Last week’s ALRC report on Australian copyright law proposes the introduction of a US-style ‘fair use’ exception to copyright infringement. It’s a recommendation policy makers should adopt – having the potential to propel Australia’s cloud services industry into new territory.

Backing up business files to the cloud, using an online collaboration tool during videoconferences or even logging into web based email accounts – we may not realise it, but many of these business critical functions take place in the cloud. Currently, there is a real question whether these technical functions are actually lawful under Australia’s Copyright Act.

Cloud services and existing copyright law

At present, the Copyright Act permits the unauthorised use of a copyright work provided it falls within one of the exceptions. These include research or study, criticism or review, parody or satire, reporting news or for the purpose of professional advice.

The Copyright Act also permits use of a copyright work where it is a temporary reproduction (including caching and indexing) as well as time and format-shifting. For all other uses, the consent of the copyright owner is required. The scope of each of these exceptions is the subject of heavy debate—just what constitutes a ‘temporary reproduction’ or ‘format shifting’ is far from clear.

When it comes to cloud services, the provision of a service (for example, online back-up of business documents) often involves caching, indexing, data transfer and other technical functions that require moving/copying data. In these circumstances, both end users and cloud service providers can be guilty of infringing copyright in the course of using/providing these services.

For example, an end user that stores media in the cloud (perhaps a music file) may not benefit from the format-shifting exception because the music is stored on remote servers that the user does not actually own. Similarly, a cloud service provider that shifts a user’s stored media around from server to server, making copies each time, may be infringing copyright.

The recent Optus TV Now case highlights the issue. There, the Full Federal Court found that Optus infringed copyright in sports broadcasts by providing a cloud-based DVR service. The service enabled subscribers to indicate which free-to-air broadcasts they wanted recorded and Optus would record the programs on it servers so that the subscriber could later watch them. Although the making of the copies was done at the customer’s request, the Court concluded Optus’ role in making the infringing copy was so overt that the copy was not made by the subscriber alone.

A state of uncertainty for cloud services

The logical question that follows an outcome like that in Optus TV Now is whether the exceptions in the Copyright Act are so inflexible that they fail to account for emerging technologies. The judiciary has historically been reluctant to afford language in the Copyright Act a technologically neutral meaning, leaving it to the Parliament to update the legislation in piece-meal fashion.

Is “fair use” a solution?

Enter the ALRC, who recently proposed a solution: introduce a US-style “fair use” exception to copyright infringement. The proposed ‘fair use’ doctrine involves asking whether a particular use is “fair” after considering four ‘fairness factors’. For a more detailed look into the scope of the proposed fair use doctrine, see our article Fair Use: Floodgates or Fair Go?

Fair use can encourage innovation and can be flexibly applied to changing technologies (like cloud servers that store and move customer data regularly). Broadly worded and technology-neutral, it aims to take into account the context in which copyright material is used – making it better positioned to be able to cope with new uses of works.

The ALRC even argues that if fair use existed in Australia, the Copyright Act would not need to be updated simply because consumers now want to store purchased copies of copyright material in the cloud rather than on a hard drive.

How has fair use ‘faired’ overseas?

U.S. courts’ willingness to accept that innovative cloud services can be captured by the fair use doctrine, long before the legislature gets around to considering such technology, is testament to its flexibility (see, for example, the Second Circuit Court of Appeals’ acceptance that a cloud-based DVR service fell within fair use in Cartoon Network et al v Cablevision).

In fact, a 2013 study commissioned by Harvard Business School revealed that the Cartoon Network et al v Cablevision decision led to additional venture capital investment in U.S. cloud computing firms of between US$728 million and US$1.3 billion over the subsequent two and a half years.

Conversely, the study concluded that more restrictive rulings on cloud services in France and Germany during the same period resulted in a loss of almost US$270 million in traditional R&D investment in these two countries during the same period.

In the United Kingdom, fair use was rejected due to doubts that a US-style case-by-case paradigm would be viable in the European context, that it would give rise to the proliferation of high cost fair use litigation similar to the United States and that the UK’s adoption of European Directives allowed it to benefit from additional fair dealing exceptions.

Policy-makers also believed the economic benefits of a flexible copyright regime could be attained by simply extending the existing fair dealing exceptions to permit activities such as format-shifting. However, the economic study referred to above makes it difficult to argue that additional fair dealing exceptions are the way to go if we want to stimulate investment in Australia.

So is there a case for fair use in Oz?

The ALRC has now recommended Australia adopt fair use. Should policy-makers follow through? The balance weighs in favour – overseas experience shows the malleability of the proposed exception is likely to encourage innovation and boost venture capital investment, with investors knowing that emerging cloud services are protected under the Copyright Act.

If Parliament decides to accommodate cloud services by merely adding to the existing fair dealing exceptions, we still risk being unable to cope with ongoing technological developments. The proliferation of cloud services—from document storage to back-up to conferencing to email to data retention—has been a huge boon to US businesses. One reason for the dramatic uptake is that copyright hasn’t gotten in the way—largely thanks to fair use. Congress has not been called in to work out whether caching falls within the fair use doctrine—that is a question for the courts.

The endgame for Australian businesses is that an open-ended exception like fair use is the best option to “future-proof” Australia’s copyright law, catapulting us and our economy into the cloud.