Copyright

Is criticism of the author a breach of his moral rights

Judge Manousaridis has had to address whether criticism of the academic skill and rigour of the author of a scientific paper constitutes derogatory treatment in relation to the work. His Honour concluded it was not.

Some facts

Mr Hoser is the author of a number of papers in which, amongst other things, he describes or identifies new species and/or new sub-species of various animals.[1]

Between 2015 and 2021, the respondents published a number of articles referencing Mr Hoser’s papers and making statements that (amongst other things):[2]

(a) implied the names proposed by Mr Hoser were “unscientific and outside the [International Code of Zoological Nomenclature]”;

(b) accused Mr Hoser of “intellectual plagiarism; unconscionable pre-emptive scientific appropriation of others’ detailed and careful scientific work; and of unscientific and disruptive behaviours”;

(c) identified 86 names created by Mr Hoser which the respondents claimed were unacceptable “nomen rejecta”;

(d) Mr Hoser had repeatedly and consistently circumvented conventional and acceptable standards of scientific taxonomies and nomenclatures.

Mr Hoser contended that the respondents’ statements carried imputations that he was dishonest, unscientific etc. As a result, Mr Hoser contended that the respondents’ articles infringed his right of integrity contrary to s 195AJ(b) of the Copyright Act 1968.

The moral right of integrity

The author’s moral right of integrity is separate from and in addition to the copyright. Section 195AI(2) defines the moral right of integrity as “the right not to have the work subjected to derogatory treatment.”

Section 195AJ defines ‘derogatory treatment’ for this purpose as:

(a) the doing, in relation to the work, of anything that results in a material distortion of, the mutilation of, or a material alteration to, the work that is prejudicial to the author’s honour or reputation; or

(b) the doing of anything else in relation to the work that is prejudicial to the author’s honour or reputation.

Mr Hoser’s argument

Mr Hoser contended that the disparaging statements and comments made by the respondents about his work constituted doing anything else which was prejudicial to his honour and reputation.

What the Judge decided

Judge Manousaridis considered at [42] that the words “anything else” in s 195AJ(b) understood in context required a distinction to be drawn between (1) doing something in relation to the work on one hand and (2) on the other hand, doing something in relation to the ideas or information embodied in the work. Section 195AJ(b) applied only to the former and at [44] not the latter.

His Honour reasoned at [46] that, in the case of literary works, the Copyright Act 1968 created rights in the material form of the writing. Section 31 created economic rights in relation to that material form and s 195AI created moral rights in relation to that form. In addition, copyright extended only to the form of expression of a work, not the ideas or information embodied in the writing.

Thus, in addition to doing something within the scope of s 195AJ(a) which materially distorted, mutilated or altered the work to the prejudice of the author’s honour or reputation, s 195AJ(b) applied to anything:

(a) in relation to the writing itself (for example, displaying the writing); or

(b) in relation to the medium on which the writing is recorded (for example, adding information to or displaying the medium); or

(c) in relation to the (non-written) material form (for example adding information to or displaying the material form).

At [45], Judge Manousaridis illustrated this by the example of a material form of a work which was a tangible good. In such a case, “anything else” applied to any act which had the tangible good as its direct object. That is, doing something to the tangible good or doing something with the tangible good such as moving it or displaying it [in some context].

Mr Hoser’s allegations did not contend that the respondents did anything to or with anything in Mr Hoser’s articles themselves. There was for example no allegation that the respondents had altered or distorted any of Mr Hoser’s texts. Instead, Mr Hoser alleged only that the respondents made statements which impugned his character and qualities as a researcher. These did not constitute derogatory treatment in relation to Mr Hoser’s works as works.

Mr Hoser’s allegations in relation to defamation having been previously dismissed, therefore, the allegations did not disclose a reasonable cause of action and Mr Hoser’s claim was dismissed with costs.

Hoser v Georges (No 2) [2024] FedCFamC2G 243


  1. For example “Hoser, R.T. 2013. An updated taxonomy of the living Alligator Snapping Turtles (Macrochelys Gray, 1856), with descriptions of a new tribe, new species and new subspecies. Australasian Journal of Herpetology 16:53–63”.  ?
  2. Taken from Hoser No 2 at [32(e)].  ?

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New Copyright and AI reference group

The Commonwealth Attorney-General, Mark Dreyfus, yesterday announced that the Government will form a Copyright and Artificial Intelligence reference group “to better prepare for future copyright challenges emerging from AI.”

The Attorney-General and his department have held a number of roundtables during the course of the year to consult about a range of issues. One of the issues discussed included the issues arising from the use of AI tools.

According to the Media Release:

AI gives rise to a number of important copyright issues, including the material used to train AI models, transparency of inputs and outputs, the use of AI to create imitative works, and whether and when AI-generated works should receive copyright protection.

The reference group will be a standing mechanism for ongoing engagement with stakeholders across a wide range of sectors, including the creative, media and technology sectors, to consider issues in a careful and consultative way.

Engagement with a broad range of stakeholders and sectors will help Australia harness AI opportunities, while continuing to support the vitality of our creative sector.

The Media Release notes that the reference group will complement “other AI-related Government initiatives, including the work being led by the Minister for Industry and Science Ed Husic on the safe and responsible use of AI.”

The Media Release notes that further details, in addition to outcomes from the Roundtables, will be made available through the Attorney-General’s Department’s website in due course.

Some very quick thoughts

One would hope the complementing of other agencies’ work may involve some fairly close co-operation on some issues at least since the question of authorship for copyright seems to raise similar issues to who is the designer for the purposes of registered design or the inventor for patents – all three being predicated on the assumption of human agency.

It seems pretty clear under our law following Telstra v PDC ([118] – [119] and [169]) that works generated by one or two simple “prompts” will not qualify for copyright protection as original works in Australia. The situation where the material results from much more detailed instructions is much more up in the air – both here and overseas.

In the USA, the Register of Copyright’s Review Board has rejected the claim to copyright in a work resulting from 624 prompts and further ‘adjustments’ by the human ‘operator’ / claimant, Mr Allen:

There is increasing commentary likening the generation of materials through detailed prompts to the basis on which copyright is recognised as subsisting in photographs. According to the Review Board, however, Mr Allen’s arguments based on the inputting of detailed prompts did not establish authorship:

As the Office has explained, “Midjourney does not interpret prompts as specific instructions to create a particular expressive result,” because “Midjourney does not understand grammar, sentence structure, or words like humans.” It is the Office’s understanding that, because Midjourney does not treat text prompts as direct instructions, users may need to attempt hundreds of iterations before landing upon an image they find satisfactory. This appears to be the case for Mr. Allen, who experimented with over 600 prompts before he “select[ed] and crop[ped] out one ‘acceptable’ panel out of four potential images … (after hundreds were previously generated).” As the Office described in its March guidance, “when an AI technology receives solely a prompt from a human and produces complex written, visual, or musical works in response, the ‘traditional elements of authorship’ are determined and executed by the technology—not the human user.” And because the authorship in the Midjourney Image is more than de minimis, Mr. Allen must exclude it from his claim. Because Mr. Allen has refused to limit his claim to exclude its non-human authorship elements, the Office cannot register the Work as submitted. (Footnotes and citations omitted)

Whether the US courts or, for that matter, an Australian court will follow that approach remains to be seen. Judge Howell, in rejecting Dr Thaler’s attempt to register copyright in “A Recent Entrance to Paradise” on purely administrative review grounds, outlined the argument in obiter:

A camera may generate only a “mechanical reproduction” of a scene, but does so only after the photographer develops a “mental conception” of the photograph, which is given its final form by that photographer’s decisions like “posing the [subject] in front of the camera, selecting and arranging the costume, draperies, and other various accessories in said photograph, arranging the subject so as to present graceful outlines, arranging and disposing the light and shade, suggesting and evoking the desired expression, and from such disposition, arrangement, or representation” crafting the overall image. Human involvement in, and ultimate creative control over, the work at issue was key to the conclusion that the new type of work fell within the bounds of copyright.

