Contracting out and the Copyright Act
20.23 The Copyright Act generally contains no provisions that prevent agreements excluding or limiting the operation of exceptions, except in relation to the reproduction of computer programs. Therefore, for example:
copyright owners of filmed recordings of sporting events may make it a condition that their customers do not provide the film to others who might exercise a fair dealing exception (for example, news reporting) or make use of the film other than as specified by contract; but
software licensees cannot contract out of provisions allowing reverse engineering to make interoperable products or back-ups, and licensors, therefore, make these uses an exception to the restrictions in licences.
20.24 In relation to computer programs, s 47H of the Copyright Act expressly provides that ‘an agreement, or a provision of an agreement, that excludes or limits, or has the effect of excluding or limiting’ the operation of certain exceptions permitting the reproduction of computer programs for technical study, back-up, security testing and error correction ‘has no effect’.
20.25 These limitations on contracting out were inserted by the Copyright Amendment (Computer Programs) Act 1999 (Cth), which resulted from the Government’s consideration of a CLRC report on computer software protection. In that report, the CLRC stated that provisions regarding interoperability, back-up copying and de-compilation of locked programs would have little practical effect if parties could rely on contractual provisions to prevent these acts. It recommended that the Copyright Act be amended to ensure that these exceptions could not be avoided by contractual means.
20.26 The existence of an express provision against contracting out in s 47H arguably helps to confirm that exceptions elsewhere in the Copyright Act can be overridden by contract. After considering the legislative history, the CLRC concluded that the effect of s 47H on agreements which exclude or limit other exceptions is ‘ultimately unclear’.
20.27 Several reasons why Parliament enacted an express provision only in relation to computer programs can be identified. These include that:
s 47H applies expressly to specific exceptions implemented by the same amending legislation, so it is not possible to imply an intention on the part of Parliament that all pre-existing exceptions be subject to contract, no matter when they became part of the Act; and
the relevant provisions of the Copyright Amendment (Computer Programs) Act 1999 (Cth) were based on a model provided by a European Directive on the protection of computer programs.
Enforceability of contracts
20.28 Leaving aside provisions of the Copyright Act itself, the enforceability of contractual terms excluding or limiting exceptions may also be affected by:
consumer protection legislation—for example, provisions of the ACL, which proscribe misleading or deceptive conduct and unconscionable conduct in trade or commerce, and unfair contract terms in consumer contracts;
competition legislation—notably provisions of the Competition and Consumer Act 2010 (Cth), which prohibit misuse of market power;
the ordinary principles of contract law concerning the formation of contracts— for example, where there is insufficient notice of, and assent to, the terms of online licences;
the equitable doctrine of unconscionable conduct—for example, where one party is known by the other to be at a special disadvantage and unfair or unconscientious advantage is taken; and
the law relating to contracts that are contrary to public policy—where a contract term defeats or circumvents a statutory public purpose or policy.
20.29 As discussed below, there are differing views on whether, and in what circumstances, contractual terms excluding or limiting exceptions to copyright may be unenforceable. Depending on the circumstances, and where agreements are governed by Australian law, contractual terms that exclude or limit the operation of exceptions may be unenforceable due to legislative provisions outside the Copyright Act or the operation of general law (common law and equity).
Competition and consumer law
20.30 The ACL provides that a court may determine that a term of a standard form consumer contract is unfair and therefore void, including in response to proceedings taken by the ACCC.
20.31 Under the ACL, a ‘consumer contract’ includes a contract for the supply of goods and services to an individual who acquires them wholly or predominantly for personal, domestic or household use or consumption. The ACL outlines a number of factors that the court must take into account in determining whether a contract is a ‘standard form contract’. Such contracts will typically be those that have been prepared by one party to the contract and are not subject to negotiation between the parties—that is, offered on a ‘take it, or leave it’ basis, as is typically the case with consumer contracts involving copyright.
20.32 The ACL provides that a contractual term is unfair if it:
would cause a significant imbalance in the parties’ rights and obligations under the contract;
is not reasonably necessary to protect the legitimate interest of a party to the contract; and
would cause detriment to a party to the contract if it were to be applied or relied upon.
