Comments on Life and Law, Free Software, Open Source and Intellectual Monopolies
Corporate Structures for Free Software Projects
Q: I have some software which I would like to form the basis of a GPL project. Should I set up an organisation and vest the copyright in that organisation. Would it make enforcement easier?
A: This is basically a difficult question and a lot depends on the circumstances. Some quick comments are:
* in theory, anyone who has contributed code, the copyright in which they hold, to a GPL project has standing to sue. The damages they can recover may be small if their contribution is small. However, the Act has provision for an award of additional damages where an infringer has been flagrant (etc) in their infringement. So there is still scope for recovering damages where actual damages are small.
* if an individual takes action they are exposed to the possibility of having to pay the other side’s legal costs.
* vesting copyright in an organisation makes the copyright an asset of the organisation. If the organisation is ever bankrupted (eg having to pay some other party’s legal costs), it would be one of the assets distributed among the organisation’s creditors.
* having assignments in favour of a single aggregating organisation will allow the organisation more flexibility in dealing with the material.
* having a separate entity will bring with it an additional administrative overhead and involve tax consequences.
* an organisation might be required by potential contributors or, equally, might not be acceptable to potential contributors.
* managing the assignment process and record keeping involve effort. It may discourage contributions.
iiNet High Court Appeal (iiNet to win), Carrier Bravery
The High Court is set to hear the iiNet appeal at the end of this week. Stan Beer at iTWire reports that the foreign studios pushing the appeal are likely to go down 80-20, and that this is because the foreign studios didn’t offer to pay iiNet to investigate the infringements.
I think that the foreign studios are likely to lose and it’s probably 80% (maybe a little less – as a rule of thumb, if you are entirely certain of the strength of a case, you would rate its success rate at around 70% – there are no 100% cases). However, it’s not because the foreign movie studios did anything wrong in setting up the initial action (offering to pay for iiNet to investigate infringements would not change whether or not iiNet was authorizing as the purported infringement predates the investigation).
Rather, it’s because their authorization argument is simply a poor argument. A calm reading of the authorities finds it without support. The Full Court decision and cases like Jain and Metro on George are flawed basically because they have focussed overly on whether the alleged authorizer had power to control. However, it is well established in the cases that the power to control is not sufficient for authorization. That control is only relevant in the context of the relationship between the alleged authorizer and the primary infringer – the primary infringer must be able to draw some inference from the failure to exercise control. In the iiNet case, the primary infringer is not able to draw any conclusion from the absence of action by iiNet. It is not possible for iiNet’s inaction to play any causal role in the infringer’s actions/decision making. For this reason iiNet cannot possibly be authorizing them. Cowdroy’s decision at first instance is basically right. [See here and here and my as yet unpublished paper on the topic]
It is for this reason that the recent announcement by the Comms Alliance (see SMH report here) seems to be brave. The announcement proposes that ISPs will give notices to their users over a 12 month period warning them of infringements. So why is this an extremely courageous thing to do? (And why should people like FoxTel be overjoyed, rather than annoyed as in the SMH report?). Simple. At the moment, an infringing user cannot form any opinion one way or another about their carrier’s inaction when the user infringes copyright. What happens when a carrier establishes a practice of sending out notices? Well, there are now grounds to argue that inaction is “sanction, approval or countenance”. They will say the user, since they didn’t get any notice when they should have, believed that the carrier thought it was all right for them to infringe. Hey presto authorization! Establishing a practice of taking any action against users alleged to be infringing completes the foreign media companies’ bootstrap argument for them. While the proposal does not include sanctions by the carrier, authorization by inaction will become a possible argument and it will be a slippery slope from there.
Notable is the absence of stories in the paper claiming how many industries have been eliminated by copyright infringement. These always mysteriously come out immediately before notable court events related to copyright infringement. There are still a few days left though I suppose.
High Court Grants Leave to Appeal in iiNet Case
On 12 August the High Court granted special leave to appeal in the iiNet case. Unsurprisingly I predicted that it would go to the High Court when the case first came to trial. The case is about whether an ISP who is told about infringements occurring through its infrastructure is under a positive obligation to take steps to stop that infringement. In the case in point the infringement in question was “communicating to the public”. Which, as the Copyright Act has its own peculiarities, doesn’t actually mean communicating. It means making available online. So the infringements that iiNet are supposedly authorising occur when a person puts a file into the sharing folder of their p2p application (or, a person’s act of turning on their computer if the file is already in the folder!)
