Commercial notes No. 18

No. 18
24 February 2006

This issue

The CLRC Crown Copyright report
Commercialising intellectual property
Commercialisation and confidentiality

THE CLRC CROWN COPYRIGHT REPORT – PRACTICAL IMPLICATIONS
FOR AGENCIES

Rachel Chua

Rachel Chua Senior Executive Lawyer
T 02 6253 7086 F 02 6253 7306
rachel.chua@ags.gov.au

In April last year, the former Copyright Law Review
Committee (the CLRC) released its report, Crown Copyright,
setting out 16 recommendations for reform.1 These recommendations,
if implemented, will have important practical implications
for agencies in their ownership and management of copyright
material. The Commonwealth Attorney-General's Department
is currently preparing its formal response to the report.

Key recommendations

The CLRC report included the following key recommendations.

  • The provisions relating to subsistence and ownership
    of Crown copyright in ss 176–179 of the Copyright
    Act 1968 (the Copyright Act) should be repealed.2
  • Prerogative rights in the nature of copyright should
    be abolished by amendment to the Copyright Act, with
    prospective effect.3
  • Copyright in certain primary legal materials produced
    by the judicial, legislative and executive arms of government
    should be abolished.4
  • The Commonwealth should develop and implement comprehensive
    intellectual property (IP) management guidelines to promote
    best practice and assist agencies to meet their responsibilities.
    Education and training of government employees must also
    be a high priority.5
  • The role of the Commonwealth Copyright Administration
    (CCA) should be expanded to provide advice and guidance
    on Commonwealth Crown copyright.6
  • A non-exhaustive list of entities included as part
    of 'the Commonwealth' should be created by
    the Commonwealth for Commonwealth entities.7

Policy rationale for the recommendations

In its report, the CLRC considered that certain policy
factors justify repealing or limiting the operation of
the Crown ownership provisions of the Copyright Act.8

The inquiry into Crown copyright arose largely from concerns
about 'the interaction between government ownership
of copyright and competition policy' 9 following
the Ergas Committee's Review of Intellectual Property
Legislation under the Competition Principles Agreement. 10

The Ergas Committee recommended that the Crown ownership
provisions of the Copyright Act11 be amended consistently
with the principle of 'competitive neutrality' in
order to place government in the same position as any other
contracting party.12

The CLRC considered that the traditional justification
for copyright protection; namely, to provide an incentive
for people to create by rewarding effort and investment
in these activities, does not readily apply to material
created by government. In many cases, government is required
to produce material irrespective of whether any legal protection
is afforded to that material.13

However, the CLRC acknowledged that there are alternative
justifications for government ownership of material it
produces, which include:

  • ensuring the integrity of government material and
    public access to that material
  • enabling government to control the dissemination of
    the material produced
  • enabling government to engage in commercialisation
    activities and obtain financial rewards for such activities.14

Despite these considerations, the CLRC expressed the view
that given the expanding role of government and the breadth
of material it now produces, there is 'no justification
for government to have a privileged position compared with
other copyright owners'.15

Evaluating the potential impact of the key recommendations

The key recommendations of the CLRC report broadly relate
to the following issues:

  • Crown ownership of copyright
  • abolition of copyright in primary legal materials
    produced by legislative, judicial and executive arms
    of government
  • Crown IP management.

This note examines the potential impact of the key recommendations
in these areas.

1. Crown ownership of copyright

In order to evaluate the likely impact of the recommendations
relating to Crown ownership of copyright, if they are implemented,
it is relevant to consider how the Commonwealth currently
acquires copyright.

To summarise, the main ways in which the Commonwealth
can acquire copyright are as follows:

  • under the general ownership provisions of the Copyright
    Act (Parts III and IV)
  • under the Crown ownership provisions of the Copyright
    Act (ss 176–179)
  • by the operation of Crown prerogative rights in the
    nature of copyright.16

General ownership provisions of the Copyright Act

Literary, dramatic, musical and artistic works

The 'author' is the first owner of copyright
in respect of a literary, dramatic, musical or artistic
work.17 However, this presumption is qualified by s 35(6)
of the Copyright Act which provides that where a work is
made by an author in accordance with the terms of their
employment, the employer is the owner of copyright in the
work, subject to an agreement to the contrary.18 It follows
that, where a Commonwealth employee creates a work in the
course of their employment, the Commonwealth ordinarily
owns copyright in the work.

Sound recordings and films

The 'maker' is the first owner of copyright
in sound recordings and films.19 However, where a sound
recording or film is commissioned, the commissioning party
owns copyright, subject to an agreement to the contrary.
Accordingly, where the Commonwealth makes or commissions
a sound recording or film, it will usually own copyright
in that material.20

Assignment of copyright

Where the Commonwealth requires ownership of copyright
in material created independently by a third party, it
can achieve this by obtaining an assignment of copyright
(including future copyright).21 To be legally effective,
the assignment must be in writing, signed by or on behalf
of the assignor.22

Crown ownership provisions in Part VII of the Copyright
Act

Under ss 176–178 of the Copyright Act,23 subject
to an agreement to the contrary24 with the author or maker
of copyright material, the Commonwealth owns copyright
in:

  • original literary, dramatic, musical or artistic works
    made by or under the direction or control of the Commonwealth
    (s 176)
  • sound recordings and films made by or under the direction
    or control of the Commonwealth (s 178)
  • original literary, dramatic, musical or artistic works
    first published25 by the Commonwealth or under its direction
    or control (s 177).

