Commissioner of Taxation v Seven Network Limited - [2016] FCAFC 70 - FCAFC 2016 case summary — Zoe

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Commissioner of Taxation v Seven Network Limited

[2016] FCAFC 70

Federal Court of Australia (Full Court)|2016-05-23|Before: Davies JJ

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Federal Court of Australia (Full Court)

Decision date

2016-05-23

Before

Davies JJ

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Judgment (16 paragraphs)

[1]

INTRODUCTION 1 This appeal concerns Art 12(3) of the Agreement between Australia and Switzerland for the Avoidance of Double Taxation with respect to Taxes on Income [1981] ATS 3 (Swiss Treaty) as in force during the relevant income years (income years). In issue is whether s 128B of the Income Tax Assessment Act 1936 (ITAA 1936) applied to payments that Seven Network Limited (Seven), a resident of Australia, paid to the International Olympic Committee (IOC), a resident of Switzerland, between March 2006 and August 2008 for the broadcasting rights to the Olympic Games. Whether s 128B of the ITAA 1936 applied to the payments turns on whether the payments were "royalties" as defined in Art 12(3) of the Swiss Treaty. For the reasons that follow we agree with the primary judge that the payments were not "royalties" and, therefore, s 128B of the ITAA 1936 did not apply. 2 Between March 2006 and August 2008, Seven made payments totalling $122,178,261 to the IOC for broadcasting rights to the Olympic Games. The total payment was consideration for what the IOC granted to Seven under the Signal Utilisation Deed (SUD), including for Seven's "use" of a signal (ITVR Signal). The ITVR Signal was used by Seven in its live television broadcasts in Australia for the Olympic Games in 2002, 2004, 2006 and 2008 (relevant Olympic Games). 3 The Commissioner of Taxation (Commissioner) contended that Seven, a resident corporation, was obliged to withhold part of the total payment of $122,178,261 on account of the IOC's liability for withholding tax. Seven disputes this with respect to $97,742,609 (Disputed Amount). The Commissioner issued Seven with three notices of penalty, respectively dated 6 June 2007, 31 October 2008 and 23 December 2009; and Seven lodged an objection against each of them. In his Notice of Objection decision dated 2 December 2011, the Commissioner maintained his earlier stated opinion that the Disputed Amount was a "royalty" for the purposes of the Swiss Treaty. 4 On 27 January 2012, Seven filed an application in this Court for judicial review under s 39B of the Judiciary Act 1903 (Cth) seeking declaratory and other relief. Three days later, on 30 January 2012, Seven filed an appeal to the Court under Part IVC of the Taxation Administration Act 1953 (Cth) (TAA) against the appealable objection decisions made by the Commissioner. Senior counsel for Seven, Mr Bloom QC, explained that the s 39B proceeding was instituted in case it was found that the key issue - whether the Disputed Payment was a royalty or not - could not be raised in the Part IVC proceeding: cf. Trylow v Commissioner of Taxation [2004] FCA 446, [2004] ATC 4406 at [9] (Hill J). Case management orders were made early on that the two proceedings be heard together and the evidence filed in the tax appeal be treated as evidence filed in the judicial review proceeding. 5 The applications were successful. On 24 December 2014, the primary judge declared in both matters that: (a) The Disputed Amount was not a royalty within Art 12(3) of the Swiss Treaty; (b) Seven was not liable under s 12-280 of Schedule 1 to the TAA to withhold any of the Disputed Amount; and (c) Seven was not liable under s 16-30 of Schedule 1 of the TAA to pay any penalty for failing to withhold from the Disputed Amount an amount as required by Division 12 of Schedule 1 to the TAA. 6 Her Honour further ordered that: (a) the appeal under Part IVC be allowed; and (b) the Commissioner's objection decisions be set aside and remitted to the Commissioner for determination according to law. In both proceedings, the primary judge ordered, on 13 March 2015, that the Commissioner pay Seven's costs up to 10:00 am on 31 October 2013 on the ordinary basis and after that time, on an indemnity basis. 7 The Commissioner appealed from her Honour's judgment and subsequent costs orders. These are our reasons for dismissing the appeal against the declarations and orders made by the primary judge on 24 December 2014 and 13 March 2015 in proceeding NSD146/2012 and in proceeding NSD148/2012. Legislative context 8 Under s 128B(2B) of the ITAA 1936, royalties that a non-resident entity derives from an Australian source (including a resident of Australia) are subject to withholding tax. Section 12-280(a) of Schedule 1 to the TAA relevantly provides that the amount of the tax must be withheld by the resident entity from the royalty that it pays to the non-resident. Section 16-5 of the TAA further provides that the resident entity must withhold the amount of the tax when making the payment. Section 16-25 of the TAA makes a contravention of s 16-5 a criminal offence; and s 16-30 of that Act imposes administrative penalties for a contravention of s 16-5. Section 298-20 of the TAA provides for the remission of administrative penalties. 9 "Royalty" is a defined term in s 6 of the ITAA 1936. The definition relevantly includes: … any amount paid or credited ... as consideration for: (a) the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trademark, or other like property or right; …. (db) the use in connection with television broadcasting or radio broadcasting, or the right to use in connection with television broadcasting or radio broadcasting, visual images or sounds, or both, transmitted by: (i) satellite; or (ii) cable, optic fibre or similar technology. 10 Seven accepted that the Disputed Payments arguably come within par (db) of the definition of "royalty" and that s 128B(2B) might therefore apply to those payments unless the withholding tax provisions of the ITAA 1936 did not apply because Art 12 of the Swiss Treaty did not treat the Disputed Payments as royalties. It is necessary to refer to certain provisions of the International Tax Agreements Act 1953 (Cth) (International Tax Agreements Act) to understand the latter part of this proposition. 11 The Swiss Treaty is a double tax agreement, the nature of which is discussed in McDermott Industries (Aust) Pty Ltd v Commissioner of Taxation [2005] FCAFC 67, 142 FCR 134 at [2]-[3], [10] and GE Capital Finance Pty Ltd v Federal Commissioner of Taxation [2007] FCA 558, 159 FCR 473. In GE Capital Finance 159 FCR 473 at 481 [27], Middleton J explained, with reference to the "USA Double Tax Treaty", that the Treaty: ... is one of the many double tax treaties entered into by Australia, and has been entered into for the avoidance of double taxation with respect to taxes on income. To achieve its aim of avoiding double taxation, the ... Treaty allocates taxing "rights" between the treaty partners. As with all international treaties to which Australia is a party, it forms part of domestic law only because there is legislation which provides for the treaty to be incorporated into Australian law. 12 The Swiss Treaty is set out in Schedule 15 to the International Tax Agreements Act and is incorporated into Australian domestic law in accordance with s 11E of that Act. Section 4(1) of that Act incorporates the "Assessment Act" as defined in s 3(1), with the effect that the ITAA 1936 and the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) are so incorporated; and, subject to s 4(2), s 4(1) provides the "Assessment Act" "shall be read as one with this Act". Section 4(2) provides that, subject to a not presently relevant exception, the International Tax Agreements Act prevails over provisions of the ITAA 1936 and the ITAA 1997. 13 The effect of a provision such as s 4(1) was discussed in GE Capital Finance 159 FCR 473 at 483 [40], referring to Amalgamated Television Services Pty Ltd v Australian Broadcasting Tribunal (1984) 1 FCR 409 at 413. As Lockhart J there said: The effect of such a provision is to transpose the earlier into the later Act or to write every provision of the earlier Act into the later Act as if they had been actually printed into it. It is a rule if construction of statutes; but it cannot be used in effect to amend the provisions of the earlier Act which is to be read as one with the later Act. 14 Section 17A(5) of the International Tax Agreements Act makes it clear that s 128B of the ITAA 1936 has no operation if the relevant double tax agreement does not itself treat an amount as a "royalty" even though it would otherwise be a "royalty" as defined in s 6(1) of the ITAA 1936. Section 17A(5) provides as follows: (5) Section 128B of the Assessment Act (which deals with liability for withholding tax) does not apply to the payment of a royalty as defined in subsection 6(1) of that Act if: (a) the royalty is paid to a person who is a resident of a Contracting State or territory (other than Australia) for the purposes of an agreement; and (b) the agreement does not treat the amount paid as a royalty. The word "agreement" is defined in s 3(1) to mean, unless the contrary intention appears, (a) a convention or agreement a copy of which is set out in a Schedule to this Act; ... The word "agreement" thus includes the Swiss Treaty. 15 In the income years in question, Art 12 of the Swiss Treaty relevantly provided as follows: 1. Royalties arising in one of the Contracting States being royalties to which a resident of the other Contracting State is beneficially entitled, may be taxed in that other State. 2. Such royalties may be taxed in the Contracting State in which they arise, and according to the law of that State, but the tax so charged shall not exceed 10 per cent of the gross amount of the royalties. 3. The term "royalties" in this Article means payments (including credits), whether periodical or not and however described or computed, to the extent to which they are consideration for the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trade-mark, or other like property or right, or industrial, commercial or scientific equipment, or for the supply of scientific, technical, industrial or commercial knowledge or information, or any assistance of an ancillary and subsidiary nature furnished as a means of enabling the application or enjoyment of such knowledge or information or any other property or right to which this Article applies, or for the use of, or the right to use, motion picture films, films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, or for total or partial forbearance in respect of the use of a property or right referred to in this paragraph. ... 5. Royalties shall be deemed to arise in one of the Contracting States when the payer is that Contracting State itself or a political sub-division of that State or a local authority of that State or a person who is a resident of that State for the purposes of its tax. Where, however, the person paying the royalties, whether he is a resident of one of the Contracting States or not, has in one of the Contracting States a permanent establishment or a fixed base in connection with which the obligation to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. ... (Emphasis added.) 16 In this case, Australia is the first "Contracting State" and Switzerland is the "other" State for the purposes of Arts 12(1) and 12(2). 17 It is relevant to note at this stage that in the relevant income years the definition of "royalties" in Art 12(3) of the Swiss Treaty did not contain an equivalent paragraph to paragraph (db) of the definition of "royalty" in s 6(1) of the ITAA 1936. The Swiss Treaty was, however, amended in 2013, with effect from 14 October 2014, to include a provision similar to paragraph (db). It was not in dispute that the amended definition does not apply to the income years in issue.

