Commercial Notes No. 9

No. 9
6 April 2004

The material in these notes is provided to AGS clients
for general information only and should not be relied upon
for the purpose of a particular matter. Please contact
AGS before any action or decision is taken on the the basis
of any of the material in these notes.

Managing Commonwealth intellectual property

Rachel Chua

Rachel Chua Senior Lawyer
Australian Government Solicitor
T 02 6253 7086 F 02 6253 7306

On 5 February 2004, the Australian National Audit Office
(ANAO) released its Audit Report on Intellectual Property
Policies and Practices in Commonwealth Agencies ('the
Report'). The Report followed an audit by the ANAO
on whether agencies have systems in place to efficiently,
effectively and ethically manage their intellectual property
assets. In conducting its audit, the ANAO surveyed 74
agencies and subsequently conducted case studies of seven
agencies to further examine their intellectual property
management practices.

One major recommendation of the
Report is that agencies should develop an intellectual
property policy appropriate
to their functions and circumstances.

Key findings

Some of the key findings arising from the
Report were that:1

  • there is no whole-of-government
    policy approach to managing intellectual
    property – this means that agencies are responsible for devising
    their own approaches to managing intellectual property that they generate
    or acquire
  • only 30 per cent of agencies surveyed had a policy
    addressing the management of intellectual property even
    though 90
    per cent of these agencies rated intellectual
    property as of medium or high importance to their business
  • only half of the
    agencies surveyed reported that they had mechanisms
    in place for identifying intellectual property and for
    on the appropriate
    level of ownership for their intellectual property
  • only 19 per cent of agencies
    surveyed had a system in place for monitoring agency
    use of their own intellectual property
  • only 34 per cent of
    agencies surveyed had systems in place to manage
    the licensing, transfer, sale or disposal of agency intellectual

ANAO recommendations

Based on the key findings of the audit,
the ANAO has put forward two major recommendations. 2

Recommendation 1

In order to ensure the effective and efficient
management of intellectual property, agencies should
develop an
intellectual property policy appropriate for agency
circumstances and functions, and implement the required
systems and
procedures to support such a policy.

Recommendation 2

In order to ensure that the Commonwealth's
interests are protected, the Attorney-General's Department,
the Department of Communications, Information Technology
and the Arts, and IP Australia (together with other relevant
agencies), should work together to develop a whole-of-government
approach and guidance for the management of the Commonwealth's
intellectual property, taking into account the different
functions, circumstances and requirements of agencies across
the Commonwealth, and the need for agency guidance and
advice on intellectual property management.

What is intellectual property?

Intellectual property encompasses
a range of intangible property rights, including copyright,
designs, trade
marks, patents and confidential information (and agreements
dealing with these rights). The types of material that
are the subject of intellectual property rights that
require appropriate management include software (including
licensed software), databases, website material, written
reports (whether internal or from external consultants),
graphic works, music, inventions and logos.

What is intellectual property management?

The ANAO states
that intellectual property management involves the implementation
of measures which will ensure that
an organisation identifies, adequately protects, and
controls intellectual property assets, and where appropriate,
facilitates exploitation of those assets for commercial,
operational and public benefit. 3

Importance of developing an intellectual property management

The ANAO considers that good intellectual property
management is critical to ensuring that agencies are better
able to
make use of their existing intellectual property resources
and identify opportunities for transfer and uptake of intellectual
property with the concomitant benefits. 4 The benefits
arising from this process may also include public benefits
such as stimulation of economic growth, industry development,
improved industry competitiveness and increased employment
growth. 5

The Report sets out some of the consequences of
not properly identifying, protecting and managing intellectual
assets, including: 6

  • loss of the ability to protect intellectual
  • exposure to the risk of infringing third party
    intellectual property
  • inability to identify ownership of intellectual property
    under the agency's
  • duplication of effort to redevelop existing intellectual
    property assets
  • financial and efficiency losses from duplication
    in procurement
  • the loss of operational benefits resulting
    from loss of strategic control of intellectual property
  • the risk that intellectual property assets will be
    disposed of without a transparent process to ensure probity
  • loss
    of potential benefits (including financial benefits)
    arising from commercialisation of intellectual property
  • minimisation
    of the risk of third party abuse of Commonwealth intellectual
    property, 7 and
  • lack of guidance for agency staff leading to risk
    averse behaviour which stifles innovation.

