Commercial free riding and market harm

7.43 A common objection to allowing unlicensed third party use of copyright material is that this is commercial free riding that harms the markets of copyright owners. In the ALRC’s view, rather than automatically exclude all commercial uses, these matters—particularly market harm—should be considered as part of an assessment of fairness.

7.44 Many stakeholders objected to unlicensed commercial use of copyright material by third parties. These businesses were ‘free riders’. For example, the Coalition of Major Professional and Participation Sports said that there is a

fundamental distinction between recordings made by consumers but later stored on a remote server and recordings made by companies, for commercial gain, and stored on remote servers for their subscribers to access. The latter can significantly impact on the ability of content owners to exploit their rights and should not be allowed without the consent of the rights holder.^[35]

7.45 Commercial Radio Australia said consumers should be able to take full advantage of technology, but commercial gain should be reserved for rights holders.^[36] Free TV Australia similarly submitted that broadcasters ‘are entitled to control the exploitation of their signals and should be appropriately compensated by third parties reaping commercial gain from their broadcast signals’.^[37]

7.46 Foxtel stated that to allow unlicensed third parties to ‘share in the rewards’ or ‘profit at the expense of those who invest in the creation of content would be entirely inequitable’.^[38]

As Foxtel’s subscription service allows our customers to access content for a limited period of time, unlicensed copying by third parties will undermine our business model and will also hurt those from whom we acquire content. Distributors who make their content available on a temporary basis and to a limited audience must have the ability to determine how their content is accessed, used and stored.^[39]

7.47 Some stakeholders also submitted that it was important to consider whether the rights holders offer a comparable service. It was said that if a rights holder has already created a scheme through which consumers can view broadcast television programs at a later time, for example, then personal or third-party time shifting should not be allowed. The ABC submitted that:

Where the cloud service is being offered in competition with the true rights holder, then it is important to consider what legal access to the content is already available to the public. If the content is already accessible on demand by way of a catch-up service by a legitimate rights holder, then the competing cloud service should not be able to offer that content.^[40]

7.48 Taking this argument further, some might ask whether exceptions for time shifting free to air broadcasts are now fair, when the programs can be watched at a later time through online catch-up services. ARIA noted that Australia’s time shifting exception had its origins in ‘an era of analogue broadcasts where programming and time constraints meant that the opportunities to catch up on a missed broadcast program were limited’.^[41]

7.49 Many of these arguments concern two related but distinct questions: the commerciality of a secondary use, and the harm a secondary use may do to a rights holder’s market. Both questions are considered in determining whether a use is fair, under fair use, but it should be stressed that the second question is more important.

7.50 Commercial uses are not presumptively unfair under the fair use and new fair dealing exceptions.^[42] A commercial use may be less likely to be fair than a non-commercial use, but other factors are also relevant. The ACCC submitted that third party commercial uses may not always undermine the incentives of rights holders:

Services offered by third parties should not be prohibited simply because a third party may profit from offering a new and innovative service to facilitate otherwise legitimate consumer use. By increasing the value of such use, third party commercial activities may in fact increase the returns to, and incentives for, investment in copyright material.^[43]

7.51 The ACCC also submitted that in considering fairness, commercial benefit to third parties ‘should not be a central or determinative factor in establishing whether the use is fair’.^[44] If commerciality were determinative under existing fair dealing exceptions, then commercial news reporting would not be fair. US Judge Pierre Leval has written, concerning the US fair use provision:

The proposition that commercial uses are unfair is extraordinarily inappropriate and harmful. The heart of fair use lies in commercial activity. Most undertakings in which we expect to find well-justified instances of fair use are commercial. These include, of course, commentary, criticism, parody, and history. Even the publication of scholarly analysis is often commercial. If these are presumptively unfair, then fair use is to be found only in sermons and classroom lecture.^[45]

7.52 Although commerciality is relevant to the question of fairness, it is more important to focus on the related questions of whether the use is truly transformative and whether the use harms the market of the rights holder.

7.53 Whether a given use harms a rights holder’s market is an important factor to consider under both fair use and the new fair dealing exception. Some copying by third parties may not harm rights holders’ markets, and may even develop new markets for rights holders to exploit. Prohibiting such unlicensed copying through overly-confined exceptions, even if technology neutral, may inhibit the development of the digital economy.