White SW Computer Law
Intellectual Property, Information Technology & Telecommunications Lawyers
Melbourne Office - PO Box 452, COLLINS STREET WEST Victoria 8007 Australia
Sydney Office - GPO Box 2506, SYDNEY New South Wales 2001 Australia
Telephone: Melbourne Office - +61 3 9629 3709 Sydney Office - +61 2 9233 2600
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Email: wcl@computerlaw.com.au Internet: http://www.computerlaw.com.au

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

Have you bought compatible hardware to find that it is not?

In the US case of Creative Labs Inc and Anor v Cyrix Corporation and Ors, Creative Labs sought, amongst other relief, that pending trial, the Court grant an injunction against Cyrix to prevent Cyrix from claiming that its microprocessor product is compatible with the Creative Labs Sound Blaster sound card. The Court interpreted the term “compatible” to mean that the Cyrix product would be capable of performing any task that the Creative Lab's product could perform. Creative Labs were able to show that the Cyrix product did not support ADPCM functions. Creative Lab's evidence was that up to 8% of games tested did not function properly. Despite Cyrix's claim that this function was rarely used in computer games and the games which did use this technology were not currently being sold, the Court found this discrepancy in functionality to be sufficient to warrant the injunction preventing Cyrix from claiming that its product and computer systems containing its product were Sound Blaster compatible. An additional issue which was examined was that Cyrix provided copies of a Creative Lab applet on its web site and facilitated visitors to its web site to copy this software. The Court ordered that Cyrix cease making the Creative Labs software available on its web site. The Australian Trade Practices Act and similar legislation also has similar provisions for misleading and deceptive conduct which are likely to have lead to similar findings had the matter been heard in Australia. If you make sweeping claims about your product, for example in advertising materials, the accuracy of these claims is important to ensure that a claim for misleading and deceptive conduct is not made against your business.

Liability of Internet Service Providers

There is a great deal of uncertainty as to whether ISP's are liable for defamatory or illegal materials which they transmit on behalf of third parties. In Australia, the transmission of material by ISP's would most likely be considered by the Court to be publishing of the material by the ISP. If this argument holds, the ISP is legally liable for acts such as defamation and copyright infringement which may arise as a result of materials being transmitted. The American stance is more protective of the ISP. As seen in Zeran v America Online Inc, Zeran was unable to sue AOL for damages as a result of defamatory statements which were posted to an AOL bulletin board. An unknown party posted a number of notices to the bulletin board which contained Zeran's name and telephone number. The notices advertised a number of T-shirts which featured offensive slogans in relation the 1995 bomb attack in Oklahoma City. Zeran received a number of threatening telephone calls as a result of the notices. The Court held that the Communications Decency Act of 1996 pre-empts a claim such as Zeran's from being made against an interactive computer service provider. If you are using the Internet for commercial activities, it may be wise to consider conducting your operations in another legal jurisdiction should its laws be more favourable to your business. It has not yet been tested at Court, however, whether a business conducted from Australia, but using an Internet server located in the US will be subject to US or Australian laws.

When determining whether a reproduction of a copyright work infringes the intellectual property owner's rights, the Court will examine the “quality” of the portion reproduced rather than the quantity of the original work which has been reproduced. In the matter of G.M. (North Melbourne) Holdings Pty Ltd v Young Kelly Pty Ltd and Ors the Court found that copyright subsisted in a map which had been developed using hexagons to calculate the fee charged for courier services. One of the directors of Young Kelly, Noel Young, had worked for G.M. before resigning to establish a rival courier firm. Young engaged an artist to prepare a map based upon the G.M. map. The Court found that the map produced for and used by Young Kelly infringed the copyright, which subsisted in the G.M. map. Having found that a copyright infringement had occurred, the Court then examined the question of whether he directors of Young Kelly were personally liable for damages arising from the infringement. It was found that Young, who had taken the map from G.M., authorised its reproduction, and implemented its use by Young Kelly was personally liable for the copyright infringement. Kelly, who allegedly had nothing to do with the development and use of the map was found not to be personally liable for copyright infringement. Company directors should monitor the activities of their fellow directors carefully to ensure that the company does not engage in copyright infringing acts. The cost of defending a copyright infringement claim can be expensive and not all directors will be able to rely on the “silent director” defence with respect to copyright infringement.

