Fair use complies with the three-step test

4.134 Despite the fact that the US has had a fair use exception for 35 years, a frequent argument against the introduction of fair use in Australia is that it may not comply with the three-step test under international copyright law.[193]

4.135 Article 9(2) of the Berne Convention, provides:

It shall be a matter for legislation in the countries of the Union to permit the reproduction of such works in certain special cases, provided that such reproduction does not conflict with a normal exploitation of the work and does not unreasonably prejudice the legitimate interests of the author.[194]

4.136 The three-step test has become the international standard for assessing the permissibility of copyright exceptions generally. For example, in 1994 the three-step test was incorporated into the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs).[195] With respect to copyright, it now applies to exceptions to an author’s exclusive right of reproduction and to all economic rights under copyright excluding moral rights and the so-called related or neighbouring rights. Another obligation which should be noted is the AUSFTA, which requires Australia to employ the three-step test for exceptions to all exclusive rights of the copyright owner.[196]

4.137 As its name suggests, the test consists of three cumulative steps or conditions. Limitations or exceptions to exclusive rights must be confined to

(1) ‘certain special cases’;

(2) which do ‘not conflict with a normal exploitation’ of the copyright material;[197] and

(3) do ‘not unreasonably prejudice the legitimate interests’ of the rights holder.[198]

4.138 The precise meaning of each step of the test is far from certain. There has been only one World Trade Organization (WTO) Panel report on the three-step test as it relates to copyright under TRIPs.[199] In this report, the Panel explained

there is no need to identify explicitly each and every possible situation to which the exception could apply, provided that the scope of the exception is known and particularised. This guarantees a sufficient degree of legal certainty.[200]

4.139 The ALRC considers that fair use is consistent with the three-step test. This conclusion is based on an analysis of the history of the test, an analysis of the words of the test itself, and on the absence of any challenge to the US and other countries[201] that have introduced fair use or extended fair dealing exceptions.

The history and context of the three-step test

4.140 The three-step test was first incorporated into international copyright law during the 1967 Stockholm revision of the Berne Convention.[202] This revision also saw the introduction of the right of reproduction. Those developing the revised treaty text thought it necessary to have a provision setting out a general standard that exceptions to the right of reproduction must meet in order to be permissible.

4.141 As some national laws already contained various exceptions to the right of reproduction, that members to the Berne Convention wanted to retain, those developing the text were mindful that it would be necessary ‘to ensure that this provision did not encroach upon exceptions that were already contained in national laws’ and that ‘it would also be necessary to ensure that it did not allow for the making of wider exceptions that might have the effect of undermining the newly recognized right’.[203]

4.142 Some stakeholders submitted that the origins of the three-step test suggest that it was not intended to be a rigid prohibition on copyright exceptions.[204] Some stakeholders referred to Dr Martin Senftleben’s comprehensive study of the three-step test published in 2004.[205] For example, CAG Schools submitted:

Dr Senftleben has shown that the three-step test was intended to reconcile the many different types of exceptions that already existed when it was introduced, and to be an abstract, open formula that could accommodate a ‘wide range of exceptions’.[206]

4.143 Some academics submitted that subsequent international agreements and state practice confirm that it is an open formula capable of encompassing a wide range of exceptions.[207]

4.144 In 1996, the three-step test was incorporated into the WIPO Copyright Treaty (WCT)[208] and WIPO Performances and Phonograms Treaty (WPPT),[209] both sometimes collectively referred to as the WIPO Internet treaties. The Diplomatic Conference that adopted the WCT and WPPT texts, adopted the following agreed statement in respect of art 10 of the WCT, which applies mutatis mutandis to art 16 of the WPPT:[210]

It is understood that the provisions of Article 10 permit Contracting Parties to carry forward and appropriately extend into the digital environment limitations and exceptions in their national laws which have been considered acceptable under the Berne Convention. Similarly, these provisions should be understood to permit Contracting Parties to devise new exceptions and limitations that are appropriate in the digital network environment.[211]

4.145 One commentator observed:

Pursuant to article 31(2)(a) of the Vienna Convention [on the Law of Treaties], ‘any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty’ forms part of the context for the purpose of interpretation. The agreed statement concerning article 10 WCT is thus a relatively strong source of interpretation. ... [I]t must be considered directly in connection with the treaty text itself.[212]

4.146 The CLRC took the view that its open-ended fair dealing model would be consistent with the three-step test, in part because it considered that its model would be ‘one such appropriate extension into the digital environment’ and so would be ‘in the spirit of art 10’ of the WCT in light of the agreed statement.[213]

Interpreting the three-step test

4.147 Many copyright scholars have endorsed the interpretation of the three-step test in the Declaration on a Balanced Interpretation of the ‘Three-Step Test’ in Copyright Law, sometimes referred to as the Munich Declaration.[214] Among other things, signatories to this Declaration are of the view that:

The Three-Step Test’s restriction of limitations and exceptions to exclusive rights to certain special cases does not prevent

(a) legislatures from introducing open ended limitations and exceptions, so long as the scope of such limitations and exceptions is reasonably foreseeable …

4.148 A submission to this Inquiry—signed by 51 international intellectual property researchers—stated that fair use can operate in a manner that is sufficiently foreseeable for rights holders and third parties and that the three-step test does not preclude the introduction of open-ended exceptions like fair use.[215] This submission referred to the analysis of the history of the three-step test referred to above and also expressly approved of specific parts of the Munich Declaration.

