White SW Computer Law Intellectual Property, Information Technology & Telecommunications Newsletter - November 1998

Some computer games allow players to create new levels using the scenery and characters provided in the existing game. The question of ownership of the copyright in these new levels was examined in the US matter of Micro Star v Formgen, Inc and Apogee Software Ltd. On appeal, the Court found that by allowing its customers to design new levels for the game Duke Nukem 3D and publish them on Formgen's web site, Formgen was not relinquishing all of its copyright protection. Further, there was a term in the licence agreement which covered the ownership of such works. As a result, Micro Star was instructed to cease using the new levels created and published by Formgen's customers commercially. Micro Star had been selling the new levels in a collection published in a CD Rom format and had used images from the Game on its packaging materials. Despite Micro Star's arguments that the works were not derivative works and that Formgen had granted an implied licence to its customers to create and use new levels, the Court found that Formgen had not abandoned its rights to profit commercially from the new levels developed.

When creating a new work based upon an existing work, it is important to ensure that it will not be so similar as to be considered to be a derivative work. The copyright owner of the original work has the right to control the use of its work in any derivative works, and may require a licensing fee to be paid.

In October, a class action was commenced in the Idaho District Court by Hannah Films, Inc ( "Hannah" ) against Micron Electronics, Inc. ( "Micron" ). Hannah alleges in its complaint, amongst other things, that Micron has sold PCs that have Year 2000 faults (this is acknowledged at Micron's website); that Micron should offer a free fix for the acknowledged faults in its PCs (as allegedly offered by companies such as Compaq Computer Corporation, Dell Computer Corporation and Hewlett-Packard Company); and that the Year 2000 defects render the Micron PCs unfit for he ordinary purpose for which they are to be used. Hannah has brought the action on behalf of itself and all other persons or entities who purchased any PC from Micron which is not Year 2000 compliant and has not been repaired or updated free of charge by Micron. The Australian Courts have not ruled on similar class actions to date, but legislation such as the Trade Practices Act 1976 give consumers some scope for similar claims of goods being unfit for he ordinary purpose for which they are to be used.

Australian suppliers should take note of the number of similar class actions being issued in the US and review their approach to rectifying Year 2000 faults in hardware and software in order to avoid being a party to similar litigation.

The Northern Territory Supreme Court recently examined the question of whether the plug or mould of a swimming pool is a model of a “building” for the purposes of the copyright act. If a swimming pool is considered to be a building, then its design is afforded copyright protection by the Copyright Act 1968 and a model of the swimming pool will also have right copyright protection. The Court examined the wording of the Act, together with case law to decide that a swimming pool should be considered to be a building and that both the pool and the mould were afforded copyright protection. The Copyright Act, as with other Acts, have a number of clauses which have been drafted in a way to allow a wide interpretation of the meaning intended by the legislation. Often the Courts will have to rule on the interpretation of a particular clause, where that clause has not been examined in similar litigation.

Litigation relying on a novel interpretation of a clause is understandably significantly unpredictable in its outcome.

Our New York agents, Bazerman & Drangel have offered a free monitoring service to all of our clients who have used our services to register an Australian trade mark. If you are interested to know whether your trade mark has already been registered in the US, or whether it is registered in the future, please contact our Steve White, who will arrange this free monitoring service on your behalf. This may be important if you are considering launching a product in the US using a previously registered US trade mark as your product name, or in some cases when selling goods and services via the Internet, where your domain name is similar to a US registered trade mark.

New provisions have been added to the Trade Practices Act 1976 ( “TPA” ) that all businesses should be aware of. Traditionally, the TPA has protected consumers against unconscionable behaviour. This protection has been extended to business transactions, excluding situations where the customer is a publicly listed company or where the value of the goods or services exceeds $1,000,000. Suppliers should be careful to address obvious inequalities in bargaining strength, for example by suggesting that the customer seek independent legal advice in regard to the transaction and treating all small business customers consistently. Further amendments apply in relation to Franchising Agreements. The wide definition given to “franchise agreement” will mean that certain software agreements such as software distribution agreements may be included. If an agreement is deemed to be a franchising agreement, the franchisor (supplier) must comply with certain requirements such as supplying a disclosure document at least 14 days prior to the agreement being entered into and allowing a seven day cooling off period to all new agreements. The Australian Competition and Consumer Commission has been funded by the Government to run test cases involving these new sections of the TPA.

Businesses should seek legal advice if they are unsure of their obligations to avoid potential Federal Court litigation.

Businesses that use employment agencies to supply staff should take note of changes to the Pay-Roll tax Act, which are expected to come into effect in February 1999. The main purpose of the amendments is to deem that clients of employment agencies are employees and therefore, payments made for persons hired through an employment agency will be deemed to be wages. These amendments were introduced as a result of a recent Court finding which threatened to diminish pay-roll tax payments for wages paid in such circumstances. Further information may be obtained from the State Revenue Office web site http://www.sro.vic.gov.au. If clients require further information regarding their obligations under these new provisions, please contact Steve White.