The parties will be filing their submissions at the moment, with a hearing to be held sometime later.
Comments on the Acquisition of a Business
The sale of a business usually proceeds on the basis where one person has agreed to sell and another person has agreed to buy the business. Often also, there are things to be organised which can’t be done prior to signing the contract. Therefore, there will usually be a difference between the date the contract is signed and the date when the transfers and payment under the agreement occur. This second date is called the “settlement date” or the “completion date”.
During the period between execution and completion the purchaser has an interest in the business and wants to avoid the vendor running it down or extracting anything from the business. That is, the purchaser wants to make sure that the business they get on completion is the business they thought they were getting as at the date they signed the contract.
At some stage the purchaser should do a detailed inspection of the business to verify that they are buying what they think they are buying. This is called “due diligence” and the form the due diligence takes will vary depending on the nature of the transaction. A due diligence might involve a quick look at the business’s main books of account, or it might involve a detailed investigation of a wide range of things relevant to the business. This allows the purchaser to be confident that the price they are paying for the business is fair (for example if the business doesn’t own the assets that the purchaser thinks they are buying, then they would pay a lower price).
One of the ways that the purchaser tries to protect itself is by having the vendor make a variety of warranties about the business both as at execution and as at completion. For example, that the assets are not encumbered, and that there are no claims against the business. However, why should the vendor give these warranties if, for example, the purchaser already knows them to be false?
For example, if the purchaser’s due diligence reveals a circumstance which is a heavy litigation risk, the vendor would argue that the purchaser is aware of the risk, and they should take it on board (perhaps with a price change to account for the risk) rather than relying on a warranty from the vendor. Equally, if the purchaser knows that a certain asset is leased or otherwise encumbered, the vendor should not be warranting that it is not. In short any warranty will often be subject to anything the purchaser in fact knows as a result of the due diligence (assuming it was known prior to execution).
Exactly what is being sold will depend on the circumstances, whether it is the business as a whole, the shares in a company running the business or specific assets comprising the business. Whatever it is which is being sold, that should be stated clearly and consistently.
Open Source Licence Non-Compliance == Legal Trouble
Brendan Scott, September MMX
For those of you who haven’t seen it, I have recently released the results of some research work conducted into the Trade Practices Implications of Infringing Copies of Open Source Software. Linux Australia has agreed to contribute some funding towards this research note. This is Australian law specific.
The main finding of the research is that a corporate vendor selling an infringing copy of open source software is likely to be in breach of at least one section of Part V the Trade Practices Act 1974 (Cth) relating to misleading or deceptive statements or conduct, and likely more than one. There are many cases in which such breaches have been found in relation to infringing copies of software. Even where a vendor only offers to sell (as opposed to actually selling) an infringing copy they are still likely to be in breach of the Act.
The Research Note is available here: Research Note on Trade Practices Implications of Infringing Copies of Open Source Software and also from the publications section at opensourcelaw.biz.
From Adobe reader (for Android)’s end user license agreement:
3.3 Backup Copy. You may make one backup copy of the Software, provided your backup copy is not installed or used other than for archival purposes.
Which leads one to inquire what, if any, point is served by a “backup” copy which can only be “installed… for archival purposes“.
7.2 Updating. If your Device is connected to the Internet, the Software may, without additional notice, check for Updates, … that are available for automatic download and installation to your Device and let Adobe know the Software is successfully installed. [my emph]
You’re kidding, right? Perhaps this is just bad grammar?
9.5 Indemnity. You agree to hold Adobe and any applicable Certification Authority (except as expressly provided in its terms and conditions) harmless from any and all liabilities [etc] arising out of or relating to any use of, or any reliance on, any service of such authority…
Which leads one to wonder what, if any, point is served by using a service of a Certification Authority – which presumably is supposed to certify something – if you indemnify them when they stuff up.
I think I will click “Disagree”. It hasn’t got good ratings anyway.