be amended to enable consumers to obtain content from overseas digital content services. It is proposed that this best achieved by adding the following section to the Copyright Act:
“If an act would not have constituted an infringement of copyright if not for the fact that a geographic restriction (whether technological or legal) has been circumvented or breached, then that act is deemed not to be an infringement of copyright.”
An important corollary of the amendment is to mean that because accessing overseas online digital content services would no longer constitute a primary infringement of copyright, there could equally be no secondary infringement. Currently, it is likely that any person offering such a service would be in contravention of the authorisation doctrine and thus, themselves, be liable for copyright infringement. This reform will therefore allow Australian individuals and companies to offer services that enable or facilitate the accessing of overseas digital content services. An Internet Service Provider, could, for example, value-add their internet services by providing access to an easy-to-use VPN as part of the consumer’s internet connection. Access to overseas digital content services would therefore become much easier for non-technologically savvy users. This is of crucial importance to fully realising the benefits this proposed amendment.
IV Reasons for the Change
If passed into law, the proposed exception will result in better consumer outcomes, achieve technological neutrality within the law, enhance respect for the Copyright Act and, most importantly, promote the fundamental aims and objectives of the Copyright Act. These reasons are discussed in detail below.
A. International Price Discrimination
Recently, there has been much attention given to the issue of differential pricing of digital copyrighted content between regions. Indeed, it is an issue that is currently the subject of an inquiry by a House of Representatives Committee. Differential pricing refers to the practice of charging consumers different prices for an identical product based on the consumer’s supposed tolerance to higher prices. In the case of Australia, this often involves multinational corporations charging Australian consumers more than equivalent consumers in other countries. This practice is referred to as price discrimination.
The fact of price discrimination to the detriment of Australian consumers is well established. The following is a table, derived showing the typical discrepancies in price between identical digital copyrighted content on Australian and US digital content services:
Traditionally, content owners have justified these price differences by reference to the extra costs that they incur in making content available to the Australian market. These costs, for example, include shipping costs as well as higher labour and rent costs. Whilst these arguments make sense in relation to copyrighted content distributed on physical media, they do not translate as well when talking about digitally distributed content. As the Productivity Commission has noted, digital distribution means that the cost of actually getting the content to the end customer is essentially nothing and so arguments based on the size of Australia’s market are “not persuasive”. Indeed, with digital distribution there are no shipping costs and without a physical storefront, no labour or rent expenditures. More rigorous consumer protection laws are similarly irrelevant given the lack of a physical product to repair or replace. The only reason can thus be that rights holders see Australian consumers as willing to tolerate higher prices than overseas and so therefore discriminate against them.
International price discrimination is problematic for a number of reasons. First, a normative argument may be made to the effect that price discrimination is inherently unfair in the sense that a person should not be discriminated against on the basis of something as arbitrary as their country of residence. Secondly, it might be argued that particularly in relation to software, it negatively impacts on the competitiveness of Australian businesses. It is noted, for example, that a digital copy of the popular productivity software Office Professional 2010 purchased through Microsoft’s digital store costs $499 for Australian consumers compared to $349 for US consumers. These are extra costs that must be recouped by Australia businesses and thus make them less competitive relative to countries that are on the beneficial end of price discrimination. Thirdly, it is likely the case that price discrimination leads to a leakage of capital from the Australian economy. In particular, because Australia is a net importer of copyrighted content, this means that higher prices for copyrighted content leads to higher capital outflows. This is deleterious to Australia’s terms of trade and Australia’s economy more generally.
The passing of the proposed exception will place competitive pressure on rights holders to make their content available at more competitive prices, because Australian consumers will have the ability to easily access content through an overseas digital content service. It is noted that, in a submission to the House Committee, the Federal Treasury seems to agree that competitive forces are best to deal with this issue. After agreeing that rights holders may be “charging a higher price in order to maximise the benefits of their intellectual property rights”, they go on to state that consumers seeking ways to reduce the impact of international price discrimination will “signal to the suppliers of the content sales practices to better meet consumers’ demands.” Unfortunately, what the Treasury’s analysis fails to recognise is that Australian consumers are currently unable to legally bypass region restrictions in respect of digital content and thus send these price signals to Australian rights holders. The proposed amendment will go a long way to fostering these competitive forces – particularly if industrious individuals and companies are able to make the bypass of region restrictions easy for even novice computer users. Indeed, the material reductions in prices following the allowing of parallel importing of music CDs is precedent for these competitive forces having such an effect. Importantly, unlike some of the solutions to the problem proposed by others, the proposed amendment is non-coercive.