[3]

ITVR Signal 19 Each of the relevant Olympic Games had a host broadcaster, which among other things was to film the various sporting events and, from that filming, to produce the ITVR Signal. This was a digital signal that could be provided to other broadcasters. The ITVR Signal was typically produced by the host broadcaster for each field of play (or competition venue). The ITVR Signal was transmitted by the relevant host broadcaster to a telecommunications carrier, and then transmitted to broadcasters, including Seven. 20 Before the ITVR Signal left the control of the host broadcaster, the signal was "split". The effect of the splitting was that two tandem signals were generated each containing identical images and sound. A signal was recorded by the host broadcaster in a recording device as a "protection copy"; and an identical signal was sent to a telecommunications carrier and, via it, to the international broadcasting centre (IBC), where international broadcasters, such as Seven, received the ITVR Signal. At the IBC, the host broadcaster made a further recording of the ITVR Signal, although it too was not "in series" with that received by Seven. 21 Each ITVR Signal was an encoded and combined digital signal, transmitted virtually instantaneously to each Olympic broadcaster. The process of transmitting the ITVR Signal from the host broadcaster to each Olympic broadcaster did not involve any recording or storage of the ITVR Signal. 22 The ITVR Signal was received by Seven via copper coaxial cable: it was an electromagnetic force that transmitted data. There was no picture, image or sound recorded or permanently stored in the copper coaxial cable that transmitted the signal. No picture, image or sound could be recorded or permanently stored in the ITVR Signal. The signal was not tangible and did not give physical form to an image or sound. The ITVR Signal was a live signal. 23 Upon receiving the ITVR Signal, Seven made a further recording of the signal and used the signal as recorded to create its own product. The ITVR Signal was not suitable for broadcast purposes to the Australian public in its "raw" form, but was the major ingredient in the broadcasts that Seven made. Images and sounds could not be reproduced from the ITVR Signal, although images and sounds could be produced from the ITVR Signal by the use of a receiving device. Seven could access multiple ITVR Signals, one for each field of play. The ITVR Signal transmitted data of graphics, replays and natural sound from the venues, when decoded and viewed, but no commentary, interviews or advertising. 24 Although the host broadcaster and Seven could simultaneously record and store the ITVR Signal as it was being transmitted, the Signal received by Seven was not taken from any recorded version. A national broadcaster such a Seven could also pay to have its own cameras and unilateral signals, including commentator positions, transmitted from a field of play. This was something Seven did.

[5]

Games TV Deeds 26 Additionally, between 19 February 2002 and 11 February 2007, Seven Network (Operations) Limited, a wholly owned subsidiary of Seven, entered into deeds for the relevant Olympic Games with the IOC and the relevant Organising Committee in respect of exclusive "visual broadcast rights" (Games TV Deeds): Agreed Facts, [9]-[13]. Whilst the Games TV Deeds were each specific to one or other of these Olympic Games: (a) all recited that the IOC owned all rights in respect of the Olympic Games including all television and other broadcast rights; (b) all recited that the IOC had power to grant a broadcasting organisation exclusive rights to broadcast the games in a specified territory; (c) in all, the IOC granted Seven exclusive television and radio rights throughout Australia during a defined period; and (d) in all, the IOC (and the relevant host organising committee) agreed not to grant the opportunity or permit any broadcaster, federation or other entity infringing Seven's exclusivity and to take all reasonable steps to remove any person from the Olympic venues who so infringed Seven's exclusivity. 27 Each of the Games TV Deeds also dealt with ownership of copyright. The deeds relating to the 2002 and 2004 Olympic Games stated that the IOC shall be the copyright proprietor throughout the world of "all depictions, transcriptions, recordings and television ... and audio broadcasts" of the Games produced by the Olympic Broadcasting Organisation (OBO), including the ITVR Signals (although the IOC's rights were not to limit Seven's rights under the Deed). At the same time, Seven granted the IOC "all rights under copyright ... to all such depictions, transcriptions, recordings and broadcasts produced or broadcast by" Seven. Later deeds relating to the 2006 and 2008 Olympic Games instead provided that Seven was the initial copyright proprietor of all depictions, transcriptions, recordings and television and audio broadcasts produced by the relevant OBO. Seven then assigned that copyright interest to the IOC seven days after the conclusion of the Games. Each of the Games TV Deeds contained provisions for protection against third party infringements of the parties' rights under the Deed.

[6]

Signal Utilisation Deed 28 On 30 September 2005, Seven and the IOC also entered into the SUD, Recital C to which stated that the IOC and Seven agreed "on the terms of this Deed" "to restate and clarify certain terms of the 1996 Agreement". Recital D recited that Seven and the IOC "ratifie[d] and confirm[ed] the 1996 Agreement (as amended by the 2003 Agreement) as amended by [the SUD]". 29 Clause 5 of the SUD provided as follows: During the Games Period, Seven shall be the copyright owner in Australia of all depictions, transcriptions, recordings and television (visual broadcast) and audio broadcasts, or other dissemination by any means of the Games produced from ITVR Signal for the purposes of Australian Broadcasting, by or on behalf of, Seven in Australia ("Copyright"). At the end of the particular Games Period, Seven assigns to the IOC the Copyright. 30 The expression "ITVR Signal" was defined in cl 1.1 of the SUD to mean "the international television signals (picture and sound), to be produced by the host broadcaster appointed by the Organising Committee of Games events". The expression "Australian Broadcasting" was also broadly defined. 31 As already noted, the fees payable by Seven for which it acquired the rights under the SUD was AUD$122,178,261: see cl 1.1. Clause 3 apportioned this amount as follows: 3.1 Fees for Use of Signal during Games Period and Access to Venues The Fees are apportioned as follows: (a) $97,742,609 for the ITVR Signal for use in connection with exclusive Australian Broadcasting during the Games Period; and (b) $12,217,826 for access to the various Games venues. 3.2 Fees for Use of Signal after Games Period and Use of Olympic Marks The Fees are apportioned as follows: (a) $6,108,913 for the ITVR Signal for use in connection with delayed Australian Broadcasting of the Games after the Games Period; (b) $6,108,913 for Seven to create an IOC-approved Seven logo using the Olympic Rings as an integral part and to otherwise use the Olympic Marks. 32 The parties agreed that "Australian Broadcasting during the Games Period" in cl 3(a) corresponded to "right (a) under "Rights Granted" in the 1996 Agreement; that is, "exclusive Australian broadcast rights for the Games": see Agreed Facts, [4], [23]. Seven subsequently paid the $97,742,609 due under cl 3.1(a) to the IOC in several instalments.

