Australian Tape Manufacturers Association Ltd & Ors v The Commonwealth of Australia

[1991] HCATrans 52

_._

--!.), AUST!l.U.IA,,it-

-~}' ... ~'-'

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No Ml2 of 1990

B e t w e e n -

AUSTRALIAN TAPE MANUFACTURERS
ASSOCIATION LTD, BASF AUSTRALIA
LIMITED and TDK AUSTRALIA PTY

LTD

Plaintiffs

and

THE COMMONWEALTH OF AUSTRALIA

Defendants

MASON CJ
BRENNAN J
DEANE J

DAWSON J

TOOHEY J

GAUDRON J

McHUGH J

Tape 1 26/2/91

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 26 FEBRUARY 1991, AT 10.21 AM

Copyright in the High Court of Australia

MR A.C. CHERNOV, OC:  May it please the Court, I appear with

my learned friend, DR C. HOWARD for the plaintiffs.

(instructed by Blake Dawson Waldron)

MR G. GRIFFITH, QC, Solicitor-General for the Commonwealth:

If the Court pleases, I appear with my learned

friend, MR J.D. MERRALLS, QC, MS S. KENNY and

MR C.M. MAXWELL, for the defendant. (instructed by

the Australian Government Solicitor)

MR D.K. CATTERNS:  May it please the Court, at some time

convenient to the Court, I would seek leave to
appear to make a brief written submission on behalf

of the Australian Record Industry Association and Australasian Mechanical Copyright Owners Society.

(instructed by Gilbert & Tobin)

MASON CJ:  Mr Catterns, I have a note from the Registrar in

which he tells me that you are minded to make this

application after argument had been presented to

the Court.

MR CATTERNS: If that is convenient to the Court,

Your Honour.

MASON CJ: Yes, well, you can make your application at that

stage.

MR CATTERNS:  May it please the Court.

MASON CJ: Yes, Mr Chernov.

MR CHERNOV:  Your Honours, I presume there is no need to go

to the demurrer book in any depth. May we merely

note that the more relevant parts of the statement

of claim are 16 and 17 and that there are certain

assumptions of fact which can be adopted, which

appear in paragraphs 21 and 22 of the defence?

Now, unless the Court wishes me to go to any

specific parts of other parts of the demurrer book,

I do not propose to do so.

Your Honours, the only issue for

determinations is whether the scheme in Part VC of
the Copyright Act is supported by the copyright

power in section 51 of the Constitution and it is common ground between the parties that the scheme

is not supported by the taxation power.

Consequently we would submit, and it is trite, that

in order to be valid the provisions must have a

relevant relationship to copyright. The mere

presence of the provisions in a copyright piece of

legislation does not guarantee them that

relationship, and it is our submission, as we say

in paragraph 3, that the provisions are not related

to copyright in any relevant way.

Tape 2 26/2/91

BRENNAN J:  If it is agreed that it is not supported by the

taxation power, are we concerned with the

qualification to 5l(xxxi)?

M R CHERNOV: We think not, Your Honour. The sole

question, in our submission, is whether there is a

relevant relationship between the law and

copyright, whether it relates to copyright, and the

words "with respect to", in our submission, as analysed in the cases, some of which have been mentioned in our paragraph 2, make it clear that

there has to be a close connection which we say

does not exist in this case and, for present

purposes, it is our submission that the essential

feature to focus on, with respect, of copyright

that is, is the exclusive right to control copying.

We get that both from the sections of the

legislation, particularly the sections contained in

Part IV, which deal with subject-matters other than

works, and if judicial support is required for

that, we would refer to the judgment of

Mr Justice Windeyer in the Pacific Film case.

May we take Your Honours very quickly to the

relevant provisions of the Copyright legislation,

or what we submit are relevant ones. Your Honours

are, no doubt, familiar with the definition that is

given to "copyright" in the legislation and could

we contrast the definition in section 31 with that in 85? Section 1 provides, so far as is relevant, that a:

copyright, in relation to a work, is the

exclusive right:

(a) in the case of a literary, dramatic or

musical work, to do all or any of the

following acts -

and so on. Paragraph (b) deals with artistic

works. If one looks at section 85, that deals with

sound recordings and that is, in our submission,

the more relevant part of the Act that applies to

the problem before the Court. Section 85 provides

the:

copyright, in relation to a sound recording,

is the exclusive right to do all or any of the

following acts:

(a) to make a copy of the sound recording -

and Your Honours will recall that Part VC is

essentially concerned with copying sound

recordings. There is (b) and (c) as well, but for

the moment we would concentrate on (a).

Tape 26/2/91

As far as the definition of ownership of coyright is concerned, Your Honours, that is to be

found in sections 35 and 97 respectively.

Section 35(2) provides that the author of the

relevant work:

is the owner -

whereas, in 97, which is on page 74 of my copy of
the text of the Act, it is the maker of a sound

recording.

Now, I need not take Your Honours to the

sections, but may I just mention that infringement

in relation to a work is defined in section 36, and

in relation to a sound recording is defined in

section 101.

Now, Your Honours, again it is trite, but copyright is a right but it is not a right to

tangible property and that trite proposition, in

our submission, is of relevance to this case and we

will take that matter further if we may at a later

point. The other factor that flows from that is

that the right that is given by the statute confers

no right to the material used to make the copy.

There is a recognition of the separation

between the material or the manuscript on the one

hand and copy or copyright on the other and the

legislation deals solely with the latter aspect of

it, namely the copyright which is the intangible

asset or intangible property, or incorporeal as

some judges have described. Those distinctions, in

our submission, become relevant when one analyses

Part VC to see what it actually does in the context

of the levy that is imposed by Part VC, to what

does the levy attach?

In our submission, one of the relevant factors

is that there is no attachment of the levy to

copyright as distinct from the attachment of the

levy to material may be used for the purpose of

creating a copy.