B. Content Availability
Despite the rise of the internet and other modern communications which make the dissemination of content easier and less capital intensive than ever before, availability of overseas copyrighted content in Australia remains patchy. Content is often either unavailable, is only available after substantial delay compared to the availability in overseas markets or is made available in an inferior way (for example, the broadcast of high definition content in standard definition on Australian television networks). This is undesirable for a two primary reasons.
First, an inability to access overseas copyrighted content is likely to be harmful to Australia’s cultural literacy and deprive Australians of important knowledge. Access to the cultural material of other countries, for example, is necessary to develop a cultural literacy of the culture of those countries.Similarly, as Andrew Leigh MP notes in his submission to the House Committee, access to copyrighted content (especially e-books) is critical to Australia’s knowledge economy. Australians should not be dependent on rights holders having seen a business case for specifically making the content available in Australia to be able to enhance cultural literacy or knowledge.
Secondly, one must consider the globalised nature of today’s world. The nature of modern communications means that many Australians will have friends or family who reside overseas and whom they communicate with regularly. Similarly, many Australians are regular users of social media which involves interaction with overseas persons. It is very frustrating for Australian consumers if, for example, the overseas recommends content to the Australian consumer to watch, read or listen and the Australian consumer finds that the content is unavailable in Australia.
Like with price discrimination, it is hoped that further competition from overseas online digital content services will encourage Australian rights holders to make their content available sooner in Australia. There is evidence, for example, that competition from the pirating of films has resulted in the film industry narrowing release windows or even having worldwide release dates. Similarly, competition from online piracy has also resulted in Australian television networks taking steps to reducing the delay between the broadcasting of television shows in Australia and the United States. Given this, it seems likely that competitive pressure from Australian consumers being able to legally access overseas digital content will even further reduce the delays in content availability.
C. Technological Neutrality
It is widely agreed that, to the maximum extent possible, lawmakers should ensure that the law is written and operates in a technologically neutral way.By this, it is meant that where there is essentially the same service or action being performed or undertaken, although technologically different, the law should treat those acts as the same. The Copyright Act, however, appears to have some difficulty in dealing with the access of content from overseas digital content services.
D. Respect for the Law
In the explanatory memorandum for the 2006 amendments that created an exception for ‘time-shifting’, the following was stated:
“Many ordinary Australians do not believe that […] `time- shifting' a broadcast for personal use should be legally wrong with a risk of civil legal action, however unlikely. Failure to recognise such common practices diminishes respect for copyright and undermines the credibility of the Act.”
The same is also true of the instant situation. Although statistics are unavailable, it would appear that the practice of acquiring content from overseas digital content services is quite widespread – at least among savvier computer users. Indeed, such is the prevalence of the practice that a number of news outlets have reported on the practice, sometimes even tacitly recommending it or proffering advice on how to do so.
It is likely that many Australia will not see the practice as something that should be legally wrong because, in many cases, they are paying for access to the content. It is further difficult to imagine any Australian believing they should have to pay more for content than equivalent consumers overseas. Indeed, Australians have constantly been told of the benefits of free trade for the standard of living and for the Australian economy,  yet here they stand to be deprived of those advantages. The Copyright Act risks losing the respect of the Australian people if it stands in the way of this.
E. Consistency with Copyright Objectives and Theory
Perhaps the most potent reason in favour of the proposed amendment is that the amendment would be consistent with, and in fact promote the objectives of the Copyright Act. Although the Copyright Act, unlike many modern acts, does not contain a statement outlining its purpose, the Act is generally considered to be utilitarian in nature. In particular, the Copyright Act is intended to maximise social welfare by promoting the investment in works and other subject matter by ensuring that authors achieve a sufficiently incentivising return on their investment.
