7.16 As noted above, innovative services, such as many cloud-based services, may involve third parties using copyright material on behalf of their patrons or customers. Many stakeholders stressed that if third parties were prohibited from using copyright material in this way, without a licence, then this would inhibit innovation.
7.17 Many of these third party services are ‘cloud’ based. Many stakeholders stressed the social and economic benefits of such services. The ACCC said that ‘innovation in services, such as cloud services, are important to the emergence and sustainability of competitive digital services industries’. The Internet Industry Association submitted that:
Cloud computing offers enormous social and economic advantages by allowing sharing of computing resources and thereby achieving economies of scale and minimising power and hardware requirements. It also reduces the need to transport information and the device required by the user to achieve the same result.
7.18 Although it did not support the introduction of fair use, Free TV submitted:
The transition of electronic services from the personal computer and at home devices to online services in ‘the cloud’ is a major shift and should be accommodated by the Act. It seems anomalous that activities that would be legal if conducted in the home on storage devices owned by a consumer might not be permissible if the same consumer purchases cloud storage to do exactly the same activity.
7.19 Ericsson submitted that the ‘success of the digital economy, enabled primarily by the IT and telecommunications sectors, has been based on sustained and continuous innovation’:
This has driven continuous improvement of technologies and services and has provided a competitive incentive for differentiation amongst competing players across different industries. Therefore, using [information and communications technology] to simplify or differentiate services or offerings should not be prohibited by law.
7.20 Some comments were made in response to the 2012 decision of the Full Federal Court in a case about Optus TV Now, a type of cloud-based personal video recorder. In this case, the question of who made the relevant copies of the broadcasts—Optus or its customers—was important.
7.21 The internet service provider, iiNet, submitted that it should not matter who makes a recording from a broadcast, if it is made ‘in a domestic setting’ and ‘if the underlying purpose of the recording is fair’. In this way, iiNet said, ‘competition between technologies will be promoted’.
7.22 eBay said the Optus TV Now decision ‘creates serious disincentives for the development of cloud services in Australia’. It added:
Existing law seems to have the unfortunate result that for a certain class of offering, the more useful a cloud service, the more likely it will involve copyright infringement by the provider. … eBay provides all its services online and is itself a form of cloud service. eBay considers it vital for the development of cloud services, and technological change generally, that the law not discriminate between activities on the basis of the technology that is used carry them out.
7.23 Some stakeholders drew a distinction between ‘pure copying’ and ‘value-added services’. The ACCC said there was potential for growth in products and services that enabled consumers to use copyright material for personal use. If confined ‘purely to copying, as opposed to transforming or value-adding’, the ACCC said, ‘these markets should be opened to parties other than copyright owners’:
Limiting the development of such services risks reducing the incentives for copyright owner to innovate to meet consumer demands.
7.24 The ACCC submitted that third party use that merely facilitated legitimate use by others are ‘likely to be key to innovation and the development of emerging markets and services’. They can stimulate innovation in other markets and help meet consumer demands. Caution should therefore be exercised when considering the degree to which copyright limits this potential.
7.25 The ACCC submitted that the Optus TV Now service was ‘an example of a cloud service that was unable to operate due to Australia’s current copyright laws’, but that even its brief existence had an effect on innovation in the market:
Following the Optus TV Now case, Telstra, the incumbent owner of the AFL rights, has made available (for a fee) the AFL live app to any user of a mobile device, when this service was previously only available to Telstra customers. The ACCC considers this is an example of how an investment by a third party appears to have stimulated a competitive response from a rights holder.
7.26 It is not clear whether the Optus TV Now service would be found to be fair use or not, particularly without properly considering the potential for harm to rights holders’ markets. The importance of considering market harm is discussed further below, and more generally in Chapter 5. However, introducing a flexible exception to copyright, such as fair use, will allow the right questions to be asked of a third party use, and should make Australia more fit for a digital age in which remote cloud technologies are becoming increasingly common.
7.27 Fair use provides a better environment for innovative third party uses, in part by encouraging transformative uses of copyright material. ‘A transformative or productive use is one where the defendant has created something new, repurposed the original work, or otherwise added value’. Crucially, if it is transformative, the secondary use will be for a different purpose than that for which the material was originally created.
7.28 Transformative uses are more likely to be fair, under the fair use and fair dealing exceptions recommended in this Report. Some third party uses may be transformative, and will therefore be more likely to be fair. Those that are not transformative—those that merely repackage or republish the original, unfairly competing with the original—may be less likely to be fair.
7.29 Flexible exceptions that permit unlicensed transformative uses of copyright material stimulate further creativity and create a better environment for innovation.
ACCC, Submission 658.
Internet Industry Association, Submission 744.
Free TV Australia, Submission 865.
Ericsson, Submission 151.
National Rugby League v Singtel Optus  FCAFC 59 (27 April 2012).
iiNet Limited, Submission 186.
eBay, Submission 93.
ACCC, Submission 165.
ACCC, Submission 658.
J Besek and others, Copyright Exceptions in the United States for Educational Uses of Copyrighted Works (2013), prepared for Screenrights, 16.
See Ch 5.
This draws on the language of US Judge Pierre Leval in P Leval, ‘Toward a Fair Use Standard’ (1989–1990) 103 Harvard Law Review 1105. See Ch 5.
See Chs 4 and 5.