Your Honours, may we take you briefly to the

judgment of Mr Justice Windeyer in the Pacific Film

Laboratory case, 121 CLR 154. It is a sales tax

case and the appellant there contended that he was

not obliged to pay sales tax because he did not

sell anything, he did not sell any goods, he being

the producer of, in substance, photographs from
negatives given to him for the purpose of produce
those photographs. Mr Justice Windeyer picks up

the substance of the argument put forward by the

plaintiff at the foot of page 165 where His Honour

says about half a dozen lines from the bottom:

Tape 26/2/91

It was argued that, because the owner of a photographic negative has copyright in it as

an artistic work, someone else who makes

prints from it for him cannot have the general
property in them as goods that he can sell to

him. There is I think here a fallacy. It

lies in the failure to distinguish between the

copyright as incorporeal property and property
in the material thing which is the subject of

the copyright.

Now, that is the first point in relation to which

we would like to cite this judgment. The second commences at page 166 and goes on, which relates

the history and summarizes essential aspects of the

history of copyright which we do not wish to

trouble the Court with at the moment. But

His Honour then, at page 167 in the main paragraph goes on to deal with the nature of copyright and he

does this in the historic context about half-way

through that paragraph, His Honour cites Chappel v

Purday what Chief Baron Pollock said there:

"A copyright is the exclusive right of

multiplying copies of an original work or

composition, and consequently preventing

others from so doing". And ..... Parke B spoke

of "the exclusive right of multiplying copies;

the right of preventing all others from

copying, by printing or otherwise, a literary

work which the author has published". These

and many similar statements make plain the

essential nature of a copyright. It is not a

right in an existing physical thing. It is a

negative right, as it has been called, a power

to prevent the making of a physical thing by

copying.

Your Honours will note the emphasis on the

copying and it is really the exclusive right to

control copying which, we say, so far as is

relevant, is the essential ingredient of copyright.

At one time the single word "copy" meant the

right or privilege now called copyright.

Of course the term "copyright" itself makes it

clear that copying is an essential ingredient but

it is really, as His Honour says, put it in a

negative way, it is the exclusive right to control

that which amounts to copyright.

If I can then turn to the next page, first to

what Lord Mansfield said:

Tape 26/2/91

"I use the word 'copy', in the technical sense

in which that name or term has been used for ages, to signify an incorporeal right to the

sole printing and publishing of somewhat

intellectual, communicated by letters": and

later he said that this "incorporeal right" is

"detached from the manuscript, or any other

physical existence whatsoever".

Again you have the distinction between the

copyright and the material. In other contexts you

could have a distinction between the tape and the
copyright or a distinction between the paper and

the copyright.

Lastly, can we refer Your Honours to the top

of page 169, where His Honour pulls it all together

under the legislation. His Honour says:

Copyright under the Act is thus properly

called an incorporeal right. If copies of a

work in which copyright subsists are made in
contravention of the Act they are today

described as infringing copies -

he refers to the definition of "infringing" -

But it is not the copy that infringes the Act

but the copyist who made it. Infringing

copies are "deemed to be the property of the

owner of the copyright" and he can -

never -

recover possession of them or obtain damages

for conversion.

So that what we submit, Your Honours, if one

looks at the scheme or the provisions in Part VC

which seek to impose and distribute the levy, in

our submission, unless there was a relevant

relationship between those provisions which impose

the levy and seek to distribute it and the
exclusive right to control copying, in the context

of the tape and the sound recording, then there

cannot be a law or rather those provisions are not

a law with respect to copyright.

Now, Your Honours, I am conscious that you have read Part VC, but may I very quickly take you

to that part and during the course of it,

distinguish between what Part VC seeks to do in the

context of the imposition of the levy and statutory

licences, which are to be found in other provisions

of the legislation. If Your Honours would permit me to abbreviate the long running letters of each

section, they are all 135ZZ, then they go on to

Tape 6 26/2/91

have other letters added to each section to

distinguish one from the other and in

section 135ZZJ, there is a definition section which

provides the definition of "blank tape''. That:

means a tape, other than an exempt tape -

which, for present purposes, are not relevant -

that is of a kind ordinarily purchased or

hired for use for making copies of sound
recordings, whether or not any sounds are

embodied in the tape;

Then:

"eligible sound recording" means a sound

recording the maker of which was, at the time

the recording was made:

was -

an Australian citizen, an Australian protected

person, or a person resident in Australia;

or was:

a citizen, national or resident of a foreign

country -

which later became or was:

an eligible foreign country;

The term "exempt body" is a relevant term, to which

I want to take Your Honours later. That is in

section T. If I can refer Your Honours also to:

"relevant copyright owner" means the owner of

the copyright in an eligible sound recording

or an eligible work;

And "vendor", Your Honours appreciate is the person

who has to pay the levy:

means a person who, in the usual course of his

or her business, sells hires or otherwise

distributes blank tapes.

ZZK provides for the situation where:

a copy of a sound recording shall be taken not

to have been made for the private and domestic

use.

Your Honours will know that Mis the critical

provision. It provides the:

Tape 7 26/2/91

Copyright subsisting in a published sound recording, or in any work ..... is not infringed -

if certain conditions are satisfied and the

condition is that the copy is made:

on a blank tape for the private and domestic

use.

That is the only condition and that is to be

distinguished from - so this statutory exemption

from infringement operates, so to speak, of its own
force without the requirement that anybody pay any

money, give any consideration, for that statutory

exemption from infringement. That is to be

contrasted with the provisions which apply to

statutory licences where the exemption from - and I

will take Your Honours to a section by way of

example in a moment - where the section which

provides for a statutory exemption from

infringement does not operate until certain

conditions have been satisfied. One of those

conditions is the payment of a royalty so that

where there is, in that situation, as we will be

submitting, is a correlation between the payment

which costs, you say, consideration for the gain of

the statutory exemption from infringement. There

is no such correlation in this case. What

section M does is operate of its own accord in a

certain factual context.

We do not submit that that particular

provision is not a law, with respect, to copyright.

It is because what it does is it limits the

exclusive right of the owner to control copying in the circumstances prescribed in the section and to

that extent, because it affects that right, we

would submit, it is at the very least strongly

arguable that it is a law with respect to

copyright.