The heads of agencies
subject to the Financial Management and Accountability
Act 1997 (the FMA Act) must manage
the affairs of their agencies in a way that promotes proper
use of the Commonwealth resources. 8 In this context,
the ANAO considers that the reference to Commonwealth resources
clearly includes a reference to intellectual property
resources of FMA Act agencies. 9

In addition, the draft Australia-United
States Free Trade Agreement (the FTA) requires the Commonwealth
put in place appropriate laws or administrative measures
to ensure
that agencies do not use infringing computer
software, and only use computer software as authorised
the relevant licence. Any such administrative measures could involve
(for example) maintaining an inventory of software
licensed to the agency. Obligations under the FTA may need to
be reflected in intellectual property management
policies adopted by individual agencies. 10

What is involved in developing an intellectual property
management strategy?

In essence, the development of an intellectual
property management strategy would involve: 11

  • identifying
    agency owned and controlled intellectual property
  • deciding
    what agency owned intellectual property to protect
    and how to
    protect it
  • developing an appropriate management framework for
    all intellectual property
    assets, whether owned or licensed
  • deciding the basis on which an agency would
    retain ownership of, license, commercialise or transfer
    its intellectual property
  • determining the requirements
    for intellectual property training within
    an agency
  • determining the requirements for ongoing management
    or protection of agency intellectual property, and
  • determining
    the requirements for evaluation of, and reporting
    on, intellectual property assets and their management.

Factors to be considered in developing an intellectual
property management strategy

The ANAO considers that the
approach that an agency takes to managing intellectual
property will be influenced by:

  • the nature of intellectual property activity and the
    type of intellectual
    property managed
  • the extent to which an agency relies on the revenues
    generated by the
    sale of intellectual property
  • whether the agency owns intellectual property in
    its own right, acts as custodian of the intellectual
    property on behalf of the Crown, or licences
    the use of intellectual property from another party
  • the mandate of the agency
    to undertake intellectual property activities,
  • whether intellectual property is developed or procured
    as part of a planned activity or emerges incidentally
    as part of routine operations.

Clearly, the process of developing
an intellectual property management strategy will differ
according to the specific
circumstances (including the core functions and objectives)
of each agency.

Action for agencies

Following the recommendations of the
ANAO in the Report, agencies should consider

  • establishing
    intellectual property management strategies, and/or
  • evaluating
    the effectiveness of their current strategies in
    order to facilitate better utilisation and management
    of their
    valuable intellectual property.

The Audit Report is available on the ANAO website at <;.

Rachel Chua is a Senior Lawyer practising in the
areas of intellectual property, information technology
and commercial
law. She has provided strategic advice to agencies on the
protection and management of their intellectual property
rights including assisting them in the development of effective
practice and policy.


1 See pages 19–21 of the Report

2 Paragraphs 2.24
and 2.26 of the Report

3 Paragraph 1.22 of the Report

4 Paragraph 1.27 of
the Report

5 See paragraph 1.43 of the Report

6 See paragraph
1.36 of the Report

7 Paragraph 5.1 of the Report

8 Section 44 of the

9 Paragraph 1.34 of the Report

10 See Article 17.4.9
of the FTA – 1 March 2004 (draft)

11 See generally,
sections 3–7 of the Report

12 Paragraph 1.37 of
the Report

Picture perfect?

Adrian Snooks

Adrian Snooks Lawyer
Australian Government Solicitor
T 02 6253 7192 F 02 6253 7306

The Federal Court's decision in Sullivan v FNH
Investments [2003] FCA 323 serves as a timely warning of the dangers
of not paying attention to the terms of a copyright licence
agreement with a contractor. It also makes clear that flagrantly
continuing to use copyright material in breach of a licence
agreement can result in significant additional damages
being awarded by the courts.


Sullivan is a professional photographer who
had been contracted by FNH to take photographs of FNH's
Palm Bay Hideaway Resort in the Whitsunday Islands. Sullivan
was to be
paid $14,850 for a series of photographs of the resort,
of which half was to be paid in advance and the other
half at the end of the contract.