The meaning of the phrase 'direction or control'

The phrase 'direction or control' is not defined
in the Copyright Act and its precise meaning is uncertain.26

The term 'direction' has received little direct
judicial consideration; however, it is likely to be interpreted
more broadly than 'control'. It arguably covers
works commissioned by the Commonwealth, particularly where
the Commonwealth exercises some degree of direction or
guidance in relation to the making of the relevant work.27

The term 'control' has been considered in
the context of employment law. Specifically, 'control' can
be found to exist where an employer has the ability to
oblige an employee to comply with its instructions in relation
to the manner in which the work is to be performed28 and
where it has the power to dismiss the employee.29

The phrase 'direction or control' is therefore
likely to encompass works created by Commonwealth employees
in the course of their duties. However, it may also extend
to works of contractors engaged by the Commonwealth, the
works of committees formed to develop manuals or codes
of practice for the Commonwealth, and the works of volunteers
supervised by the Commonwealth, depending on the circumstances.30

In general terms, in order for copyright to vest in the
Commonwealth under ss 176–178 of the Copyright Act,
it is likely that the Commonwealth must exercise direction
or control over the production or publication of the relevant
copyright material in more than just an 'incidental' or
a 'peripheral' way.31

Uncertain operation of section 177 of the Copyright Act

Section 177 of the Copyright Act has a potentially wide
operation. On its face, the provision operates to vest
copyright relating to third party material in the Commonwealth,
in circumstances where the material is first published
by, or under the direction or control of, the Commonwealth.32

For example, under s 177 the Commonwealth arguably owns
copyright in certified agreements that are 'first
published' by the Department of Employment and Workplace
Relations on its WageNet website.33

However, there is debate about the scope of this provision.34 Specifically, it is unclear whether s 177 should be 'read
down' by the operation of s 29(6) of the Copyright
Act which essentially provides that 'publication' of
a work is to be disregarded for the purposes of the Copyright
Act where it is done without the licence of the owner of
the copyright.35

Even where it is accepted that s 29(6) operates to mitigate
the effect of s 177, the nature of the licence required
from the copyright owner under that provision, in order
for copyright to vest in the Commonwealth, is uncertain.36

Who is 'the Commonwealth' for the purposes
of sections 176–178?

Some statutory authorities which are separate legal entities
from the Commonwealth, and have the capacity to hold property
in their own right, may nevertheless be treated as 'agents
or emanations' of the Commonwealth for the purposes
of ss 176–178 of the Copyright Act. The general view
is that this will depend largely on the extent to which
they are subject to direction or control by the Commonwealth.37

One possible consequence of this characterisation is that
copyright in anything made, or first published, by such
a statutory authority, or under its direction or control,
for the purposes of ss 176–178 of the Copyright Act
will be owned by the Commonwealth, to the exclusion of
the statutory authority.38

In the past, a number of statutory authorities equated
with the Commonwealth have entered into special arrangements
with their parent departments (e.g. under what have been
described as 'deeds of repatriation') in order
to have assigned back to them, their copyright in materials
that would otherwise arguably be owned by the Commonwealth
under ss 176–178 of the Copyright Act.

For example, the Commonwealth and the Australian Institute
of Criminology (AIC) have entered into an agreement under
which all existing and future copyright in material produced
by the AIC is assigned back to it by the Commonwealth.39 Film Australia has entered into a similar agreement with
the Commonwealth in relation to copyright in films and/or
sound recordings produced in the course of Film Australia's
activities.40

By contrast, it is clear that in relation to a statutory
authority that is not an agent or emanation of the Commonwealth
for the purposes of ss 176–178 of the Copyright Act,
the general principles of copyright ownership would apply.

There is, however, uncertainty as to which Commonwealth
authorities are to be considered agents or emanations of
the Commonwealth for the purposes of the Copyright Act.41

Crown prerogative rights in the nature of copyright

Section 8A of the Copyright Act makes it clear that the
Act is not intended to affect prerogative rights in the
nature of copyright.

It is generally accepted that the Commonwealth holds prerogative
rights in the nature of copyright in Commonwealth legislation
and subordinate legislation.42

The precise nature of this prerogative right is not entirely
clear; however, it appears to extend to printing, publishing
and communicating the relevant material to the public.
The prerogative right may be distinguished from statutory
copyright on the basis that it is of indefinite duration
and cannot be assigned.43

The usual defences to copyright infringement apply to
reproduction and use of material in which prerogative rights
in the nature of copyright apply.44

Significantly, where third party material is incorporated
into or attains the status of legislation or subordinate
legislation of the Commonwealth, it is arguable that the
Commonwealth 'acquires' prerogative rights
in respect of that material insofar as it forms part of
the legislation. The prerogative rights may effectively
extinguish any statutory copyright subsisting in the third
party material; however, these issues are not beyond doubt.

For example, under the Environment Protection and Biodiversity
Conservation Act 1999 interested groups can develop 'recovery
plans', which set out the actions necessary to support
the recovery of threatened species, for approval by the
Minister. It is arguable that once the recovery plans are
approved by the Minister, they have the status of subordinate
or delegated legislation in which the Commonwealth has
prerogative rights.

Crown ownership of copyright – practical implications
arising from the recommendations

Although there is currently some uncertainty about the
operation of the Crown ownership provisions of the Copyright
Act, and the nature and scope of the Crown prerogative
rights in the nature of copyright, on the widest interpretation,
the Commonwealth could rely on these grounds to effectively 'acquire' copyright
in respect of third party material:

  • made under the Commonwealth's direction or control
  • first published by the Commonwealth or under its direction
    or control
  • that is incorporated into, or attains the status of,
    subordinate legislation.

In addition, some statutory authorities that have commissioned
third party works, or first published them, could find
that the Commonwealth and not the statutory authority owns
copyright in the relevant works.