Of course, subsection (3) merely says that if

you make the recording or the copying for private

and domestic purposes but then use it publicly then

you do not get the benefit of subsection (1) and I

do not think that is of great moment for immediate

purposes.

It may be convenient to jump forward to ZZZA

which is in Division 5 - 135ZZZ, in fact zzz and

then ZZZA which provide that:

Nothing in this Part affects the right of the owner of the copyright ..... to grant a licence authorising a person to make or cause to be

made, a sound recording, or a copy of a sound

Tape 26/2/91

recording ..... without infringing that

copyright.

And what ZZZA provides for is that:

the making of a copy of a sound recording that
is not an infringement ..... does not vest
copyright -

in the person who makes the copy. I point to these sections for completeness because although a person

can copy a sound recording on to a blank tape in
the context of M(l) without committing an
infringement, the copyright in the sound recording

and the work on the sound recording remains in the

owner. There is no destruction of the copyright

merely because there is the act committed which is

contemplated by M(l).

Now, as far as the royalty is concerned,

Division 3 commences with that and - to deal with

that and provides that:

a royalty is payable for each blank tape first

sold, let for hire or otherwise distributed in

Australia -

so that there is an imposition of a levy in respect of a sale, in hire or distribution of a blank audio tape and the amount is determined by reference to

the playing time of the tape and that is clear from

subsection (2) and the person who has to pay it -

has to pay the levy - is that vendor who first

sells, lets -

for hire or otherwise -

distributes the tape. So he must pay the royalty

and he must pay it within the time frame provided

by subsection (2) and it will be noted that he has

to pay it at the end of a particular quarter.	So
he pays notionally after he has had an opportunity

of recouping the levy that he pays from those

purchasing from him.

Now, the amount permitted, if I can go back

to N, which is to be applied, is to be determined

by the tribunal pursuant to a fairly important

section, 153E, and if I can take Your Honours to

that briefly - this section contemplates that the

tribunal will make the determination as to the

amount per minute to be applied after hearing all

relevant parties, and subsection (7) provides that

it will:

Tape 9 26/2/91

take into account all relevant matters
including the extent to which blank tapes are

used for the purposes of making copies of

eligible sound recordings and eligible works

for private and domestic use.

So, the scheme is, in our submission, that there be

a levy imposed in relation to tapes, or blank tapes

or the sale of blank tapes, which are destined for

use in a private environment, and on to which there

will be copied a sound recording.

Now, that may be the superficial scheme, but

that is not how the Act actually works. The Act

imposes an obligation on a specified type of person

to pay an amount of money referable by the quantity

of tapes which that person has sold. Now, it will

be said, we presume, that that levy will be

recouped from subsequent purchases, including the

ultimate copier, or the copier, the person who

copies by means of the use of that blank tape from

a sound recording, and that the intent is that that

person who gains the benefit of M should pay the

levy.

The difficulty with that sort of an argument,

Your Honours, is this, that even if one somehow or

other assumes that you look down the line by some

sort of an analogy with excise cases to the
ultimate payer - and of course, that overlooks the

people who get the tape by way of present and the

like and who copy it, but the critical thing it

overlooks, in our submission, is that the copier

may be a copier who does not fit within M(l) - in

other words, who copies it for public purposes.

He, too, on that argument would be paying the levy.

In other words, if our contention that the vendor

is the one who pays, and if it is the vendor who

pays and you stop there, then in our submission it

is quite clear that the imposition of the levy

cannot have anything to do with copyright, but if

one overcomes that and says, "Well, it is not

really he who is paying, but it is intended to get

the ultimate copier to pay", then the copier, or

the person who copies pays irrespective of whether

he uses it in the private environment or that he

uses it for public purposes.

The reason that is relevant is because the

person, assuming the ultimate copy is regarded as
the payer, then the payer does not necessarily buy

anything. He does not pay any money in return or

in exchange for the statutory exemption from

infringement provided by M(l). The reason for that

is that the person who uses the tape for public
purposes may well pay the levy but he does not get

the benefit of M(l).

Tape 10 26/2/91

TOOHEY J:  But is the objection, Mr Chernov, that the person

in that position pays twice?

MR CHERNOV:	The objection is, Your Honour, with respect, that it is a tax. It is a tax, or collection of
money - to put a neutral term - which is totally
and utterly unrelated to copyright. In other
words, to have a relationship with copyright, in
our submission, the payment would have to be made
in consideration for the obtaining of some sort of
statutory licence - to use a neutral term - or
other right to copy without infringing. A section
of payers, if you assume that the ultimate copier
is the payer, and we would say that is not the
right way of looking at it but if one does look at
it that way then there is a significant section of
payers who would be paying who would not be getting
any benefit in return for the payment. The person
I have in mind would then be infringing the
copyright and he would be liable to the owner of the copyright.
TOOHEY J:	So if the person who ultimately puts the tape to

commercial use could in some way recoup himself for

the levy paid originally, would that somehow meet

the objection?

MR CHERNOV:  He cannot meet it. He cannot recoup it,

Your Honour, under this scheme.

TOOHEY J:  No, I am not suggesting he can under the

legislation but if there was a scheme which

provided that that could be done, would that meet

the objection?

MR CHERNOV: Well, in our submission, it probably would not

meet the objection because he would still have a

collection of revenue unrelated to the - well, in

that case, I suppose, in Your Honour's example, he,

if I may go back to it, more specifically to it

rather, would not be paying a levy at all.

TOOHEY J: But he might be paying it subject to a right to

recoup.

MR CHERNOV: Right to recoup. But the imposition would

still be an imposition or an obligation would be

created which is unrelated to copyright.

MASON CJ: Well, Mr Chernov, in the light of what you have

said, why is it not a tax?

MR CHERNOV: Well, Your Honour, it is a bit like a duck. It

walks like a duck and sounds like a duck and it may

well be a tax, Your Honour.

McHUGH J: It is not payable to a public authority, is it?

