Limitations on contracting out

17.88 Contracting out raises fundamental questions about the objectives of copyright law; the nature of copyright owners’ exclusive rights and exceptions; and the respective roles of the Copyright Act, contract and competition law and policy in governing licensing practices.

17.89 The issue has been characterised as involving a collision between two important legal principles: statutory rights reflecting public policy, on the one hand; and freedom of contract, on the other[115]—or public versus private ordering of rights.

17.90 The ALRC considers that the Copyright Act should provide expressly that contractual terms that limit the operation of the fair dealing and libraries and archives exceptions should be unenforceable. The following discussion explains the reasons for this proposal. Briefly, these are that:

  • there is doubt about the extent to which contractual terms excluding or limiting exceptions are enforceable and more certainty is desirable, in relation to some exceptions; and

  • important public interests promoted by the fair dealing and libraries and archives exceptions may be compromised if these exceptions are rendered inoperative by contract.

17.91 It is apparent from information provided in submissions to this Inquiry that contractual terms excluding or limiting copyright exceptions under the Copyright Act remain common. While contracts may create clarity and provide copyright users with permission to use materials in ways that would otherwise be an infringement, some contractual terms can also be seen as eroding ‘socially and economically important uses of copyright works’.[116]

17.92 The problem is how to address any negative effects of contracting out without restricting innovation and flexibility in licensing practices. The economic value of freedom of contract is an important factor. Arguably, most contractual restrictions imposed on licensees ‘are designed either to protect the integrity of the work or the owner’s financial interests’. Both these interests are ‘legitimate concerns of anyone seeking to maximise the benefit of commercialisation of intellectual property rights, including copyright’.[117]

17.93 Where copyright owners are in a strong bargaining position, they may ‘overreach and circumvent the provisions of the Act to an unacceptable extent’—so that ‘private ordering may lead to a different balancing of parties’ rights than is contemplated in the many complex and carefully structured statutory provisions’ of the Copyright Act.[118]

17.94 Ricketson and Creswell note, however, that what is ‘unacceptable’ will depend on the commentator’s perspective.[119] In this context, it seems necessary to differentiate between different types of exceptions and the purposes exceptions are intended to serve.

17.95 Before considering how exceptions might be distinguished for the purpose of introducing limitations on contracting out, questions arise about whether statutory limitations are necessary, given existing law relating to public policy and contracts, and competition law.

Public policy

17.96 In particular, Carter, Peden and Stammer have argued that many contractual terms that restrict user rights under the Copyright Act may be invalid as ‘a result of application of the public policy rule relating to the ouster of the jurisdiction of the courts’.[120]

17.97 Carter, Peden and Stammer consider that, as the rights conferred by the Copyright Act include positive rights—for example, statutory licences that may be enforced by action against an owner; and rights that may be relied upon by way of defence in proceedings for infringement, this is sufficient to bring the public policy rule into operation.[121]

17.98 They argue, therefore, that prohibiting contracting out by legislation, as recommended by the CLRC, is not necessary:

Unless the purpose is to identify those rights which may be the subject of contractual restrictions, we see no pressing need for legislation to declare contractual restrictions invalid because the common law already provides for invalidity in cases where the public interest requires it.[122]

17.99 This view on contracting out does not seem to be universally accepted. Ricketson and Creswell, for example, state that there is nothing in the Copyright Act to suggest that exceptions ‘cannot be pre-empted contractually and the very existence of s 47H serves to confirm this’. They state that, in any event, ‘at general law the waiver of rights and entitlements is readily accepted, in the absence of express legislative prohibition so that little, if anything, will turn on the correct characterization of the statutory exceptions and limitations under the Act’.[123]

17.100 In the context of arguments that rights of fair dealing should be preserved in the face of the increased use of TPMs, Melissa de Zwart suggests that the doctrine of fair dealing might be used to create a shield, on public policy grounds, against the ‘expanding contractual and proprietary claims of copyright owners’.[124]

17.101 One basis for such a development is Kirby J’s reasoning in Stevens v Kabushiki Kaisha Sony Computer Entertainment that an interpretation of legislative provisions in the Copyright Act that leads to the substitution of contractual obligations interfering with the operation of the fair dealing provisions—the ‘relevant public law—should not be readily accepted.[125] This reasoning may extend to the interpretation of contractual terms, and the application of a public policy rule.

17.102 In the ALRC’s view, notwithstanding arguments that the general law in Australia may render some contractual terms unenforceable, there would be benefit in clarifying that parties may not contract out of some copyright exceptions.

Contract and competition law

17.103 There are arguments that policy concerns about private arrangements replacing or supplementing copyright protection are best left to be dealt with under principles of contract law and competition law.