The contract included
a licence for FNH to use the photos 'on
receipt of full payment'. FNH received the photos
from Sullivan, but refused to pay the second instalment
for them on the basis that the photos were not of sufficient
quality. However, FNH went on to use a number of the photos
in a promotional brochure and in advertisements in national
magazines promoting the Resort.

Sullivan's solicitor
wrote to FNH specifying three copyright infringements:

  • converting the photographic images from film to digital
  • publishing the resort brochure containing the photos
  • publishing the photos in national style and travel

this and subsequent warnings from Sullivan's
solicitors, FNH continued to distribute brochures containing
the photographs.


Justice Jacobson held that FNH was not entitled
to withhold payment and at the same time use the photographs.
court further found that FNH's conduct was flagrant
because FNH used the photos knowing that it had no right
to do so and without regard to the legal consequences
of infringing Sullivan's copyright. The court also
held that the photos were of merchantable quality, which
was demonstrated by the experts called by both sides.

Copyright infringement

Under the contract between the parties,
it was clear that the licence to use the photos for a period
of two years
for promotional purposes, was only granted upon full
payment of the contract fee. Under copyright law, Sullivan
is the owner of the copyright in the photographs that
he took. Because FNH did not have a valid licence to
use those photos, FNH infringed Sullivan's copyright
(subsection 36(1) of the Copyright Act 1968). In other
words, because full payment was never made, a licence
was never granted and the result was infringement of
copyright. The infringement was embodied in reproducing
and publishing the photos and communicating them to the
public. His honour noted that a claim also lay for damages
for breach of contract, but did not investigate this
on the basis that there cannot be double recovery of
damages for the same conduct.


The court's finding that there was a breach
of copyright rather than contract worked against FNH. Damages
for breach
of contract could have been to pay the remaining sum of
$7,425, although FNH's approach had been that it
should pay a lesser sum owing to its view of the quality
of the photos.

Justice Jacobson determined that there were
two awards of damages for which FNH was potentially liable.
The first
was damages for the infringement of copyright and the second
was additional damages for the flagrant nature of the infringement.
With regard to the first, the purpose of damages is to
compensate Sullivan for loss suffered as a result of the
infringement. The appropriate damages for this would be
an amount equivalent to the licence fee (Bailey v Namol
Pty Ltd (1994) 53 FCR 102). Because only half the licence
fee was still outstanding, the damages under this head
were assessed at $7,425.

However, section 115 of the Copyright
Act allows additional damages to be awarded where an infringement
of copyright
is established and there are one or more aggravating circumstances
(see Raben Footwear Pty Limited v Polygram Records Inc (1997) 75 FCR 88). Section 115(4) sets out those aggravating
circumstances. The first is the flagrancy of the infringement
of copyright. In considering flagrancy, the court must
consider the need to deter similar infringements of copyright
and the conduct of the defendant after the act constituting
the infringement or, if relevant, after the defendant was
informed that they had allegedly infringed the plaintiff's
copyright. Other relevant aggravating circumstances are
whether the infringement involved the conversion of a work
or other subject-matter from hardcopy or analog form into
a digital or other electronic machine-readable form, and
any benefit shown to have accrued to the defendant by reason
of the infringement.

Justice Jacobson found that the behaviour
of FNH in infringing Sullivan's copyright was flagrant
on the basis of the test in Raben. Under that test, glaring
or blatant
conduct involving calculated disregard of the copyright
owner's rights or cynical pursuit of benefits is
sufficient for flagrancy. FNH argued that as there was
no secret or deceitful behaviour on their part, there ought
not be any additional damages awarded. Justice Jacobson
considered that the blatancy of FNH's behaviour militated
in favour, rather than against, the finding of flagrant

Furthermore, FNH's behaviour also involved
conversion of the photographs into digital format and the
of benefit from the publicity generated by the photographs
being used in the advertising material. The court did not
determine whether these other matters were sufficient by
themselves for an award of damages, although the number
of aggravating circumstances no doubt fed into the quantum
of the damages.

