Commissioner of Taxation v Seven Network Limited [2017] HCATrans 24 (10 February 2017)

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Commissioner of Taxation v Seven Network Limited [2017] HCATrans 24 (10 February 2017)

Last Updated: 13 February 2017

[2017] HCATrans 024

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S164 of 2016

B e t w e e n -

COMMISSIONER OF TAXATION

Applicant

and

SEVEN NETWORK LIMITED ACN 052 816 789

Respondent

Application for special leave to appeal

BELL J
GAGELER J
GORDON J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO SYDNEY

ON FRIDAY, 10 FEBRUARY 2017, AT 10.55 AM

Copyright in the High Court of Australia

MR A.H. SLATER, QC: May it please the Court, I appear for the applicant with my learned friend, MS J.M. BEAUMONT. (instructed by Australian Government Solicitor)

MR D.H. BLOOM, QC: May it please the Court, I appear for the respondent with my learned friends, MR D.K. CATTERNS, QC and MR P. KULEVSKI. (instructed by Clayton Utz Lawyers)

BELL J: Yes, Mr Slater.

MR SLATER: Your Honours, this application concerns the approach which should be taken to the construction of legislation in the face of technological change. The Bill for the Copyright Act was first introduced into Parliament just on 50 years ago. In that 50 years the technological change that we have experienced is greater than the technological change in the preceding millennium and, relevantly to the present matter, for example, in 1968 there were no video cassette recorders, there were no personal computers, there was no internet and there were no mobile phones, in particular, no mobile phones which could stream video over the internet.

GAGELER J: I do not think you need to tell us that, Mr Slater. We have lived through the period.

MR SLATER: I was not making that assumption, your Honours. Mr Bloom and I have. Your Honours, the rate of change is exponential. For example, the computing power of central processes has doubled every two years since 1968. That is what is called Moore’s Law. But, in many ways, what people want from their technology has not changed all that much over millennia.

They still want stories, whether it is told by minstrels or in books or in Kindles or iPads or on Facebook. They still want to hear music, whether in taverns, or in opera houses or by podcasts. They still want to see performances, whether by travelling players or at a theatre or on screens in their own homes. They still want to see contests, whether they are actually at the arena or again in their own homes. Those who perform or create music or stories or events still have an interest in protecting what they have created and in being adequately recorded for their work.

When the Bill was introduced in 1968, it was said to be intended to accommodate the changes which had occurred over the previous 50 years since the adoption in this country of the 1911 Act. The Act as it now stands is the product of a series of amendments which have been made expressly for the purpose of accommodating future change, but to recognise that the nature of future change cannot be predicted or provided for.

For example, three years ago, or two years ago there were amendments and the explanatory memorandum said that the term “online location” was intentionally broad to accommodate future technologies, but the problem is that the legislation always lags behind change. It takes time to recognise a change and then time to respond to it. The legislation now relies on the court to construe its language broadly to accommodate change.

That is not the course which has been adopted in this case or more generally in this Court. Thirty years ago in Computer Edge v Apple the Chief Justice in this Court said that the 1968 Act should be construed by reference primarily to its language rather than by adapting its terms to technological change not contemplated when the Act was passed. Five years ago in Roadshow Films, Justices Gummow and Hayne said that the pressure of technological change should be resolved by legislative changes rather than by any extreme exercise of statutory interpretation.

GAGELER J: So you are making this essentially a copyright case rather than a tax case. Is that right?

MR SLATER: It is a case which turns on a copyright question. It is a tax case but like many tax cases it turns on the operation of another area of law.

GAGELER J: What I am saying is you are putting the copyright question at the centre of your tax case.

MR SLATER: Yes. We do not press for an extreme exercise in statutory construction but what we do say is that where the language of the statute accommodates technology which was not foreseen when it was enacted and which achieves a result in the relationship between the originator and the consumer of newly created content which corresponds to that to which the legislation was directed, then the language should be construed to extend to the new technology.

BELL J: As I understand it, the Full Court and the primary judge considered that a liberal construction was to be given but nonetheless this simply strained the language too far in light of the findings that were the subject of the joint expert report. In circumstances in which the treaty has now been updated so that the technological change has been caught up – and this case simply happens to have missed out and you have the Court of Appeal upholding the primary judge, not on an issue that one must be confined in the approach to the language of the Copyright Act adopting a view that some degree of liberality is appropriate, but nonetheless this is simply a bridge too far, why would we grant special leave in those circumstances?