4.149 If the ‘special case’ requirement necessitated identification of the special cases in advance by the legislature, then Australia would already be in breach of its international obligations, because s 200AB is not confined to particular purposes.[216]

4.150 Associate Professor Jani McCutcheon submitted that a fair use exception would be a ‘special case’ because fairness itself is a special case. In her view, ‘the fact that many types of uses may be fair is irrelevant and does not prevent compliance’.[217]

4.151 The question of whether fair use is compatible with the three-step test is really a question of whether it meets the first step.[218] The ALRC has no reason to conclude that a new fair use exception would breach the second or third steps of the test. Some stakeholders were also of this view.[219] One submission explained:

Fair use could only conflict with a normal exploitation of the work and could only unreasonably prejudice the legitimate interests of the right holder if it were applied incautiously by the judiciary. The same is true of the existing exceptions.[220]

4.152 The third limb of the three-step test provides only that limitations or exceptions must not ‘unreasonably’ prejudice the ‘legitimate’ interests of the rights holder. The test does not say an exception must never prejudice any interest of an author.

4.153 Some stakeholders submitted that the three-step test should be given a more limited interpretation.[221] Copyright Agency noted that while the three-step test has been the ‘subject of discussion in the academic community, there has been no revision process at the international level under the auspices of the WIPO.[222] Further, some submissions noted that arguments for a more flexible interpretation have only been made recently and are controversial.[223]

No challenges in international forums

4.154 The fact that the US and other countries that have introduced fair use or extended fair dealing exceptions consider their exceptions to be compliant, and have not been challenged in international forums, suggests that fair use complies with the three-step test.

4.155 A number of stakeholders observed that the US has never seriously been challenged about the consistency of its fair use exception with the three-step test.[224] Opportunities for such challenge included the steps taken to adhere to the Berne Convention—‘years of public hearings before the US Congress, as well as numerous consultations with WIPO and foreign experts’[225]—where transcripts of hearings reveal that not once was there considered to be a problem with fair use and the three-step test.[226]

4.156 Further, other countries which have introduced an exception for fair use such as The Philippines, Israel and the Republic of Korea, or an exception for extended fair dealing such as Singapore, have not been challenged in international forums about the enactment of such provisions. Like Australia, all of these countries are party to the Berne Convention, the WCT and the WPPT, among other WIPO treaties, and are WTO members.

4.157 A number of rights holders and their advocates criticised this argument, submitting that such an argument does not necessarily lead to the conclusion that fair use is consistent with the three-step test.[227] Some of these stakeholders raised the possibility that there may be other reasons for the absence of challenges in international forums. For example, APRA/AMCOS and Screenrights observed that the US was unique and enjoys a vast position of strength in international forums.[228] ARIA submitted that it would make little sense for a WTO member to challenge the ‘abstract concept’ of fair use; rather, there would only be a challenge if a particular application of fair use by US courts so aggrieves a member that the member considers it sufficiently significant to challenge.[229]

4.158 The ALRC is not persuaded by these arguments to abandon the recommendation for fair use. It is clear that the US and the other countries mentioned consider that their provisions are consistent with the three-step test. The Ireland Review was satisfied that a fair use doctrine, such as that existing in the US, is compatible with the three-step test.[230] One submission to this Inquiry suggested that the countries which have introduced exceptions for fair use had accepted that the ‘special case’ requirement may be fulfilled by the judiciary identifying special cases after the event.[231]

4.159 With respect to the US, one stakeholder referred to correspondence with the US Trade Representative, Ambassador Ronald Kirk, in September 2012, confirming that:

The United States takes the position that nothing in existing US copyright law, as interpreted by the federal courts of appeals, would be inconsistent with its proposed three-step test [for the Trans Pacific Partnership Agreement].[232]

4.160 Similarly, another submission referred to a WTO review of copyright legislation in 2006 where, in response to a question about the consistency of US fair use with art 13 of TRIPs, the US replied:

The fair use doctrine of US copyright law embodies essentially the same goals as Article 13 of TRIPS, and is applied and interpreted in a way entirely congruent with the standards set forth in that Article.[233]

4.161 Three US-based academics suggested that it was unlikely that the US would have both acceded to the Berne Convention and promoted the incorporation of the three-step test into TRIPs, the WCT and into bilateral free trade agreements, if there were concerns about the fair use doctrine being fundamentally at odds with that test.[234]

4.162 Universities Australia made a similar point:

Hugenholtz and Senftleben have noted that the Minutes of Main Committee for the 1996 WIPO Diplomatic Conference (that led to the adoption of the WIPO Internet Treaties) provide evidence of ‘the determination to shelter use privileges’, including determination on the part of the US to ‘safeguard the fair use doctrine’.[235]

4.163 The fact that the US has already been subject to challenge in the WTO with respect to one provision of its copyright statute[236] suggests that the US is not so ‘unique’ as to be immune from challenge in the WTO if its fair use provision was thought to be inconsistent with the three-step test.

4.164 To deny Australia the significant economic and social benefits of a fair use exception, the arguments that fair use is inconsistent with international law should be strong and persuasive, particularly considering other countries are enjoying the benefits of the exception. The ALRC does not find these arguments persuasive, and considers fair use to be consistent with international law.

Recommendation 4–1 The Copyright Act 1968 (Cth) should provide an exception for fair use.