Key Points:
The Copyright Act does not cover digitally created streams of data representing the sounds and images of the event which become the broadcasts we watch.
The Federal Court has found that copyright does not exist in a digital data signal (Seven Network Limited v Commissioner of Taxation [2014] FCA 1411). Clayton Utz acted for Seven in the proceedings.
The rights to broadcast the Olympic Games
Seven Network Limited held the exclusive rights to broadcast certain Olympic Games under agreements with the International Olympic Committee (IOC). Pursuant to these agreements Seven was required to make a series of payments to the IOC. The rights acquired by Seven included the right to access and use the ITVR signal created by the Host Broadcaster in each case which was then used to create Channel Seven's broadcast of the Games.
The Commissioner of Taxation contended that payments made for the use of the ITVR signal were "royalties" and therefore attracted royalty withholding tax, as the IOC was a resident of Switzerland for the purposes of the "Agreement between Australia and Switzerland for the Avoidance of Double Taxation with respect to Taxes on Income" (Swiss Treaty).
Seven denied that it was obliged to pay withholding tax in respect of the payments made to access and use the ITVR signal as the payments were not royalty payments as defined by the Swiss Treaty. The Australian Taxation Office (ATO) disagreed with Seven's opinion and issued penalty notices. Seven commenced proceedings in the Federal Court challenging these notices.
Payment or royalties?
Seven sought orders that the penalties be set aside on the basis that the payments for the right to access and use the ITVR signal were not royalties.
"Royalties" were defined by article 12(3) of the Swiss Treaty as
"payments to the extent to which they are consideration for the use of, or the right to use, any copyright, patent, design or model ... or other like property or right".
Critical to this question was whether there was copyright in the ITVR signal used by Seven to create its broadcast.
Is there copyright in the coverage?
Under the Copyright Act 1968 (Cth), copyright relevantly subsists in literary, dramatic, musical and artistic works, sound recordings and cinematograph films.
In these proceedings the ATO did not contend that there was copyright in the ITVR signal itself, but rather that the footage "filmed" by the Host Broadcaster and transmitted via the ITVR signal was a cinematograph film. The ATO further contended that the coverage transmitted to Seven was an aggregate of visual images and sounds which were embodied in the ITVR signal as required by the definition of "cinematograph film" in section 10 of the Copyright Act.
This view was contrary to the expert evidence given by experts for both parties that stated there was no picture, image or sound recorded or permanently stored in the copper cable that transmitted the ITVR signal.
What is an ITVR signal?
In finding for Seven, Justice Bennett considered the technological features of the ITVR signal and noted that it had been agreed by both parties that:
- An ITVR signal is a stream of data transmitted (usually along copper cables, as was the case in this instance) to some form of receiving device (such as a television).
- An ITVR signal is not tangible and does not give physical form to an image or sound. No images or sounds are recorded in the cable.
- Images and sounds can be produced from the signal (by the receiving device) but not reproduced.
- ITV signals were received live by Seven and conveyed no recorded material.
Was the signal therefore a cinematograph film?
Section 10(1) of the Act defines a cinematograph film as
"the aggregate of the visual images embodied in an article or thing so as to be capable by the use of that article or thing
- of being shown as a moving picture; or
- of being embodied in another article or thing by the use of which it can be so shown;
and includes the aggregate of the sounds embodied in a soundtrack associated with such visual images".
Contrary to previous cases such as Sega Enterprises Ltd v Galaxy Electronics Pty Ltd (1996) 69 FCR 268, where embodiment was found by virtue of the means employed, Justice Bennett found that the fact that nothing was stored in the signal meant there was no aggregation of images or sounds, just a continuous stream of live data. There was no embodiment of an "aggregate" of visual images.
Embodiment of sounds and images in the signal
Whether the sounds and images being transmitted by the signal were "embodied" was a critical question in the case.
Sounds or images are embodied in an article if they "are capable, with or without the aid of some other device, of being reproduced from the article" (section 24). The signal had no physical or material form, and was not sufficiently permanent or stable to be considered to be embodied. The fact that the data stream was seen on Australian television was held to be a production, not a reproduction as required.
No copyright in the signal, so payments were not subject to royalty withholding tax
Seven was successful on all fronts. Justice Bennett held that:
- the ITVR signal did not attract copyright protection;
- the payments were not royalties as defined by the Swiss Treaty;
- Seven was not liable to withhold tax from the payments made for access to and use of the ITVR signal; and
- the Penalty Notices should be set aside.
The ATO has appealed the decision and the appeal is expected to be heard in August 2015.
Lessons to be learned
Broadcast rights attached to major sporting events are increasingly important and the fees being paid for those rights are enormous. In the technologically advancing world in which we live it is clear that the Copyright Act does not cover digitally created streams of data representing the sounds and images of the event which become the broadcasts we watch. The decision demonstrates that users and developers of content using digital technology should be careful to check whether they are protected by IP legislation currently in force. Otherwise, rights will have to be protected by contract.
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.