While Justice Jacobson noted the legislative
trend against awarding additional damages, and the rare
in which they are normally awarded, he based the award
of damages on the fact that 115(4) specifically contemplates
the award of such damages. In the end, an additional $15,000
in damages was awarded to Sullivan over and above the $7,425
already awarded. Justice Jacobson noted that the additional
damages did not include any damages for personal hurt and
injury which have in some circumstances been awarded under
subsection 115(4) (see Milpurrurru v Indofurn Pty Ltd (1994)
30 IPR 209) as the degree of Sullivan's hurt was
not sufficient to justify more than $15,000 in additional

Implications for clients

In general (there are some qualifications)
the Commonwealth or a State or Territory cannot infringe
copyright. This
arises as a result of the statutory licence arrangements
in section 183 of the Copyright Act. The statutory licence
benefits departments and agencies as well as statutory
bodies which are subject to such control as to be properly
regarded as an 'agent or emanation' of the
relevant Crown for section 183 purposes.

Apart from the
agreement between the Commonwealth and the Copyright
Agency Limited (CAL) concluded under section
183 covering photocopying and certain electronic copying
and communication, it should be the exception rather than
the rule for agencies to resort to section 183 where there
is an operating commercial market for the material in question.
From a policy viewpoint, it is preferable to negotiate
a voluntary licence with the copyright owner in advance
of the use of the relevant material.

In negotiating a licence,
careful consideration should be given to the interplay
between the licensing provisions
in the contract and other provisions relating to performance
standards and payment. For example, whether unsatisfactory
material will nonetheless be licensed to or owned by the

Further, where a client has entered into a licence
agreement with a contractor to use copyright material,
it is important
to only use that material in accordance with the terms
of the licence. This may mean that it is not possible to
use the material until the licence becomes available – such
as the licence only being granted on full payment of licence
fees as in the Sullivan case. Importantly, it also means
refraining from any uses or copying of the material which
are expressly prohibited under the licence terms.

should take action to ensure that terms of licences are
being met. Clients should address the situation immediately
should a contractor state that their copyright material
is being used either outside of the terms of the licence,
or in an infringing manner. Continuing to use copyright
material once warned of the breach is likely to lead to
a higher award of damages – especially in a claim
framed around copyright infringement and brought against
an entity which does not have the shield of section 183.

Action for agencies

  • Agencies wishing to use material in
    which copyright is owned by another party should generally
    seek to negotiate a voluntary licence with the owner
    of the copyright.
  • Agencies should take action to ensure they are complying
    with the terms of their licences and if a licence does
    not come
    into effect until a condition
    has been met (e.g., payment of the licence fee), the material must not be
    used until the condition is complied with.
  • Finally, if a contractor or other copyright
    owner claims that their copyright material is being
    used in an infringing manner by the agency, the agency
    determine if this is so and address the situation immediately in order
    to avoid a potential claim for additional damages.

Adrian Snooks has a number of years experience in providing
legal advice to government and private sector organisations
both in Australia and the United Kingdom. His legal expertise
includes information technology licensing and procurement,
copyright and other intellectual property matters, development
of new technologies, and corporate and contract law. Adrian
has extensively advised on complex contracting arrangements
and also on a number of international electronic commerce

The SPAM Act

Andrew Schatz

Andrew Schatz Lawyer
Australian Government Solicitor
T 08 8943 1400 F 08 8943 1420

On 12 December 2003, the SPAM Act 2003 ('the
received Royal Assent. Despite its name, the Act extends
beyond the regulation of what is commonly understood to
be 'SPAM' and it will affect all organisations
who use email and internet facilities as part of their
day to day operations.

The term SPAM has traditionally been
used interchangeably with 'Unsolicited Bulk Email' or 'UBE'.
While SPAM may take many forms, the term is commonly used
to describe the practice of sending promotional emails
to a large number of people at the same time without their

In contrast, the Act sets up a scheme for regulating
commercial email and other types of Commercial Electronic
('CEMs'), regardless of the number of recipients

  • prohibiting the sending of most CEMs without consent
  • requiring all CEMs to include accurate information
    about the person or organisation who authorised their
  • requiring most CEMs to include a functional unsubscribe
  • prohibiting the supply, acquisition or use of
    address harvesting software or the address lists they
    produce, and
  • providing a number of legal mechanisms to assist the
    Australian Communications Authority ('ACA')
    in its new role as enforcer of the Act's

In conjunction with the SPAM (Consequential Amendments)
Act 2003, the Act empowers the ACA to investigate,
and where necessary, prosecute people or organisations
send non-compliant CEMs.