Tape 11 26/2/91

MR CHERNOV: That is one of the difficulties, yes,

Your Honour. But the answer probably is it could be so framed as to be a valid law with respect to

tax. Now, Your Honours, for policy reasons and

other, no doubt, perceived good reasons it is not

sought to be framed so that it would come within

that power. I mean, it may also be possible to

frame some of it under the foreign affairs power

having regard to the treaties to which Australia is

a party. Maybe, but that is not the legislation

about which we are speaking.

DAWSON J:  But you concentrate on one end, do you not, the

end where the levy is collected?

MR CHERNOV:	Yes.
DAWSON J:	At the other end, of course, it does go to

people who do own copyright.

MR CHERNOV: Well, does it, Your Honour?

DAWSON J:  And is not the scheme of the legislation that it

is difficult to ascertain amongst people who buy

blank tapes who is going to use it for the purpose

of what would otherwise, apart from the Act, be an infringement or not? It is difficult to ascertain who those people are but it can be said that most

will use it for the purposes of - - -

MR CHERNOV:	Your Honour, that is perfectly, with respect, correct, and section 153E(7) recognizes that
because it requires the tribunal to make an
estimate of what proportion of tapes will be used.
But that, with respect, is no answer to the
contention that the way the obligation is imposed
here is not related to copyright. It has no
relevant relationship with copyright.
DAWSON J:	You say because it is catching some people who

are not doing something which would, apart from the

Act, constitute an infringement.

MR CHERNOV:  Well that is only one reason, Your Honour.

The other reason is that it is imposed upon a

transaction and upon a person who has no control

over the use of that tape and with that - - -

DAWSON J: 

On the assumption that it will be passed on to

the person who does have control over the use of
the tape.

MR CHERNOV: 

Well, that must be the implied hope in the

legislation but he would be paying irrespective of

whether he collects from the purchaser and let us

assume for purposes of argument that they do

collect, in other words, he does recoup it, but

Tape 12 26/2/91

that does not stop, in our submission - that does

not stop the obligation from being imposed without

reference to copyright. It is by reference to a
transaction which has nothing to do with copyright.

It is like imposing a levy on machines which are

used for the purpose of copying - to facilitate

copying by means of blank tapes.

DAWSON J:	It is imposed upon the instrument by which the copies will be made, that is what it is, is it not?
MR CHERNOV:	But that would not be, with greatest respect to Your Honour, a law with respect to copyright.
DAWSON J:	Why not, if it is the only practical means of

recouping the owners of the copyright?

MR CHERNOV:  Because, in our submission, one of the

difficulties, the characterization - the social

consequences may be desirable but the

characterization of the imposition of the
obligation is that more of a tax and not of

copyright. It does not relate to the exclusive

right - one does not deal with the exclusive right

to control copying.	What it deals with is the
machine.

McHUGH J:	Well, it does in one way, does it not, because it provides a mechanism for payment to be made to
the owners of copyright when you look at the whole
scheme. Paragraph 21 alleges certain facts which may have to be proved at a trial but it is alleged
that tapes of the relevant kind are tapes of a kind
ordinarily purchased or hired for use for making
copies of sound recording and it is alleged that
copyright owners cannot by any practicable means
prevent or control the unauthorized copying.

MR CHERNOV: Well that is perfectly true, Your Honour, but

the imposition does not thereby become an

imposition with respect to copyright, because even

the distribution of the funds, if I may take

Your Honours to the section later, does not really

relate to copyright. It has got very little, if anything, to do with copyright as such. What it

does is identify a group of people who are entitled

to share in the pool and no more than that, but

that does not make - - -

McHUGH J: But that sort of scheme, on a private basis, has

been in operation in Australia for generations, has

it not? I mean, if you are a barber and you have

got a wireless playing in your salon, well you pay

a performing rights association an annual fee and

that authorizes you to use all the copyright works.

Tape 13 26/2/91

MR CHERNOV: Well, Your Honour, in that particular example

of the barber, it may be that what he is paying is

for a right and if one takes that example,

Your Honour, that is similar to the statutory

licences which are found in the Act and I will give

Your Honours the numbers of the sections and take
Your Honours by way of example to 55 only, but here

you have a payment in return for which you do

obtain a certain dispensation from infringement.

You do not get that here necessarily and what we

would submit, Your Honours, is that the imposition,

as we say, is really imposed on a person who has no

control over the copying - he himself cannot copy,

by definition would not be a person copying.

DAWSON J: But it is imposed upon the person who has the

means to copy and if there is no other practical

way of compensating those who own the copyright,

why is that not a law in respect to copyright?

MR CHERNOV: Because, Your Honour, one may do that quite

validly as a taxation law, but it does not make it

a law referable to copyright.

BRENNAN J:  Mr Chernov, that perhaps highlights a difficulty

I am having in this case. We are asked to pass

upon the constitutional validity of a fiscal

exaction and it is common ground that it is not a

tax, we are assured that 5l(xxxi) has nothing to

say to it. That means that there is something

which falls between tax and expropriation of

property which, so far as I know, is perhaps a

novelty in constitutional law. Could we be

provided, perhaps, with some argument as to why it

is neither falling under 5l(ii) nor under 5l(xxxi)?

MR CHERNOV:  Your Honour, I cannot make any useful

submissions to Your Honour at the moment, but I

will do so later, but Your Honour, it is a

question, in our submission, of characterizing or

seeing what the law does, and the demurrer book

makes it clear that the issue here is a narrow one

or as narrow as one can possibly make an issue in

this Court and that is whether or not the

Parliament can, for policy reasons, choose not to provide for an imposition of a fiscal payment, which is properly defined as a tax, but do it in

some other way and it really does not, in our

submission, assist by going outside the copyright

power, because that is the only question in it

before the Court.

Your Honours, in our submission, if it is not

copyright, whatever it is does not matter.	One of
the approaches is often, "Well, how do you
characterize the legislation?".	We found it

Tape 14 26/2/91

difficult to characterize as a law within taxation

power for the - - -

DAWSON J:  But why? That is something that puzzles me too.

MR CHERNOV: Well, it is not collected by a public

authority.

DAWSON J: Well, it is collected under a public Act.

