Australia: Royalty-free impermanence, disembodied copyright

Last Updated: 20 July 2016
Article by Kim Leontiev and Patricia Monemvasitis

Royalty-free impermanence, disembodied copyright – tax win, but copyright loss for un-broadcasted signals in the Commissioner of Taxation v Seven Network Limited [2016] FCAFC 70

In a decision that somehow brings together the Olympics, copyright, Switzerland and the subtler points of tax law, the Full Federal Court has further dissected what can and cannot be protected as a film under copyright laws. Upholding the first instance decision of Justice Bennett, the Full Federal Court has confirmed that data signals carrying images and sounds will not enjoy copyright protection as "cinematographic films" under the Copyright Act 1968 (Cth). The decision is an important alert to broadcasters and media stakeholders that the increasing use of digitised transmission or data signals leaves the images and sounds without copyright protection – at least until a broadcast is made. On the up side, the absence of copyright protection in the data signals may offer a pleasant tax break as Ch 7 successfully obtained given that without copyright protection, payment for the signal was not a "royalty" and therefore no taxable under the under the Income Tax Assessment Act 1936 (Cth).

Background facts

After securing the broadcasting rights for the 2008 Olympics, Channel 7 ("Ch7") and the International Olympic Committee (IOC) entered into a broadcasting agreement under which the IOC provided Ch 7 with a signal comprising of live coverage of different Olympic Games events (ITVR Signal) and Ch 7 paid IOC some $122,178,261 as consideration for the signal rights. The Commissioner of Taxation ("the Commissioner") determined that some $92, 742, 609 of that amount was a "royalty" and therefore should have tax withheld while Ch 7 disagreed and took the matter to the Federal Court. The argument turned on whether or not copyright subsisted in the data signals during the live coverage of the games with Justice Bennett siding with Ch 7 by holding that visual images and sounds in a data signal will not qualify as cinematographic films unless they are embodied in an article that makes those images and sounds capable of reproduction. The Commissioner then appealed.

The royalty of copyright

Under the treaty on Avoidance of Double Taxation between Australia and Switzerland, if the amount was a royalty then tax was payable on the amount. Since a royalty is essentially payment on the use of copyright rights, the central issue was whether the ITVR Signal for which Ch 7 had paid was subject to copyright rights. If it was, then the payment could be characterised as being a royalty and therefore taxable, if not then no tax was payable.

Was the signal a cinematographic film under the Copyright Act?

Having failed before the primary judge in insisting that copyright subsisted in the ITVR signal by virtue of the signal being a cinematographic film, the Tax Commissioner advanced an expanded argument before the Full Federal Court whereby a useful clarification of the distinction between television signals and cinematographic films under the Copyright Act.

Under Section 10 of the Copyright Act 1968 (Cth) ("CA"), a "cinematographic film" is defined as:

the aggregate of the visual images embodied in an article or thing so as to be capable by the use of that article or thing:

  1. of being shown as a moving picture; or
  2. of being embodied in another article or thing by the use of which it can be so shown...

Section 24 CA meanwhile clarifies the meaning of visual images or sounds being embodied in an article. Relevantly, it states:

"....sounds 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 that those sounds or visual images are capable, with or without the aid or some other device of being reproduced from the article or thing."

So for instance a DVD or USB flash drive which contains visual images and sounds embodies them and with the aid or a DVD player or computer can reproduce those images and sounds.

The problem of course, as emerged for the Commissioner before the primary judge was that the ITVR signal, being a signal carrying images and sounds, did not seem to be embodied in any article or thing. Unless this embodiment could be demonstrated the ITVR signal could not be within the definition of a "cinematographic film" which in turn meant it was not subject matter in which copyright subsists and the payment not a royalty.

In seeking to overcome this and show the ITVR signal as a cinematographic film in which copyright could subsist, the Commissioner sought to rely on the judicial treatment of Section 24 with respect to video games which have been ruled as cinematographic films for the purposes of the Copyright Act. In particular, the Sega Enterpises Case1 was cited where it was held that although visual images in the video game did not exist before a user played the game (i.e. triggered programming codes which then created the images), they were nonetheless embodied and the game was a cinematographic film. Based on this, the Commissioner argued:

  1. The embodiment of the images and sounds in the signal did not need to be permanent
  2. There was sufficient embodiment in the copper cable and signal code to satisfy the meaning of embodiment under Section 24 CA.

Chanel 7 disputed these submissions arguing that the proper interpretation of embodiment under the CA was a permanent embodiment in a material form. It further argued that the images and sounds in the video game as discussed in the Sega Enterprises case, was actually embodied in the integrated video game circuit which was a material embodiment even if there were multiple variations in the form of the images once they were reproduced by a user of the video game.

The findings

The Court considered the arguments and sided with Ch 7 noting that although the ITVR signal did produce images upon being received by Ch 7 which could store and record the images and sounds via a receiving device, this was not properly speaking embodiment in the signal. This is because unlike in the video game where the images and sounds are permanently fixed in the video game circuit, the signal is "evanescent" and a transitory communication. There was no first copy already in the signal from which other copies could be made and the images were therefore only capable of being transmitted but not being reproduced. As such, the Court upheld the primary judge's decision that the signal was not embodied within the meaning of Section 24 and therefore not a cinematographic film in which copyright could subsist. Consequently, any payment made in consideration for the signal could not be a royalty.


The intricacies of tax law aside, the decision marks an important clarification of the concept of embodiment in relation to cinematographic films under the Copyright Act. Whilst embodiment can still have a varied interpretation to cover indeterminate sets of images and sounds (e.g. based on user interaction with a system as in the Sega Enterprises Case), it is nonetheless critical that the embodiment be of a permanent (rather than an "evanescent") character. In other words, production of visual images and sounds through a receiving device will not suffice for the definition of cinematographic film. The visual images and sounds need to be capable of being re-produced. As such, broadcasters and other media industry stakeholders should take precautions in the digital environment which would appear to have potential to disrupt traditional copyright categories. Subject to any High Court challenge to this decision, digital transmissions prior to being received and converted into broadcasts will not be protected as cinematographic films unless there is a permanent embodiment of the signal in a device capable of reproduction.


1 Sega Enterprises Ltd v Galaxy Electronics Pty Ltd (1996) 69 FCR 268

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Kim Leontiev
Patricia Monemvasitis
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