Part Three: Copyright and Contract
A. Background
71. Copyright works are increasingly being made available subject to contractual terms and conditions, which sometimes seek to alter or restrict the uses that can be made of the work as set out in the Copyright Act 1994 ("the Act").
72. During public consultation on the review of the implications of digital technology for the Act, a number of public submissions raised issues regarding the ability to contract out of provisions of the Act. The submissions, mainly from copyright users in the educational, library and research sectors, expressed concern that contract law is used to change or remove the exceptions to the exclusive rights of copyright owners provided in the Act, and that this interfered with the balance of interests struck in the legislation. Some users argued that the Act should be amended to ensure that permitted acts cannot be negated by the use of licenses or by other means.
73. There is, of course, nothing new about the concept of licensing the use of copyright works. It is common practice in relation to all forms of works, and the returns from licensing provide a crucial part of copyright creators' economic return for their efforts. Concerns about the erosion of copyright law in the face of contractual provisions have increased in the digital age, however, particularly where there are increasing technical means to enforce those provisions:
[T]he digital environment fosters the conclusion of contracts, thanks to its structure and its interactive nature. Contracts are thus seen, in addition to or in place of copyright, as a ready solution for the determination of the conditions of use of protected material in the digital environment.28
74. The use of standard form contracts has increased in the digital environment as a means of facilitating mass distribution of copyright-protected materials to end users, given that they can significantly reduce transaction costs. Many digital products, particularly those delivered over the Internet, are licensed subject to these types of detailed contracts. It is these types of contracts over which most concerns has been expressed, either because they purport to limit the exceptions provided in the Act or because they expand the sphere of control of the copyright owner beyond those rights granted in the Act. For example, the Act does not provide an exclusive right to control access to work.
75. This is a topic of increasing interest internationally, and given the submissions received during the digital copyright review, it was considered timely to ascertain the extent to which the intersection between copyright and contract law is causing difficulties in New Zealand. The purpose of this section of the paper is to seek information regarding the prevalence and effects of contracts that vary the effect of copyright provisions in the Act and the relevance of these contractual provisions to commercial business models. This information is particularly sought in relation to contracts that seek to vary the terms of exceptions provided in the Act. On the basis of the information received, the Ministry will provide advice to the government on whether a full review is warranted. It is not intended that all aspects of contracting out of the Act, e.g. transferring ownership of copyright, will be problematic.
B. Contracting out of Copyright Legislation
76. As noted in Part One of this paper, in relation to the copyright policy framework, an optimal balance within the copyright system is achieved by properly determining the definition of protectable subject matter, scope of rights, terms of protection and permissible limitations.
[U]sers have a general duty to respect the rights owner's subjective rights, except in cases where positive law removes this duty by defining limitations on copyright. Just like the owner's subjective rights, these limitations form an integral part of the copyright regime, since they contribute to the achievement of a balance between the respective rights and duties of owners and users under copyright law.29
77. Freedom of contract, however, is one of the fundamental principles of our legal system. Except to the extent that a contract is proscribed by law,30 people are free to enter into any contractual arrangement of their choosing, and contracts are the primary legal source of obligations between members of a society. The fact that the substance of the contract is disadvantageous or unfair to one or both parties, or that the parties have unequal bargaining power, will not necessarily invalidate the contract.
78. It is generally accepted that parties can contract out of a statutory provision if the statute does not expressly or impliedly prohibit it and the effect of contracting out would not be contrary to law or fundamental public norms. Any resulting contract will be subject to the normal rules of contract, including that a contract will not be binding and enforceable unless both parties agree to the terms and conditions before the contract is formed.
79. These principles apply equally to the Copyright Act. Except where the Act expressly or impliedly prohibits contracting out or where it would be contrary law or fundamental public norms, right owners are entitled to deal with copyright in the same manner as other private property rights. This is explicitly recognised in section 113 of the Act:
1) Copyright is transmissible, as personal or moveable property, by-
a) Assignment; or
b) Testamentary disposition; or
c) Operation of law.
2) A transmission of copyright may be partial, that is limited so as to apply-
a) To one or more, but not all, of the things the copyright owner has the exclusive right to do:
b) To part, but not the whole, of the period for which the copyright is to exist.
80. The ability to issue licences for the use of work is also explicitly recognised in section 111, which deals with the impact of licenses on successors in title, and section 112, which provides for warranties implied in certain licences.