MR CHERNOV:  Your Honour, if we are right - - -

DAWSON J: It is not paid into consolidated revenue but that

does not necessarily mean that it is not a tax,

does it?

MR CHERNOV:  We would submit that is another essential

ingredient of tax to, have it paid into

consolidated revenue. I appreciate there are

different views on this but if it is a tax,

Your Honour - - -

DAWSON J:  The money is paid to a collecting society, is it

not?

MR CHERNOV:	Yes.
DAWSON J:	The collecting society is something that is set

up under the Act and the Act requires the money to

be paid to the collecting society.

MR CHERNOV:  Yes.

DAWSON J: Well, why is that not a tax?

MR CHERNOV:  Your Honour, in our submission, it is not

collected by a public body.

BRENNAN J: That is precisely the kind of argument that, for

my part, I would be much advantaged by. I

appreciate that if it is not a tax and if it is not

a law with respect to copyright, the problems

of Sl(xxxi) may not arise but when one thinks back

to cases like McClintock's case and Tooth & Co, one

just wonders why it is not one or the other.

MR CHERNOV: 

If it is a tax, the Commonwealth will no doubt

say it is also a law with respect a copyright. It
is not part of our case that this is not a tax.
Our only case is that it is not a law with respect

to copyright.

McHUGH J: It is an acquiring of the vendor's property.

Maybe it is of some purpose that marks it as a

royalty but perhaps it is just a straight out

acquisition of property.

Tape 15 26/2/91

MR CHERNOV:  It is part of our submission, Your Honour, that

the levy is not a royalty. Although called a

royalty, it is not a royalty because they are not

given in exchange for any right for the payment and

the very definition of royalty makes it clear that

this is not a royalty.

We do not submit, as I have said, that 135ZZM

is not a law with respect to copyright. What we do

submit is that the provisions dealing with the

imposition of the levy and the distribution of the

funds obtained by reason of the imposition of the

levy are not a law with respect to copyright. It

may be a law with respect to tax but that is a

different matter, but we would submit that it is

certainly not a law with respect to copyright.

There is a degree of artificiality about this

whole exercise in that it has all the hallmarks of a tax and the parties have agreed that it is not a tax or does not come within the taxation power and the Commonwealth insists that it can impose that

obligation under the Copyright power. We say it
cannot do that because of the reasons we have

given.

TOOHEY J: It is particularly artificial when it comes to us

by way of demurrer, is it not?

MR CHERNOV: Well, Your Honour, perhaps the artificiality

will be removed if the Court, for argument sake,

were to rule one way or another in this case, if it

were :.o rule that it is not a law with respect to

copyr-ght, then the Parliament could take one line,

and ii it rules that it is, with all respect, a

copyright, nothing has to be done.

TOOHEY J: But the demurrer asserts that none of the answers

raised by the - or rather that the facts relied

upon do not establish that the legislation is a

valid and effective exercise of the legislative

powers of the Commonwealth.

MR CHERNOV:	Yes.
DAWSON J:	When you get to it, you decide that it is a law

with respect of the copyright, it is only a law
with respect of copyright because it is taxed with

respect to copyright.

MR CHERNOV:  Your Honour, I really should avoid using the

word "tax", because an imposition of an obligation

to pay money, which this is, can be a law with

respect to copyright if, for example, it were
framed along the lines of the statutory licences

provided for in the legislation, just by way of

example. It is not so framed; it is a question of

Tape 16 26/2/91

seeing whether there is any connection between the

imposition of the levy and the distribution of it

on the one hand, and the exclusive right to copy on

the other, and it has got to be a real connection,

rather than some fanciful connection.

DAWSON J: There is the connection in a broad sense. Here

you have a situation where people are infringing
copyright everywhere, right in front of you, but

you cannot pinpoint who are the people who are

doing it, so that you, the copyright owners, are

not being compensated. Now, the only practical

means of compensating them is to impose a tax upon

the vendors of the tapes which are the means of

infringing the copyright and to give the money to

the copyright owners, and that is what it is, is it

not?

MR CHERNOV:  We do not argue with that, with great respect,

Your Honour. That may be so.

DAWSON J: Well then, is a tape the subject of tax - and it

is only a law with respect to copyright, because it

is a tax in those circumstances?

MR CHERNOV:  No, with respect, Your Honour, it cannot be a

law with respect to copyright because there is no

relevant connection between what Your Honour calls

"the tax" and copyright, as distinct from the tax
and another activity or a material, which may or

may not be used for the purpose of copying sound.

DAWSON J: Well, it is a tax imposed for the purpose of

compensating the owners of copyright for what would
otherwise be infringements, that is clear, is it

not - or an imposition, if you want to use a

neutral word?

MR CHERNOV:  Your Honour, that may be the aim of the

legislation, the question is whether it - - -

DAWSON J: It is the effect - however bluntly it is done, it

is the effect of it, is it not?

MR CHERNOV: Well, in our submission, Your Honour, it is not

quite the effect of it, but even if it were the

effect, Your Honour, it would be an imposition of
the obligation to pay, which itself would not be

related to what is copyright, namely - - -

McHUGH J: It is not really copyright, is it? It is a

question of the payment of royalties. Why is not

this scheme an appropriate or reasonable means

effectuating the payment of royalties to the owners

of copyright?

Tape 17 26/2/91

MR CHERNOV:  They are not royalties for a start,

Your Honour, because -

McHUGH J: That is how they are labelled.

MR CHERNOV:  Yes. It depends on whether one uses the

defined term or what the laws define as being a

royalty and I do not mind which is used,
Your Honour, but if Your Honour is using "royalty"

in the legal context, in other words, a payment in

exchange for a right, then this is not it.

TOOHEY J:  And that is, I take it, because an amount becomes

payable by virtue of the act of sale or

distributions?

MR CHERNOV:	No, Your Honour, not only because of that but primarily because there is no right which flows to
the payer of the money by reason of the payment.
The right which is given to the person who copies
is a right given by 135ZZM, it does not arise out
of a payment. Section 135ZZ operates, in our
submission, of its own force, so to speak.
TOOHEY J:	I think what I was really putting to you,

Mr Chernov, was that an amount becomes payable not by virtue of any act of copying but simply by a

virtue of a sale of a blank tape.