The position on the treatment of inputs is also up in the air. The Authors’ Guild of America and others have brought a number of cases against various AI operators including Open AI and LLaMA on the basis that the training of these LLMs involved the wholesale copying of the authors’ works into the LLM’s databases.

A number of commentators argue these cases are likely to fail, however, in light of the Second Circuit’s ruling that the Google Books Project, in which Google scanned thousands of in-copyright books to create a searchable digital database, did not infringe copyright as a “fair use”.

Arguably, however, the nature and purpose of the uses are different and it will be interesting to see if the US Supreme Court’s decision in Andy Warhol Foundation v Goldsmith with its emphasis on the balancing nature of the inquiry will lead to a different outcome.

On the other hand, if the conduct is found to be a non-infringing use in the USA, Australian law does not have a corresponding, broadly based “fair use” defence. Can one argue that the AI is engaged in “research or study”? If not, what will the policy ramifications be for Australia? Will anyone develop AIs in Australia if training an AI in Australia does infringe copyright while it is not an infringement in, say, the United States? If it’s open slather, though, how will authors and publishers get paid?

Then, there’s the question of infringement. It seems it is possible in at least some cases to find out what an LLM has been trained on – but how long that will remain the case must be a question. Then, ordinarily, a copyright owner under our law would approach this by demonstrating a close degree of resemblance to a copyright work and the potential for access. Then, a court is likely to see if the alleged infringer can explain how it developed the material independently (or there is some other defence).

We do have judicial statements that there is no infringement in copying the style or the ideas. The successful cases of emulating the style are pretty rare but I guess the point of asking an AI to produce something in the style of … is that the AI is going to produce something new rather than merely copied. Ultimately, that is going to depend on comparing what is produced to one (or much less likely, more) copyright works.

Apart from the uncertainties about how our law will deal with these issues, it seems clear that careful consideration of how things are developing overseas is required and, in Dr Pangloss’ world, development of uniform approaches.

New Copyright and AI reference group Read More »

Copyright & Designs Update 2023

Copyright & Designs Update 2023 Read More »

Copyright and another AI

Judge Howell in the District Court for the District of Columbia (USA) has rejected Dr Thaler’s attempt to register copyright in “A Recent Entrance to Paradise”.

Dr Thaler – well-known for his attempt to obtain patent protection for some kind of “fractal” bottle “invented” by DABUS – attempted to register[1] a copyright in the United States for “A Recent Entrance to Paradise”:

In his application to the Register of Copyrights, Dr Thaler stated the work had been “autonomously created by a computer algorithm running on a machine” – an AI which Dr Thaler named “Creativity Machine” – and nominated himself as the owner of the copyright in the computer-generated work “as a work-for-hire the owner of the Creativity Machine.”

The Register of Copyrights rejected the application on the basis that copyright law requires a human author and the “Creativity Machine” was not human.

Dr Thaler applied for administrative law review. Judge Howell affirmed the Register’s ruling.

Judge Howell followed a number of earlier decisions which required a human author. Her Honour noted (e.g. slip op. 10):

The act of human creation—and how to best encourage human individuals to engage in that creation, and thereby promote science and the useful arts—was thus central to American copyright from its very inception. Non-human actors need no incentivization with the promise of exclusive rights under United States law, and copyright was therefore not designed to reach them.[2](emphasis supplied)

Judge Howell’s ruling, however, is very narrow.

The fact that the case was an administrative law review is significant. As the case was an administrative law review, the only question was whether the Register acted arbitrarily, capriciously or otherwise in violation of the Administrative Procedure Act on the basis of the administrative record before the Register.

On that basis, the case failed.

In the course of the proceeding before Judge Howell, Dr Thaler attempted to introduce new facts (which may seem familiar to those of you following the patent debate). Dr Thaler devoted a “substantial portion” of his submissions to various theories about how ownership of any copyright transferred to him by operation of the “work made for hire” or common law property principles. (Slip op. footnote 1):

[Dr Thaler] elaborates on his development, use, ownership, and prompting of the AI generating software in the so-called “Creativity Machine,” implying a level of human involvement in this case entirely absent in the administrative record. ….

These additional facts were irrelevant on the administrative law review presented (Slip op. 14):

Plaintiff’s effort to update and modify the facts for judicial review on an APA claim is too late. On the record designed by plaintiff from the outset of his application for copyright registration, this case presents only the question of whether a work generated autonomously by a computer system is eligible for copyright. In the absence of any human involvement in the creation of the work, the clear and straightforward answer is the one given by the Register: No.

If Dr Thaler’s submissions about his development, use, ownership and prompting of “Creativity Machine” had been relevant, it might possibly lead to a different conclusion.

As noted above, Judge Howell did opine that non-human actors do not need the incentivization of exclusive rights to generate materials. But Judge Howell also noted that the law had developed to recognise copyright in the “mechanical reproduction” of a scene by a camera because that reproduction resulted from “human involvement in, and ultimate creative control over, the work ….”[3]

Judge Howell noted that a case raising issues such as those Dr Thaler belatedly attempted raise would give rise to complex issues:

Undoubtedly, we are approaching new frontiers in copyright as artists put AI in their toolbox to be used in the generation of new visual and other artistic works. The increased attenuation of human creativity from the actual generation of the final work will prompt challenging questions regarding how much human input is necessary to qualify the user of an AI system as an “author” of a generated work, the scope of the protection obtained over the resultant image, how to assess the originality of AI-generated works where the systems may have been trained on unknown pre-existing works, how copyright might best be used to incentivize creative works involving AI, and more.[4]

All of these considerations seem likely to be relevant under Australian law for the subsistence of copyright in original works.[5]

In her letter rejecting the “Zarya of the Dawn” application, the Register did reject the claim to copyright made on the basis of the sort of facts Dr Thaler wished to raise.

I guess we can expect Dr Thaler to seek to register some new production by the “Creativity Machine” with a more extensive record.

