The Full Federal Court has allowed the Commissioner of Taxation’s appeal from Pagone J’s ruling allowing SPI Powernet a deduction for the value of its copyright in the plans, drawings and manuals for its electricity power generation network.
SPI Powernet bought the assets of the Victorian electricity power generation and transmission line system when the Kennett government privatised the State Electricity Commission in 1997. It paid $2.5 billion. The assets included the intellectual property rights which included the copyright in some 100,000 drawings and plans which were critical to the operation and maintenance of the business and various manuals and software.
The purchase price was not apportioned amongst the various assets. Indeed the sale agreement specified that the purchase price was fixed notwithstanding that the components might be shown “collectively to have a different value.”
SPI Powernet sought to apportion the purchase price among the various asset classes and, in the case of the copyright, claimed depreciation in respect of a “unit of industrial property”. The Commissioner assessed the value of the copyright at “nil”. Pagone J allowed SPI Powernet’s appeal, finding that the value of the copyright was in the order of $171 million using the replacement cost methodology.
The Full Court’s decision involves a number of procedural issues as well as substantive questions including the extent to which the Commissioner’s methodology could be challenged and his Honour’s exclusion of the expert’s written reports at first instance.
The Full Court were agreed that the valuation exercise undertaken by the experts was misdirected. The question was what part of the purchase price should be attributed to the copyright, not what was the market value of the copyright. That caused two problems for the SPI Powernet parties.
One problem was the form of the purchase price: by specifying that it was a fixed price regardless of the value of the component assets, it meant that no cost could be attributed to a particular component. If you are drafting a sale agreement and including intellectual property rights in the assets and not apportioning the purchase price, be careful.
The second problem was that SPI Powernet, as the purchaser of all the assets to run a power generation business, would have a licence implied by necessity to use and reproduce the copyright in conjunction with the business. So, Greenwood J said at  and :
…. Let it be assumed that SPI PowerNet had not acquired the copyright subsisting in the 105,410 documents. Could it be reasonably inferred in such a case, having regard to the terms of the Agreement under which SPI PowerNet acquired all of the relevant assets necessary to conduct the electricity transmission undertaking, that Power Net Victoria (the Victorian government owned corporation which formerly owned the copyright in the documents), would have been the source of an implied licence in favour of SPI PowerNet to use all of the documents in connection with that undertaking in a way which included exercising any and all rights falling within the rights comprised in the copyright? The answer to that question seems plainly enough yes, in which event any exercise of any of the rights subsisting in the copyright would have occurred with the licence of the owner of the copyright.
Fourth, in those circumstances, it is not necessary to undertake a timebased analysis of the value of work which would have been necessary to recreate the 105,410 documents in a way which could have expressed the information contained in those documents in a noninfringing form. Such a valuation exercise does not aid or inform the statutory task under s 124R(5). I respectfully disagree with the finding of the primary judge at  that had the copyright not been acquired, SPI PowerNet would have had to create the field of documents in which copyright subsisted in a way which conveyed the same information but in a noninfringing way to enable the business to function.
and Edmonds J said at :
If an actual acquisition by SPANT of all of SPI PowerNet’s assets as at 19 October 2005 had not included the copyright, there can be no doubt that by reason of the notion of “necessity”, as explained by McHugh and Gummow JJ in [Byrne v Australian Airlines Limited][byrne] (1995) 185 CLR 410 at 450, SPANT would have enjoyed an implied licence to copy and modify the drawings and documents in any event: see Copyright Agency Limited v State of New South Wales  HCA 35; (2008) 233 CLR 279 at 305–306  per Gleeson CJ, Gummow, Heydon, Crennan and Kiefel JJ, and the other cases there cited (also ,  and the cases cited); see too Acohs Pty Ltd v Ucorp Pty Ltd and Anor  FCAFC 16; (2012) 201 FCR 173 at .
Commissioner of Taxation v AusNet Transmission Group Pty Ltd  FCAFC 60 (Kenny, Edmonds and Greenwood JJ)
- The case before the courts was actually 2 cases: 1 concerning SPI Powernet’s claim for the depreciation; the second by its parent when the parent adopted consolidated group accounts including SPI Powernet. ?
- The valuation experts agreed there were three accepted methods to value the copyright: an income approach, a market value approach and a cost approach. Because there was nothing income generated from exploiting the copyright nor a market for the copyright, SPI Powernet’s experts applied the “replacement cost” method – what it would cost in time and effort to recreate the drawings etc. from scratch. See e.g. Pagone J at . ?
- The latter of which led to the Full Court quashing his Honour’s decision on that part of the case and remitting it for reconsideration by Pagone J on the basis at  and  that the exclusion of the written reports meant it was impossible for the Full Court to evaluate his Honour’s reasons for accepting the views of SPI Powernet’s experts over the Commssioner’s expert on what all parties considered the fundamental issuel ?