MR CHERNOV:  Yes, and at that level, Your Honour, it is

payable by - in relation to the transaction

Your Honour has described - a person who has -

almost by definition will not do any copying and

who has no control over what is done.

TOOHEY J: 

Can you tell me this, how does the tribunal deal

with a particular distributor of blank tapes? Is
the application made in respect of a particular
type of tape or - - -?

MR CHERNOV: 

It does not seem to be, Your Honour.

TOOHEY J:	How does it work in practice?
MR CHERNOV:	We do not know yet, Your Honour, how it works

in practice.

TOOHEY J: Or, perhaps, how is it intended to work in

practice?

MR CHERNOV:  It is intended that the money be collected in a

certain way, namely, by the tribunal determining

the amount to be applied to the length of the tape

so as to calculate the price.

TOOHEY J: But by reference to any sales of a particular

type of tape? ·

Tape 18 26/2/91

MR CHERNOV:  I think - I believe, Your Honour, it is by

reference to what is contemplated in

section 153E(7) and that is the extent to which the

tribunal perceives the tapes are used for making

copies in the private environment.

TOOHEY J:  But do you mean that particular type of tape or

blank tapes generally?

MR CHERNOV:  All blank tapes. "Blank tape" as defined,

Your Honour, I think it means any tape, ordinarily

used for making copies. I mean, the legislation is

general in its terms and that of itself may not

damn it. See, the other difficulty, Your Honours,

is if I can go to the question of distribution of

that pool, that pool is distributed without any

correlation between the quantum or amount of

copyright that a relevant copywriter may have or
may own, or the quantitative or qualitative value

of it. It is distributed because the person

happens to fit within a group of people who happen

to own copyright, a certain type of copyright
owners and to say that that is referable to
copyright, in our submission, is fallacious and

that proposition is either good or it is not but we

say there is no connection with copyright as such

because the payment is not referable to the

person's right to control the exercise, or exercise

exclusive control over copying.

McHUGH J: Well, that is probably true in practice. A

particular band or group's recordings may be
recorded to a far greater extent than any other
beneficiaries of the scheme but that is a problem

that arises under these private schemes through the

performing rights associations. But does that

invalidate the law simply because there is no
precise correlation or even if there is no

correlation?

MR CHERNOV:  No, the lack of precision in itself, in our

submission, would not invalidate the law but what

we submit is that there is no real nexus between

copyright as such, which is this bundle of negative

rights and, as I have said before, the imposition

or the distribution of the funds - that nexus is

lacking. If the legislation were to operate in the

way, for example, section 55 operates so that there

is a nexus between the payment and extinguishment,

for relevant purposes, of infringement, then one

may be in a different position. One can then say

that there is a correlation between copyright and

the payment.

Subject to the matter Your Honour

Mr Justice Brennan raised, if it is convenient

might I take Your Honours to section'55?

Tape 19 26/2/91

Section 55 has a similarity with section 135ZZM in

that in each case there is diminution in the
right - by reason of the operation of the section,

of the right or exclusive right in the owner of copyright to control copying. But the critical

difference between section 55 and 135ZZM is that in

55 the conditions which must be satisfied before

this exemption from infringement operates is

contained in paragraph (d), particularly (d)(ii):

where the record is so sold or supplied by the

manufacturer:

(ii) there is paid to the owner of the

copyright ..... a royalty -

and that is a true royalty because if one looks at

section 56 there is an amount or percentage
prescribed which is referable to the price of the

records in question.

Now, in our submission, that royalty, which is

imposed or required to be paid, is a law with

respect to copyright, because it is directly

related to the exemption from infringement which

acts on the right of the person. So there is a

correlation between the payment and that exemption,

whereas in relation to the provisions of Part vc,

the payment of what is called the royalty does not,

in our submission, obtain or procure to the payer a
right of statutory exemption from infringement.

The principal reason for that is that 135ZZ

operates in any event, whether he pays or he does

not pay. It is 135 that operates of its own force,

so to speak, to exempt from infringement and the

additional point on that is the point that I have raised earlier and that is, a person may well pay

the levy under Part VC, and I am assuming for

present purposes that one can meaningfully look at

the levy being passed down to the ultimate copier,

he may so copy the sound recording on to the tape,

but he does not fall within Mat all. So he does

not even get the benefit of the statutory exemption

from infringement which is contemplated by M(l).

So that as far as the payment is concerned,

Your Honours, we submit that there is no nexus and

to call it a tax or call it anything else, really,

does not alter the fact that the relationship

between the payment and copyright is not present.

What we seek to do in paragraph 8,

Your Honours, is really to summarize the lack of any relationship between the exclusive right to

control copying, on the one hand, and the

imposition of the levy or the distribution of

penalty. I have put that clumsily, Your Honours,

but what we seek to do is summarize the aspects of

Tape 20 26/2/91

the legislation which make it clear, in our

submission at least, that neither the imposition of

the levy nor the distribution of those funds, is

related to copyright.

I should have actually referred Your Honours -

again Your Honours are probably familiar with it -

but that is to 135ZZS and 135ZZR. If one goes to R

first, one sees that the vendor is not obliged to

pay a royalty, in other words he is relieved from

the obligation to pay it if he sells the blank

tapes to a prescribed organization or an exempt

body.

Now "prescribed organizations" is defined, but

more relevantly can I take Your Honours to T which

deals with exempt bodies and in subsection (2) for

practical purposes it defines what an exempt body

is. An exempt body is a body that is declared to

be exempt but it can only be declared if:

the collecting society is satisfied that a

body ..... does not use blank tapes ..... for the

purpose of making copies of sound recordings.

TOOHEY J:  Presumably any educational institution that

needs it for a language course, for instance, would

be an exempt body, would it, or a prescribed

organization?