The 2003 report produced by
the National Office for the Information Economy entitled
SPAM: Final report
of the
NOIE review of the SPAM problem and how it can be
countered1 was the catalyst for the Act. It made five main
including new legislation, better international cooperation
and a public information campaign to raise awareness
of SPAM related issues.

The substantive provisions
of the Act (Parts 2 to 6) commence on 10 April 2004.

What are commercial electronic messages?

CEMs are defined
in section 6 of the Act. Sub-section 6(1) effectively provides
that CEMs are electronic messages
with at least one commercial purpose. Sub-section 6(1)
sets out 13 examples of purposes which will satisfy the
CEMs definition, but s 6 also includes scope for additional
purposes to be prescribed by regulation later on. The
examples provided include offering, advertising or promoting:

  • goods or services
  • interests in land, or
  • business or investment opportunities.

In determining whether
a particular message has a commercial purpose, s 6(1) states
you should have regard to:

  • its content
  • the way in which it is presented, and
  • the content that
    can be located using any links, telephone numbers
    or contact information (if any) set out within the message.

a message might fall within the scope of the CEMs definition
even if it does not directly contain
anything of a commercial nature. For example, if an email contains
a link to a website which is sufficiently commercial
in nature, the message could constitute a CEM, even if nothing
in the email itself serves any commercial purpose.

addition, a message may fall within the CEMs definition
even if the identifiable commercial
purpose is only
one of its purposes rather than the primary
sole purpose.
Accordingly, it is essential to think laterally
when identifying the types of messages your
organisation sends which might
be caught by the relevant provisions of the

What does consent mean?

According to Schedule 2 of the
Act, consent may be express or inferred from the conduct
and business or other relationships
of the individual or organisation concerned.

of circumstances in which consent may be inferred include
membership of a professional association, subscription
to information/advisory services or having an existing
business relationship with the sender of a message, and
as part of that relationship, knowingly and directly providing
them with an electronic address.

Consent might also be inferred
if an electronic address is published in a conspicuous
location, such as on a public
Internet site. However, there are restrictions on this
general rule and consent will not be inferred if the published
address is accompanied by a statement stating the recipient
does not want to receive unsolicited CEMs.

Whether or not
consent has been obtained is a question of fact to be determined
according to the particular circumstances.
However, it is worth remembering that under s 16(5) of
the Act, the person authorising the sending of the CEMs
bears the evidential burden of proving the recipients' consent.

Are government bodies exempt?

Despite what you may have
heard about exempt organisations, the Act does not exclude
any individuals or organisations
from its requirements as such. The Act does provide limited
exemptions for CEMs that constitute 'Designated
CEMs', but it is the nature of the messages that
attracts the exemptions, not the nature of the organisation
that authorises them.

Schedule 1 of the Act sets out the
criteria for determining which CEMs constitute Designated
CEMs. According to section
2 of schedule 1, CEMs consisting of no more than factual
information and any of the additional information set out
in s 2(1)(a) of Schedule 1 are Designated CEMs. Sections
3 and 4 of Schedule 1 define additional types of Designated
CEMs, but section 3 is the most relevant to government

Section 3 of Schedule 1 provides that electronic
messages sent by government bodies, registered political
religious organisations, charities and charitable institutions
are Designated CEMs if:

  • they relate to goods or services,
  • the party authorising them is the supplier, or prospective
    supplier of
    the goods or services.

However, the following types of CEMs sent by these 'exempt
bodies' may not fall within the Designated CEMs definition
for the purposes of the Act:

  • CEMs that do not relate to
    goods or services but that still have one of the prescribed
    commercial purposes, or
  • CEMs relating to goods or services
    the authorising party does not, or
    will not, supply.

Accordingly, government bodies, political parties, religious
organisations and charities are all capable of sending
non-compliant CEMs if they are not careful.