Stephen Thaler v Shira Perlmutter (DCDC 23 Aug 2023 Case 22–1564)


  1. The USA is one of the very few countries which operate a system to register copyright. Even in the USA, registration is not madatory but, in the case of “US Works”, registration is a requirement before an infringement action can be brought in the USA and also to qualify for statutory damages: 17 USC §411 and §412. 17 USC [§101][101] defines “United States work” to mean: (a) a published work that is first published in the United States; first published simultaneously in the United States and another treaty party or parties, whose law grants a term of copyright protection that is the same as or longer than the term provided in the United States; first published simultaneously in the United States and a foreign nation that is not a treaty party; or first published in a foreign nation that is not a treaty party, and all of the authors of the work are nationals, domiciliaries, or habitual residents of, or in the case of an audiovisual work legal entities with headquarters in, the United States; (b) an unpublished work where all the authors of the work are nationals, domiciliaries, or habitual residents of the United States, or in the case of an unpublished audiovisual work, all the authors are legal entities with headquarters in the United States; or (c) a pictorial, graphic, or sculptural work incorporated in a building or structure that is located in the United States. So, if you publish your work first overseas and not simultaneously in the United States and the authors are not US citizens or residents, the obligation to register will not usually apply. See generally Circular 1. ?
  2. Footnote 2 in the Opinion also includes a fun quote from Justin Hughes, Restating Copyright Law’s Originality Requirement, 44 COLUMBIA J. L. & ARTS 383, 408 “this debate is an unnecessary detour since “[t]he day sentient refugees from some intergalactic war arrive on Earth and are granted asylum in Iceland, copyright law will be the least of our problems.”  ?
  3. “A camera may generate only a “mechanical reproduction” of a scene, but does so only after the photographer develops a “mental conception” of the photograph, which is given its final form by that photographer’s decisions like “posing the [subject] in front of the camera, selecting and arranging the costume, draperies, and other various accessories in said photograph, arranging the subject so as to present graceful outlines, arranging and disposing the light and shade, suggesting and evoking the desired expression, and from such disposition, arrangement, or representation” crafting the overall image. Human involvement in, and ultimate creative control over, the work at issue was key to the conclusion that the new type of work fell within the bounds of copyright.” citing Burrow-Giles Lithographic Co. v. Sarony 111 U.S. 53, 59 – 60 (1884).  ?
  4. (Slip op. 13) citing a letter from Senators Tilllis and Coons to the Director of the USPTO and the Register of Copyrights calling for the establishment of a national commission on AI.  ?
  5. See e.g Telstra v PDC at [118] – [119] and [169].  ?

Copyright and another AI Read More »

Is there a copyright work and who owns it?

Rees J, sitting in the NSW Supreme Court, had to grapple with some unusual, but basic, issues in finding that Metstech owned copyright in a range of works made by a Mr Chou. However, it did not own copyright in software made by Mr Martin; instead having an exclusive licence over that copyright including the right to access and modify the source code.

Some background[1]

Metstech designs and distributes telecommunications systems for underground mines. (The specific technology was a ‘leaky feeder system’ which allowed two way radios and mobile phones to communicate over long distances underground where ordinarily such radio communications were not possible.[2])

Image of an axial cable layout with a headend controller at one end, bidirectional amplifiers at various intervals and and a splitter adding a branch line
Leaky Feeder System

Metstech was formed by four individuals including Jefferson, Park and Chou. They or their family companies were the shareholders. Jefferson was the CEO and Park the General Manager. Park and Chou had experience in electrical engineering and had ideas about how a new and improved system to replace the poorly functioning existing systems. Jefferson provided the funding, to the tune of $700,000 over time.

In addition to being a founding director, Chou became an employee and was paid a salary after a short initial period when Metstech did not have funds. Part of Chou’s job included placing orders for the manufacture of Metstech’s products which he arranged through a family company and his company was permitted to charge a marked-up price to Metstech over the price charged by the manufacturer.

Although Martin was offered initial shares in Metstech and an employment contract, he did not take up either offer due to legal issues he was experiencing at the time. Nonetheless. in 2018, Martin designed the Raspberry Pi Software controlling the Metstech system. He was not paid for this work. He provided it to Jefferson including access to the source code for use by Metstech including permission to modify it.

Later, in 2019, Martin did become an employee of Metstech and made some further modifications of the Raspberry Pi Software at that time.

In addition to the funding provided by Jefferson, another company, Challenger, eventually contributed a further $750,000 towards funding the product development in return for the promise of a 20% shareholding and a nominee on the board of directors.

The development of Metstech’s products proceeded well and substantial orders were coming in. Jefferson came into dispute with the other directors over repayment of his funding and their demands for increased salaries. Challenger also became frustrated with the delays in issuing its shares.

Park, Chou and some associates “staged a coup” and replaced Jefferson as CEO excluding him from access to the company’s bank accounts. To fend off Jefferson and Challenger, they also engaged in a number of schemes to transfer Metstech’s assets and related IP to a “phoenix” company. In addition, in the process of decamping they deleted from the Metstech Google Drive accounts all the data and documents relating to PCB assemblies, source code, concept designs, PCB schematics and PCB layouts, firmware source code, manufacturing files, bills of materials and test results.

After Jefferson and Challenger got wind of some of the conduct, they initiated a deed of company arrangement and, after regaining control of Metstech, brought these proceedings seeking orders relating to its ownership of the copyright, remedies for breaches of obligations of confidence and tortious conspiracy to injure the plaintiffs by unlawful means.

The plaintiffs largely succeeded on their copyright claims and breach of confidence. The claims for tortious conspiracy to injure by unlawful means failed however.

Copyright in the Metstech “products”

The plaintiffs claimed copyright in various designs for printed circuit board (PCB) assemblies as artistic works[3] and, as either original literary or artistic works, PCB schematics, manufacturing documentation – source code, concept designs, PCB schematics and PCB layouts, firmware source code, manufacturing files, bills of materials and test results – and Metstech “firmware” which was installed in micro-processor units in various components.

A graphical representation of a circuit board layout on the left and on the right a photograph of printed circuit board showing various electrical components interconnected by metal strips

(A graphical representation of a PCB layout (on the left) and the corresponding PCB (on the right))

The plaintiffs also claimed ownership of the copyright in the Raspberry Pi software and later revisions.

Were there copyright works

It will be recalled that the defendants had deleted all the data and documents from their Google Drive accounts when decamping and, it appears, none of them produced anything by way of discovery or otherwise in evidence. According to the defendants, or at least Park and Chou, they did not have any documents because the products had been designed by the third party manufacturer.

The first problem confronting the plaintiffs, therefore, was that they did not have copies of the works over which they claimed ownership. Who was the designer, and hence the author of the works, was the second problem.