MR CHERNOV:  Yes, or a firm of solicitors which uses tapes

to record dictation or things of that nature.	So
that sort of a group would be an exempt body.	So

if the sale is directly to such an organization
then the levy is not paid because that body, in any

event it is presumably contemplated in the

legislation, would not use the tape to record on it

a copy of the sound recording, make on it a copy of

the sound recording, so there would not be any

prospect of infringement in any event in that sort

of situation.

TOOHEY J: But does that not only go to point up that the

scheme is to be related as situations in which

copyright is involved?

MR CHERNOV:  There is no doubt, Your Honour, that that is

what it endeavours to do. The aim of the

legislation seems to be that persons who use tapes

in the private environment for the purpose of

recording on to them sound recordings are to be

exempt from what would otherwise follow, that is to

say infringement.

TOOHEY J: Yes, but I was not thinking so much, Mr Chernov,

in terms of the aim of the legislation but the

Tape 21 26/2/91

character of the legislation. Is it legislation

which deals with situations in which a breach of

copyright is likely to be involved?

MR CHERNOV:  It does, Your Honour, in so far as

section 135ZZM is concerned, but it does not do so

so far as the collection of the funds or the money

is concerned. We say that section 135 in itself is

a law with respect to copyright but, Your Honour,

can I come back to that because there is another

section which is relevant and goes along the track

if I may say so, with respect, that Your Honour may

be thinking of and that is S:

Where ..... an exempt body:

(a) purchases a blank tape ..... and

(b) gives the collecting society certain

information -

the collecting society shall pay ..... the

amount of the royalty -

to the collecting society. Having regard to

subsections (1) and (2) it is probable that what is

contemplated is an exempt body buying a tape from a

retailer. Subsection (3) deals with a person who

is not an exempt body and he can get a refund if he

declares - subsection (3)(b)(ii) - to the society:

that the person or body will not use the
tape ..... for the purpose of making a copy of a

sound recording in which copyright subsists

unless the person or body is the owner or

licensee -

in which case he has already paid, but he seems to

pay the levy but gets no refund. That is the way

it seems to operate. So, Your Honour, there is the

intention evinced by these provisions that first

the levy will be passed down the line to the
ultimate user in general terms and, secondly, that
those who are not going to use the tapes in any
event to record any material which may have

copyright in it or have the levy repaid - but

nevertheless, we submit that that in itself does

not have any relationship with copyright.

We submit, Your Honours, that the link with

copyright is severed by reason of the operation
of M(l). M(l), by itself, provides the statutory

exemption from infringement.

Your Honours, if I can take you to the foot of

page 2 and then on to page 3 of our outline. The

Tape 22 26/2/91

assessment of the levy, as we say, is unrelated to

copyright in (a) and the mere fact that the sale is
made of a blank tape which may be used by the

ultimate purchaser to copy does not mean that the

vendor is giving an implied authority to do that or

to an act which would otherwise infringe the

copyright, such as, to copy for public purposes.

Your Honours are familiar with the decision of

this Court in Moorhouse, 133 CLR, but the recent

decision of the House of Lords in CBS Songs v

Amstrad is another authority, if I may refer
Your Honours to that - I think I have handed to
Your Honours copies of the reports of patent cases, the 1988 version of it. In that case,
Your Honours, Amstrad manufactured and advertised

for sale and sold cassette decks which would

facilitate recording at high speed of sound from

one tape to the other and it advertised those units for sale but it drew attention to the fact that the recording and playback of certain material may only

be possible by permission of the relevant owner and

it referred the purchaser, in that way, to the

Copyright Act and to the Performers Protection Act.

The plaintiff, who was an owner of copyright and

certain sound recordings, brought the proceedings
alleging that the defendant had authorized an
infringement of copyright by the purchaser and on
that point can I take Your Honours to page 604, the

speech of Lord Templeman, and in the middle of the

first paragraph, at page 604, His Lordship says:

Amstrad's advertisement was deplorable
because Amstrad thereby flouted the rights of
copyright owners. Amstrad's advertisement was
cynical because Amstrad advertised the

increased efficiency of a facility capable of

being employed to break the law. But the

operator of an Amstrad tape recording
facility, like all other operators, can alone

decide whether to record or play and what

material is to be recorded.	The Amstrad
advertisement is open to severe criticism but

no purchaser of an Amstrad model could
reasonably deduce from the facilities
incorporated in the model or from Amstrad's
advertisement that Amstrad possessed or
purported to possess the authority to grant
any required permission for a record to be

copied.

In the present case, Amstrad did not

sanction -

I am now at line 45 -

Tape 23 26/2/91

approve or countenance an infringing use of

their model and I respectively agree with

Atkin L.J. and with Lawton L.J. in the present

case that in the context of the

Copyright Act 1956 an authorisation means a

grant or purported grant, which may be express

or implied, of the right to do the act

complained of. Arnstrad conferred on the

purchaser the power to copy but did not grant

or purport to grant the right to copy.

And there is then a reference to the Moorhouse case

on page 605, and at about line 12, and Your Honours

will recall the university was found there to have

had control over the photostat copying machines in

question and His Lordship goes on at about line 11,

and says:

Whatever may be said about this

proposition, Arnstrad have no control over the

use of their models once they are sold.

And, Your Honours, so is the position with the

vendor in the context of this case. His Lordship

then makes reference to the case of C.B.S. Inc v

Ames Records & Tapes Ltd, where:

Whitford J. held that a record library which lent out records and simultaneously offered

blank tapes for sale at a discount did not

authorise the infringement of copyright in the

records. He said, at p. 106:

"Any ordinary person would, I think, assume

that an authorisation can only come from

somebody having or purporting to have

authority and that an act is not authorised by

somebody who merely enables or possibly
assists or even encourages another to do that

act, but does not purport to have any

authority which he can grant to justify the

doing of the act."

And then there is a reference to the John Fairfax

case in the New South Wales Supreme Court, which

was referred to as the High Court of Australia.

But in our submission, the vendor of the blank

tapes is in exactly the same position as was

Arnstrad in that case. The vendor has nothing

relevantly to do with the copying on to the blank

tapes, which he sells, of any sound recording, and

it is our submission that what this law does is, in

effect, assess the material, that is the tape at

best, rather than assess or impose any obligation

to ..... copyright.

