04 Jul 2016
No copyright in digital data signals, says Full Federal Court
The Full Federal Court has confirmed that the Copyright Act does not protect digitally created streams of data representing the sounds and images of live content which is then broadcast.
When we're watching a live broadcast of, for example, a major sporting event, the sounds and images are usually digital data streamed ‒ and the price to access and broadcast that stream is usually enormous. The Full Federal Court of Australia has confirmed that the Copyright Act does not protect the instantaneous digital transfer of sounds and images that are pieced together to form live broadcasts (Commissioner of Taxation v Seven Network Limited  FCAFC 70 ‒ Clayton Utz acted for Seven in both the first instance and appeal proceedings).
Do payments for broadcasting rights = royalties?
The issue in the case was whether payments for broadcasting rights made by Seven to the International Olympic Committee (IOC) were royalties and therefore Seven was obliged to withhold part of the amount paid on account of the IOC's liability for withholding tax.
Critical to this question was:
- whether there was copyright in the international audio visual signal (ITVR signal) used to create Seven's broadcast of the Olympic Games; and
- whether the use or the right to use the signal included the use, or the right to use, an "other like property or right".
If the answer to either of these questions is yes, then Seven was liable to withhold the tax.
At first instance, Justice Bennett held that copyright did not subsist in a digital data signal, and further that the rights granted to Seven by the IOC, were not "other like property or right". She therefore found that Seven's payments to the IOC for use of its ITVR signal were not "royalties" that attracted royalty withholding tax under the “Agreement between Australia and Switzerland for the Avoidance of Double Taxation with respect to Taxes on Income”.
No copyright in an ITVR signal, so no royalties or tax payable
The Full Court upheld Justice Bennett’s ruling that the ITVR signal provided by the host broadcaster to Seven, and which was used by Seven to create its broadcast of the Olympic Games, was not a cinematograph film for the purposes of the Copyright Act. Like Justice Bennett, the Full Court found that:
- the ITVR signal was not taken from any previously recorded version;
- the ITVR signal was a digital signal produced by the host broadcaster and transmitted by electromagnetic forces, such that, at any one moment the signal was transmitting only a very tiny fraction of the sounds and images of the field of play;
- there was no technology that allowed that information to be reproduced without the use of a receiving device;
- there was no picture, image sound recorded or permanently stored in the copper cable that transmitted the signal; and
- the payment made for the exclusive rights to broadcast, was not a payment for an "other like property or right".
The Full Court therefore upheld Justice Bennett's decision that Seven's payments for its exclusive broadcasting rights were not royalties, and thus Seven was not liable to withhold tax on account of the IOC's liability for withholding tax.
A question of forbearance?
At the hearing of the appeal, the Commissioner also sought to argue that the disputed payment was a royalty because it was consideration provided by Seven in order to obtain a guarantee that other persons would not exercise those rights within Australia.
The Full Court rejected this ground as being "fundamentally misconceived". Seven was the only party to the agreement that was legally entitled to broadcast in Australia. The fact that the host broadcaster had a recording of the ITVR Signal was immaterial because neither the IOC nor the host broadcaster had the right to broadcast in Australia. Accordingly, there was no forbearance of the kind argued and therefore the payment was not a royalty.
Lessons for anyone using digital technology - check your rights!
The Full Court's decision again demonstrates that users and developers of content using digital technology should be careful to check whether they are protected by any intellectual property legislation currently in force. It will not, for example, cover digitally created streams of data representing the sounds and images of live sporting events like the Olympics unless the signal is itself a copy of a copyright work or broadcast. More often than not, copyright will not exist until the first broadcast occurs using the signal.
Where there is any doubt as to what statutory protections exist, if any, parties should ensure that they adequately protect their rights by contract.
The ATO has sought special leave to appeal to the High Court.
For further information please contact Mary Still (IP) or Nick Mavrakis (tax litigation).