Rees J was prepared to infer (at [591] to [603]) that there had been original works made by Chou in which copyright subsisted:

  • Metstech led expert evidence about the process and steps involved in designing and manufacturing products such as the PCB Assemblies including the need to document things such as functional specification, electrical schematic, PCB layout and manufacturing files, firmware code listing and compiled version of the firmware code (if applicable), bill of materials, assembly and testing instructions, troubleshooting guide, service manual, packaging information, data sheets and sales brochures. Much of this documentation would be required by the manufacturer to make such complex products
  • the design and specification of such PCB assemblies also required the use of specialised computer software such as Altium Designer and RhinoCAD. Metstech had bought or reimbursed Chou for purchases of this software and Chou was at all times anxious to ensure he had properly licensed copies of this software
  • Metstech bought or reimbursed Chou for the tools and equipment that would be used in developing and constructing models and prototypes.

Accordingly, at [603] Rees J held:

…. The disputed works must have been created and insofar as they are original literary or artistic works (or both) and that to the extent that they still exist, the employer owns them. ….

I am not sure about her Honour’s limitation “to the extent that they still exist”. Under the Act, the requirement is that the work be made in the sense of reduced to writing or some other material form.[4] The continued existence of the documents, however, would be relevant to orders for delivery up and provision of access.

Who was the author

As noted above, Park and Chou claimed that the PCB assemblies and other products were designed by the manufacturer and so, in the absence of any agreement to the contrary or assignment, any copyright belonged to the manufacturer.

Rees J rejected this claim. A number of factors led her Honour to this conclusion including:

  • Metstech’s products were original and not mere copies of existing products: [585]
  • Chou had the necessary skills to design the products: [583]
  • it was Chou who came up with the idea for the various products: [584]
  • there was voluminous correspondence describing Chou as the designer or in which he claimed to be the designer or attending to the design: [571] – [586]
  • Chou also spent hours explaining the intricacies of the system and the products to others: [586]
  • the purchase of the specialised software and the provision of the tools and equipment such as Altium Designer and RhinoCAD
  • Park and Chou first claimed that the manufacturer was the designer only when Metstech first went into administration. Prior to that, the voluminous contemporaneous correspondence such as emails repeatedly referred to Chou as the designer
  • not a single document was produced identifying the manufacturer as the designer.

Who was the owner

Rees J noted that it was not sufficient for Metstech to establish that Chou was the author and an employee. As the terms of s 35(6) make clear, Metstech also had to establish that Chou made the works in pursuance of his employment and not in the course of some extracurricular activities; at [564] adopting the question posed by Moore J in EdSonic v Cassidy:

did the employee make the work because the contract of employment expressly or impliedly required or least authorised the work to be made.

The volume of material referred to by her Honour in concluding that Chou was the designer left Rees J at [587] in “no doubt” that the answer to that question was “yes”.

There was one qualification to this conclusion at [588] – the work designing a splitter which Chou had done before he became a full-time employee being paid. While Chou was a director, Rees J doubted he qualified as an employee for the purposes of s 35(6) at that time.

However, Rees J held Chou was estopped from denying that Metstech was licensed to use these materials having regard to the circumstances in which he made the design and continued to develop the design for Metstech’s use after he became an employee.

A final issue insofar as the works made by Chou are concerned was whether Metstech or Metstech IP Pty Ltd (one of the defendants) owned the copyright.

In a not uncommon arrangement, the directors of Metstech, including Jefferson, Park and Chou, had set up Metstech IP to hold the intellectual property. The directors and shareholders of both companies were the same. Metstech IP had applied for R & D grants in respect of the development of the Metstech technology and, in the books of the companies, Metstech charged Metstech IP a fee for the development work. While that fee was not paid, Metstech IP had remitted tax rebates to Metstech.

While Metstech IP had been set up to hold the intellectual property, however, there was no formal assignment of intellectual property rights in writing from Metstech to Metstech IP. As Chou had made the works as an employee of Metstech (and not Metstech IP) and in the absence of a signed, written assignment in conformity with s 196(3), Rees J held at [606] that Metstech was the owner of the copyright.

Copyright in the computer software made by Martin

The Raspberry Pi Software was a different case. When Martin wrote it, he was not an employee and had chosen not to become a director or shareholder. Nor was he paid for his work although he believed (at [106]) that “one day I might be compensated by the company if and when it was successful.”

When pressed by Jefferson, Martin transferred a copy of the source code and other documentation into a Metstech account and agreed that Metstech could amend the software as required.

Although Martin had not been engaged for reward to write the software, Rees J found ([231] – [233]) the circumstances gave rise to an implied unlimited and exclusive licence in Metstech’s favour which included the right to alter the software as need. (See also [161 and [623]])

Later, in July 2019, Martin was allotted 5% of the shares in both Metstech and Metstech IP. Jefferson and Park both considered this allocation was to secure the intellectual property in the software. Martin denied this.

As there was no written agreement formally recording the assignment, Rees J considered at [320] that s 196 precluded an assignment under the Act. Rees J also rejected at [324] Metstech’s argument that Martin understood the shares were in compensation for the transfer of ownership in the software. Her Honour appears to have considered the allotment was consistent, or at least equally consistent, with a payment to secure Martin’s continued involvement in the business.

Martin did become a full-time employee of Metstech and, in the course of his employment, he later made some further modifications to the software.

Distinguishing J R Consulting, Rees J held that the computer programs in this amended form were not new copyright works in which copyright subsisted. Martin’s evidence was that the changes were only “bug-fixes and minor enhancements”. Although the change logs showed 21 changes were made to the software in the relevant period, Metstech did not satisfy her Honour that they were more than trivial. At [620], her Honour explained:

The plaintiffs submitted that the changes made by Mr Martin were more than trivial, I am in no position to say one way or the other. I note that 21 changes were made from July 2019 to July 2020. Beyond that, I do not know. I am not satisfied that the changes made to the software after Mr Martin commenced his employment with Metstech were “original” in the requisite sense such that copyright in new versions of the software are a new work in which copyright subsists and is held by his employer, Metstech.

Thus, Metstech was left with its exclusive licence. However, this was enough for her Honour to direct that Martin continue to provide Metstech with access to the source code under the exclusive licence.

Confidential information and Conspiracy to injure

Rees J found misuse of Metstech’s confidential information on conventional grounds.

The plaintiffs alleged that the defendants (other than Metstech IP) had engaged in a tortious conspiracy to injure the plaintiffs and Metstech IP by unlawful means.

Rees J dismissed this claim, however, not as a result of any exoneration of the defendants’ conduct. Rather, damages are the gist of the action. Thus it is necessary for the plaintiff to plead that it has or will suffer pecuniary loss as a result of the conspiracy.

While the alleged conspiracy was pleaded at length, damages were neither alleged nor particularised. Nor did the plaintiffs’ evidence establish any pecuniary loss. Accordingly, at [659] her Honour dismissed the claim.

Her Honour’s decision serves as a useful warning about the risks of not documenting transfers of intellectual property in writing. That is not necessary in the case of an employee if you can prove they did the work in the course of their employment. The decision also provides a range of indications to consider if it becomes necessary to try to prove the existence and authorship of copyright works in the absence of documentary evidence.