Based on these observations, potential implications arising
from repealing the Crown ownership provisions of the Copyright
Act and abolishing Crown prerogative rights would seem
to include the following:

  • The Commonwealth will need to rely more heavily on
    the general provisions of the Copyright Act in order
    to own copyright in material made or first published
    under its direction or control – e.g. s 35(6) in
    respect of employee works.45
  • It will be important for the Commonwealth to include
    appropriate provisions in its contracts if it wishes
    to own copyright in literary, dramatic, musical and artistic
    works produced by its contractors.46
  • The Commonwealth will need to obtain a specific assignment
    of copyright in material created by committees or volunteers
    working under its direction or control if it wishes to
    own copyright in that material – any such assignment
    must observe the relevant formalities.
  • It may be necessary for the Commonwealth to pay for
    an assignment of copyright where it would currently own
    copyright by default under the Act.
  • The Commonwealth may need to rely more heavily on
    its statutory licence under s 183 where it is unable
    to negotiate an assignment of copyright in material created
    by third parties (see discussion below).
  • The Commonwealth must decide whether it needs to own
    copyright in third party material, particularly where
    it is more cost-effective to obtain a licence to use
    that third party material (see discussion below).
  • Agencies may seek to rely more on copyright 'free
    use' exceptions such as 'fair dealing'.47
  • A statutory authority that is equated with the Commonwealth
    will not automatically lose copyright to the Commonwealth
    in material made or first published by it, or under its
    direction or control.
  • Agencies may wish to develop standard IP contract
    provisions which deal with different IP ownership and
    licensing options, in order to more effectively manage
    their IP.
  • Agencies will need to ensure that their employees
    are adequately trained so that they can make appropriate
    and effective decisions about IP ownership and licensing
    options.

Options other than Commonwealth ownership of copyright
material – written licence or statutory licence under
section 183 of the Copyright Act

If the Commonwealth determines that it is not necessary
for it to own copyright in third party material, it may
elect to obtain a written licence in respect of its use
of the material – if it does so, it should ensure
that the licence is broad enough to meet its requirements.

Alternatively, the Commonwealth could elect to rely on
its statutory licence under s 183 of the Copyright Act.
Under that provision, the Commonwealth is entitled to the
benefit of a statutory licence where its use of copyright
material is for the services of the Commonwealth and is
undertaken in Australia.

The phrase 'for the services of the Commonwealth' would
at the least cover the activities of Commonwealth employees
in the ordinary course of their employment.48

The statutory licence in s 183 extends to all categories
of copyright material and any acts comprised in the copyright
(including reproduction, publication, public performance
and communication to the public). However, in relying on
this statutory licence, the Commonwealth is generally obliged
to notify the copyright owner of its dealings with the
copyright material and to agree on terms for use of that
material, which may involve payment of fees to the owner.49

Significantly, where a statutory authority is treated
as an 'agent or emanation' of the Commonwealth,
the statutory authority will enjoy the benefit of the statutory
licence under s 183 of the Copyright Act.

2. Abolition of copyright in certain primary legal materials – practical
implications arising from the recommendations

The CLRC has recommended that copyright in certain materials
produced by the judicial, legislative and executive arms
of government be abolished. Those materials are:

  • bills, statutes, regulations, ordinances, by-laws
    and proclamations, and explanatory memoranda or explanatory
    statements relating to those materials
  • judgments, orders and awards of any court or tribunal
  • official records of parliamentary debates and reports
    of parliament, including reports of parliamentary committees
  • reports of commissions of inquiry, including royal
    commissions and ministerial and statutory enquiries
  • other categories of material prescribed by legislation.

If copyright is taken as being incapable of subsisting
in these types of materials, this may have implications
for whether copyright could subsist in edited or annotated
versions of these materials – including those produced
by legal publishers.

In the case of third party material that is incorporated
into, or attains the status of, legislation or subordinate
legislation in which copyright has been 'abolished',
there is a question as to whether copyright in the third
party material is effectively extinguished for all purposes – where
that material has an existence separate from the legislation.

In addition, if copyright is incapable of subsisting in
these primary legal materials, then the authors of those
materials may lose their moral rights in the relevant material – this
is because moral rights protection depends upon copyright
protection.50

3. Crown IP management – practical implications
arising from the recommendations

The CLRC has recommended that the government should develop
and implement comprehensive IP management guidelines to
promote best practice and assist agencies to meet their
responsibilities.51

This recommendation is consistent with the recommendations
of the Australian National Audit Office (ANAO) in its Audit
Report No. 25, Intellectual Property Policies and Practices
in Commonwealth Agencies (5 February 2004). The report
followed an audit by the ANAO on whether agencies have
systems in place to efficiently, effectively and ethically
manage their IP assets in accordance with their obligations
under the Financial Management and Accountability Act 1997 52 or equivalent provisions of the Commonwealth
Authorities and Companies Act 1997. 53

The ANAO report produced two main recommendations:

[I]n 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.

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 (along 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.54

In relation to the second recommendation above, the 'lead' agencies
have recently prepared a draft whole of Commonwealth framework
for IP management and circulated this to relevant stakeholders.

In this context, it is important to emphasise that the
ANAO report clearly indicates that agencies are themselves
responsible for devising their own strategies for dealing
with IP that they create or acquire. Accordingly, agencies
should not wait until a whole of Commonwealth framework
for IP management is finalised before they take steps to
produce their own individually tailored policies.

This message is perhaps more important in light of recommendations
in the CLRC report – if the key recommendations are
implemented, the Commonwealth will not be able to rely
on favourable default positions on copyright ownership
and will need to ensure that systems are in place for appropriate
and effective management of IP by employees, which may
involve making decisions about IP ownership and licensing
options.

What is also clear is that in order to achieve this end,
agencies must give high priority to educating and training
their employees in this area.55 Specifically, agencies
will need to ensure that their employees are aware of their
requirements so that agencies can fulfil their accountability
requirements in relation to the management of Commonwealth
IP assets.

List of entities that are 'agents or emanations' of
the Commonwealth

The CLRC considered that in order to promote best practice
in Crown copyright ownership and management, it is necessary
to be clear about which entities are to be equated with
the Commonwealth under the Crown ownership and licensing
provisions of the Copyright Act.56

In this context, it is important to note that if the recommendation
to repeal the Crown ownership provisions of the Copyright
Act is accepted, this is likely to be done with prospective
effect. Therefore, the status of statutory authorities
as 'agents or emanations' of the Commonwealth
will continue to be relevant for works created or first
published prior to the repeal of the provisions.57 In addition,
the status of a statutory authority is still relevant for
the purposes of determining whether the authority can take
advantage of the statutory licence under s 183 of the Copyright
Act.