81. Licensing of copyright is central to many copyright industries, including software, music and electronic journal services. These licenses are often in the form of standard form, non-negotiable contracts that bind consumers to specific terms of use. Increasingly, these types of contracts are combined with technological protection measures, which make it possible to license and enforce copyright in a global market of mass distribution directly to end-users.
82. Such mechanisms allow copyright owners to develop new business models in the digital environment, which allow for more targeted or tailored use of materials. For example, music made available through legitimate download sites, such as Coketunes and Digirama, are subject to licenses regarding the number of copies that can be made of a downloaded song. Other services have graded payments depending on whether the consumer wishes to download a song to the computer, transfer it to a portable device, or simply listen to a streamed, non-downloadable version. These new developments have obvious benefits to consumers, allowing them to chose and pay for only what they wish to use.
83. Concern has been expressed, however, that standard form contracts often purport to limit or remove the ability to use materials in a manner consistent with the permitted acts and exceptions under the Act. As noted above, they also expand the copyright owner's ability to control the work beyond those exclusive rights granted under the Act. Software and electronic databases, for example, are often licensed subject to detailed and restrictive terms and conditions. Many users will be familiar with the so-called "shrink-wrap" or "click-wrap" licenses to which software is subject. The manufacturer places the terms and conditions of the software license inside the shrink-wrapped box containing the software disc or CD. The consumer is only able to read the terms and conditions once the software has been paid for, and is only able to install the software if he or she agrees to the terms. Similar contracts are entered into for online delivery of software, and have become known as "click-wrap" or "click-thru" licenses. Users are required to indicate their consent to the terms of the agreement by either typing, or clicking on a box marked, "I agree" or something similar.
84. The New Zealand courts have yet to consider the enforceability of these types of agreements. Their validity has been confirmed by courts in other jurisdictions, although there is surprisingly little case law on the topic. Perhaps the most well-known case is ProCD v Zeidenberg 86 F.3d 1447 (1996), in which the United States Seventh Circuit Court of Appeals held that copyright law did not "pre-empt" contract law. It held that the shrink-wrap license was valid and enforceable, and that such licenses should be treated as ordinary contracts accompanying the sale of products, and therefore as governed by the ordinary rules of contract law. Important factors influencing the Court's decision were:
- The buyer had notice that a licensing agreement was contained in the box;
- The license permitted the buyer to return the software for a refund if the buyer did not accept the terms of the license; and
- Requiring the license to be printed on the packaging was not practical.
85. Although New Zealand courts have yet to consider this issue, the standard principles of contracting out of legislation would no doubt be applied. The question, then, would be about the validity and enforceability of the individual contract under the principles of contract law.31 A key question for the courts in assessing these issues would be the degree to which the contracting out would be contrary to fundamental public law and policy.
C. Limitations on the Ability to Contract Out of Copyright Legislation
86. Limitations or exceptions in copyright legislation are designed to resolve actual or potential conflicts between the interests of right owners and users and also to implement particular aspects of public policy. They typically serve one of four purposes: protecting fundamental freedoms, such as freedom of expression; safeguarding competition; promoting the dissemination of knowledge or responding to practical problems where individual negotiation or enforcement is impossible.32
87. The rationale behind a particular exception may reflect one or more of these reasons, and this may determine the weight that might be given to the limitation and, thus, whether it should be possible to limit its application by contract. "Precisely because some 'legitimate interests' weight heavier than others or contribute more directly to copyright law's utilitarian objectives, certain contractual agreements that purpose to restrict the application of a specific limitation on copyright may warrant greater attention than others."33
88. This issue is matter of interest internationally, and some jurisdictions have developed methods to address it. The following examples are illustrative, and are not intended to be exhaustive.
89. In the United States, the Uniform Computer Information Transactions Act confirms the enforceability of licences where they are communicated after the sale has taken place (as in "shrink wrap" license). The doctrine of "copyright misuse" has also developed, similar to the patent misuse doctrine, whereby rights granted under copyright legislation may not be enforced if the courts consider that their enforcement would be contrary to law or public policy.34
90. Copyright legislation in some countries prohibits the ability to contract out. In some cases, this prohibition is virtually absolute and almost all copyright exceptions are made mandatory, and cannot be altered or avoided by contractual provisions. This is the case in the Belgian Copyright Act 1994, following amendments to implement the European Database Directive.35
91. More commonly, copyright legislation provides that specific limitations or exceptions cannot be limited or overridden by contract. Article 9(1) of the European Union's Computer Programs Directive36 provides that contractual terms that are contrary to exceptions for back-up, interoperability and study or testing of a program are null and void. A similar provision limiting contractual terms exists in Article 15 of the European Database Directive.