Metstech Pty Ltd v Park [2022] NSWSC 1667


  1. As her Honour’s narration of the facts is some 550 paragraphs, this is necessarily a very “potted” outline.  ?
  2. The system consisted of long lengths of coaxial cable (serving as the antenna) strung along the shafts, with a headend controller (a Raspberry Pi computer), a number of bi-directional amplifiers (BDAs) and splitters, the BDAs (at least) including printed circuit boards (PCBs) custom-designed for the system).  ?
  3. At [551], her Honour identified the claim as being to PCB assemblies as artistic works and, at [558], her Honour noted that text and numerals on the a PCB, in engineering drawings and installation instructions could be both artistic works and, “to the extent the figures are deployed”, literary works citing Lumen Australia Pty Ltd v Frontline Australasia Pty Ltd [2018] FCA 1807; (2018) 137 IPR 189 at [206]-[209] (per Moshinsky J); Anacon Corp Ltd v Environmental Research Technology Ltd [1994] FSR 659 (per Jacobs J) (circuit diagram). The parties do not appear to have raised issues about the exclusion of circuit layouts from the definition of artistic work in s 10 of the Copyright Act 1968 or of “corresponding designs” under s 74 and the copyright / design overlap provisions of the Copyright Act or of the effect, if any, of the exclusion by Designs Act 2003 s 43 (but not in reg. 4.06) from registration of integrated circuits as a design although, from the description of the PCB assemblies in the judgment, it would appear they did not constitute “integrated circuits” on the reasoning of Moshinsky J in Lumen Australia Pty Ltd v Frontline Australasia at [298] – [311] and of course, as Moshinsky J found, the copyright / design overlap provisions do not apply to literary works.  ?
  4. Copyright Act 1968 s 32 and s 22(1)  ?

Is there a copyright work and who owns it? Read More »

Designs law reform

IP Australia has published 3 consultation papers on proposed reforms to registered designs law:

  1. Public consultation of Protection for Virtual Designs
  2. Public consultation on Protection for Partial Designs; and
  3. Public consultation on Protection for Incremental Improvements of Designs

There are also 3 one page “fact” sheets to go with them:

(a) Virtual Designs;

(b) Partial Designs;

(c) Incremental Improvements,

but you probably want to read the consultation papers proper to understand them.

Incremental improvements

The idea here is that a designer may file a low-cost preliminary design and within 6 months file the “main design”. The priority date of the “main” design would be the preliminary design’s priority date. The “main” design may include “incremental” improvements over the preliminary design. This apparently means the “main” design must still be substantially similar in overall impression to the design disclosed in the preliminary design.

The term and rights to sue for infringement would run from the “main” design. Prior user rights, however, would end with the filing of the preliminary design.

In addition, after the “main design” has been registered, subsequent applications for “incremental” improvements may be linked to the registered main design. The “main” design and the preliminary design would not form part of the prior art base for the linked design. As with the preliminary design and the “main” design, it is proposed that a subsequent design must be substantially similar in overall impression to the “main” design. It is also proposed that “linking” could be requested during certification if the “main” design is cited against a later design application by the design owner.

According to the consultation paper, the term of the subsequent design would start from the filing date of the subsequent, linked design but end on the expiry of the maximum term (i.e. currently 10 years) of the “main” design.

Virtual designs

The consultation proposes to amend the definition of “product” from “a thing that is manufactured or handmade” to include virtual designs and to define a virtual design as “an intangible thing, the use of which results on the display of visual features through electronic means” and would make it clear it includes images only temporarily displayed on a screen.

It appears it is still contemplated that the virtual design would have to be registered for specific products – so the consultation paper gives the example that a graphical user interface (GUI) could be registered as a user for a coffee machine but not simply as just a “user interface”.

The consultation paper discusses a number of other issues including, in particular, how the copyright / design overlap provisions (Copyright Act 1968 ss 74 to 77A) and, especially, the concept of “industrially applied” would operate in this brave new world.

I guess one could ask, if X registers a design for a GUI, or icon, for a smartphone, does X just lose the ability to sue for copyright infringement in smartphones, or tablets and watches as well, or only after the expiry of the design for smartphones or not lose rights to enforce copyright at all?

Partial designs

This consultation looks at a range of amendments required to permit design registration for partial designs: that is, for parts only of a product. An obvious example is the handle of a cup rather than just the cup as a whole.

The consultation paper contemplates that products for this purpose may be physical products or virtual products or composites. One example given by the consultation is the protection of the pattern and ornamentation of a logo. However, the consultation paper contemplates that the logo would not provide protection for all products but would still need to be registered in respect of particular products such as travel bags, shoes, wallets etc. – that could mean a lot of registrations would be required!

The consultation paper discusses a range of other considerations and, in addition to welcoming general comments asks:

>1. Do you support IP Australia’s approach (outlined in this paper) to implementing partial designs protection in Australia? If not, why not? 

>2. Would you register your partial designs using the proposed system? If not, why not? 

>3. Are there any particular risks or unintended consequences that would arise from this proposal? 

>4. Would the copyright/design overlap provisions have any adverse effect on how design businesses commercialise their partial designs? 

Submissions

Submissions are due by 8 August 2023.

The consultation process landing page, with links to the documents etc. is here.

Designs law reform Read More »

Zarya of the Dawn – copyright and an AI

Those of you who heard Shira Perlmutter, the US Register of Copyright, on her Australian tour last year will recall the US Copyright Office had withdrawn and was reconsidering the copyright registration for Zarya of the Dawn.[1] On 21 February 2023, the US Copyright Office announced the outcome of that review. While the Copyright Office allowed registration of some aspects, it rejected the claim to copyright in the images created by Midjourney, an AI.

Image of a young feminine looking person with golden skin, dark brown eyes and dark brown hair in corn rows - against a teal background
Zarya of the Dawn – Cover Page

The work(s)

Zarya of the Dawn[2] is a comic consisting of images and text depicting Zarya’s adventure to different worlds to collect mental health tools to handle their emotions, thoughts as a non-binary person.

A page with 4 comic images; the first of which is a postcard of some otherworldly place. The young, feminine looking person reads the card addressed to 'My Dearest Zarya'. They wonder if they are Zarya and why they cannot remember their name
Page 2 of the Zarya of the Dawn comic book

The Copyright Office accepted that the applicant, Ms Kristina Kashtanova, was the author of both the text and the selection and arrangement of the text and images. However, the Copyright Office refused registration for the images themselves on the grounds that they were generated by Midjourney and did not have a human author.

How Midjourney generated the images

As described by the Copyright Office, Midjourney generates an image in response to instructions (called “prompts”) input by the user. The Copyright Office illustrated this process by the prompt:

/imagine cute baby dinosaur shakespeare writing play purple

which generated the images below:

4 images generated by Midjourney of purple coloured, baby dinosaurs each holding a pen and working over a manuscript. In 2 images, the dinosaur looks to the right bottom corner; in the other two, to the right bottom corner
Baby dinosaur writing a play

The user could click on the blue “recycle” image to generate four new images. The user could also refine the images regenerated by providing URLs of images to be used as models or by providing more detailed instructions.