[7]

THE DECISION OF THE PRIMARY JUDGE 33 The primary judge noted (at PJ, [32]) that Seven's approach to withholding amounts from the payments made under clauses 3.1(b), 3.2(a) and 3.2(b) was not in dispute. Her Honour found (and the parties accepted) that the Disputed Amount corresponded to the payment made in accordance with cl 3.1(a) of the SUD (above). 34 The primary judge explained the nature of the ITVR Signal as set out in the Joint Statement of Experts and in the experts' own evidence. According to her Honour (PJ, [40]), the experts agreed that: • The ITVR Signal was transmitted by the relevant host broadcaster to Seven's master control room at the IBC. • Each ITVR Signal comprised an International Television (ITV) and International Radio Signal (IR). • The ITV and IR Signal were produced by the host broadcaster and combined and transmitted live to the IBC for distribution to each Olympic broadcaster, such as Seven. • Each Olympic broadcaster could use or alter the ITV or IR Signal as it saw fit to create its broadcast signal. • The ITVR Signal was not suitable for broadcast purposes in its "raw" form. • The ITVR Signal was the major ingredient in the broadcasts which Seven made, together with commentary, commercials, background pre-produced vignettes and short features which might be added by Seven. • Each ITVR Signal was an encoded and combined digital signal, transmitted virtually and instantaneously to each Olympic broadcaster. • The process of transmitting the ITVR Signal from the host broadcaster to each Olympic broadcaster did not involve any recording or storage of the ITVR Signal. • The ITVR Signal was received by Seven on a copper coaxial cable i.e. it was an electromotive force that transmitted data. There was no picture, image or sound recorded or permanently stored in the copper coaxial cable that transmits the signal. • No picture, image or sound can be recorded or permanently stored in a signal. • The signal is not tangible and does not give physical form to an image or sound. • Visual images and sounds cannot be reproduced from an ITVR Signal. • The ITVR Signal was a live signal and was not stored or recorded prior to being obtained (with one minor exception which is not presently relevant). • Seven and the host broadcaster could simultaneously record and store the signal as it was being transmitted, however the ITVR Signal received by Seven was not taken from this recorded version. 35 Her Honour repeated some of the above (PJ, [77]), including that: • The ITV video and audio signals were combined to create the ITV Signal. The IR signal was not mixed to correspond to the ITV video signal but was embedded into the ITV signal by the host broadcaster at the Outside Broadcast Compound (OBC) to create the ITVR Signal. The OBC is defined in the Joint Experts' Report to be a 'secure area, usually in close proximity to the field of play, containing the host broadcaster facilities necessary to produce the ITV Coverage and IR Coverage of the events taking place on that field of play'). Data capable of conversion into ITV coverage and IR coverage was received via the ITVR Signal. These data could be decoded and converted into visual images and sounds by appropriate equipment such as a television. • The signals are capable of being converted by a television or other device into images and sounds. Visual images and sounds can be produced from the signal by use of a receiving device but images and sounds cannot be reproduced from the ITVR Signal. • The recordings made at the IBC were outside the series, that is, outside the chain of delivery to Seven. (Emphasis original.) 36 Further, her Honour noted (PJ, [78]) that the experts agreed that: • The ITVR Signal can be disseminated, identified and controlled. • The ITVR Signals were encoded and combined digital signals and each is a complex, constantly changing aggregation of video, one or more audio and multiple data channels in a constant signal, accompanied by metadata; data are continuously streaming. • The video signals from the camera head were transmitted to a vision switcher at which point effects could be added by the producer and director, such as the Olympic logo and text. • The output of the vision switcher was the video component of the ITV signal for a field of play. While the video signal was not recorded or permanently stored within the vision switcher, it was sometimes temporarily held, in the sense of buffered, for approximately 1/25th of a second (equivalent to one frame) for synchronisation. 37 Her Honour also said (PJ, [41]-[45]): The data transported by the ITVR signal could be converted into television coverage, that is, visual images and sounds, by use of a receiving device. This means that, as transmitted and as received, the signal was a continuous stream of data, from which visual images and sounds could be seen and understood, but only by use of appropriate equipment. The agreed expert evidence is that there is no technology that allows the information transmitted by the signal to be reproduced. The evidence on which both parties rely is that the camera head converts light energy that can be interpreted by television into a repeated sequence of still images which the human eye interprets as if it were perceiving the moving events seen by the camera. The camera head converts an image into a digital signal by sampling a number of pixels presented to the lens and converting them into 'a binary representation of their amplitude at that particular moment'. Each pixel is represented as a unique sequence of binary digits, representing 'a continuous stream of data that can be reconstructed later by a television receiver into a series of still images on the television screen' (emphasis added). Although recordings were made at the IBC, they were not distributed to broadcasters such as Seven unless, for example, the broadcaster missed recording an ITVR Signal. They were a "protection copy", or library copy, for future replay if required. They were never transmitted as live ITVR Signal to broadcasters. Generally, many ITVR and unilateral signals were distributed to the broadcasters by the host broadcaster within the IBC at the same time. In most cases the delivery was virtually instantaneous. In some cases they were delivered within no more than 600 milliseconds of the activities taking place on the field of play, which is regarded as "real time". 38 So far as the primary judge was concerned, the sole issue that arose for determination was whether the Disputed Amount was a royalty; and this turned on whether it was consideration for the use of, or right to use, copyright or "other like property or right" within Art 12(3) of the Swiss Treaty. The primary judge concluded (at [158]): • The subject matter of the [Disputed] Amount is not a cinematograph film, and [it is] not a copyright or other like property or right. • he [Disputed] Amount is not a "royalty" within the terms of Art 12(3) of the Swiss Treaty. • Seven is and was not liable under s 12-280 of Schedule 1 to the [TAA] to withhold any amount from the Payment. • Seven is and was not liable under s 16-30 of Schedule 1 to the [TAA] for penalties for failing to withhold. Accordingly, the primary judge held (at [159]) that the penalty notices should be set aside and made the orders as indicated at [5]-[6] above. 39 The primary judge's reasons were as follows. First, her Honour rejected the Commissioner's submission that, for the purposes of Art 12(3) of the Swiss Treaty, the Disputed Amount was for the use of, or the right to use, copyright in a cinematograph film transmitted by the ITVR Signal. Her Honour rejected the Commissioner's argument that the footage filmed of the relevant Olympic Games events and transmitted via the ITVR Signal to Seven was a cinematograph film, as defined in s 10(1), read with s 24, of the Copyright Act 1968 (Cth) (Copyright Act) (PJ, [98], [124], [127], [158]). There was, so her Honour held, no embodiment of visual images in a "thing" (PJ, [120], [124], [127]); and there was no capacity for reproduction from the ITVR Signal (PJ, [124], [127]). Whilst her Honour accepted that by operation of s 184(1)(a) of the Copyright Act, the copyright protection in s 90 applies to a cinematograph film of which the maker was Swiss or which was made in Switzerland, her Honour observed that, by virtue of s 22(4), there must be a first copy of the film produced, and the maker is the person by whom the arrangements necessary for the making of the film were undertaken (PJ, [118]). These considerations did not support the Commissioner's contention. 40 Secondly, the primary judge rejected the Commissioner's argument that, for the purposes of Art 12(3) of the Swiss Treaty, the Disputed Amount was for the use of, or the right to use" some "other like property or right". Her Honour held that there was no "other like property or right" involved in the use of the ITVR Signal and that the other "like right" must be an intellectual property right by the domestic law of the resident making the supposed royalty payment - here, Australia (PJ, [132]). Her Honour held that there was no evidence as to whether Swiss law would provide protection for the ITVR Signal, but that, in any event, the question was not to be determined under Swiss law (PJ, [145]-[146]). Hence, so her Honour said, the expression "copyright ... or other like property or right" extended the operation of "royalty" to enable each country to enlarge its protected intellectual property rights, so long as they fell within the genus of intellectual property (PJ, [133]). The primary judge rejected the Commissioner's submission that the right to use visual images and sounds transmitted by the ITVR Signal was a right to use "other like property" and was "like" a copyright, because the rights were of a broadly similar nature (PJ, [134]-[135]). 41 Thirdly, although the primary judge recognised that, under s 91 of the Copyright Act, copyright subsists in television broadcasts or sound broadcasts made to the public in Australia and under a licence or class licence granted pursuant to the Broadcasting Services Act 1992 (Cth) (Broadcasting Services Act), her Honour recognised that Seven, not the IOC, held the relevant broadcasting licence and was a broadcasting service within the meaning of that Act. It followed, so her Honour held, that there was a broadcast in which copyright subsisted only when Seven transmitted its signal in Australia to the public (PJ, [150]). The primary judge rejected, as contrary to the facts, the Commissioner's contention that the film came into existence when it was broadcast (PJ, [152]). The primary judge also noted (PJ, [153]): Further, and in the alternative, the Commissioner raised the contention that the IOC has authorised the doing of acts in future copyright subject matter, namely the cinematograph film that came into existence when broadcast or recorded (s 10(1)) and that the rights to use the ITV and IR Coverage transmitted via the ITVR Signal was the right to use copyright subject matter within the meaning of Art 12(3) of the Treaty. This contention was not pressed at the hearing. 42 Fourthly, on the subject of future copyright, the primary judge said (at PJ, [154]-[157]): The Commissioner says, in opening, that the rights granted under the Atlanta and Sydney Deed, and the other Television Agreements which are relevantly identical, are broadcast rights, exclusive visual broadcasts of the games events. Counsel for the Commissioner characterised the subject matter as a linear sequence, such that the viewer watching the television sees what the camera captures. The submission is that Seven was granted a right under s 86(c) of the [Copyright Act] to communicate that ITV coverage to the public and that this is a copyright right within Art 12(3) of the Treaty. The Commissioner appears to distinguish between the ITVR Signal and the "ITV Coverage" which, he says, is the 'visual images and sounds captured by the cameras at the Games events … and … converted digitally by the camera'. This argument appears to converge with an alternative ... proposition advanced by the Commissioner, that the visual images and sounds are embodied into the television set so as to be capable of being shown as a motion picture. That is, the television has been treated in a way to make it capable of reproduction. That is then said to be a future copyright right within s 10(1) of the [Copyright Act]. At the hearing, the Commissioner was not able to enunciate the relevance of Seven's right to broadcast ... This issue was not revisited. There was no reference to "future copyright" and it was not addressed by Seven. I have taken the view that it is not an issue. 43 The primary judge held that the Commissioner's rejection of Seven's Calderbank offer (made in accordance with Calderbank v Calderbank [1975] 3 All ER 333 on 29 October 2013, expiring at 10.00am on 31 October 2013) was unreasonable. Hence, her Honour held that Seven was entitled to indemnity costs after the date of expiry of its offer: see Seven Network Limited v Commissioner of Taxation (No 2) [2015] FCA 201 at [25]-[26].