20.33 The ACL provides examples of the kinds of terms of a consumer contract that may be unfair, including for example, ‘a term that permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract’.
20.34 The ACCC observed that it is not clear whether the ACL (or other parts of the Competition and Consumer Act) would operate to protect consumers or businesses where there is an imbalance of power between the parties to a copyright licence. Choice submitted that the ACL does not provide adequate protection in these circumstances—that is, the ‘mere presence of the potential for action against unfair contract terms is not acting as a sufficient deterrent’ against contracting out.
Contract and public policy
20.35 It has been argued that some contractual provisions purporting to exclude or limit a licensee’s rights under the Copyright Act are ineffective to do so, as such terms are void or unenforceable on public policy grounds. This view is based on the general principle of contract law that, except where permitted by legislation, ‘a contract which purports to oust the jurisdiction of the courts is contrary to public policy and therefore void or unenforceable, but probably not an illegal contract’.
20.36 In relation to the Copyright Act, it may be sufficient that a court has jurisdiction to make orders in respect of rights conferred by the Act and that the rights conferred are of a public rather than private nature. The rights conferred by the Copyright Act may be characterised as public rights, because ‘at least some of the relevant provisions confer positive rights, in effect as statutory licences, which may be enforced by action against an owner’; and exceptions may be relied on as a defence in proceedings for infringement.
20.37 The case law on contracting out of legislative rights establishes that, ‘if the operation of a contractual provision defeats or circumvents the statutory purpose or policy, then the provision is inconsistent in the relevant sense and falls within the injunction against contracting out’.
20.38 Applying these legal principles to contracting out under the Copyright Act, Professor J W Carter, Professor Elisabeth Peden and Kristin Stammer have argued that:
contractual terms that purport to exclude or limit the fair dealing exceptions are unenforceable because to ‘permit an owner to sue for breach of contract in relation to conduct amounting to a fair dealing would circumvent the scheme of the Act under which fair dealing is permitted’; and
contractual terms that purport to exclude or limit the exceptions that provide for the copying of copyright materials in libraries or archives are unenforceable, because these exceptions are based on, and give effect to, important policy concerns and the ‘real beneficiaries’ of the exceptions are the users of libraries and archives.
US copyright misuse doctrine
20.39 Some comparison with United States law is useful, given that the US has a fair use exception similar to that recommended for Australia in this Report.
20.40 US law has developed a copyright-specific defence against copyright infringement based on a doctrine of copyright misuse. Under this doctrine, US courts may refuse to enforce agreements that attempt to extend protection of copyright material beyond the limits set by copyright law, including limits on the duration of copyright protection. Once a defence of copyright misuse has been proven, the rights holder is prevented from enforcing its copyright until the misuse has been removed.
20.41 In Lasercomb America v Reynolds, a licensee had agreed not to develop a competitive computer-aided design program for 99 years—beyond the period of protection by copyright laws. The Court found that the copyright owner was trying effectively to extend the term and scope of its copyright beyond the permitted limits of copyright law, preventing people from legitimately developing competitive software.
20.42 The underlying policy rationale for the copyright misuse doctrine is the copyright and patent clause of the US Constitution, which states an intention ‘to promote the Progress of Science and useful Arts’. The application of the doctrine depends on ‘whether the copyright is being used in a manner violative of the public policy embodied in the grant of a copyright’. Courts have suggested that anti-competitive licensing agreements and agreements that exclude fair use may conflict with the public purposes of copyright.
20.43 However, there seem to be no clear instances of the application of the copyright misuse doctrine to the multitude of online contracts that exclude otherwise fair use of copyright materials. Rather, courts have generally followed a ‘freedom of contract’ line. In a submission to this Inquiry, the Kernochan Center for Law, Media and the Arts, at the Columbia University School of Law advised that the doctrine of copyright misuse is capable of invalidating contract provisions only in the ‘most egregious’ or ‘obviously overreaching’ of cases.