GORDON J: You would have us build two bridges.

MR SLATER: No, your Honour, you only have to build one bridge to show that the language of the statute is broad enough to accommodate these events. If I succeed on that - - -

GORDON J: Parliament did not think so.

MR SLATER: Parliament took the course which is often taken of adding something specific in case the broader words were not there – were not broad enough. But one does not reason from specificity in response to a particular matter to concluding that the broader words are inadequate. This is not a Dunmunkle case.

Your Honours, both the primary judge and the Full Court were seduced by the undoubted eloquence of my learned friends. I was not there for either matter but what they were persuaded to do was to delve into the technological minutiae of the events and to look primarily at the differences in mechanism and consider whether those differences attracted the operation of words in the statute rather than looking at the substance of what happened.

The substance was that there was no substantial change from the position before the 2005 documents. One has to remember that in 1996 the respondent had a licence to broadcast the Games. It was a licence which was expressed as a licence of the copyright in the broadcasts. It was expected not to be subject to withholding tax because the Olympic Committee was exempt. When that exemption was lost the agreements were restructured and the royalties for the broadcast were replaced with a single utilisation payment.

Now, what the Full Court did was to concentrate on the single utilisation of words and to concentrate on the different mechanism - the interception of the sounds and images before they were recorded but not to look at the fact that the result was to allow Seven the same benefit as it had had before.

If the Court had looked at the substance of what had happened, it would have seen that there was no substantial change. The IOC still deployed cameras and microphones at the various venues and captured the sounds and images. It made those sounds and images available to Seven and Seven broadcast them and Seven paid a fee for the benefit of that. What was provided, the stream of sounds and images, was within the intent, at least, and we would say within the words, of the definition of “cinematographic film”.

The argument by which our friends persuaded the Federal Court, both at first instance and on appeal, is in the realm of Zeno’s paradox. If one concentrates on the minutiae and looks only at, in Zeno’s paradox, the question whether the tortoise has travelled 50 metres by the time Achilles has travelled 100 and always concentrates on the next step instead of looking at the broader picture one does not see that in the broader picture Achilles passed the tortoise in 200 metres or here, Seven got to broadcast exactly what it had been broadcasting before, just by a different technological mechanism but with the same result. That technological mechanism is within, in our submission, the broader words of the legislation.

BELL J: This is because it comes within the concept of a thing?

MR SLATER: Yes, we do say that, your Honours.

GAGELER J: What is the thing?

MR SLATER: A thing?

GAGELER J: No, what is the thing?

MR SLATER: The thing is the ITVR signal.

GAGELER J: The zeroes and the ones?

MR SLATER: No, the signal as a whole, not the – the signal is a thing. It is like my grandfather’s axe. My father replaced the blade, I replaced the haft, so all the components are different but it is still my grandfather’s axe, or like a waterfall, the drops of water are different from moment to moment but it is still the same thing, a waterfall. The ITVR signal is a thing and the images and sounds are embodied in that thing by means of the digital transformation. They are captured through the cameras and microphones. They are passed through, they are embodied in the signal. It is the thing in which the cinematographic film is embodied.

Now, the Full Court, in particular, and our friends’ argument pick up some words which were perhaps incautiously expressed in this Court about material form. When one looks at the parts of the legislation which deal with things other than works there is no requirement of materiality and that is because the subject matter of those things - broadcasts, films - do not necessarily have a material form. The requirement of materiality does not appear anywhere in that part of the statute which deals with cinematographic films.

GAGELER J: So your proposition is that a digital signal is the thing that embodies the visual image for the purpose of section 10(1) of the Copyright Act’s definition of “cinematograph film”?

MR SLATER: Yes.

BELL J: Can I just take up with you the analysis of the primary judge at application book 45, paragraph 109. Her Honour accepts the disjunctive approach to article or thing. She says:

The ITVR Signal contains data. There are no visual images embodied in it and there are no sounds or visual images in any form that are capable of being reproduced from it.

That, as her Honour points out, is so whether you characterise it as an article or a thing and then she goes on to say:

Neither party contends that there is copyright in the ITVR Signal itself.

MR SLATER: No, we do not contend that it is in the signal, we contend that it is in the cinematographic film which is embodied in the signal.