[9]

Commissioner's submissions 45 The Commissioner's amended notice of appeal challenged the primary judge's determination that the Disputed Amount was not consideration for the use, or the right to use, copyright in a cinematograph film. At the hearing of the appeal, senior counsel for the Commissioner submitted that cll 3.1(a) and 5 of the SUD made "it clear that the payment is in respect of copyright"; and referred in this connection to the Games TV Deeds, including for the Olympic Winter Games in Torino in 2006 (cl 11(a)) and for the Olympic Games in Beijing in 2008 (cl 11(a)). 46 The Commissioner submitted that the critical question under ss 10(1) and 24 of the Copyright Act was whether the images comprising or including the "Games Footage" were embodied in an article or thing so as to be capable, by the use of the article or thing, of being shown as a moving picture (i.e., a "cinematograph film"). Citing Sega Enterprises Limited v Galaxy Electronics Pty Ltd (1996) 69 FCR 268, at 272-275, the Commissioner submitted that the copper cable, electrons and ITVR Signal were, relevantly, physical articles or things and that the images and sounds from the field of play (which the Commissioner termed the "Games Footage") were embodied in them. Referring to Garnett K, Davies G and Harbottle G, Copinger and Skone James on Copyright (16th ed, Sweet & Maxwell, 2011) at 133 [3-110], the Commissioner submitted that an embodiment was not required to be permanent or semi-permanent. The Commissioner contended that the electrons, copper cable and ITVR Signal were so treated that the "Games Footage" was capable of being reproduced from them and shown as a moving picture, as Seven's broadcasts to Australian televisions derived from the ITVR Signal exemplified. 47 Citing Galaxy Electronics Pty Limited v Sega Enterprises Limited (1997) 75 FCR 8 at 23, the Commissioner submitted that the use of the word "aggregate" in the definition of "cinematograph film" in s 10(1) of the Copyright Act did not impose a condition as to the quantity or quality of the images that must be embodied in the thing. The Commissioner submitted that the word "aggregate" indicated the scope of the copyrighted subject matter. Hence, the Commissioner submitted that "what is protected as a cinematograph film is the aggregate of visual images and sounds embodied (albeit briefly and not all at once) in the copper cable and electrons delivering the ITVR Signal and which is capable of being shown as a moving picture by using that copper cable together with a recording device". At the hearing senior counsel for the Commissioner, Mr McGowan QC, said: [I]n our case the images first appear on the field of play. And that's where they are captured by the cameras. And they are delivered via the ITVR Signal and reproduced ... by the devices held by the various people who receive it, including Channel Seven… [N]o prior existence of the aggregate of images and sounds is required before embodiment. 48 The Commissioner contended that these "cinematograph films [gave] copyright protection to the images and sounds comprising the Games Footage" under the Copyright Act by reason of r 4(1) of the Copyright (International Protection) Regulations 1969 (Cth) (CIP Regulations). In the Commissioner's submission, the Disputed Payment was consideration for Seven's right to exercise, within Australia, the copyright rights that otherwise inhered in the owner or assignee of the copyright in the "Games Footage". 49 In the alternative, the Commissioner submitted that the Disputed Payment was consideration for a property or right which was "like" copyright within the meaning of the Swiss Treaty. Citing Thiel v Federal Commissioner of Taxation [1990] HCA 37, 171 CLR 338 at 344 and McDermott 142 FCR 134 at [38], the Commissioner submitted that the meaning of the expression "other like property or right" was to be ascertained from the Swiss Treaty construed in light of any relevant extrinsic material. The Commissioner submitted that the class of property or right in question was "wider than traditional IP rights because they include[d] things like plans". The Commissioner further submitted that, in return for the Disputed Payment, the IOC gave Seven a practical monopoly on the broadcasting of Olympic Games in Australia; and relying on Commissioner of Taxation v Franklin Mint Pty Ltd (1993) 44 FCR 109, submitted that these monopoly rights and freedoms were "like property or right" within the meaning of Art 12(3) of the Swiss Treaty, because they were functionally equivalent to the rights of a copyright holder. 50 The Commissioner further submitted: [I]t [did] not matter that the 1996 Agreement, the SUD and the specific agreements in respect of the ...[relevant] Olympic Games pre-dated some or all of the coming into existence of the relevant copyright in the Games Footage. At the time those agreements were entered into, the copyright in the Games Footage was "future copyright" within the meaning of s 10(1) of the [Copyright Act]. So far as the agreements were in relation to such future copyright, their effect was to vest the copyright in the cinematograph films for a limited period upon the coming into existence of that film: s 197(1). A payment in consideration for such a future vesting is plainly a payment for the use or right to use copyright and, for that reason, a royalty under the Swiss Treaty. 51 The Commissioner argued that, even if there was no copyright in what was carried by the ITVR Signal, Seven acquired copyright as a result of receiving the ITVR Signal because Seven obtained a broadcast copyright in the images and sounds carried by that signal upon broadcasting them. In consequence, so the Commissioner argued, the Disputed Payment was for that later-acquired copyright. At the hearing of the appeal, senior counsel for the Commissioner emphasised in reply that the "idea of alienation is not the touchstone of property", citing R v Toohey, Ex Parte Meneling Station Pty Ltd (1982) 158 CLR 327 at 342-3, Georgiadis v Australian and Overseas Telecommunications Corporation (1994) 179 CLR 297 at 311-312 and Barclay v Penberthy [2012] HCA 40, 246 CLR 258 at 282-3 [39]. 52 In support of the proposed new ground 6, the Commissioner contended, in the further alternative, that the Disputed Payment was consideration for total or partial forbearance in respect of the use of copyright. Senior counsel for the Commissioner submitted at the hearing that the "payment was for the IOC's exclusive licence to use the ITVR plus forbearance to ensure effective exclusivity". The Commissioner's argument was that the IOC undertook to Seven that it would ensure that it and others would forbear from exercising their copyright right to communicate the relevant Olympic Games in Australia and that the Disputed Payment was in substance for the forbearance so guaranteed. 53 The Commissioner contended that Seven was not the only owner of the right to publicly communicate the "Games Footage" in Australia, because the host broadcaster also had that right. The Commissioner submitted that the IOC was in a position to ensure that others, including the host broadcaster, with the right to copy and communicate "Games Footage" in Australia, did not exercise those rights. The Commissioner contended that when the host broadcaster recorded the ITVR Signal in the recording devices, the sounds and images carried by the signal were embodied in those devices; and even if there was no cinematograph film in the ITVR Signal before the recording, a film came into existence at the point of the recording. According to this argument, in this circumstance the host broadcaster acquired rights under ss 85, 86, 89 and 90 of the Copyright Act. The Commissioner submitted that this third-party copyright did not affect Seven's freedom to broadcast the "Games Footage" in Australia, because Seven's ITVR Signal was not "in series" with the ITVR Signal used to create the host broadcaster's recordings and the broadcasts created by Seven from its signal were not derived from the cinematograph films made by the host broadcaster. The position was much the same, so the Commissioner said, with respect to the subsistence of Seven's copyright in the "Games Footage", which it obtained by creating a copy of the ITVR Signal at the IBC and also by broadcasting the footage, because this did not affect the freedom of the host broadcaster, the IOC or any other broadcasters to broadcast the "Games Footage" in Australia, since they had derived their footage from their branches of the ITVR Signal. Hence, so the Commissioner submitted, "Seven needed comfort that the rights it had to use Games Footage would be exclusive (for the Australian territory)" and Seven "obtained that comfort from the Games TV Deeds and the 1996 Agreement". The Commissioner contended that: [U]nder those agreements, the IOC agreed to forebear from exercising in Australia any copyright it had in the Games Footage and agreed to ensure that others forbore from exercising in Australia any copyright that … they had in the Games Footage. 54 Accordingly, so the Commissioner said, the Disputed Payment was consideration for that forbearance and a royalty within the meaning of Art 12(3) of the Swiss Treaty. The Commissioner accepted that this proposed new ground had not been raised before the primary judge, but argued that it was nonetheless in the interests of justice for the Commissioner to be permitted to raise it before us.