Even though
Designated CEMs are exempt from the consent and functional
unsubscribe facility requirements of
the Act, they are not exempt from the accurate authorisation
requirements set out in s 17. Accordingly, all organisations,
including those afforded limited protection under
ss 3 or 4 of Schedule 1 to the Act, need to assess their
exposure to liability based on the types of messages
they and their staff are likely to send after 10

Section 12 of the Act is of particular relevance
to government bodies since it specifically states
the Act binds
the Crown in each of its capacities. Subsection
12(2) provides limited protection for the Crown in the
form of an exemption
from prosecution or liability for a pecuniary penalty.
However, this protection does not extend to authorities
of the Crown.

Authorisation and ancillary contravention provisions

addition to liability for direct contraventions, the Act
also includes provisions which could affect organisations
in a less direct fashion. Organisations crafting policy
and procedural changes need to realise that what their
staff do in their official capacity is only part of the
risk. What staff may do in their personal or unofficial
capacity also needs to be considered.

Section 8(1) of
the Act provides that organisations will be deemed to have
authorised the sending of electronic
messages where individuals authorise those messages on
their behalf. However, this provision will not apply if
the individuals exceed their authority when doing so.

said this, Australian courts have traditionally taken a
fairly broad view of what constitutes authorisation,
at least in the context of copyright (see University
of New South Wales v Moorhouse (1975) 133 CLR 1).

unless organisations implement appropriate policies and
procedures to ensure their staff are aware
of what they can and can not send while they are at work,
the organisations themselves could be held responsible
for any non-compliant CEMs their staff send, even if the
CEMs do not relate to the organisations' official
business (e.g., where they relate to a private business
or recreational association).

The Act also includes a number
of ancillary contravention provisions (see ss 16(9), 17(5) & 18(6))
prohibiting people from aiding, abetting or being in any
way knowingly
concerned in a contravention of a relevant provision. These
provisions provide additional scope for employers of staff
to be held accountable for emails their staff send while
they are at work.

How can organisations protect themselves?

Public sector
organisations should:

  • identify the types of electronic
    messages their staff could send using their communications
    facilities (including personal messages) and identify
    which messages may contravene the requirements of the
    Act if they are sent after 10
    April 2004
  • identify the circumstances in which express consent
    needs to be obtained before particular CEMs can be sent,
    where no Designated CEMs exemption
  • ensure all outgoing CEMs (including Designated CEMs)
    include accurate authorisation information in accordance
    with section 17 of the Act
  • ensure all outgoing CEMs (other
    than Designated CEMs) include a functional unsubscribe
    facility in accordance with section 18 of the Act
  • ensure
    adequate procedures are in place to respond to unsubscribe
    messages in the required 5 business day time frame
    where applicable
  • refrain from supplying, acquiring or using address
    harvesting software or the lists they produce, and
  • implement
    appropriate policies and procedures to ensure all staff
    are aware of their obligations under the Act and the
    conditions governing their
    use of their employer's communications facilities for both official
    and unofficial purposes.

Organisations wanting to reduce the amount of SPAM they
receive should also consider placing a statement
alongside any electronic addresses they publish in conspicuous
places to indicate they do not wish to receive unsolicited CEMs.

Andrew Schatz has an extensive knowledge of technology
related legal issues and has worked on a range of IT/IP
legal matters. He has degrees in both law and computer
science and was recently featured in the 'IT Whiz
Kid' section of the ZDNet Australia and Australian
Computer Society web sites. Andrew regularly presents on
information technology and communications law issues.

Note: The report is available at

AGS has a national network of commercial lawyers who specialise
in technology and intellectual property law (T & IP).
For further information on the articles in this issue of
Commercial Notes or on other T & IP issues, please
contact the network coordinator, Philip Crisp, or any of
the lawyers listed below.

Philip Crisp

Philip Crisp Special Counsel
T (02) 6253 7159 F (02) 6253 7306 E


Linda Vogel

02 9581 7720


Samantha Schrader

03 9242 1221


Robert Claybourn

07 3360 5767


Lee-Sai Choo

08 9268 1137


Vesna Vuksan

08 8205 4512


Andrew Schatz

08 8943 1400


Peter Bowen

03 6220 5474

ISSN 1443-9549 (Print)
ISSN 2204-6550 (Online)

The material in these notes is provided to AGS
clients for general information only and should not
be relied upon for the purpose of a particular matter.
Please contact AGS before any action or decision
is taken on the basis of any of the material
in these notes.

Back to Commercial
Notes Index