The focus is therefore not on the intrinsic value of copyright, but rather the benefit to society as a whole offered by a system of copyright. Involved in this is a balancing act between making content as widely available as possible in order to achieve the cultural benefits that flow from that and, on the other hand, the need to give content creators enough exclusive rights to incentivise the creation of content. Too far in the former direction will mean that wide access to content will be no utility, because there will be minimal content to access. Similarly, too far in the latter direction will mean that there will be plentiful content, but much of this will be inaccessible to most and thus of minimal public benefit. In light of the foregoing, it is suggested that the Copyright Act should only offer such rights in respect of content as are necessary to incentivise the production of content.
What the proposed change seeks to take away is the ability for rights holders to discriminate against Australian consumers through differential pricing. Although rights holders may protest otherwise, it is submitted that is highly unlikely that the inability to extract monopoly prices from a small market will have any diminishing effect on the willingness of content creators to create new content. Conversely, the change is likely to have a significant positive effect on the accessibility of content. As outlined above, the changes are likely to make content more affordable and will allow consumers to obtain content not otherwise available in Australia. Therefore, on balance, the aims and objectives of the Copyright Act favour the implementation of this new exception.
V Compliance with International Obligations
Australia’s copyright law, however, does not exist within a vacuum. It is not sufficient that a change to Australia’s copyright law be good public policy. It must also be in compliance with Australia’s international obligations under the Berne Convention, TRIPS and WIPO. Importantly, these treaties set limits on the ability of member states to create exceptions to copyright. Any exception proposed by a member state must comply with what is known as the Berne three-step test.
The first step of this test requires that an exception be limited to “certain special cases”. According to the WTO Dispute Settlement Panel, the term “certain” requires that the exception be clearly defined, whilst the word “special” requires it to be “narrowly defined”.  Neither of these appears to be problematic – the proposed amendment is clear to state that the exception only applies in the narrow instance where the only reason that the act would constitute an infringement of copyright is due to the avoidance of geographic restrictions.
Secondly, the proposed amendment must not “conflict with a normal exploitation of the work”. An important question here revolves around what is meant by a “normal” exploitation of a work. Normal could be meant in the sense of “regular” or it could be refer to something “somewhat more normative”. If the former approach is favoured, then it is submitted that it is not customary for rights holders to be able to enforce geographic differential pricing, as consumers have long had the right to import copyrighted content for personal use by operation of the international exhaustion doctrine. If the latter approach is preferred, then it is submitted that, for the policy reasons outlined throughout this essay, it is not a normatively proper exploitation of the work. In either case, a reasonable argument exists that the proposed amendment does not conflict with the normal exploitation of a work.
Finally, the proposed amendment must “not unreasonably prejudice the legitimate interests” of a rights holder. Assuming that a “legitimate interest” means an economic interest, then it is clear that the proposed amendment will result in at least some prejudice to the legitimate interests of rights holders. It is not sufficient, however, that there is some prejudice. The prejudice must also be “not unreasonable”. This is a quite lenient test, as it does not require that the exception be reasonable, just that it not be unreasonable. It is unlikely that the proposed amendment can be considered unreasonable. It does not propose that Australian consumers have a blanket exemption of any kind. It simply operates such that Australian consumers are offered the same copyrighted content at the same prices as that content is offered overseas. Rights holders are still able to profit from Australian consumers – the difference is that they are unable to discriminate against them.
It is therefore considered likely that the proposed amendment conforms with Australia’s international obligations.
The internet has the potential to make content more widely available and more affordable than ever before whilst still incentivising the production of new content. Rights holders, however, are currently using the opportunity to even further entrench discrimination against Australian consumers both in respect of content availability and price. The Copyright Act should not operate to facilitate this type of overtly anti-competitive, monopolistic and rent-seeking behaviour. The proposed amendment will reject these practices by enhancing the availability of content to Australian consumers at no cost to the production of content and thus bring the Copyright Act back into conformity with its central aims and purposes.
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Published on 22 November 2012.