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Seven's submissions 55 Seven's answer to the Commissioner's primary case was that the Disputed Payment was for physical access to the ITVR Signals and the Games venues, and that it was not for copyright or for future copyright. Seven submitted that the ITVR Signal received no protection by virtue of ss 10 and s 24 of the Copyright Act; and that there was no identification of relevant technology in the Copyright Act that accommodated the concept of a copyright in the ITVR Signal. Referring to s 8 of the Copyright Act, Seven emphasised that, apart from Crown copyright, copyright does not subsist except by virtue of that Act; and, citing Computer Edge Pty Ltd v Apple Computer Inc (1986) 161 CLR 171 at 187-188 and Roadshow Films Pty Ltd v iiNet Ltd [2012] HCA 16, 248 CLR 42 at [119]-[120], submitted that the Court should not give the Copyright Act a strained interpretation in order to meet perceived advances in technology. Seven contended that the only relevant copyright that subsisted was that in Seven's broadcast, an ingredient of which was the ITVR Signal. 56 Referring to Network Ten Pty Limited v TCN Channel Nine Pty Ltd [2004] HCA 14, 218 CLR 273 (The Panel), Seven noted that copyright attached to broadcasts only by virtue of the specific statutory provision (cf: s 10) that had been made for them. Seven distinguished Galaxy Electronics 75 FCR 8 on the basis that the relevant images were embodied in a material, physical form in the integrated circuits of the video game in a permanent fashion. Seven submitted that Stevens v Kabushiki Kaisha Sony Computer Entertainment [2005] HCA 58, 224 CLR 193 and Galaxy Electronics 75 FCR 8 required the aggregate of visual images and sounds to be stored in a material, not evanescent form, in order to fall within the statutory definition of "cinematograph film". 57 At the hearing of the appeal, senior counsel for Seven, Mr Bloom QC, submitted that the words "property" and "rights" in the expression "other like property or rights" had a well understood legal meaning, which should be applied, in the interests of certainty, particularly where, as here, the interpretative choice affected the operation of a provision under a double tax treaty. Seven contended that the expression "other like property or right" was attached to "copyright, patent, design or model, plan, secret formula or process, trade-mark" in Art 12(3) of the Swiss Treaty, in order to cover all rights that are recognised as intellectual property rights by the domestic legal systems of either country. Mr Catterns QC expanded on these submissions, submitting that the reference to "model" was to a "utility model", which was the equivalent of an Australian petty patent or innovation patent and the reference to "plan" was either to copyright in drawings or, alternatively, a plan in the category of trade secrets. In the latter regard, he noted that although trade secrets were not protected by statute, the law nonetheless protected them; and a proprietary character has been attributed to confidential information because of the protection the law afforded it. Seven emphasised that the amendments to the domestic definition of "royalty" in s 6(1) of the ITAA 1936 (and later picked up in the 2013 Swiss Treaty) illustrated the limited reach of para (a) of the domestic definition in s 6(1) of the ITAA 1936, which mirrors the first part of the definition in Art 12(3) of the version of the Swiss Treaty governing this case. 58 Seven challenged the Commissioner's capacity to rely on his argument as to future copyright, on the basis that it had been abandoned before the trial judge. (The Commissioner responded that, although the argument had not been pressed, it had not been abandoned.) Seven also submitted that, even if the Commissioner's argument as to that character of the Disputed Payment were accepted, the Disputed Payment would not be a royalty because it would not be a payment for doing an act comprised in a copyright owned by another. As Seven put it, it was "not a royalty to pay someone for a right that one subsequently creates"; and for this reason the fact that a copyright will inure to Seven by virtue of broadcasting could not transform the Disputed Payment into a payment in the nature of a royalty. 59 Seven submitted that the fundamental difficulty with the Commissioner's proposed new ground as to forbearance was that no-one other than Seven had the legal rights to broadcast in Australia and, in consequence, there was no forbearance. Mr Catterns QC expanded on this, by submitting that neither the host broadcaster nor the IOC was a "broadcasting service" within the meaning of the Broadcasting Services Act, since neither held a relevant licence under that Act. He added that like other global broadcasters (none of whom had a right to broadcast in Australia) Seven paid for access to multiple signals and venues. Seven submitted that it paid for this access and for the "ingredient" of the ITVR Signals in order that no other free-to-air Australian broadcaster would have that access. Seven submitted that the Disputed Payment was for the ITVR Signal "ingredient" and for access, and in exchange for a promise not to provide physical access to the ITVR Signal to other Australian broadcasters. This promise had, so Seven submitted, no element of forbearance in the relevant sense. 60 Seven opposed the Commissioner's application for leave to allow the introduction of the proposed new ground, originally on the basis that it raised issues that would properly have been the subject of evidence at trial (for example, on the issue of apportionment) and on the basis it lacked merit. In response to the Commissioner's submissions at the hearing, however, Seven focussed on the lack of merits of the proposed ground.