Tape 24 26/2/91

TOOHEY J: But, Mr Chernov, you seem to balk, and no doubt

right so from your point of view, at the

proposition that the royalty is objectionable

because it arises by virtue of the sale of an

object, namely, a blank tape.

MR CHERNOV:  The imposition is?

TOOHEY J: Yes.

MR CHERNOV: 

Yes.

TOOHEY J: 

I do not mean the quantification of the imposition but the imposition itself arises by

virtue of the sale of an object, namely, a blank

tape but you do not, apparently, base any of your
case on that proposition.

MR CHERNOV: 

Yes, we do, Your Honour, it shows clearly that

that has nothing to do with copyright.
Mr Justice Dawson suggested that that may be

related to copyright because of the ultimate use of the tape and the legislation proceeded on the basis

that that is what its ultimate use may be. It may

be but it may be not.

TOOHEY J: 

The difficulty with that proposition I suppose is

that it then invites the question, "Well, what is

the nature of the impost?" and that perhaps takes
us into the area of tax which we are invited not to

enter?

MR CHERNOV:  But I wonder, Your Honour, with respect,

whether that necessarily follows. If one asks, "Is the impost related to copyright?" and the answer to

that is "No", in our submission, one does not have

to go any further.

TOOHEY J:  On a case stated, perhaps not. This is a demurrer

which raises some other questions.

MR CHERNOV: Unless the Commonwealth seeks to support the

provisions under another head of power which I

believe it is not going to, then it would follow,

in our submission, that on the premise set out in

the demurrer book that the law in question would not fall within the copyright power would not be

valid.

TOOHEY J: Well, then could this Court proceed on the

assumption that if the law is not a law with

respect to copyright then the demurrer should be

allowed even though the scheme might be supportable

under some other head of power?

MR CHERNOV:  We would say, yes, Your Honour.

Tape 25 26/2/91

TOOHEY J: We would need, clearly enough, some statement from

both sides of the argument.

MR CHERNOV:  We will hear from our learned friend but the

demurrer, on our reading of it, seems to point to

that conclusion and only to that conclusion.

Your Honours, it is trite that what one has to do

in order to determine where the law relates to a particular subject-matter is to see what the law

does and what the law does here is impose a levy,

to use a neutral term, on the vendor and moreover,

Your Honours, it certainly is not a royalty. Now, royalty may arguably can be said to have some

connection with copyright but a levy such as this

does not.

It is really the choice of the draftsman just

how he goes about framing the legislation. Now,

the draftsman in this case has chosen to provide

135ZZM which provides, of its own force, as I have

said, an exemption from infringement, that anybody

doing anything, without anybody paying anything, it

does not depend upon any act of any person. So,

that in itself, in our submission, severs the

relationship with copyright.

We also submit that although the levy is not

related to the exclusive control of the right to

copy, neither is the distribution of the funds.

True it is that the funds are split up amongst

those who fall within the definition of relevant
copyright owners but the distribution is made

without any reference to copyright as such, that is

to say, without any reference to the quality or

quantum of copyright held or the work in which the

copyright subsists which has been copied. So, we

would submit that relationship is not there.

Now, we do not think Your Honours would

require me to go to the cases dealing with what

constitutes a royalty. We mention the cases in

paragraph 9.

DEANE J:  What makes the funds distributable to relevant

copyright owners, Mr Chernov?

MR CHERNOV:  The society is required to distribute the funds

to copyright owners - - -

DEANE J:	What says that?
MR CHERNOV:	I am trying to look up quickly what that section is, Your Honour, but -

DAWSON J: It is section 135ZZU, but it does not really

reveal very much, does it?

Tape 26 26/2/91

MR CHERNOV:  No, it does not and, Your Honours, I do not

know whether it is common ground between the

Commonwealth and us but there is contemplated as we

believe and the learned Solicitor-General commented
on that, obviously, that a certain percentage of

the fund will go to support the Australian

contemporary music.

McHUGH J: Fifteen per cent, I think it was said in the

second reading speech.

MR CHERNOV:  Yes, but that is contemplated; it is not something that is happening at the moment. It is

something which is obviously envisaged to be within

the framework of section ZZU so that what you have

is a situation where the funds are distributed

without reference to - as we keep coming back to

the point, and that is the exclusive right to

control copying.

McHUGH J:  How is it going to work in practice. Will there

be surveys in the homes of the amount of copying of

individual recordings for the purpose of

determining what royalties should be paid?

MR CHERNOV:  I cannot answer that, Your Honour, other than

to say we believe that is what we anticipate would

happen under section 153E(7); either that or there

will be some survey done as to which - - -

McHUGH J:	I mean from the point of view of the collecting side, when it distributes to its members:	how does
it pay out?

MR CHERNOV:  The society or the - - -

McHUGH J: Yes, the people who own the copyright.

MR CHERNOV: Yes. Well, I am only speculating, Your Honour,

but I sort of imagine there would be some survey
carried out as to which of the works contained on

the sound recordings are played on air, for

example.

McHUGH J: That is how it is used to be done in the private

schemes or used to be done - something like it in

the private schemes but this is a question of

recording in the home.

MR CHERNOV:  I do not know how they would do that,

Your Honour. We believe the only way they will be

able to do it is by assuming that the most popular

records are the ones that are most likely to be

copied and they will make a survey as to how many

of those - and again I am speculating, Your Honour, but I assume they will, and I am at least trying to

do it as fair as I can, Your Honour, I presume they

Tape 27 26/2/91

would do it - they would also have a survey whereby

they would survey how many or what percentage of,

for example, a known work is copied publicly. That

is one of the steps of (7), I suspect, so they can

somehow or other have some broadly based

quantitative division between the percentage of

tapes used in a private context and percentage of

tapes used in a public context.

AT 3.08 PM THE MATTER WAS ADJOURNED

TO A DATE TO BE FIXED

Tape 62 26/2/91