BELL J: Well, I think, then you are going to - in light of those observations at 109, her Honour then went to section 24 of the Act. I am having some difficulty understanding how you put the – what is required is that the sound or visual images shall be taken to have been:

embodied in an article or thing if the article or thing has been so treated in relation to those sounds or visual images –

and then the question of being whether it can be reproduced from the article or thing. Now, in light of the analysis in paragraph 109 it seems to be a difficult bridge to overcome.

MR SLATER: Again, it is concentration on minutiae perhaps, a fixation with the word – with the prefix “re” in “reproduce”. But if one looks at what happened here, there was a spectacle, a performance at the venue. It was captured by the cameras and microphones, passed through by means of the ITVR signal through the cable, turned back into a spectacle on the television screen. To the extent that reproduction is required, that is the reproduction.

GORDON J: Putting out the reproduction for the moment, what is the thing that is subject to copyright? I had understood from your answer to Justice Gageler it was the digital signal and then I understood in your answer to Justice Bell it was something different. What is it that we are actually trying to fit into this definition which you said we should expand and deal with in a broad manner?

MR SLATER: It is the aggregate of visual images and sounds captured by the cameras – that is, the cinematographic film.

GORDON J: Where was that?

MR SLATER: The signal is the mechanism.

GORDON J: Where is that formulation from?

MR SLATER: In the application book, it is from page 136, paragraph 13.

GAGELER J: Captured by the camera where?

MR SLATER: At the venue. If one looks at what is going on here, the games are happening in Beijing. There are cameras and microphones there. They capture the image. The people who want to watch it are in Australia. They capture the image, it is turned into a digital stream, passed back to television in Australia and reproduced as sounds and images which people can watch. That is the substance of what is happening.

GAGELER J: Yes.

MR SLATER: We say that the sounds and images which are captured and then broadcast at the other end comprise a cinematographic film and they are embodied in the ITVR signal which enables that to happen. It enables what is actually occurring in Beijing to be broadcast in Sydney. It is very easy to get lost in expert reports about the difference between signal utilisation and splitting the signal so that part of it goes into a recording device and part of it goes off to be broadcast on television.

All of that detracts from the truth of what has actually happened and that is that what is happening in Beijing is being shown in Sydney and the mechanism of the ITVR signal is just a mechanism by which the cinematographic film comprising those sounds and images is made available for people to watch in Sydney. We say that is enough to bring it within the scope of the Copyright Act.

Your Honours, I am aware that, although there is no light here, I am running short on time. I did want to say something very briefly about the treaty. The Full Court was persuaded by looking at the OECD commentary to reach a conclusion. The difficulty with doing that is that the OECD commentary is a commentary on a version of the royalties article which does not include the words which are in contest. The words “or like property or right” do not appear in the OECD model treaty and the commentary therefore does not deal with them.

For more than 50 years, treaties have authorised States to tax payments for the use of intellectual property including patents, designs, secret formulas and the like, but in Australia, also for the use of other like property or rights. That is a deliberately broad extension, in our submission, and it should be construed broadly and not as the Full Court did, narrowly. We would submit that the treaty should be construed to give effect to that breadth.

Your Honours, as to where the Full Court went wrong, I think I have, in answer to your Honours’ questions, responded to that. We say they went wrong, at least in part, in concentrating on the idea that there had to be some physical object in which the embodiment occurred.

GORDON J: Can I pick you up on one aspect of that?

MR SLATER: Yes.

GORDON J: If you go to the definition of “cinematographic film”, it talks about the aggregate of the visual images.

MR SLATER: Yes.

GORDON J: Giving rise to something which contains the aggregate of - what is it that has the aggregate of the visual images here?

MR SLATER: The signal - from moment to moment the signal changes.

GORDON J: So it is capable of use of that article or thing of being shown as a moving picture?

MR SLATER: Over time the signal enables the sounds and images captured at one end to be reproduced at the other. The signal is something which does not exist at an instant in time; it exists over time and over time the aggregate of all those images and sounds is embodied in the signal.

BELL J: And if someone pulls the plug, there is nothing.

MR SLATER: Yes. The signal is destroyed - but in fact was not pulled. Your Honours, in our submission, both the copyright issue and the treaty issue are significant issues. They merit the attention of this Court. In particular the approach which is taken to dealing with statutes in the face of technological change, in our submission, merits the attention of the Court.