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Copyright 63 The first question is whether, as the Commissioner contended, the Disputed Payment was for the use of, or the right to use, copyright in a cinematograph film. This in turn depends, for present purposes, on whether, as the Commissioner argued, the images and sounds from the field of play (which he beguilingly termed "Games Footage") were embodied in the ITVR, copper cable and electrons so as to be a cinematograph film in which copyright existed. We do not consider that this latter question can be resolved by reference to "royalty" or "copyright" characterisations in Games TV Deeds. Rather we accept that, as Seven submitted, whether or not copyright subsisted in these images and sounds in the way the Commissioner claimed must be determined in this case by reference to the Copyright Act: see s 8. 64 Part IV of the Copyright Act concerns copyright in subject-matter other than literary, dramatic, musical or artistic works, such as sound recordings (s 89), cinematograph films (s 90), television broadcasts and sound broadcasts (s 91). In particular, at the relevant time, s 90 of the Copyright Act provided for cinematograph films in which copyright subsisted as follows: (1) Subject to this Act, copyright subsists in a cinematograph film of which the maker was a qualified person for the whole or a substantial part of the period during which the film was made. (2) Without prejudice to the last preceding subsection, copyright subsists, subject to this Act, in a cinematograph film if the film was made in Australia. (3) Without prejudice to the last two preceding subsections, copyright subsists, subject to this Act, in a published cinematograph film if the first publication of the film took place in Australia. A "qualified person" in s 90(1) was defined as an Australian citizen or a person (other than a body corporate) resident in Australia; or a body corporate incorporated under a law of the Commonwealth or of a State: Copyright Act, s 84. 65 Section 90 therefore required that, in order for there to be copyright under the Copyright Act in a cinematograph film, there must be some territorial nexus between the film and Australia. This is consistent with s 184(1) of the Copyright Act, which provides for the making of regulations (the CIP Regulations) applying the provisions of the Copyright Act to a country other than Australia where the same kind of territorial nexus exists between the subject of copyright and that other country. 66 Also at the relevant time, s 10(1) of the Copyright Act provided that, unless the contrary intention appeared, "cinematograph film" meant ... 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: (a) of being shown as a moving picture; or (b) of being embodied in another article or thing by the use of which it can be shown; and includes the aggregate of the sounds embodied in a sound-track associated with such visual images. Section 24, set out below, operates to explain the use of the word "embodied" here and in other contexts: for example, see the definition of "sound-track" below. What is protected is not only an aggregation of visual images but also an aggregation capable of "being shown as a moving picture". Further, this definition takes two aggregates - visual images and sounds - each as found in a distinct fixed embodiment: The Panel 218 CLR 273 at [57] (see further below). 67 The word "sound-track" was also defined in s 10(1) to mean, in relation to visual images forming part of a cinematograph film, (a) the part of any article or thing, being an article or thing in which those visual images are embodied, in which sounds are embodied; or (b) a disc, tape or other device in which sounds are embodied and which is made available by the maker of the film for use in conjunction with the article or thing in which those visual images are embodied. 68 Section 24 of the Copyright Act explained the concept of embodiment, as follows: References to sounds and visual images embodied in an article For the purposes of this Act, 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 of some other device, of being reproduced from the article or thing. 69 Also at the relevant time, s 22 made provision for the making of literary, dramatic, musical or artistic works (s 22(1)), sound recordings (s 22(3)), broadcasts (s 22(5)) and, relevantly, cinematograph films (s 22(4)). Section 22(4) provided that, for the purposes of the Copyright Act: (a) a reference to the making of a cinematograph film shall be read as a reference to the doing of the things necessary for the production of the first copy of the film; and (b) the maker of the cinematograph film is the person by whom the arrangements necessary for the making of the film were undertaken. It may therefore be accepted that a cinematograph film was not made until the first copy was made. The word "copy" was relevantly defined in s 10(1), in relation to a cinematograph film as "any article or thing in which the visual images or sounds comprising the film are embodied". 70 In summary, a cinematograph film in which copyright subsisted under the Copyright Act is not made until the first copy is made. There must also be some relevant territorial nexus between the film and Australia (unless the CIP Regulations apply, in which case there must be another relevant territorial nexus). Further, having regard to the definitions of "cinematograph film", "soundtrack" and "copy" in s 10(1), as well as s 24 in the Copyright Act, it is, we consider, plain enough that the concept of embodiment relevant to "cinematograph film" means some "material embodiment". "Embodied" in the definition of cinematograph film in s 10(1) is equivalent to the phrase "that has been embodied", as further indicated by the definition of "copy" in s 10(1). 71 This interpretation is consistent with the statement of the majority in The Panel 218 CLR 273 at [52], to the effect that the definition of "cinematograph film", like the definition of "sound recording" "turn[s] upon the notion of 'fixation' and the existence of a material embodiment, as explained by s 24". Their Honours added (at [53]): Sections 85 and 86 identify the exclusive rights conferred by copyrights in sound recordings (s 85) and cinematograph films (s 86). One of the former is ''to make a copy of the sound recording'' (s 85(1)(a)); one of the latter is ''to make a copy of the film'' (s 86(a)). Each category of infringing act in these categories will involve copying to produce a material embodiment where there was an anterior material embodiment. 72 That the definition of cinematograph film in s 10(1) involves the notion of fixation and a material embodiment is also underscored by s 29 of the Copyright Act, which provides in para (b) that "a cinematograph film shall be deemed to have been published if, but only if, copies of the film have been sold, let on hire, or offered or exposed for sale or hire, to the public": cf. also s 94. 73 Further, the phrases "aggregate of the visual images" and "aggregate of the sounds" in the definition of "cinematograph film" in s 10(1) are also indicative of an interconnectedness of images and sounds, as opposed to a live signal transmitting a tiny fraction of images and sounds at any one moment. This is also consistent with the reasoning of the High Court in The Panel 218 CLR 273, which although it involved different issues and technology (the infringement of copyright in television broadcasts) is of assistance in the present appeals. 74 The High Court in The Panel 218 CLR 273 overturned the decision of a Full Court of this Court that each visual image capable of being observed as a separate image on a television screen and accompanying sounds was "a television broadcast": The Panel 218 CLR 273 at [8] and [12] (McHugh A-CJ, Gummow and Hayne JJ). Their Honours commented (at [29]) that "[t]here is no indication ... that, with respect to television broadcasting, the interest for which legislative protection was to be provided was that in each and every image discernible by the viewer of such programmes, so as to place broadcasters in a position of advantage over that of other stakeholders in copyright law, such as the owners of cinematograph films or the owners of the copyrights in underlying original works". Focussing on the expression "television broadcast" as the subject-matter of protection, their Honours referred (at [37]) to the associated statutory references to "the visual images and sounds" "comprised in" or "constituting the broadcast" as "redolent of plurality and interconnectedness of images and sounds". McHugh A-CJ, Gummow and Hayne JJ stated (at [38]-[40]): Where the "subject-matter"' of copyright protection is of an incorporeal and transient nature, such as that involved in the technology of broadcasting, it is to be expected that the legislative identification of the monopoly ... and its infringement ... of necessity will involve reference to that technology. But that does not mean that the phrase "a television broadcast"' comprehends no more than any use, however fleeting, of a medium of communication. Rather, as the Gregory Report indicated, protection was given to that which had the attribute of commercial significance to the broadcaster, identified by the use of the term ''a broadcast'' in its sense of ''a programme''. In the same way, the words, figures and symbols which constitute a ''literary work'', such as a novel, are protected not for their intrinsic character as the means of communication to readers but because of what, taken together, they convey to the comprehension of the reader. In fixing upon that which was capable of perception as a separate image upon a television screen and what were said to be accompanying sounds as the subject matter comprehended by the phrase ''a television broadcast'', the Full Court appears to have fixed upon the medium of transmission, not the message conveyed by its use Because the medium is ephemeral, it is necessary to capture what a television broadcaster transmits if any practical use is to be made of the signal that is broadcast. For many purposes, it is necessary not only to capture the signal, but also to translate it so that the images and sounds which the signal conveys can be seen and heard ... 75 The matters to which we have referred, the Agreed Facts, the Joint Statement of Experts and the expert evidence show that the primary judge correctly rejected the Commissioner's contention that the Disputed Payment was a royalty because it was for copyright in a cinematograph film. Although, as her Honour accepted (PJ, [40]), Seven and the host broadcaster could simultaneously record and store the signal as it was being transmitted, the ITVR Signal received by Seven was not taken from any previously recorded version. Rather, the ITVR Signal was a digital signal produced by the host broadcaster and transmitted by electromagnetic forces virtually instantaneously to Seven at the IBC. As Mr Catterns QC put it, the ITVR Signal was "zooming along at not much short of the speed of light, directly for a live broadcast to Seven". At any one moment, the ITVR Signal was transmitting only a very tiny fraction of the sounds and images of the field of play. There was no picture, image or sound recorded or permanently stored in the copper coaxial cable that transmitted the signal. No picture, image or sound could be recorded or permanently stored in the ITVR Signal. The ITVR Signal was not tangible and did not give physical form to an image or sound. There was therefore no fixation or material embodiment of an aggregation of visual images capable of being shown as a moving picture and of an aggregation of sounds. No cinematograph film was made because no first copy was made. It appears unlikely that the requisite territorial nexus for the subsistence of copyright was ever relevantly met. There was no technology that allowed the information transmitted by the ITVR Signal to be reproduced; rather images and sounds could only be produced from the ITVR Signal by using a receiving device. 76 We do not consider that either Galaxy Electronics 75 FCR 8 or Stevens 224 CLR 193 assist the Commissioner's argument in the present case. Galaxy Electronics concerned two video games constituting a series of images such that the events represented on the screen varied according to the actions of the player of the game. Lindgren J, with whom Lockhart J agreed, made it clear (at 24) that the images were embodied in a material, physical form in the integrated circuits of the video game in a permanent fashion and therefore there was a single time of publication in respect of them. It was on this point that Lindgren J chiefly relied, although he acknowledged that, in the alternative, as Wilcox J proposed (and with whom Lockhart J also agreed) the aggregate of visual images existed "in the minds of their creators and the drawings and models they made". The effect of Lindgren J's judgment was that it did not matter that the game played out in different ways depending on the choice of the player, so long as the physical circuits in the machine permanently contained in a material form the whole of the images at one time. 77 The High Court considered Galaxy Electronics in Stevens 224 CLR 193, noting (at [86]) that Galaxy Electronics gives rise to difficulties, although the Court was prepared to assume, because no party challenged the decision, that the aggregate of images and sounds stored on a PlayStation CD-ROM answered the statutory description of "cinematograph film". Nonetheless both Stevens (also involving different issues from those arising here) and Galaxy Electronics required the aggregate of visual images and sounds to be stored in a fixed and material form, as opposed to one that is transitory or fleeting. The holding in Stevens was that there had been no reproduction in a material form because the portion of the game code that was stored in the RAM of the PlayStation could not be reproduced in the ordinary course and without developing hardware which would reverse the copying process. 78 It does not seem to us, moreover, that the Commissioner's argument is consistent with Emmett J's reasoning in Australian Video Retailers Association v Warner Home Video Pty Ltd [2001] FCA 1719, 114 FCR 324, which was cited with approval by the High Court in Stevens at 217 [71]-[72]. Emmett J held that a cinematograph film was never embodied in the RAM of a DVD player or personal computer at any given time, but was embodied in a DVD disc because it was stored in the disc. For present purposes, the relevant issue was whether playing the disc constituted making a copy when it involved the sequential decompression of the audio, video and caption content of the disc although only a tiny fraction of such content was stored in the RAM of the DVD player or a personal computer at any given time. His Honour held that such an ephemeral collection of the images meant that it was not so stored: Australian Video Retailers 114 FCR 324 at [63]-[65]. His Honour said at [65]: I consider that the ephemeral embodiment of tiny fractions of the visual images and sounds that comprise a cinematograph film or motion picture sequentially does not constitute the act of making a copy of the motion picture or cinematograph film within the meaning of s 86(a). It is clear that neither the whole nor any substantial part of a cinematograph film or motion picture is ever embodied in the RAM of a DVD player or personal computer at any given time. The mere fact that, over a period of time, being the time taken to play the motion picture or cinematograph film, tiny parts are sequentially stored in the RAM of the DVD player or personal computer does not mean that the motion picture or cinematograph film is embodied in such a device. As a result, a consumer, by playing a DVD disc, does not, for the purposes of the Act, make a copy of the whole or a substantial part of the motion picture or cinematograph film embodied in that DVD disc. 79 Accordingly, we reject the Commissioner's contention that the Disputed Payment was for the use, or the right to use, copyright in a cinematograph film.