17.104 In 2002, Professor David Lindsay prepared a paper examining the relationship between copyright and contract law within a law and economics framework. Lindsay stated that understanding the proper relationship between copyright and contract implicates views regarding ‘the respective roles of property and contract in a market economy and, indeed, of the respective roles of the law and of the market’.[126]

17.105 Lindsay concluded that limitations on contracting out of copyright protection are generally undesirable. The view that such restrictions are needed ‘overestimates the ability of the law to establish optimal rules for the protection of copyright material, at the expense of the considerable advantages to be derived from private market-based arrangements’ and the extent to which copyright owners, operating in a competitive market, are capable of unilaterally imposing terms. He considered that:

Insofar as private agreements may result in less than optimal outcomes, they should be dealt with under established principles of contract law, competition law or consumer protection law.[127]

17.106 Lindsay, however, also accepted that there may be an argument for imposing some limitations on freedom of contract ‘to the extent that copyright policy is directed at promoting objectives other than economic objectives’. If so, he stated it is important that non-economic objectives ‘be clearly specified and that any prohibitions be narrowly focused on achieving such objectives’.[128]

17.107 Similarly, Ricketson and Creswell note that, while economic considerations provide a useful starting point for analysis, ‘ultimately both private and public benefit will need to be weighed in the balance in determining where the dividing lines between exclusive rights, compulsory licences and free use should be drawn’.[129]

Limiting contracting out

17.108 There is legal doubt about the extent to which contracting out is enforceable, and more certainty is desirable in relation to some exceptions. The question then arises—to which exceptions should express limitations on contracting out apply?

17.109 The CLRC’s recommendations were based on a view that contracting out may upset the copyright ‘balance’[130] and, in the case of the fair dealing exceptions, that these are ‘an integral component of the copyright interest’.[131]

17.110 The idea of balance is an underlying theme of those seeking to defend the operation of copyright exceptions from contractual arrangements. The concern is that ‘privately enforced arrangements have the potential to upset important public policies embodied in copyright law, which are premised on establishing a balance of interests’.[132]

17.111 Recourse to the idea of a copyright ‘balance’ that must be maintained in the face of freedom of contract may be criticised.[133] Lindsay notes that simply to invoke the concept of balance says

nothing about why the objective of copyright law should be to balance owner and user interests, what an appropriate balance should be, and whether the balance established by the current complex combination of exclusive rights and exceptions is anywhere near appropriate.[134]

17.112 Similarly, the ALRC is not convinced that limitations on contracting out can be justified simply by recourse to arguments based on a need to maintain a copyright balance. This balance is constantly contested, as legislators and policy makers seek to determine ‘how rights should be reformulated or modified, so as to balance the claims of the respective interests of owners and users’[135]—a process illustrated by this Inquiry.

17.113 Other arguments for and against limitations on contracting out derive from different conceptual understandings of copyright exceptions—on whether exceptions are considered to define the scope of the copyright owner’s exclusive rights (that is, are integral to those rights), or are simply defences to claims of infringement of those exclusive rights.

17.114 If the former view is taken, it may be easier to justify limiting contracting out—on the basis that the copyright owner is seeking to extend its exclusive rights beyond their statutory limits. Again, however, the ALRC is not convinced that such an analysis is the most useful prism through which to view the issue.

17.115 A better criterion for identifying a core group of exceptions that should be subject to protection from contracting out is the extent to which exceptions are clearly for defined public purposes. These exceptions include: the fair dealing exceptions, which protect public purposes of research and study; criticism and review; parody and satire; reporting news; and giving professional advice.[136] In addition, the library and archives exceptions are clearly for public rather than private purposes. As Carter, Peden and Stammer note:

The real beneficiaries of the rights are users of the libraries. For example, under s 48A the copyright in a work is not infringed by anything done by a parliamentary library for the sole purpose of assisting a person who is a member of parliament in the performance of the member’s duties. The designated beneficiary is the member of parliament, on whose behalf the act is done.[137]

17.116 The fact that users of libraries and archives benefit from these exceptions, but are not parties to the licensing arrangements entered into by libraries and archives, makes it easier to argue that these exceptions should not be able to be removed by contract. An express limitation on contracting out from these exceptions may help remedy problems being experienced by libraries, in particular. Such an approach would be consistent with the principle of promoting fair access to and wide dissemination of content (Principle 3).[138]

17.117 The most important issue, however, is whether the proposed fair use exception should be subject to express statutory limitations on contracting out. The general fair use exception is more likely to be invoked in situations where the copyright user is not in a direct contractual relationship with the copyright holder. This exception also needs to be drafted to cover a broad range of possible uses. In this context, contractual terms may ‘reduce the risk of misunderstanding and provide legal certainty where an exception cannot’.[139]

17.118 However, the ALRC is concerned that the benefits of its proposed fair use exception may be seriously compromised if copyright licensing agreements include terms that exclude fair uses. The ALRC proposes that limitation on contracting out should cover the libraries and archives exceptions and the proposed fair use exception—but only in relation to fair use for most of the existing fair dealing purposes;[140] and quotation, in view of the proposal that ‘quotation’ should be one of the illustrative purposes listed in the fair use exception.[141]

17.119 In proposing limitations on contracting out, including in relation to fair uses, the ALRC is concerned about the possibility of unintended effects and remains interested in further comment in this regard. One reason policy makers have been reluctant to be prescriptive about limitations on contracting out is the difficulty of predicting future developments in emerging markets and technologies.[142]