This was not authorship for copyright purposes

For copyright to subsist in original works such as text (literary works) or images (artistic works), US law, like Australian law (see further below), requires the work to be original. That requirement in turn requires the work to be made by a human who is an author. And, according to the Copyright Office, an author is the person “who has actually formed the picture,” the one who acts as “the inventive or master mind.”

At least in theory, if someone gave a draftsperson sufficiently detailed instructions about what a drawing should depict, they rather than the draftsperson may be the author.[3]

The Copyright Office, however, found that the instructions Ms Kashtanova gave to Midjourney did not make her the author of the resulting images. This was because it was not possible to predict the outcome resulting from her prompts:

A person who provides text prompts to Midjourney does not “actually form” the generated images and is not the “master mind” behind them. Instead, as explained above,[4] Midjourney begins the image generation process with a field of visual “noise,” which is refined based on tokens created from user prompts that relate to Midjourney’s training database. The information in the prompt may “influence” generated image, but prompt text does not dictate a specific result. See Prompts, MIDJOURNEY, https://docs.midjourney.com/docs/prompts (explaining that short text prompts cause “each word [to have] a more powerful influence” and that images including in a prompt may “influence the style and content of the finished result”). Because of the significant distance between what a user may direct Midjourney to create and the visual material Midjourney actually produces, Midjourney users lack sufficient control over generated images to be treated as the “master mind” behind them.

The Copyright Office recognised that additional prompts could be applied to initial images to influence subsequent images, however, the process was not controlled by the user as it was “not possible to predict what Midjourney will create ahead of time.”

The Copyright Office contrasted the way Midjourney works with the way an artist might use Photoshop or other tools:

The fact that Midjourney’s specific output cannot be predicted by users makes Midjourney different for copyright purposes than other tools used by artists. See Kashtanova Letter at 11 (arguing that the process of using Midjourney is similar to using other “computer- based tools” such as Adobe Photoshop). Like the photographer in Burrow-Giles, when artists use editing or other assistive tools, they select what visual material to modify, choose which tools to use and what changes to make, and take specific steps to control the final image such that it amounts to the artist’s “own original mental conception, to which [they] gave visible form.”15 Burrow-Giles, 111 U.S. at 60 (explaining that the photographer’s creative choices made the photograph “the product of [his] intellectual invention”). Users of Midjourney do not have comparable control over the initial image generated, or any final image. (emphasis supplied) (footnotes omitted)

Ms Kashtanova also contended that her modifications in Photoshop to some images constituted authorial contribution to support her claim to copyright. From the description in the Copyright Office’s decision, some of the work seems more like touching up or editing rather than authorship. As the material before the Copyright Office did not include the “before” and “after” images, however, the Copyright Office was not include to accept those claims either.

An Australian perspective

Australian courts have also ruled that an author must be a human. Applying the IceTV case, the Full Federal Court has ruled that the processing of telephone subscriber name, address and phone number details into a directory by a computerised database did not qualify as an original copyright work as there was no human author. In the first Telstra v PDC case, Perram J explained at [118] – [119]:

The Act does not presently deal explicitly with the impact of software on authorship (although this is not so in the United Kingdom: s 9(3) Copyright, Designs and Patents Act 1988 (UK)). But a computer program is a tool and it is natural to think that the author of a work generated by a computer program will ordinarily be the person in control of that program. However, care must taken to ensure that the efforts of that person can be seen as being directed to the reduction of a work into a material form. Software comes in a variety of forms and the tasks performed by it range from the trivial to the substantial. So long as the person controlling the program can be seen as directing or fashioning the material form of the work there is no particular danger in viewing that person as the work’s author. But there will be cases where the person operating a program is not controlling the nature of the material form produced by it and in those cases that person will not contribute sufficient independent intellectual effort or sufficient effort of a literary nature to the creation of that form to constitute that person as its author: a plane with its autopilot engaged is flying itself. In such cases, the performance by a computer of functions ordinarily performed by human authors will mean that copyright does not subsist in the work thus created. Those observations are important to this case because they deny the possibility that Mr Vormwald or Mr Cooper were the authors of the directories. They did not guide the creation of the material form of the directories using the programs and their efforts were not, therefore, sufficient for the purposes of originality.

The consequence of those conclusions is that the directories were not copied from elsewhere but neither were they created by a human author or authors. Although humans were certainly involved in the Collection Phase that process antedated the reduction of the collected information into material form and was not relevant to the question of authorship (other than to show that the works were not copied). Whilst humans were ultimately in control of the software which did reduce the information to a material form, their control was over a process of automation and they did not shape or direct the material form themselves (that process being performed by the software). The directories did not, therefore, have an author and copyright cannot subsist in them. (emphasis supplied)

See also Yates J at 169.

This appears to be consistent with the approach taken by the US Copyright Office although both Perram J and Yates J recognised that whether some particular claimed work falls on the “copyright” or “not copyright” side of the line is a question of judgment and degree.

Zarya of the Dawn (Registration # VAu001480196)


  1. No, as I am sure you know, you do not have to register your claim to own copyright in Australia. Registration of copyright is just one of the way Americans are different to most of the rest of us. In Australia copyright comes into existence automatically by the act of creating the material (and not slavishly copying it from some pre-existing material). There is no need to register it. Who the owner of the copyright is will depend on a number of factors such as the type of material – a literary or artistic work or an audio-visual work such as a film or a sound recording or broadcast; whether or not the work was made in the course of employment and whether there has been a written assignment or other contractual arrangement. (That is the sort of thing that requires advice based on the specific individual circumstances.)  ?
  2. This is a link to the donationware download but the Copyright Office’s decision includes images of the cover and page 2.  ?
  3. While the creation of an artistic work raises rather more challenges, an obvious illustration of this theory is the case of someone who dictates a letter or a book to an amanuensis.  ?
  4. Earlier the Copyright Office had explained: ‘… Midjourney “does not understand grammar, sentence structure, or words like humans,” it instead converts words and phrases “into smaller pieces, called tokens, that can be compared to its training data and then used to generate an image.” … Generation involves Midjourney starting with “a field of visual noise, like television static, [used] as a starting point to generate the initial image grids” and then using an algorithm to refine that static into human-recognizable images.’  ?

Zarya of the Dawn – copyright and an AI Read More »

It must be Christmas – there’s a copyright issues paper

The Attorney-General has released a Copyright Enforcement Review: Issues Paper.

The Issues Paper begins with a welcome recognition that copyright plays an important role in “Australia’s creative ecosystem and broader economy”:

Copyright infringement may harm Australia’s creative ecosystem and broader economy by reducing or diverting income that creators of, and investors in, original material rely on for their financial sustainability. Copyright owners need to be able to take reasonable steps to protect and enforce their rights as part of a well-functioning copyright system. To this end, the current system includes a range of enforcement mechanisms (including industry-driven and statute-based mechanisms) to address unauthorised uses of copyright material. At the same time, it is important that consumers, service providers and other businesses are clear about when they can use copyright materials and in what circumstances.