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Other like property or right 80 If the Disputed Payment was not for the use of copyright, was it, as the Commissioner contended, for the use, or right to use some "other like property or right" within the meaning of Art 12(3) of the Swiss Treaty? As noted earlier, on appeal, the Commissioner submitted that the primary judge erred in the construction of the phrase "other like property or right". 81 Amongst other things, as indicated earlier, the Commissioner submitted that the word "like" performed a similar function to that performed by the expression "like payment" in s 3A(5) of the Sales Tax Assessment Act (No 1) 1930 (Cth) which the Full Federal Court considered in Franklin Mint 44 FCR 109. Section 3A(5) relevantly provided that: A reference in this section to royalty is a reference to an amount, however described or computed, that is paid by a person (whether the payment is periodical or not) to the extent to which the amount is paid by way of royalty (or like payment) as consideration for - [any of the matters listed in pars (a) to (f)] In Franklin Mint at 121, the Full Federal Court held that an amount may be a "like payment" within the meaning of s 3A(5) "even though it does not contain all the essential elements of that which it resembles or to which it is analogous". The Court stated that it was sufficient if the payment was "of a broadly similar nature to a royalty". By parity of reasoning the Commissioner argued that the phrase "or other like…right" in Art 12(3) included within the scope of the term "royalties" payments for "rights" of a "broadly similar nature" to the "rights" listed in Art 12(3). The Commissioner argued that a "right" can be similar even though it is not an intellectual property right under Australian domestic law. As we have seen, the Commissioner submitted that whether two rights are alike as a matter of substance is a question of characterisation "in all the circumstances" and that a principal factor bearing on that question is whether the two rights are "functionally equivalent". The Commissioner claimed that "in practical terms" Seven received a monopoly on the public broadcasting of Olympic Games images and sounds and submitted that "the rights and freedoms from which that public monopoly derived were, taken together, a 'like property or right' within the meaning of the Swiss Treaty". This was because, so the Commissioner said, Seven's rights were functionally equivalent to the rights that "a copyright holder would have if the copyright holder had sole rights over given images and sounds". We are unable to accept the Commissioner's construction, which has a number of difficulties. 82 In our view, the primary judge was correct to conclude that the collocation of words in Art 12(3) that end in "other like property or right" enumerates a class of rights, the subject matter of which relates, broadly speaking, to intellectual property. This is self-evidently true of a copyright, patent, design and trade mark. We need not decide whether, as Mr Catterns QC affirmed, a model or plan signifies the equivalent of an Australian petty patent or innovation patent on the one hand or copyright in drawings on the other, because we accept that the remainder of the class (model, plan, secret formula or process) is in the nature of trade secrets or other commercially confidential information, which the law also protects: see, for example, Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 at 438. We consider it significant in this regard that a proprietary character has been attributed to confidential information because of the protection the law afforded it: see Smith Kline & French Laboratories (Aust) Limited v Secretary, Department of Community Services (1990) 22 FCR 73 at 120-122. Once it is accepted that the collocation relates to intellectual property in this sense, we are of the view that the language of Art 12(3) does not support the Commissioner's construction either textually or grammatically. 83 The definition of "royalties" in Art 12(3) of the Swiss Treaty has several parts to it and the phrase "other like property or right" does not appear at large in it. The phrase is only used in conjunction with the words "any copyright, patent, design or model, plan, secret formula or process, trade-mark" and must be read together with that collocation. Read together, the specific words give content to the description of "other like property or rights" and a "like right" takes its meaning from that context. "Like right" must mean analogous rights - that is, rights of a similar nature. We accept that "other like property or rights" was intended to embrace rights recognised as in the nature of intellectual property rights by the laws of the Contracting States; and thereby enabled them to reach agreement even though their understanding of intellectual property for domestic purposes might differ. The result is that the phrase permits an ambulatory operation and encompasses rights and property that are comparable in each domestic legal system: cf. Undershaft (No 1) Ltd v Federal Commissioner of Taxation [2009] FCA 41, 175 FCR 150 at [107]-[111]. 84 The definition of "royalties" in Art 12 of the OECD Model Convention with respect to Taxes on Income and on Capital (OECD Model Tax Convention) is relevantly like that in Art 12(3) of the Swiss Treaty. It provides as follows: 2. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. 85 Although the wording is not identical, the OECD commentary on the equivalent Article tends to confirm that the subject matter relates to intellectual property: Thiel 171 CLR 338 at 344. The OECD commentary (published 2010) states at 222 [8]: 8. Paragraph 2 contains a definition of the term "royalties". These relate, in general, to rights or property constituting the different forms of literary and artistic property, the elements of intellectual property specified in the text and information concerning industrial, commercial or scientific experience. The definition applies to payments for the use of, or the entitlement to use, rights of the kind mentioned, whether or not they have been, or are required to be, registered in a public register… (Emphasis added.) 86 Whilst the Swiss Treaty has added the phrase "other like property or right" in the text, the addition is in reference to those "elements of intellectual property". The primary judge held (at [133]) that the expression "other like property or right" "extends the operation of a royalty to enable each country to enlarge or contract its protected intellectual property rights, so long as they fall within the genus of intellectual property". We agree. Such a construction gives effect to the ordinary understanding of the word "like" and, in the context of a bilateral treaty dealing with the allocation of taxing rights, desirably affords both a clear meaning to "other like property or right" and certainty of application by both Contracting States. The Commissioner's construction does neither: significantly it does not advance certainty in the application of the Treaty by the Contracting States. 87 There are, moreover, no contextual reasons for accepting the Commissioner's construction. There is nothing in the context, object or purpose of the Swiss Treaty that justifies giving the phrase the meaning for which the Commissioner contends, nor was this suggested by the Commissioner: see Article 31(1) of the Vienna Convention on the Law of Treaties (23 May 1969) 1155 UNTS 331 which requires the terms of the Treaty to be interpreted "in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose". Nor is there anything in the historical background that supports the Commissioner's construction. To the contrary the historical material indicates that the phrase was not intended to extend the category beyond rights given legal protection under intellectual property laws. The more limited phrase "other like property", so Seven informed us, was first introduced into Australia's double tax agreements in a treaty signed in 1946 in response to an awareness that conceptual differences existed between countries in relation to intellectual property rights. As the primary judge noted, copyright under Australian law does not have identical equivalence with droit d'auteur (French language version) or Urheberrecht (German language version) under Swiss law, but what they do have in common is that each is protected as an intellectual property right under domestic law, and the phrase "like property or right" allows for such differences. The historical account that Seven provided also indicates that the words "or rights" were introduced in a new double taxation treaty entered into by the United Kingdom and Australia in 1967, to deal with the development of related rights under intellectual property laws. 88 Furthermore, it is relevant that until the 2013 Swiss Treaty, the double tax agreement between Australia and Switzerland did not contain an equivalent to paragraph (db) of the definition of "royalty" in s 6(1) of the ITAA 1936. The point is that there was no equivalent to paragraph (db) in Art 12(3) of the Treaty in the income years in question, although paragraph (db) had been in the Australian domestic law definition of "royalty" since 1992. It is evident that the inclusion of that paragraph was considered necessary to bring payments of that kind within the definition of "royalties" for tax purposes. 89 The Commissioner has not advanced a reason for his construction other than reliance on the ordinary meaning of "like". It may be accepted something is "like" another thing if it is broadly similar but the Commissioner's submissions failed to grapple with the context in which the phrase appears. The context provides no support for the construction that the Commissioner urged and the primary judge was to correct to hold that a "like right" for the purposes of Art 12(3) of the Swiss Treaty is an intellectual property right that is recognised as such by the intellectual property laws of a Contracting State.