Accordingly, the CLRC has recommended that the Commonwealth
create a non-exhaustive list of entities to be included
as part of 'the Commonwealth'.58 This list
would be indicative only, and would not preclude parties
from seeking a court determination of the status of the
relevant entity.59

The CLRC considered that the CCA is probably best placed
to compile and maintain the list of entities equated with
the Commonwealth.60 It suggested that the CCA could check
the status of any such entity by liaising with that entity,
the Attorney-General's Department and the Australian
Government Solicitor.61

The list of Commonwealth authorities equated with the
Commonwealth, should provide greater certainty to statutory
authorities in their ownership and management of copyright
material.

Conclusion

In conclusion, if the CLRC recommendations on Crown copyright
are implemented, it will be critical for Commonwealth agencies
to ensure that they have appropriate contract provisions
in place for acquiring copyright where necessary, and that
they develop and implement proper guidelines and processes
(including appropriate employee training), in order to
facilitate effective management of their IP assets in accordance
with their accountability obligations.

Rachel Chua specialises in the areas
of IP, IT and commercial law. She regularly advises agencies
on complex legal issues relating to protection and management
of IP. Rachel also acts for agencies in significant IT
procurement and contracting matters. She has a particular
interest in strategic IP management and technology related
legal issues.

Notes

  1. This note will focus on Australian Government departments
    and agencies; however, the CLRC recommendations also
    extend to the states and territories. All references
    in this note are to references in the CLRC report (currently
    available through http://www.clrc.gov.au) unless otherwise
    indicated.
  2. Recommendation 1 – para 9.09.
  3. Recommendation 6 – para 9.45.
  4. Recommendation 4 – para 9.38.
  5. Recommendation 16 – para 11.113.
  6. Recommendation 15 – para 11.106.
  7. Recommendation 9 – para 9.61.
  8. See CLRC report, p. 34.
  9. See CLRC report, Chapters 1 and 4.
  10. Intellectual Property and Competition Review Committee,
    Review of Intellectual Property Legislation under
    the Competition Principles Agreement, IP Australia, Canberra 2000.
  11. Namely, ss 176 and 178 of the Copyright Act – which
    gives copyright to government in respect of material
    made under its 'direction or control.'
  12. The Ergas Report, p. 114.
  13. CLRC, 'Crown Copyright: Discussion paper for
    consultation forum', Sydney, 27 July 2004, p. 2;
    CLRC report, p. 38.
  14. See CLRC discussion paper (2004), p. 3; See CLRC report,
    pp. 35–36.
  15. CLRC report, pp.127–129.
  16. The CLRC report notes that these grounds are not necessarily
    mutually exclusive: Director-General of Education
    v Public Service Association of New South Wales (1985) 4 IPR 552,
    in which McLelland J of the Supreme Court of New South
    Wales stated that NSW owned copyright in the relevant
    report under either s 35(6) or s 176 of the Copyright
    Act: CLRC report, p. 15.
  17. Section 35(2) of the Copyright Act.
  18. Section 35(6) is also subject to the operation of
    provisions relating to certain works of journalists and
    also artistic works which are commissioned for a private
    or domestic purpose (see ss 35(4) and 35(5)); s 35 is
    subject to the operation of Part VII of the Copyright
    Act.
  19. Sections 97–98 of the Copyright Act. The 'maker' of
    a sound recording under s 22(3) is the person who owned
    the record at the time when the first record embodying
    the recording was produced. The 'maker' of
    a film under s 22(4) is the person who undertook the
    arrangements for making the first copy of the film.
  20. These provisions are subject to the operation of the
    Crown copyright provisions in Part VII of the Copyright
    Act.
  21. See ss 196 and 197 of the Copyright Act.
  22. See s 196(3) of the Copyright Act: If formalities
    for assignment are not met, it is possible that the intended
    beneficiary of the assignment will still have an equitable
    interest in the relevant copyright: see Nicol v Barranger [1917–1923] Macg Co Cas 219, cited in Lahore, Copyright
    and Designs, LexisNexis (2005) at [22,030].
  23. Part VII of the Copyright Act does not apply to Crown
    ownership of copyright in television and sound broadcasts
    and published editions of works.
  24. See s 179 of the Copyright Act.
  25. Under s 29 of the Copyright Act, a literary, dramatic,
    musical or artistic work shall be deemed to be published
    if but only if reproductions of the work have been supplied
    (whether by sale or otherwise) to the public.
  26. CLRC report, para 5.15.
  27. See CLRC report, p. 68.
  28. Attorney-General for NSW v Perpetual Trustee Co
    Ltd and Ors (1952) 85 CLR 237 at 229–300); Mersey
    Docks and Harbour Board v Loggins and Griffith (Liverpool)
    Limited (1947)
    AC 1 at 12; CLRC report, para 5.16.
  29. CLRC report, para 5.16.
  30. See CLRC report, pp. 67–68. It is arguable that
    due to the doctrine of separation of powers, judges do
    not operate under the direction or control of the Commonwealth:
    CLRC report, pp. 69–70.
  31. See Ricketson and Creswell (2005) at [14.180].
  32. In Catnic Components Ltd v Hill & Smith Ltd [1978]
    FSR 405, copyright in a patent specification was held
    to vest in the patent office which published it: cited
    in the CLRC report 2005, para 5.41.
  33. In its submission to the CLRC, DEWR supported the
    broader interpretation of s 177 and stated that it relies
    on s 177 to claim copyright in certified agreements published
    on its WageNet website. DEWR submitted that without the
    benefit of s 177 DEWR may need to negotiate with multiple
    authors of a certified agreement before it is able to
    publish the agreement, which would be an onerous task:
    CLRC report, para 5.54.
  34. CLRC report, para 5.41.
  35. Support for reading down s 177 is that s 183(8) of
    the Copyright Act provides that use of copyright material
    by government does not constitute publication: See CLRC
    report, para 5.52; Fiona Phillips, 'Crown copyright' (2004)
    12(3) Australian Law Librarian 9–16. In addition,
    it has been argued that the provision may not be constitutionally
    valid because it does not provide for the payment of 'just
