In 2014, the Commissioner of Taxation contended that Seven Network’s payment for broadcasting the Olympic Games was for the purpose of royalties for the ITVR signal and attracted withholding tax regarding those royalties. The Federal Court heard the matter and confirmed that there was no copyright in digital data signals. We set out the decision and its implications below.

Olympic Games Broadcast Rights: The Background

Seven Network entered into agreements with the International Olympic Committee and obtained the exclusive right to broadcast particular Olympic Games in exchange for payments. Seven received permission to access and use the ITVR signal that the Host Broadcaster provided and which Seven used for their broadcast of the Olympic Games.

The relevant issue was that the Commissioner of Taxation believed that the payments Seven made to the IOC were for ‘royalties’. Under an agreement between Switzerland and Australia to avoid double taxation, this would require Seven to pay withholding tax regarding royalties. Seven disagreed with the Commissioner’s claim because the payments were made for the access and use of the ITVR, not as royalty payments.

To work out whether Seven was required to deduct withholding tax, they needed to show that the payments were not royalties. Royalties are payments made in exchange for the use of copyright. The question was then whether copyright subsisted in the ITVR signal. 

Was There Copyright Subsisting in the ITVR Signal?

It is important to note that the Commissioner was not claiming that copyright subsisted in the ITVR signal itself, but that it was transmitting cinematograph film from the Host Broadcaster which copyright would protect. The coverage of the Olympic Games consisted of visual images and audio tracks which the ITVR signal embodied. If the Commissioner could show that the signal embodied the images and sounds, then it would satisfy the definition of ‘cinematograph film’ under the Copyright Act 1968.

Justice Bennett considered the Commissioner’s argument and found until they are converted, it is data that is transmitted through the ITVR signal, not visual images or sounds. This means that images and sounds are not embodied in the signal and are not considered a cinematograph film. The data only becomes a cinematograph film once converted by the receiver in Australia. When this happens, the images and sounds are produced, not reproduced. Seven produces its own broadcast using the data transmitted through the ITVR signal but does not reproduce sounds or images because none of it is permanently stored before Seven receives the data.

Justice Bennet found that there was no copyright subsisting in the ITVR signal and that the payments were not royalties. Therefore, Seven was not required to withhold tax, and the Commissioner’s penalty notices were to be set aside. The Commissioner appealed this matter.

Issues on Appeal

The key issue was still whether copyright subsisted in the ITVR signal and whether the payments Seven made constituted royalties. The Full Federal Court upheld the decision, finding that the data signal was simply communicating data and not embodying any cinematograph film. The signal stored nothing permanent or fixed which copyright would protect. Copyright attaches to expressions and so data itself is only protected by copyright when it is expressed in a material form.

Key Takeaways

Digital technology is still wading through untested waters, and Australian courts are still working out where new and ever-changing technology fits in with current legislation and definitions. Digital technology developers and users need to be aware of their rights regarding their copyright ownership and licences. Where contracts are unclear, the courts will rely on legislation and common law. One of a business’ most valuable assets is its intellectual property, and it is important that it is well protected in any commercial relationship. If you have any questions, get in touch with our IP lawyers on 1300 544 755. 

Dhanu Eliezer

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