92. In the United Kingdom, section 296A of the Copyright, Designs and Patents Act 1988 provides:
Where a person has the use of a computer program under an agreement, any term or condition in the agreement shall be void in so far as it purports to prohibit or restrict-
a) the making of any back up copy of the program which it is necessary for him to have for the purposes of the agreed use;
b) where the conditions in section 50B(2) are met, the decompiling of the program; or
c) the observing, studying or testing of the functioning of the program in accordance with section 50BA.
93. Section 57(4) of the Irish Copyright and Related Rights Act 2000 states:
The terms of a licence granted to an educational establishment authorising the reprographic copying for the educational purposes of that establishment of passages from literary, dramatic or musical works or the typographical arrangements of published editions or original databases, which have been lawfully made available to the public, shall be void in so far as they purport to restrict the proportion of a work which may be copied (whether on payment or free of charge) to less than that which would be permitted under this section.37
94. In the Australian Copyright Act 1968 (Cth), section 47H states that "An agreement, or a provision of an agreement, that excludes or limits, or has the effect of excluding or limiting, the operation of subsection 47B(3), or section 47C, 47D or 47F, has no effect."
38
95. No similar provisions exist in the New Zealand Act, and indeed, the ability to contract out of the exception for making back-up copies of computer programs is expressly confirmed in section 80(3)(b) of the Act.39 Equally, the exceptions in sections 45, 48, 57 and 88 expressly do not apply if a license is available.40
D. The Australian Review
96. In April 2001, the Australia's Attorney-General presented the Australian Copyright Law Review Committee ("CLRC") with the task of inquiring into the relationship between copyright and contract. The CLRC's terms of reference begin by noting:41
The rapid and continuing growth of electronic commerce has facilitated the use of contract to set terms and conditions on access to and use of copyrighted material. The Copyright Act 1968….
97. The CLRC was instructed to report on the extent to which trade in copyright works was subject to agreements that exclude or modify the exceptions in the Australian Copyright Act and to make recommendations as to whether such agreements should be enforceable. Its final 350 page report was completed in April 2002 and made available to the public by the Attorney-General in October of that year. In preparing the report, the CLRC engaged in public consultation on its terms of reference, on an Issues Paper released in June 2001 and a Discussion Paper in October 2001.
98. Having reviewed the literature and information on the extent to which electronic and other trade in copyright works is subject to agreements that exclude or modify the copyright exceptions, the CLRC concluded that electronic trade in copyright material differs from non-electronic trade. In the case of the electronic trade, mass direct contracting with end users was possible, both domestically and across national borders, and so materials were more likely to be subject to licenses for access that modify the exceptions in the copyright legislation. It also noted that copyright material in electronic form was more vulnerable to unauthorised copying, but equally could be protected to some extent through technological protection measures.
99. The use of such agreements to exclude or modify copyright exceptions led the CLRC to conclude that, if such agreements were enforceable, it would mean a displacement of the copyright balance in important respects. Among its six recommendations, the CLRC suggested that the Australian Act should be amended to provide that an agreement, or a provision of an agreement, that excludes or modifies, or has the effect of excluding or modifying the operation of certain exceptions42 would have no effect.43
100. The CLRC's report is recommendatory only and the Australian Government has yet to formally respond to the report.
E. Submissions Sought
101. The above issues raise a number of questions regarding whether the copyright owner's freedom of contract is or should be limited by rules of copyright law to which the Act and the general rules of law do not necessarily provide a definitive answer.
102. Before these questions can be addressed, however, it is crucial to understand how the interaction between contract and copyright law is affecting the market in New Zealand and the extent to which this may or may not be giving rise to problems for creators, owners and users of copyright-protected material.
Question 15
To what extent do license agreements that purport to alter or exclude terms of the Copyright Act 1994 form the basis of business models in New Zealand and internationally?
Question 16
What problems, if any, have users encountered with regard to the exclusion of permitted acts provided under the Copyright Act 1994 by contractual license agreements?
Question 17
Have copyright owners sought to enforce such provisions in New Zealand? If yes, please provide details. In particular, have the attempts to enforce such provisions been successful?
103. The Ministry welcomes views on these issues, along with any supporting evidence or information.
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