    terms' for what essentially constitutes acquisition
    of property': see Ricketson and Creswell, The
    Law of Intellectual Property: copyright, designs and
    confidential
    information, Thomson Law Book (2005), para [14.185].
  36. Specifically, it is not clear whether the consent
    or licence to publish needs to be express or whether
    it can be implied or whether it needs to be 'informed' in
    the sense that the copyright owner understands the legal
    consequences of consenting to first publication of its
    work by the Commonwealth. It is also unclear whether
    the requirement would be satisfied where the copyright
    owner is indifferent to their rights or has no realistic
    expectation of exploiting their rights – as in
    the case of volunteers, or committees where many people
    contribute to the production of a work.
  37. See Chapter 8 of the CLRC report. Two tests used to
    determine whether a Commonwealth authority is an agent
    or emanation of the Commonwealth are 'the Shield
    of the Crown' test (where the authority is entitled
    to share the immunities and privileges of the Crown)
    and the 'federal purposes' test (where 'the
    Commonwealth' has the same meaning that it has
    for the purposes of the Commonwealth constitution). Although
    the main factor in both tests is the extent to which
    the authority is subject to the direction or control
    of the Crown, differences between the tests can occasionally
    lead to a different result.
  38. However, this interpretation is not beyond doubt.
    Specifically, it requires reading 'Commonwealth' where
    it is first used in ss 176(2) and 178(2) and 177 as the
    Commonwealth as a legal person, and where the term 'Commonwealth' is
    used in the second instance to include any agent or emanation
    of the Crown: see CLRC report, para 5.43.
  39. CLRC report, para 9.64.
  40. CLRC report, para 9.65.
  41. CLRC report, para 2.16. See further discussion on
    this issue under 'Crown IP Management' below.
  42. See opinion dated 12 May 1989 by the former Solicitor-General
    for the Commonwealth, Dr Gavan Griffith QC. This view
    is based on a line of decisions, which are reviewed and
    applied in Attorney-General for New South Wales v
    Butterworth & Co
    (Australia) Ltd (1937) 38 SR (NSW)195. It is uncertain
    whether prerogative rights extend to judgments or other
    newer technological forms in which such works may be
    embodied – see CLRC report at para 6.11; Ricketson
    and Creswell (2005) at [14.205].
  43. See Ricketson and Creswell (2005), at [14.205] and
    Ann Monotti, 'Nature and Basis of Crown Copyright
    in Official Publications' [1992] 9 EIPR 305.
  44. Section 8A(2) of the Copyright Act.
  45. CLRC report, para 9.19. In order to avoid any doubt
    about the application of s 35(6) to Commonwealth officers
    (including, for example, members of a tribunal), the
    CLRC recommended that this provision be amended to clarify
    that copyright in works produced by an officer or servant
    of the Crown in the course of their duties vests in the
    Crown: Recommendation 3 at para 9.26.
  46. See para 11.109.
  47. A 'fair dealing' for specified purposes
    provides an exception to copyright infringement – and
    therefore represents a situation in which the Commonwealth
    need not obtain a licence from a third party to use their
    copyright material: see ss 40–43 of the Copyright
    Act.
  48. See Pfizer Corporation v Ministry of Health (1965)
    AC 512.
  49. Sections 183(4) and 183(5) of the Copyright Act.
  50. Literary, dramatic, musical and artistic works and
    films (to which moral rights attach) are defined in s
    189 of the Copyright Act as works in which copyright
    subsists.
  51. Recommendation 16, para 11.113.
  52. Section 44 of the Financial Management and Accountability
    Act 1997 provides that Chief Executives must manage the
    affairs of their agencies in a way that promotes efficient,
    effective and ethical use of the Commonwealth resources
    for which the Chief Executive is responsible – Commonwealth
    resources would clearly include IP resources.
  53. For example, an officer of a Commonwealth authority
    must exercise his or her powers and discharge his or
    her duties with care and diligence: see s 22 of the Commonwealth
    Authorities and Companies Act 1997. In addition, statutory
    authorities are normally required by their enabling legislation
    to use money and other resources (including IP resources)
    for the purpose of properly carrying out their functions.
  54. See paras 2.24 and 2.26 of the ANAO report (2004).
  55. Recommendation 16, para 11.113.
  56. CLRC report, para 9.51.
  57. CLRC report, para 9.51.
  58. Recommendation 9, para 9.61.
  59. CLRC report, para 9.58.
  60. CLRC report, para 9.57. The CCA, which is now part
    of the Attorney-General's Department, is responsible
    for administering copyright in published Commonwealth
    material (including legislation and excluding judgments – the
    CLRC recommended that its role be extended to include
    administration of Commonwealth copyright in films and
    sound recordings.
  61. CLRC report, para 9.59. It has also been recommended
    that the CCA should publish guidelines (in consultation
    with the Attorney-General's Department and the
    Australian Government Solicitor) setting out factors
    that may be considered when determining the governmental
    status of an entity – these would be non-exhaustive
    factors to allow for changing role of government and
    should reflect factors that courts have developed over
    time: Recommendation 10, para 9.61.

COMMERCIALISING INTELLECTUAL PROPERTY

Intellectual property is a valuable, flexible asset
of the Commonwealth and may be exploited in a number
of ways. Although commercialisation may not be a core
function for many government agencies, it is often an
important by-product of their complex and unique activities.

This article discusses the key issues related to, and
the most common methods of, commercialising IP in the
Commonwealth public sector.

Why commercialise?

Commercialisation, in the Commonwealth context, essentially
means taking IP from its existing environment (research
and development, in-house generated or contractor developed)
and introducing it into the marketplace. The method of
achieving this outcome commonly involves licensing, transfer,
sale or disposal of the IP.