Innocent Infringement defence difficult to sustain

The Copyright Act 1968 makes some concessions when a copyright infringement has occurred and the infringing party had no reasonable grounds for suspecting that they were infringing copyright. If this defence is allowed, the copyright owner is entitled to an account of profits but may not be entitled to any other damages, other than legal costs. As seen in Golden Editions Pty Ltd and Hughes v Polygram Pty Ltd and Ors, the Court will be quite thorough in its examination of whether the defendant should have been aware of the fact that their actions constituted an infringement of copyright. In this Federal Court Appeal, Hughes claimed that he did not know that music recordings which Golden Editions had licensed from New Breed Music International were unlicensed copies and that the true copyright owner was in fact Polygram. The Court examined Hughes' oral evidence as to his experience in the music industry and his knowledge of copyright laws. The Court concluded that a person of Hughes' experience should have made further investigations with respect to the copyright ownership because he knew that the artists had originally made the recordings with another company who still owned the copyright and that this company may have still been selling copies of the recording in Australia. The Court will expect that all reasonable inquiries will be made to ascertain to true copyright owner. When copyright materials are obtained from other parties, it is prudent to obtain an indemnity from them that will protect you against possible intellectual property infringement claims. However, if the indemnifying party cannot be located, or has no assets, the loss and damage of any such claim will have to be borne by your business.

Is your software licence transferable?

When a business entity is sold or broken down into different entities, the terms of the software licence will determine whether the software licensed to the original business entity will be able to be used by the new entities and/or owners. Software developers should consider the inclusion of a term which terminates the software licence upon the sale of the business assets to a new party. Such a clause will maintain the developer's control over the parties which possess a software licence and the obligations the developer will have in relation to software support. In Australian Computer Evaluation Consultants Pty Ltd and Anor v Datbury Pty Ltd and Ors, ACEC and Copper Systems sued for an number of actions, including copyright infringement. ACEC claimed to be the exclusive licensee of a computer program designed to be used by businesses in the hospitality industry to monitor inventory and maintain other records. ACEC sub-licensed the software to be used by a group of hotels in Queensland. Upon the breaking up of the hotel group, it was found that the software was in use by a business which was previously a member of the hotel group. ACEC claimed that the sub-licence was non-transferable, however, in absence of evidence of such an agreement, the Court concluded that there had been no such restriction. When you are purchasing an interest in a business, it is important to consider what intellectual property is being proposed to be included in the sale. You should also investigate whether the ownership of this property is in fact transferable, to avoid the possibility of a copyright infringement claim being made against you.

The potential for loss and damage arising from distribution of infringing copies of copyright protected works via the Internet is enormous. A US matter of A & A Records Inc and Ors v Internet Site known as Fresh Kutz and Anor saw various record companies applying for relief from the Court including an order that the Internet Service Provider which hosts the web site prevent any access to the site to prevent further copyright infringement and to prevent destruction of evidence. Fresh Kutz provided illegal copies of musical recordings at no fee and enabled visitors to the site to download and create further illegal copies. Despite the fact that the owner of the web site was unknown at the time, the Court ordered, amongst other things, that the owner of the web site or its agents from continuing to infringe the record companies' copyright, from destroying any records and computer files connected to the web site, and to block access to all infringing copies of musical recordings on the web site. Web site owners should expect that Courts around the globe will continue to order heavy penalties for activities on web sites which involve infringement of copyright. The potential orders against web site owners for the loss and damage caused by their actions should be borne in mind when adding any material to your web site which may potentially be infringing someone else's copyright.

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