Australian Software Licensing Issues - March 1997

Trade between the US and Australia is ever increasing and with the spread of commerce to the Internet there are interesting issues which will arise with respect to software licensing and other intellectual property rights. If your clients propose to licence Intellectual Property in Australia then this article should highlight some risks and some substantial differences between Australia and the USA.

The most noticeable difference is that in Australia it is not possible to register copyright. However, parties are entitled to full relief before the Australian Courts as if they were so registered, provided that the applicant can satisfy the court that it has the necessary status under the Berne Convention.

The case law, however, has produced some far more interesting developments.

In Computer Edge v Apple Computer Inc (1986) 161 CLR 17, Apple failed to prove to the High Court of Australia that EPROMS containing in part, an object code version of, amongst other things, Apple's APPLESOFT software, infringed Apple Computer's Copyright. This decision diverged from US law under which it was well settled that object code was, subject to certain requirements, entitled to copyright protection.

In 1992 the tide turned full circle against infringers when Autodesk Inc v Dyason (1992) 173 CLR 330 was heard before the High Court of Australia. The issue decided was whether or not an EPROM which emulated a physical device (which was in fact an XOR gate switch) breached Autodesk's copyright in its AutoCad program. The leading Judge found that copyright subsisted in a 127 bit sequence look up table contained in source program “widget.c” and that the Eprom was a reproduction of the “look up table”. In extraordinary circumstances, the Court sat for a second time on application of Dyason to reconsider its decision. The application for reconsideration was ultimately denied by a majority of one Judge. The net result was a decision which found that 127 bits or two words was a substantial part of a copyright work which was megabytes in size.

In the most recent case, the method of operation's doctrine as set out in Lotus Development Corporation v Borland International Inc 49 F 3rd 807 was be held to be inapplicable in Australia in Data Access Corporation v Powerflex & others (1996) 33 IPR 194. In that case a software developer built an interpreter which could emulate the FPXplus language. The software was completely rebuilt from new source code. However, the Judge found that infringement had incurred in reproducing each and every command which was supported by the interpreter. The Judge had no legislation equivalent to USC s102 and hence found the doctrine inapplicable.

This case is currently under appeal, which has been heard but not decided. The problem facing developers proposing to licence products in Australia is clear. Should you have advised your clients with respect to any similarities their programs may have with their competitors and your client is relying on the method of operations doctrine then that shield falls away in Australia. Accordingly, Australia would be ideal place in which to serve a writ for a party seeking to assert such a copyright infringement.

Another matter of concern is that in the Data Access case a letter of advice provided by a former solicitor of the defendant to the defendant advising him of the risks was admitted into evidence. Such evidence was found to be pleaded into relevance by the plaintiff pleading that the infringement was flagrant. This poses a substantial difficulty for practitioners. Does one advise or not? Is it in your client's best interest to properly advise them of the risks? Clearly this places practitioners in an impossible situation. Do you chose to inadequately advise your client and risk a negligence claim or provide the court with clear evidence of your client's flagrancy?

The Internet provides a rapid and widespread method of disseminating information. Despite the ready availability of a myriad of works on the Internet and the technical issues involved one cannot stretch the implied licence to use too far. This view has been recently confirmed in Trumpet Software Pty Ltd v. OzEmail Pty Ltd. In that case copyright was found to subsist in software ( “winsock” ) which was available for distribution freely upon the Internet as “Shareware”.

Further, it was found that the scope of the implied usage of that software did not extend to the bundling and resupplying the software without any acknowledgment of the author or the terms and conditions on which the software was supplied. The fact that the author of the work was difficult to contact and failed to comply with the infringer's negotiation deadlines was held to be irrelevant. Accordingly, copyright works distributed into Australia via the Internet do not lose any copyright per se and are subject to an implied licence. However, concern has been raised as to whether the right to use extends to using home page information without the associated expensive advertising. Accordingly, clients would be well advised to place notices advising of the need to reproduce their pages only in full.

If the reproduction of a computer program within Australia would have infringed a copyright then importing such copies, despite being licensed in the county of origin, is a copyright infringement. The rights to sue for such an infringement rest with the copyright owner and the exclusive licensee. An exclusive licence is a “licence in writing…authorising the licensee, to the exclusion of all other persons, to do an act that, by virtue of the Act, the owner of the copyright would, but for the licence, have the exclusive right to do.”

In Avel Pty Ltd v. Multicoin Amusements Pty Ltd [1990] 65 ALJR 179 ( “Williams Pinball Machines” ) it was found that a licence agreement that purported to give exclusive rights to distribute goods was not an exclusive licence with respect to any rights under the copyright in the pinball machines and the plaintiff's action failed. Even worse for the distributor, parties which had left the market as a result of threats of copyright infringement subsequently successfully sued the distributor for loss and damage under Section 202 of the Copyright Act 1968 (Cth) for unjustified threats of copyright infringement for which in the circumstances, there was no defence. Unfortunately, one badly drafted agreement resulted in loss almost exceeding one million dollars for the distributor.

The problems roll on with Limitation of Liability Clause.

A clause which seeks to limit all liability may fail if the goods or services supplied are less than A$40,000. The Trade Practices Act prohibits such exclusions and also implies a number of other terms such as correspondence with description, merchantable quality, fitness for a particular purpose and terms as to title. Further, in Australia as elsewhere around the world, the struggle between defining software as a good or a service continues. Two recent cases in the Courts indicate that software is most likely a service under the Trade Practices Act. Consideration should be given as to whether your client's policy of insurance is sufficient within Australia having regard to software being classified as a good or a service. Anti-trust Provisions and the Trade Practices Act.

Other pitfalls await players who propose clauses which would be considered anti-competitive in nature. If a clause attempts to restrict a purchaser's right to acquire goods elsewhere or restrict the right to re-supply goods to particular customers or in particular areas it may be considered to fall into the practice of “exclusive dealing”. The practice of exclusive dealing constitutes an offence if it has, or is likely to have, the purpose of substantially lessening competition. In Broderbund Software Inc v Computermate Products (Australia) Pty Limited (1992) ATPR 41-155 Computermate argued that Broderbund had an exclusive distribution agreement in place with Dataflow which breached the exclusive dealing provisions of the Trade Practices Act. Computermate failed in its argument to have a Broderbund's licence agreement declared void and accordingly avoid liability for parallel importation infringements. However, this is an argument which will no doubt be run again.

Although there are many similarities in USA and Australian legislation, the case law is quite different in some areas. Parties who are licensing software in Australia should ensure that their licensing and/or distribution agreements are adequate and appropriate advice is obtained as to any possible problems which may not otherwise need to be considered by a supplier in USA.

In short, Australia continues to be island of intellectual property rules unto itself surrounded by sharks waiting for the unsuspecting foreign intellectual property owner to arrive.

First published in: The Licensing Journal, April 1997 Volume 17 Number 4, pp11 - 12.