Whereas a private company may only be interested in commercialising
IP for its own competitive advantage, government agencies
are often driven by different reasons and imperatives.
The ANAO report, Intellectual Property Policies and
Practices in Commonwealth Agencies, revealed that all case study
agencies involved in commercialisation did not consider
revenue generation as the sole reason to commercialise
agency IP. Instead, they recognised some of the broader
benefits in transferring their IP to the wider community.1

Depending on the charter or governing legislation of an
agency, such broader benefits should therefore be considered.
Where strong policy reasons support the transfer of agency
IP to third parties, commercialisation may be a viable
option, even where no revenue or remuneration is sought
by the agency. According to the Defence Intellectual Property
Policy, commercialisation of its IP is recognised by the
Department of Defence as having the dual function of assisting
in the development of Defence capability and contributing
to government's broader objectives.2 These objectives
include assisting Australian industry.

Other potential purposes for Commonwealth commercialisation
include:

  • defraying development costs
  • developing a solution for the client agency
  • establishing a product to be offered in the marketplace
    as a standard or to promote inter-operability.3

Legislative and policy framework

The fundamental difference between the public and private
sector in respect of commercialisation activities is that
the Commonwealth cannot enter into commercial activities
simply on the basis that to do so would generate revenue
for the Commonwealth.4 This is because the Commonwealth
has no power to set up, manufacture or engage in businesses
or exploit its IP for general commercial purposes.5

Agencies subject to the Financial Management and Accountability
Act 1997 (FMA agencies) are entrusted with the 'stewardship' or
management of significant Commonwealth IP. As FMA agencies
do not exist separately from the Commonwealth, they do
not own assets (tangible and intangible) in their own right.
Consequently, any commercialisation undertaken by an FMA
agency must relate to one or more of the Commonwealth's
constitutional powers. In addition, FMA agencies must ensure
that the proposed activity constitutes an 'efficient,
effective and ethical' use of Commonwealth resources.6

Authorities subject to the Commonwealth Authorities
and Companies Act 1997 (CAC authorities) are separate legal
entities from the Commonwealth and do hold assets in their
own right. CAC authorities must ensure that proposed commercialisation
activities fall within the ambit of their governing legislation
and charter.

A CAC authority must also seek permission from its relevant
minister in respect of certain significant proposals which
may involve commercialisation of IP.7

In addition, an agency's legal status or existing
IP policy may impose certain constraints on its ability
to commercialise its IP, or impact on the method of commercialisation
that is appropriate in the circumstances. For example,
FMA agencies may only retain revenue from commercialisation
activities if arrangements are in place with the Department
of Finance and Administration. This most commonly occurs
through an agreement under s 31 of the FMA Act.

Applications of IP

An agency must be fully apprised of the inherent nature
and divisibility of the IP it proposes to commercialise.
This is because different heads of IP (copyright, patent,
know how) require different forms of protection. In addition,
one innovative idea or concept can have a number of uses
or applications. In other words, an IP asset may have been
originally developed by an agency for one purpose but may,
at that or some later stage, reveal secondary uses or benefits
in the same or different field(s) of use.

For this reason, it is critically important that agencies
identify all uses and potential uses (and income streams)
of an IP asset in their commercialisation strategy.

It is also important to ensure, in appropriate cases,
that the agency obtains or retains present and future rights
(both to the agency and the Commonwealth, where appropriate)
to that asset during its life cycle. These rights may be
exercised as owner or licensee.

Ownership v licence

Another critical issue to be dealt with in any commercialisation
plan is the ownership model for the background IP (existing
IP owned by a party) and the foreground IP (IP to be developed
under the arrangement).

Agencies must determine whether the ownership of background
IP or foreground IP is critical to the agency's long-term
operations and objectives. This will involve an examination
of a number of factors – particularly, the agency's
reasons for commercialisation and the impact of the ownership
of the relevant IP on its operations and programs. For
example, granting an exclusive licence means that the agency
will be prevented both from licensing the IP to others
or using the IP within the agency. Public interest, national
security and financial considerations are other factors
which may require consideration in this context.

After conducting an appropriate review of its needs, an
agency may choose to be a licensee (rather than an owner)
of the relevant IP. In such cases, the agency must ensure
that it does not lock itself (and the Commonwealth, where
relevant) out of any necessary present or future rights
to use the IP, whether in-house use by the agency, or by
third parties (on behalf of the agency).

Risk assessment

It is recommended that a thorough risk assessment be completed
and approved by senior management prior to the completion
of the agency's commercialisation strategy. One reason
for this is because agency IP may involve cutting-edge
or blue-sky innovations, which bring with their exploitation
a potentially high level of risk for the agency.

Common risks arising from commercialisation by agencies
include:

  • failure to secure appropriate rights in the technology
  • failure to adequately protect the IP from premature
    or inappropriate use or disclosure by co-parties
  • failure to develop the product/service sufficiently,
    or in time, to marketable standard
  • failure to achieve anticipated market acceptance
  • failure or insolvency of the entity charged with commercialisation
    activities.

As commercialisation of IP (particularly early stage technology)
can be a risk-intensive activity, agencies should identify
and assess all risks involved in both the IP and the commercialisation
strategy (technical, legal and commercial) to ensure loss
is mitigated or transferred in accordance with Commonwealth
policy or as appropriate.

FMA agencies must ensure that they comply with Commonwealth
legislation and policy in respect to the provision of warranties
and indemnities when contracting with third parties.

Legal relationship

The legal relationship entered into by an agency with
other parties for the purpose of commercialisation is an
important risk management strategy in and of itself. The
nature of this relationship will also directly impact on
the success of the commercialisation plan, as it will largely
dictate the roles and responsibilities of the parties,
governance requirements and the terms of participation
in the venture.

Common legal relationships or structures which support
commercialisation of Commonwealth IP are:

  • Spin-off company: a separate company formed solely
    for the purpose of owning and exploiting IP.
  • Unincorporated joint venture: an 'association' of
    persons (whether natural or corporate) formed to undertake
    a specific purpose, usually research and development
    activities relating to IP.
  • Distributorship: a third party distributes agency
    product to consumers.
  • Licensing: an agency retains ownership of its IP and
    licenses it to one or more permitted users (licensees)
    for specific purposes.