Having noted the interests of both the creators and investors and consumers and others, the Issues Paper then declares the Government’s commitment to ensuring that copyright protects Australian artists through a fit-for-purpose enforcement regime:

The Government is committed to copyright laws that protect Australian artists and enable them to earn a living from their creative works. The Australian copyright enforcement regime must remain fit-for-purpose.

Accordingly, the Issues Paper states that the purpose of the review is to investigate whether the enforcement regime is working effectively or there are matters requiring attention:

The Australian Government is undertaking this review to:

• understand current and emerging enforcement priorities and challenges

• gather views from all parts of the copyright system – including owners, users, institutions and service providers – on whether Australia’s copyright enforcement regime remains relevant, effective and proportionate, and

• seek feedback on whether there is any need to supplement or strengthen existing enforcement mechanisms, and if so, how this could be done without imposing unreasonable administrative or economic burdens.

It appears that the background to the review is the increasing prevalence of online copyright distribution and consumption. Thus, the Issue Paper refers to the findings of a 2021 Consumer Survey on Online Copyright Infringement which revealed that 71% of survey respondents had “consumed” copyright material online in the 3 months to April 2021.

Further, the Issues Paper refers to industry data company, MUSO’s statistics for access to online piracy sites from 2017 to 2021 which appear to disclose “no strong upward or downward trend in copyright infringement overall” but, while declines in piracy of TV, films and music since 2017 have been observed, there have been increases in pirating of publishing materials.

The Issues Paper also reports that there is still a significant amount of IP-infringing material in the form of counterfeit goods – defined as goods infringing trade marks or copyright – citing the seizure by Customs of 145,000 counterfeit goods worth more than AUD 66 million in the last 12 months.

Against this background, the Issues Paper asks 3 questions directed to identifying the nature and scale of copyright infringement challenges in Australia:

  1. What challenges have you been facing in relation to copyright infringement in recent years? Are you seeing any changes or trends (including any forms or methods of infringement that are emerging or particularly concerning, or conversely, are becoming less prevalent or concerning)?
  2. Can you provide any data on the scale of current copyright infringement, or the estimated economic impact of such copyright infringement on you, your organisation or your industry more broadly?
  3. Are there any particular drivers of copyright infringement that you see as noteworthy or significant? Have these drivers changed in recent years?

Next, the Issues Paper asks 4 questions directed to ascertaining the extent to which people are using “industry-driven mechanisms”, the costs and weaknesses of such mechanisms and the scope for developing such mechanisms. Such mechanisms include “cease and desist letters” and tools like YouTube’s content ID and Facebook’s Rights Manager schemes.

Turning to “statute-based mechanisms”, the Issues Paper reports that the website blocking scheme introduced in 2015 has resulted in more than 30 cases with more than 1600 sites blocked and some 330 extensions of the “whack-a-mole” variety.

According to the 2021 Online Copyright Infringement Survey, 11% of respondents had encountered blocked websites in the previous 3 months. Of those, 59% gave up trying to access the material and 18% sought lawful access instead. On the other hand, “almost 1 in 5” had used alternative tools to navigate around the block.

Accordingly, the Issues Paper asks:

8 How effective and efficient is the current website blocking scheme as a way of combating copyright infringement and steering online consumers towards legitimate sources of content? For example, is the application process working well for parties, and are injunctions operating well, once granted?

9 Could the way the website blocking scheme operates be improved in any way (for example to address the use of new and emerging technologies to navigate around or through website blocks), including through changes to how the current scheme is practically implemented, or potential amendments to legislation?

(a) What impact would any such changes have on you or your organisation?

(b) Are there any potential broader or unintended consequences (for example, on other aspects of internet traffic management) that should be taken into account when considering changes that may be suggested through this consultation process?

The Issues Paper notes that the “safe harbour scheme”, which introduced a notice and take down scheme modelled on the DMCA, applies only to “carriage service providers” and key cultural institutions such as libraries, archives and organisations assisting people with a disability but does not extend generally to digital platforms.

The Issues Paper then asks:

10 How effectively and efficiently are the authorisation liability provisions and/or safe harbour scheme (and associated notice and take-down process) currently operating as mechanisms for addressing copyright infringement? For example:

(a) How clear are the circumstances in which a party may be considered to have authorised another person’s copyright infringement, given the courts’ interpretation of the authorisation liability to date?

(b) How effective and efficient is the safe harbour scheme (and associated statutory notice and take-down process) in striking the right balance between combatting copyright infringement and protecting the legitimate interests of service providers?

11 Are there ways in which these provisions could be amended to improve their effectiveness or efficiency?

(a) How would such changes affect you or your sector?

(b) Are there any potential broader or unintended consequences that should be taken into account when considering changes that may be suggested through this consultation process?

In its last section, the Issues Paper reports than 150 copyright matters “were brought before the courts” between 2019 and 2021. Of these 60% were brought in the Federal Court and 40% in the court formerly known as the Federal Circuit Court. The Issues Paper also refers to what it describes as the Federal Court’s “expedited claims process” and developments overseas such as the Copyright Claims Board in the United States for disputes up to USD 30,000 and the Intellectual Property Enterprise Court in the UK for claims up to GBP 10,000.

This leads to three final questions:

12 What factors influence your decisions on what action(s), if any, to take through the legal system and/or law enforcement in relation to suspected or alleged copyright infringement?

(a) For example, have you found mechanisms such as mediation, alternative dispute resolution and other non-court remedies to be preferable as ways to resolve disputes?

13 Are the various avenues available through the legal system and law enforcement to address copyright infringement suitable and effective? For example:

(a) Have you sought to engage with the courts or law enforcement in relation to suspected or alleged copyright infringements? If so, please provide (if possible) any data or examples in relation to your experiences.

(c) Are the current civil and criminal remedies under the Copyright Act appropriate?[1]

(d) What barriers (if any) do you face in engaging with the legal system? Could any models introduced in other international jurisdictions to streamline consideration of copyright matters be potentially relevant in an Australian context?

(e) Were you previously aware of the ABF’s Notice of Objection border enforcement application process?

14 Are there any ways in which the current system could be improved? How would such changes affect you or your sector?

In a very welcome move, we have been granted an extended period to make our submissions: they should be submitted by 7 March 2023.

Copyright Enforcement Review Issues Paper


  1. No. I did not inadvertantly miss out (b).  ?

It must be Christmas – there’s a copyright issues paper Read More »

Prof. Brennan on copyright in Australia

Late last year, Prof. David Brennan published Copyright Law, Federation Press.

Those of you who have heard David speak or read any of his wide ranging publications will no doubt appreciate that this is a book worth adding to your arsenal library.

If you are not one of that fortunate number, perhaps you will be further encouraged by the words of one Hon William Gummow AC:

Since its enactment more than 50 years ago, the 1968 Act has moved significantly from the classic structure of copyright laws. This is the product of judicial decisions and much legislative activity. The busy practitioner often will be presented on short notice with copyright disputes and needs an authoritative text to be ready at hand. In those law schools where the subject is taught to undergraduates the students need access to a stimulating study of the statute and case law.

