One of the most important aspects for franchises is protection of the intellectual property developed by the franchise system, by which the franchise system becomes identified with, or operates under. This more often than not is referred to as ‘brand protection’. A recent case has highlighted the need to be proactive in defending breaches of intellectual property, in addition to being responsive to allegations that your system, or individuals within it, may have authorised infringement of another’s intellectual property.

Roadshow Films Pty Ltd v iiNet Ltd

The case involved several major motion picture studios and various other entities suing iinet, an internet service provider, for allegedly infringing their copyright on 86 different films.

Copyright protects original works, such as franchise operations manuals, system policies, training presentations, induction manuals, from being directly copied, broadcasted or published by anyone other than the copyright owner unless consent is obtained.

What had been happening was that customers / subscribers of iinet had appeared to be downloading commercially released films over the internet without the permission (in the form of payment of a fee) of the copyright owner, the studios.

Iinet’s standard subscription contract contained a provision, not unlike most franchise agreements, that, iinet through its subscription contracts had the power to suspend or terminate services on evidence of a failure to comply with the laws in operation in the location at the time of the events.

Iinet was sent several infringement notices by the studios and other parties that detailed alleged infringements of copyright by iinet subscribers. The studios and other parties wanted iinet to exercise its powers under the contracts to prevent infringement by its customers/subscribers.

Iinet eventually responded saying, amongst other things, that insufficient evidence had been provided to identify the perpetuators of the alleged breach of copyright law and that in effect iinet would not do anything in respect of the complaints about alleged breach of copyright.

Court proceedings were commenced against iinet by the studios under section 101 of the Copyright Act 1968 (Cth). This section if proved permits orders to be made against parties who are deemed to have authorised breaches of copyright, although they themselves did not commit the primary act(s) that breached the copyright. In this instance iinet was not the downloader of the films but through providing the customers/subscribers the method to download the films and not taking steps to prevent this when the conduct was brought to iinet’s attention by the studios it was argued iinet was also guilty of a breach of copyright.

The case was dismissed by the first instance trial judge and was appealed. The decision of the Court of Appeal makes the following points:

Authorisation can result in infringement

A company that decides to simply ignore, or refuse to do anything about alleged infringement of the copyright owner’s rights, may be found to have authorised breaches of the Copyright Act.

This will only be so if the refusal is unreasonable.

Whether or not the refusal is unreasonable will depend upon the circumstances in which it occurs including the nature and quality of the information provided by the copyright owner to the party alleged to have authorised the breaches.

It is not considered reasonable that a business undertake an immense amount of work, cost and effort to review and analyse allegations of breach of copyright. For example, it is not reasonable to deny employees access to photocopiers within a workplace to prevent infringing copyright. However, it would be considered appropriate for particular individuals who are known to the employer to infringe copyright to be given warnings and possibly terminate them under employment contracts.

It is particularly important to consider whether a party has the power to prevent infringements as well as the extent of their power.

As established in Roadshow Films, the more direct a party’s power to prevent copyright infringement, the greater the likelihood that the failure to exercise such power will result in a finding of authorisation and a successful lawsuit by the owner of the copyright.

A business can be said to have itself authorised infringement of copyright where it takes no action despite:

  • the business being provided with unequivocal evidence of the alleged acts of infringement; and  
  • the copyright owners have reimbursed or agreed to reimburse the business for the reasonable cost of verifying particulars of the acts of infringement alleged; and  
  • the copyright owners indemnify the company for any liability incurred as a consequence of any actions taken on the basis of allegations made by the copyright owners.  

This renders the business itself liable for infringement under the Copyright Act despite it not having itself downloaded the films over the internet.

In Roadshow Films, none of the three points had occurred and therefore iinet was not held to have authorised the acts of infringement. The appeal was dismissed.

Protect your business

Franchise systems will both want to take steps to prevent brand and intellectual property infringement and to avoid being found to have authorised infringements of another’s copyright.

Franchisors may be able to utilise the same approach to protect their copyright as taken by the studios where knowledge of infringements of their intellectual property/brand have occurred and issue notices setting out:

  1. the acts giving rise to the alleged breaches;  
  2. the parties involved in the alleged breaches; and, if necessary and commercially worthwhile,  
  3. agree to reimburse and indemnify the party issued the infringement notice its costs of taking steps to prevent further infringement.  

Franchise systems where their franchise agreements contain provisions for franchisees to comply with all relevant laws will need to ensure they act to prevent franchisee infringement of other’s copyright material.  

Ignoring or dismissing allegations of copyright infringement can have consequences. It is prudent to educate franchisees and employees of the consequences of infringing copyright law and take adequate steps to monitor compliance through audits and enforce the law by issuing warnings to those that continue this type of behaviour on an ongoing basis.  

Copyright infringement can be a costly and time consuming endeavour for businesses. However sometimes ignoring infringements can be just as costly and damaging for the owner of the intellectual property/brand. It is important to apply commonsense when making decisions regarding copyright as well as other intellectual property/brand infringement.