Conclusion

In the first instance, a decision by any agency to commercialise
its IP will be influenced by a number of important factors.
These include the nature of the IP (copyright, patent,
know-how), the agency's functions and objectives,
whether the agency is the owner or custodian of the IP
and whether the agency is entitled to retain revenue from
the proposed activities.

Commercialisation activities are typically complex and
long-term arrangements, often involving a mix of IP rights.
Agencies are advised to assess their individual commercialisation
objectives against their governing documents and, in that
context, devise a well-structured commercialisation strategy
which ensures the agency will retain the desired amount
of control over the asset (and all relevant risks) during,
and after, the conduct of the commercialisation activities.

COMMERCIALISATION CHECKLIST

Agencies should consider the following factors when commercialising
their IP:

  • Is there synergy between the commercialisation objectives
    and the agency's governing legislation and charter?
  • Is the strategy consistent with the agency's
    IP policy (if any) and the law?
  • Have all possible uses or applications of the IP been
    explored, and appropriate present and future rights retained
    or obtained by the agency?
  • Has a comprehensive business plan (including risk
    management analysis) been approved by senior management?

This note was written by Samantha Schrader when she
was a Senior Lawyer at AGS Sydney. For further information
please contact John Berg or AGS's national IP network
coordinator, Philip Crisp (details back page).

Notes

  1. ANAO Audit Report No. 25 2003–2004 Intellectual
    Property Policies and Practices in Commonwealth Agencies.
  2. Developing and Sustaining Defence Capability: Defence
    Intellectual Property Policy 2003 at <http://www.defence.gov.au/dmo/gc/ip/main.cfm>.
  3. The Commonwealth IT IP Guidelines 2001 p. 44. Available
    from the DCITA website at <http://www.dcita.gov.au/ip>.
  4. Johnson v Kent (1975) 132 CLR 164 at 169.
  5. Commonwealth v Australian Commonwealth Shipping
    Board (1926) 39 CLR 1 at 9.
  6. Section 44, Financial Management and Accountability
    Act 1997.
  7. Section 15, Commonwealth Authorities and Companies
    Act 1997.

COMMERCIALISATION AND CONFIDENTIALITY

Adrian Snooks

Adrian Snooks Senior Lawyer
T 02 6253 7192 F 02 6253 7306
adrian.snooks@ags.gov.au

In circumstances where a Commonwealth agency is intending
to commercialise IP that it owns, but requires the assistance
of a commercial partner to do so, it is important to be
able to protect that IP from being improperly disclosed
or misused. This is particularly the case where the strategic
partner has a better grasp of the market for the IP than
the agency.

Introduction

Stages of commercialisation

There are two distinct early stages in this type of commercialisation
that pose potential risks for the protection of agency
IP. The first and most crucial stage is the evaluation
period, where one or more commercial partners may be invited
by the agency to assess the IP and its commercialisation
potential. This period may involve an evaluation agreement
of some type between the agency and the potential commercial
partners in order to protect the interests of each.

The second is the stage at which the agency and a selected
commercial partner enter into a contract for the commercialisation
of the IP.

Methods of protection

There are a number of methods available to protect Commonwealth
IP including patents, trademarks and equitable actions
for breach of confidence. However, this note focuses on
how strategic confidentiality arrangements can be used,
both during the evaluation stage and the commercialisation
contract stage, to protect an agency's IP.

Risk factors

When an agency considers engaging a strategic partner
to develop agency IP, it is worthwhile looking at the potential
risk factors that would suggest a need for comprehensive
confidentiality protections. Such risk factors include
where:

  • the Commonwealth IP is embodied in world-leading technology
  • there is a large commercial market for the IP
  • a number of organisations are selected by the agency
    to evaluate the IP for commercialisation opportunities
  • an organisation evaluating the IP has a large number
    of employees, or
  • an organisation evaluating the IP has many subsidiaries
    worldwide.

Each of these factors increases the risk that the Commonwealth's
IP could be disclosed without the agency's permission,
or misappropriated or developed without permission, thus
significantly reducing its value.

While there is the potential for disclosure or misappropriation
at any time during a commercialisation, the risks may be
greater during evaluation. This is because it is less likely
that a formal contractual arrangement, which could regulate
the disclosure, confidentiality and use of the IP, has
been entered into between the agency and the evaluating
partners.

Commercialisation contract period

Once a commercialisation partner has been selected, it
would be normal to enter into a detailed contract with
them for that commercialisation. The contract would generally
include the licensing conditions under which the agency's
IP may be used, provisions for royalty payments and confidentiality
provisions. While this can provide greater protection to
the IP than in the pre-contract situation, here too, careful
consideration should be given to protecting the agency's
IP. (For example, by looking at the extent to which the
partner may need to disclose the IP information to its
subcontractors, related companies and individual personnel – and
therefore the need for confidentiality agreements between
the agency and those parties.)

Thus the concepts for protection of IP considered here
have application not only to the evaluation period, but
also to the contract with a commercialisation partner following
a successful evaluation.

Structuring confidentiality arrangements

Confidentiality agreements with commercial partners

The best way to discourage an organisation from disclosing
or misusing the Commonwealth's IP is to open up the
possibility that if there is improper disclosure or misuse,
the Commonwealth will sue the organisation for damages,
or hold it liable for an account of profits made by any
person who improperly uses the IP.

During the evaluation period, this protection can be achieved
by putting in place a suitable confidentiality agreement
between the Commonwealth agency and the commercial partner.

Structuring confidentiality agreements with commercial
partners

An appropriate confidentiality agreement should first
define the information that needs to be held confidential
by the commercial partner. It is critical that this confidential
information be specified as accurately and in as much detail
as possible. This is not only a requirement of Commonwealth
confidentiality policy, but it also improves the likelihood
that truly confidential information is recognised and properly
protected.

