White SW Computer Law Intellectual Property, Information Technology & Telecommunications Newsletter - August 1997

A Company's directors and its employees have a fiduciary duty to act in the company's best interest. A breach of this duty can lead to a significant award for damages being ordered in favour of the company. In the matter of Bailey v Namol Pty Limited, Bailey failed in his appeal against an earlier decision which awarded Namol $657,238 damages. Bailey had been an employee and director of Namol and resigned to work for a competitor of Namol. Bailey obtained copies of Namol's plans for doors and windows to be used for a particular project. Subsequently, Bailey was able to win the sub-contract for the project from Namol by taking advantage of Namol's plans. Damages were awarded to compensate Namol for the breaches of copyright in the plans and fiduciary duty. Employees should be wary of the consequences of breaching their obligations to their employer during and after their employment and should be instructed to return all copyright materials when their employment ceases.

Causing damages to computer systems and unauthorised access to computer systems are considered to be criminal offences in many countries. The question of what constitutes “unauthorised access” was examined in the US Appeal case US v Robert Tappan Morris. Morris was a Ph.D student at Cornell University and had access to the Cornell computer networks. Morris developed a computer program (“a worm”), which was designed to infect university, governmental, and military computers via the Internet. Morris used bugs in the “sendmail” program, “finger daemon” program, “trusted hosts” computers and password guessing. An argument was raised that because Morris had legitimate access to the Internet through his university account his actions did not constitute unauthorised access. Morris was unsuccessful in his Appeal and the original sentence of three years probation, 400 hours of community service, a fine of $10, 050 and the costs of his supervision remained in place. Employees who are given access to limited computer resources should bear in mind that attempting to gain access to areas for which they are not authorised may be considered a criminal offence.

Hearsay is something that someone else has been heard to say. It has been argued that certain computer printouts are hearsay as the computer cannot be orally examined regarding its evidence. This question was addressed in the matter of Rook v Maynard, which was an Appeal from a decision which had previously acquitted Maynard. Maynard had been charged with thirty-three offences in relation to unauthorised access to data stored in the Department of Social Security computer system. Maynard's activities had been recorded in a computer generated log activated by the use of his log-on identification number. In the initial hearing, these computer generated logs were found to be inadmissible and the complaints were dismissed. Upon Appeal, however, the Court found that as the reports were generated without human intervention the evidence was admissible and the matter was set down for retrial. If you are intending to rely upon computer generated evidence, you should bear in mind the fact that the Court may not allow such evidence to be admitted. However, such information may be invaluable and used to obtain details that are more easily admitted into evidence.

In the Australian case, CSP Computer Security Products Pty Ltd v Security Dynamics Technologies Inc ("SDT") and Megatec Pty Ltd, CSP, who had been a non-exclusive distributor of SDT products commenced legal action against SDT and Megatec following the appointment of Megatec as the exclusive Australian Distributor of SDT products. CSP's allegations, amongst others, included breach of Agreement; breach of confidentiality and various trade practice actions. SDT was successful in their request that the Court set aside the service of the originating process and the Court noted that the Distribution Agreement required that disputes be submitted to the Courts of Massachusetts, USA. If your distribution agreement is non-exclusive and has a termination clause, which allows the agreement to be terminated with little notice, you should consider the risk that your marketing efforts may be used to the benefit of another party. Consideration should also be give to your choice of jurisdiction governing your agreement to avoid expensive overseas litigation.

Copyright infringement is a common occurrence on the Internet and there are still many questions to be resolved, such as which legal jurisdiction is applicable and who should be policing the infringing acts. In order to monitor copyright infringements, Playboy magazine is going to use invisible digital “watermarks” in the pictures it displays on the Internet. The watermark will contain information about the copyright owner and any restrictions placed on the use of the image. Playboy will be able to search the Internet to find sites containing its watermark. Problems, such as the choice of jurisdiction, still remain with respect to prosecuting the offenders but at least the degree of infringement may be monitored. There has been increased activity by copyright owners in protecting their assets such as musical recordings and photographs in recent months. If your web site incorporates any third party material, you should ensure that you have a licence, preferably in writing, to use those materials.

The majority of case law in relation to the Internet is US based, however, there has been an increase in litigation in Europe, which should provide a useful comparison. In the Dutch case of Church of Spiritual Technology ( "CTS" ) and Ors v Dataweb B.V. and Ors, a number of Internet service providers were sued for providing access to material on a web site which allegedly infringed CTS' copyright in addition to the author of the “infringing” web pages. The Court found that unless the Internet service provider had been notified of a copyright infringement, providing public access to material over which they have no control over, or knowledge of, could not be a wrongful act. In this matter, the web site owner was found not to have infringed CTS' copyright by hosting the pages. Further, the home pages were also found not to infringe for different reasons. ISP's should consider obtaining an indemnity from their customers with respect to their use of copyright infringing materials on web sites. Although the early decisions appear to be in the ISP's favour, much of the recent case law is yet to be challenged before the Courts and there is a degree of subjectivity in determining whether or not an ISP is aware of material it provides access to. Further, there is a new bill pending in the US Congress in relation to ISPs and their liability for such copyright infringements.

Without a written assignment of copyright, your continuing use of artwork or other copyright works, will be dependent upon the copyright owner granting you a licence to do so. Many people consider that artwork prepared for company stationery is the company's property but this is usually not the case. In the Victorian case of KMA Corporation Pty Ltd v G&F Productions Pty Ltd, this issue was examined with an earlier decision being appealed by KMA. G&F had supplied artwork to Bingo 2000 and upon Bingo 2000's request to KMA for an express and limited purpose. KMA used the artwork, without licence, in newsletters it produced for Bingo 2000 and G&F successfully sued them for infringement of copyright. The Court originally ordered that KMA be restrained from using the artwork without the express consent of G&F and that KMA pay to G&F a sum equal to the sum paid by Bingo 2000 to KMA for producing the newsletter. KMA was unsuccessful in its appeal and the Court reiterated that G&F had not granted a licence to Bingo 2000 or KMA to use the artwork in the newsletters. To be binding, the Copyright Act requires that an assignment of copyright must be in writing and signed by the owner. In order to have continued use of copyright works, either a licence or an assignment should be obtained. If no agreement is in place, there may be nothing to prevent artwork prepared on your behalf being used by other parties if the copyright owner authorises such use.