This book answers their needs. The author has an engaging literary style which leads the readers through the conceptual thickets of copyright law. The publisher also is to be congratulated for the preparation which has gone into the production of the book and its printing in Australia.

from His Honour’s review Copyright Law by David Brennan —  (2022) 51 Aust Bar Rev 391 (paywall).

One slight quibble, it might be thought a slight disservice to the efforts of the late Prof. Lahore to mark his 1977 monograph as the last comprehensive text specifically serving the Australian market given his much expanded Copyright Law looseleaf service published in 1988 and, of course, the continuing mammoth Copyright and Designs, first published in 1996. (Of course, I would say that!). Nonetheless, that quibble aside, if you are following copyright law in Australia, you should be finding this book.

Prof. Brennan on copyright in Australia Read More »

Do you have to pay for a software licence when you buy the business

It’s not an uncommon scenario: the client has bought a business, but some mission critical software is outdated and the licence is not transferable except on payment of a fee. What do you do: Pay the fee or “save” the money and keep using? Thawley J found that the licensor’s consent to some time to evaluate options meant Shepparton Partners (SPC) had an implied licence but thereafter infringed. Injunctions and $1,162,428.80 damages flowed.

I am guessing pretty much everyone in Australia at some point or another has experienced SPC’s canned fruit, vegetables or maybe fruit juices.

Some facts

To run its business, SPC Ardmona (SaleCo) used QAD’s enterprise resource planning ERP software. It used the ERP software for everything: for sales orders and inventory management, procurement, manufacturing planning and control, service and support project management, distribution and finance. SaleCo had a perpetual licence, but it was not transferable. SaleCo also paid an annual maintenance fee, which was paid up to 31 July 2019.

The version SaleCo used was the 2008 version. In 2018, however, QAD had approached SaleCo with a proposal to upgrade to the new, current 2017 version. SaleCo’s IT personnel agreed with the proposal but the price was sufficiently high that agreement required sign-off by SaleCo’s ultimate owner – Coca-Cola Amatil.

Coca-Cola Amatil had decided to sell the SPC business and didn’t want to spend that money. The sale eventually went through in June 2019 to SPC. Before the purchase went through, QAD had written to SaleCo and SPC stating it would consent to the transfer of the licence provided 3 conditions were met:

  1. Payment of a transfer fee of $424,392 and a maintenance fee for the next year of $177,816;
  2. Execution of an appropriate transfer agreement and a new licence agreement
  3. Satisfaction of conditions 1 and 2 before 30 June 2019, otherwise the offer was automatically withdrawn.

There was also a quote to upgrade to the new, current cloud-based version of $755,000 per annum (although the amount seems to have been negotiable).

SPC, however, considered the QAD 2008 version was not “fit for purpose” although not “useless” and persuaded QAD it needed more time to consider its options. By letter dated 27 June 2019, QAD extended the time for acceptance initially to 31 July. There were further meetings, discussions and email so that ultimately the time for acceptance was extended until November 2019.

In November 2019, QAD suspected that SPC was likely to go with a different vendor. It wrote to SPC pointing out it had had 5 months to make a decision and decision was required. SPC wrote back saying that responsibility for paying the transfer/licence fee was the responsibility of Coca-Cola Amatil or SaleCo.

SPC continued to use the QAD 2008 software until 28 September 2020 when it implemented Microsoft Dynamic 365 as its ERP software.

Even after 28 September 2020, however, SPC continued to use the QAD 2008 software for “non-production purposes” such as extracting historical information for quality control or financial reasons. Amongst other things:

  • before the changeover to Microsoft, SPC used the software in “day to day” use;[1]
  • SPC made modified or customised copies of the QAD 2008 software including “test and development reproductions”;
  • after the changeover to Microsoft, it made an ‘historical copy’ of the QAD 2008 software on a different server;
  • it also made “back-up” copies on its servers.

It appears that SPC expected it would need to keep using the QAD 2008 software for “non-production purposes” for another seven years.

An implied licence

Thawley J held (one would think largely uncontroversially) that the various ways SPC continued to use the QAD 2008 software involved reproductions of the whole or substantial parts of the software.

However, in the period from 27 June 2019 to SPC’s November letter,[2] SPC had an implied licence to use the software so use in that period was not infringing. The implied licence arose from the 27 June 2019 letter and the course of conduct between the parties until November.

Infringement and damages

Use after that period was not licensed and therefore infringed.

Thawley J awarded QAD $662,428.80 in compensatory damages and an additional $500,000 by way of additional damages.

The $662,428.80 amount was the transfer fee plus a maintenance fee for one year plus GST. Given the compensatory nature of damages under s 115(2), that was the loss QAD suffered.

Additional damages were appropriate as SPC at all times knew it needed QAD’s consent to the transfer of the licence and that it was its responsibility to obtain that consent. Consequently, its infringement was flagrant. Also there was a need for deterrence.

Cross-claim against the vendors

SPC did run a cross-claim against Coca-Cola Amatil and SaleCo arguing that they had breached the business purchase agreement by failing to pay QAD the transfer and licence fees.

These claims were said to arise essentially from the vendors’ obligations to use “best endeavours” to obtain a transfer of the licence and do whatever they lawfully could, including rendering all reasonable assistance, to permit SPC to have the benefit of the licence of the QAD 2008 software. There were also obligations on SaleCo to hold its rights in the assets of the business on trust for SPC.

The wording of the business purchase agreement was perhaps not as clear as it could be: it did make specific provision that the vendors did not have an obligation to pay fees and charges for certain key assets.

In the result, however, Thawley J concluded there had been no breach of their obligations by the vendors. At all times, the managing director of SPC knew that payment of the transfer and maintenance fees would be SPC’s responsibility. A key indicator of this had been the fact that all negotiations with QAD were undertaken throughout the enitre period by SPC. Coca-Cola Amatil and SaleCo were never involved.

If you are a software vendor in this sort of situation, you may need to be careful about the terms you let the new owner evaluate your software. In the end, it wasn’t a financial problem for QAD because it only intended to charge a one-off fee. If the fee had been time based, say annual, it could have lost out. Purchasers and vendors also need to be clear about whose responsibility it is to pay the fees. Even if it were the vendor’s responsibility, the purchaser in SPC’s position was the one directly liable for infringement. An indemnity, or claim for breach of contract, would not be much help if the vendor has disappeared or distributed its assets after completion.

QAD Inc v Shepparton Partners Collective Operations Pty Ltd [2021] FCA 615 (Thawley J)


  1. Day to day use involved users connecting to the software using a user name and password. The QAD 2008 object code on SPC’s application software was then loaded into the server’s RAM and the code stayed in RAM until the server was shut down or (more likely) the user logged off: [79]  ?
  2. Or possibly 10 December 2019 when QAD formally notified SPC the licence was terminated.  ?

Do you have to pay for a software licence when you buy the business Read More »

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