• Consider a hypothetical example:

  A contractor is engaged by a Commonwealth agency to write a report which includes technical diagrams. The contractor subcontracts a third party to create the technical diagrams. The third party creates the diagrams, the contractor inserts them into the report, and the agency proceeds to publish and use the report.
  
  The contract between the agency and the contractor required the contractor to obtain all necessary rights and licences needed to allow the agency to obtain the full use and benefit of the report. The agency trusted that the contractor had obtained these licences as required, and does not look into the matter further.

  However, unbeknownst to the agency, the subcontract between the contractor and the third party only permitted the use of the diagrams during the term of the subcontract.

  Six months after the expiry of the subcontract, the agency receives a letter of demand from the third party, alleging that the agency’s publication and use of the diagrams infringes its copyright, and demanding that the agency immediately:

  • cease using the report; or
  • pay ongoing licensing fees, including a large retrospective amount to account for past use.

  Even if the agency is able to recover damages or rely on an indemnity from its contractor, the situation creates uncertainty, inconvenience, and potential embarrassment for the agency which money cannot necessarily remedy.

  As an aside, the agency may be protected against copyright infringement by the Crown copyright provisions in s.183 of the Copyright Act 1968 (Cth). However, it will still be required to pay a licence fee, and the administrative processes associated with use of those provisions can be considerable.

How can agencies protect themselves?

There are a number of simple, practical steps that agencies can take to reduce the risk that deliverables are not accompanied by a grant of the necessary third party rights, including:

• ensuring that IP provisions in its contracts are appropriate for the specific requirements of the project and the nature of the deliverables. Consider for how long the materials will be used and whether they will be made available to the public or other agencies. A $200 contract to take photographs at a stakeholder event will have different licensing requirements to a $10 million agreement to develop a bespoke software application;
   
• including obligations concerning third party arrangements, as well as having, and using, a right to review proposed subcontracts. This helps to ensure that contractors are passing on appropriate IP provisions (and are complying with their contractual obligations generally); and
   
• requiring the contractor to maintain an IP register of deliverables, which includes the details of all third party material required to ensure that the agency can obtain the full benefit from the deliverables, and how those rights are obtained. Make sure that the contractor complies with this requirement, using performance management and enforceable obligations. This can assist both the agency and the contractor to understand the deliverables, including any weaknesses or difficulties in the IP ownership and licensing arrangements.

Although it is not possible to completely eliminate the risk of inadvertently infringing third parties’ rights, these steps will help identify and mitigate potential problems before they arise.

Although Commonwealth contracts generally provide that: 

• the Commonwealth will own the IP rights in the resulting deliverables; and
• the contractor must obtain such third party rights as are necessary for the Commonwealth to obtain the full use and benefit of the deliverables,

there is a risk that the contractor will not obtain the necessary third party rights, meaning that the Commonwealth is left in an undesirable situation for which the recovery of money from the contractor is unlikely to be a complete remedy.

Commonwealth agencies can reduce the risk of this arising by taking practical contract management steps such as:

• ensuring that IP provisions in its contracts are appropriate for the specific requirements of the project and the nature of the deliverables;
• including obligations concerning third party arrangements, as well as having, and using, a right to review proposed subcontracts; and
• requiring the contractor to maintain an IP register, and making sure that they do.

These steps may not completely eliminate the risk, but taking them is a simple and effective way of reducing it.