17.120 Further, international licensing agreements may specify that the law of another country will apply in determining the rights of the parties, or that a foreign court has exclusive jurisdiction over disputes. The ALRC recognises that the proposal, if implemented, will not affect contracts governed by foreign law.[143]

17.121 In proposing limitations applicable to only some exceptions, the ALRC is not indicating that contractual terms excluding other exceptions should necessarily be enforceable. Rather, this is a matter that should be left to be resolved under the general law or other legislation, including the Competition and Consumer Act. If the ALRC’s proposal is implemented, explanatory materials should record that Parliament does not intend the existence of an express provision against contracting out of these exceptions to imply that exceptions elsewhere in the Copyright Act can necessarily be overridden by contract.[144]

Proposal 17–1 The Copyright Act should provide 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 copyright exceptions has no effect. These limitations on contracting out should apply to the exceptions for libraries and archives; and the fair use or fair dealing exceptions, to the extent these exceptions apply to the use of material for research or study, criticism or review, parody or satire, reporting news, or quotation.

[115] See Thomson Reuters, The Law of Intellectual Property: Copyright, Designs and Confidential Information, [11.640].

[116] See UK Government, Modernising Copyright: A Modern, Robust and Flexible Framework (2012), 19.

[117] J Carter, E Peden, K Stammer, ‘Contractual Restrictions and Rights Under Copyright Legislation’ (2007) 23 Journal of Contract Law 32, 34.

[118] Thomson Reuters, The Law of Intellectual Property: Copyright, Designs and Confidential Information, [11.640].

[119] Ibid.

[120] J Carter, E Peden, K Stammer, ‘Contractual Restrictions and Rights Under Copyright Legislation’ (2007) 23 Journal of Contract Law 32, 54.

[121] Ibid, citing Commonwealth of Australia v Verwayen (1990) 170 CLR 394, 404–405.

[122] J Carter, E Peden, K Stammer, ‘Contractual Restrictions and Rights Under Copyright Legislation’ (2007) 23 Journal of Contract Law 32, 54.

[123] Thomson Reuters, The Law of Intellectual Property: Copyright, Designs and Confidential Information, [11.640], citing Commonwealth of Australia v Verwayen (1990) 170 CLR 394.

[124] M De Zwart, ‘Technological Enclosure of Copyright: The End of Fair Dealing?’ (2007) 18 Australian Intellectual Property Journal 7, 37.

[125]Stevens v Kabushiki Kaisha Sony Computer Entertainment (2005) 224 CLR 193, [210].

[126] D Lindsay, The Law and Economics of Copyright, Contract and Mass Market Licences (2002), Research Paper prepared for the Centre for Copyright Studies Ltd, 6.

[127] Ibid, 8.

[128] Ibid.

[129] Thomson Reuters, The Law of Intellectual Property: Copyright, Designs and Confidential Information [11.10].

[130] Copyright Law Review Committee, Copyright and Contract (2002), 262.

[131] Ibid, 266.

[132] D Lindsay, The Law and Economics of Copyright, Contract and Mass Market Licences (2002), Research Paper prepared for the Centre for Copyright Studies Ltd, 8.

[133] See, eg, Australian Publishers Association, Submission 225.

[134] D Lindsay, The Law and Economics of Copyright, Contract and Mass Market Licences (2002), Research Paper prepared for the Centre for Copyright Studies Ltd, 8.

[135] Thomson Reuters, The Law of Intellectual Property: Copyright, Designs and Confidential Information, [11.10].

[136]Copyright Act 1968 (Cth) ss 41, 103A, 41A, 103AA, 42, 103B, s 43(2). See also ss 43(1), 104(a), 104(b), 104(c), which do not use the term ‘fair dealing’ but are broader than the fair dealing exceptions. In its 2004 report, Genes and Ingenuity, the ALRC recommended that the Copyright Act be amended to provide that, in relation to databases protected by copyright, fair dealing for the purpose of research or study cannot be excluded or modified by contract: Australian Law Reform Commission, Genes and Ingenuity: Gene Patenting and Human Health, Report 99 (2004), Rec 28–2.

[137] See J Carter, E Peden, K Stammer, ‘Contractual Restrictions and Rights Under Copyright Legislation’ (2007) 23 Journal of Contract Law 32, 46–47.

[138] See Ch 2.

[139] IASTMP, Submission 200.

[140] Questions may also be raised about whether use for the purposes of judicial proceedings or giving legal or professional advice (cf Copyright Act 1968 (Cth) ss 43, 104) should also be covered by limitations on contracting out. However, a contract that sought to prevent copyright material being used for these purposes would be likely to be found contrary to public policy and, therefore, void or unenforceable under the common law doctrine discussed above.

[141] See Ch 10.

[142] D Lindsay, The Law and Economics of Copyright, Contract and Mass Market Licences (2002), Research Paper prepared for the Centre for Copyright Studies Ltd, 110.

[143] Parties to a contract can choose the proper law by an express provision in their agreement. Where the parties have not chosen the proper law, the contract is, in general, governed by the system of law with which the transaction has its closest and most real connection: Thomson Reuters, The Laws of Australia, [5.11.1180].

[144] Thomson Reuters, The Law of Intellectual Property: Copyright, Designs and Confidential Information, [11.640].