The facts were all agreed and the issue is quite neat and readily dealt with. If your Honours please.

BELL J: Thank you, Mr Slater. Yes, Mr Bloom.

MR BLOOM: If your Honours please. Your Honours, the Court is concerned here with what is known colloquially as a live feed. It consists of a continuous stream of data which is given the appellation “ITVR signal”. Now, the evidence was that the signal consists in electromotive forces that transmit data via copper coaxial cable, the copper being a conductor. The camera receives light and it creates the digital signal, then passes over the coaxial cable. The first time those sounds and images are produced – not reproduced, but produced, is on the television. That is what the ITVR signal is doing. It is like if one focuses on vehicles, one hitting the next one along each time and then coming out the other end on a television, one sees and hears for the first time the sounds and the images.

Now, the signal is an ingredient in the broadcast which is made by Channel Seven. The broadcast is not made using a recording of the signals but using the signals themselves. Channel Seven has copyright in the broadcast but that is only by virtue of the 1968 Act having extended copyright to broadcast. The technology is very similar between the signal and broadcast. Both are ephemeral and incorporeal in nature.

The Copyright Act does not extend to the signal and it is no more a film than a broadcast is or was before 1968. As this Court said in The Panel, the definition of “film” turns upon the notion of fixation and the existence of a material embodiment. You need the material embodiment because you need a copy, you need something which has been made. The Act is replete with references to the making of something and the evidence below established, inconveniently for my learned friend – it is not minutiae; it is technical, but it is not minutiae – it established beyond argument that no sound or images could be embodied in the ITVR signal.

Section 24 of the Act does not assist the Commissioner. No sound or images could be reproduced from the signal. So it remains the case that, absent specific provision, copyright does not exist in a film unless the aggregate of images and sounds takes a material form and if copyright protection is to be extended to ephemeral media, that, as this Court has recognised on a number of occasions, is a task for the legislature and not for the Court.

If I could turn then to like rights. What is the test or rule of interpretation for which the Commissioner contends? What does he suggest would replace that which the Federal Court put down and which provides certainty? The answer is nothing; he suggests nothing. But the

Full Federal Court’s conclusion provides a clear and discernible rule. Thus at paragraph 83 in the application book, page 120, they held that the term:

“other like property or rights” was intended to embrace rights recognised as in the nature of intellectual property rights –

recognised by the laws of either State, especially where the understanding of international property for the domestic purposes of each State might differ. That construction, they pointed out then at paragraph 86:

desirably affords both a clear meaning to “other like property or right” and certainty of application by both Contracting States.

Such certainty, your Honours, is even more necessary in the context of a provision which imposes a penalty and creates an offence for failure to withhold at the time of payment. To legislatively extend the definition of “royalty” so as to capture live feeds for tax purposes, Parliament has amended not the Copyright Act but the Income Tax Assessment Act, which it did 25 years ago, and then, when its tax treaty partners agree, the treaties.

The Swiss Treaty was amended in 2013 bilaterally, obviously. The Commissioner is, in effect, asking this Court for a construction which both retrospectively and unilaterally expands the meaning of “royalty” to match that achieved bilaterally but only after the events with which this case is concerned and he does so solely to achieve a different result in this case. If your Honours please, he should not, in our submission, be indulged.

BELL J: Yes, Mr Slater.

MR SLATER: Your Honours, I said that my friend’s eloquence seduced the courts below. He has endeavoured to do the same thing here by concentrating on the mechanism and not on the result. None of my friend’s submissions deal with the circumstance that the spectacle was captured and made available at the other end and the mechanism by which that happens does not matter as long as it falls within the broader words of the statute, and in our submission it does.

As to my friend’s submission about clear and discernible rules, what the Court will protect is discernible, perhaps not always clear until the Court has said, but it is certainly sufficiently discernible. As to the changes in the treaty, as I said in response to Justice Gordon earlier, one does not conclude from the fact that the treaty has been changed to explicitly deal with something which was put into our Act, that the treaty was not wide enough to start with. In our submission, it was wide enough. If your Honours please.

BELL J: In our opinion there is insufficient reason to doubt the correctness of the conclusion of the Full Court. Special leave is refused with costs.

Adjourn the Court to 10.15 am on Tuesday, 28 February in Canberra.

AT 11.24 AM THE MATTER WAS CONCLUDED