The agreement should also:

  • impose a non-disclosure obligation on the commercial
    partner, such that it is not permitted to disclose information
    except as allowed under the agreement
  • include the particular restrictions on the use of
    that information that the commercial partner must abide
    by. (For example, that the commercial partner may only
    use the agency's confidential information for the
    purposes of evaluating commercialisation prospects.)

A further restriction that can be included, and which
could substantially increase the protection offered to
the IP being commercialised, would be requiring the commercial
partner to limit the release of that information within
the partner's organisation. This could be achieved
through the partner providing a list of nominated personnel
to whom access may be granted. This list could be approved
by the Commonwealth agency and updated as necessary, and
need not be limited solely to the commercial partner, but
could also include employees of subcontractors or related
entities. This is a particularly valuable method to use
where the partner organisation is large.

Confidentiality agreements with individuals

While this approach gives the agency recourse against
the commercial partner, and limits the release of information
to a set of nominated personnel, it does not impose any
obligation on the personnel themselves not to release that
information.

A commercial partner's employees are not parties
to any confidentiality agreement that a Commonwealth agency
may enter into with the commercial partner. The same goes
for subcontractors, and the employees of subcontractors,
as well as the employees of any other companies related
to the commercialisation partner. So, if it is considered
important to fully protect the agency's IP, then
it may also be important for the agency to enter into confidentiality
arrangements with relevant nominated personnel.

Unlike the agreement with a commercial partner, the purpose
of entering into confidentiality arrangements with nominated
personnel is not primarily so that the Commonwealth can
sue individuals (this is highly unlikely in practice),
but to act instead as a clear reminder to those individuals
of their responsibilities to protect the confidentiality
of the agency's IP. This method can be highly effective
when used in conjunction with a confidentiality agreement
with the commercial partner, because the element of personal
responsibility missing from the agreement with the partner
is provided through the agreements with the individuals.

It is worth noting, however, that this approach may not
be acceptable to the commercial partner. It requires a
case-by-case approach depending on the risks to the agency's
IP and the desirability of binding individuals to confidentiality
agreements.

Structuring confidentiality agreements with individuals

A confidentiality agreement with an individual would broadly
follow the same lines as the agreement with the company.
However, an individual agreement would generally be less
formal, and would explain clearly, in plain language, the
operation of the agreement and the obligations that the
person was agreeing to.

Application of this approach in the SmartGate project

Overview of SmartGate

The Australian Customs Service SmartGate project illustrates
where strategic confidentiality arrangements were both
required and successfully implemented.

SmartGate is an automated border processing system that
provides face-to-passport checks that normally would be
conducted by a Customs officer. SmartGate uses facial recognition
technology to verify a traveller's identity by taking
an image of the traveller and comparing it to one or more
digital images stored on the traveller's ePassport.

SmartGate was introduced for trial use at Sydney and Melbourne
international airports from November 2002 to June 2005,
for selected inbound travellers. Qantas crew were the initial
trial users, followed from November 2004 by Qantas Platinum
Club frequent flyers. Over 10,000 passengers and crew undertook
in excess of 295,000 transactions during this period.

The trial results provided Customs with the confidence
that facial biometrics can be utilised for identity verification
purposes, and that Australia's border security will
not be compromised by the introduction of automated border
processing.

Development of SmartGate

Behind the SmartGate technology is leading-edge IP, and
there is a keen interest from international companies involved
in biometrics to develop and use the technologies involved.
In order to further develop the concept for production,
Customs sought proposals from 12 companies to determine
the most suitable strategic partner.

The successful company was Sagem Australasia, a subsidiary
of Sagem SA, a large French-based multinational communications
and technology company.

Although the Commonwealth is primarily interested in developing
the technology for use in Australian airports, to assist
with managing the growing number of travellers, there is
a wider commercial potential for the facial recognition
technologies, especially given the increase in security
precautions against terrorist activity, and tighter immigration
controls.

Evaluation of SmartGate technology for commercialisation

A number of risk factors were present for Sagem's
evaluation of the SmartGate technologies. First, Sagem
comprises a large company with a host of related companies.
Second, the SmartGate system has world-leading technology.
Third, there is a large potential market for the IP that
is being developed in the project. There was, therefore,
a potential risk that unless the SmartGate IP was closely
protected, technologies or products could be developed
from it without the appropriate return on investment to
the Commonwealth.

Accordingly, a confidentiality agreement of the type outlined
earlier in this note was entered into with Sagem prior
to the evaluation, limiting disclosure to a set list of
nominated personnel. Individual agreements were also developed
to be signed by those nominated personnel, including personnel
in Sagem's related companies, who would have access
to the SmartGate IP. These agreements proved successful,
both in being agreed by Sagem and in achieving their aim
of protecting the SmartGate IP.

Results of evaluation

In May 2004 Customs engaged Sagem Australasia as its strategic
partner to design and develop the necessary hardware, software
and business processes required to implement a production
version of SmartGate. The rollout of SmartGate Series 1.0
is scheduled to occur at the first Australian international
airports during 2007.

Adrian Snooks has 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 IP 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 transactions.

* AGS gratefully acknowledges the assistance of the Australian
Customs Service for permission to use this example and
for providing the latest information on the SmartGate project.

AGS
contacts

AGS has a national team of lawyers specialising in intellectual
property law (IP). For further information on the articles
in this issue, or on other IP matters, please contact the
network coordinator, Philip Crisp, or any of the lawyers
listed below.

Philip Crisp

Philip Crisp Special Counsel, Commercial
T 02 6253 7159 F 02 6253 7306
philip.crisp@ags.gov.au

Sydney

John Berg

02 9581 7624

Melbourne

Kenneth Eagle

03 9242 1290

Brisbane

Robert Claybourn

07 3360 5767

Perth

Lee-Sai Choo

08 9268 1137

Adelaide

Vesna Vuksan

08 8205 4512

Hobart

Peter Bowen

03 6220 5474

Darwin

Andrew Schatz

08 8943 1400

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

For enquiries regarding supply of issues, change of address
details etc.
T 02 6253 7052 F 02 6253 7313 E ags@ags.gov.au

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.