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Future Copyright 90 As noted above, Seven challenged the Commissioner's capacity to rely on an argument to the effect that, in making the Disputed Payment, Seven received a monopoly in respect of the broadcasting of Olympic Games images and sounds over which it would acquire future copyright. Seven maintained that the Commissioner had abandoned this argument before the trial judge; and, on analysis, we agree. 91 A question arose early in the proceeding before the primary judge as to whether the Commissioner would challenge the characterisation of the payments described in the SUD and the manner in which they had been apportioned. The Commissioner apparently agreed that the apportionment of the payments would not be in issue, as reflected in paragraph 13 of the Commissioner's amended defence in the s 39B proceeding, in so far as it responded to para 7 of Seven's statement of claim. 92 Paragraph 7 of Seven's statement of claim pleaded: 7. In performance of its obligations set out ... above, between March 2006 and August 2008 the Applicant made payments to the IOC totalling $97,742,609 (Payments). Particulars The Applicant made the following payments to the IOC pursuant to the [SUD]: (i) payment of $21,248,819 on or about 27 March 2006; (ii) payment of $66,024,418 on or about 5 April 2006; (iii) payment of $23,630,392 on or about 15 February 2008; and (iv) payment of $11,272,632 on or about 15 August 2008, totalling $122,178, 261, of which $97,742,609 (being 80%) were the Payments. Paragraph 13 of the Commissioner's amended defence responded: 13. Having regard to the whole of the circumstances in which the Disputed Payments were made, the Respondent says that the Disputed Payments were, to the extent of 90%, consideration for the use of, or the right to use, copyright, trade marks or like property or right, or for assistance of an ancillary and subsidiary nature furnished as a means of enabling the application or enjoyment of copyright or like property or right, or for the use of, or the right to use, motion picture films, films or video tapes for use in connection with television. Each disputed payment was therefore to that extent a "royalty" within the meaning of Article 12(3) of the Swiss [Treaty]. Particulars 13.1 To the extent of 5%, the Disputed Payments were consideration for the grant of or use of the rights referred to in clause 3.2(a) of the [SUD], being the use of or the right to use copyright subject matter, assistance of an ancillary and subsidiary nature furnished as a means of enabling the application or enjoyment of copyright material, or motion picture films, films or video tapes for use in connection with television. 13.2 To the extent of 5%, the Disputed Payments were consideration for the grant of or use of the rights referred to in clause 3.2(b) of the [SUD], being trade marks or other like property or right. 13.3 To the extent of 80%, the Disputed Payments were consideration for the grant of or use of the rights referred to in clause 3.1(a) of the [SUD], being the use of or the right to use copyright works or other copyright subject matter, or other like property or right, or assistance of an ancillary and subsidiary nature furnished as a means of enabling the application or enjoyment of a copyright or other like property or the use of or right to use motion picture films, films or video tapes for use in connection with television. 13.4 Further and alternatively, 90% of the second Disputed Payment referred to in paragraph 7(ii) of the Statement of Claim was consideration for the use of or right to use Broadcast Rights granted under the 1996 Agreement, being use of or the right to use copyright subject matter or other like property or right, or assistance of an ancillary and subsidiary nature furnished as a means of enabling the application or enjoyment of a copyright or other like property or right, or for the use of, or the right to use, motion picture films, films or video tapes for use in connection with television. 93 Mr Bloom QC informed us, and the Commissioner did not dispute, that when it became evident at trial that the Commissioner proposed to argue, under para 13.4 of the amended defence, that "Seven and the IOC had somehow conspired to agree to throw part of the payment against the ITVR Signal rather than the broadcast rights in respect of which they first become due and payable", the primary judge invited the Commissioner to consider his position. The outcome was an email dated 12 May 2014, in which the Commissioner notified her Honour that the Commissioner would not press para 13.4 of the amended defence (or the relevant parts of his written submissions). The primary judge recorded this outcome (see PJ, [5]), noting that the sole issue for determination was whether Seven's payment "to the extent that it was apportioned to the grant or use of the rights referred to in clause 3.1(a) of the [SUD] was a royalty within the meaning of [the Swiss Treaty]". As a consequence, the only issues at trial were: (1) whether there was copyright in the ITVR Signal (see PJ, [46]); and (2) whether the use of, or right to use, the ITVR Signal included the use of, or the right to use "other like property or right" within Art 12(3) also focussing on the ITVR Signal (see PJ, [134]-[135]). It can be inferred from the Commissioner's conduct at trial that the Commissioner abandoned the contention that the Disputed Payment was not for the ITVR Signal, but was for something else, such as broadcasting service rights, including copyright in them. 94 In any event, however, we would reject the Commissioner's submission that the Disputed Payment was a royalty because it was made for the broadcast copyright that came into existence when Seven broadcast the Olympic Games. We agree, as Seven submitted, that cl 5 of the SUD did not grant any rights to Seven. On the contrary, cl 5 recognised that Seven itself would hold the copyright that it acquired under the Copyright Act by virtue of its own broadcasting activities, but provided that after the Games Period (as defined) Seven would assign that copyright to the IOC. The point made by Seven that it was by its own actions that it acquired the broadcasting copyright under the Copyright Act was plainly correct. It followed that, even if the Disputed Payment was paid for the future broadcast copyright that Seven would acquire when it broadcast the relevant Olympic Games, the Disputed Payment could not constitute a royalty because it was not a payment for doing an act comprised in a copyright (or other proprietary right) owned by another. It is inherent in the concept of "royalty" that a royalty payment is in respect of a licence or permission granted by the owner of a monopoly or other property right in respect of that property: Stanton v Federal Commissioner of Taxation (1955) 92 CLR 630 at 641-2; Barrett v Federal Commissioner of Taxation (1968) 118 CLR 666 at 671; Federal Commissioner of Taxation v Sherritt Gordon Mines Ltd (1977) 137 CLR 612 at 627; and Australian Tape Manufacturers Association Ltd v The Commonwealth (1993) 176 CLR 480 at 499. As the High Court said in Stanton 92 CLR 630 at 642, "[i]n the case of monopolies and the like the essential idea seems to be payment for each thing produced or sold or each performance or exhibition in pursuance of the licence". A payment under cl 3.1(a) of the SUD was not transformed into a royalty by reason of the fact that Seven would acquire copyright in television broadcasts that it made in Australia (providing the conditions of s 91 of the Copyright Act were met), notwithstanding that the payment was "for the ITVR Signal for use in connection with exclusive Australian Broadcasting" for the defined period and that the ITVR Signal was an ingredient in that broadcast. 95 Accordingly, we reject the Commissioner's submissions concerning future copyright.

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Forbearance: proposed ground 6 96 We agree with Seven's submission that the Commissioner's proposed new ground was fundamentally misconceived. 97 Broadcasting in Australia is regulated by the Broadcasting Services Act. Sections 131, 132 and 134 of the Broadcasting Services Act prohibit a person from providing television broadcasting services unless the person holds a licence. Relevant categories of television broadcasting licences can only be issued to an Australian corporation with share capital: ss 37 and 95. The primary judge found (at PJ, [150]) that Seven was the party that held a broadcasting licence and was a broadcasting service within the meaning of the Broadcasting Services Act, not the IOC; and that the host broadcaster responsible for transmitting the ITVR Signal was not a relevant broadcasting service. It was not disputed on appeal that the IOC and the host broadcaster did not hold a licence under the Broadcasting Services Act and that neither was a broadcasting service within the meaning of that Act. It followed, as Seven submitted, that only Seven, not the IOC and host broadcaster, had the legal right to broadcast in Australia. 98 In light of this statutory regime, there could be no forbearance of the kind the Commissioner claimed. The payment under cl 3.1(a) was specified as being "for the ITVR Signal for use in connection with exclusive Australian Broadcasting" and was not for any forbearance in respect of the use of any relevant property or right belonging to the IOC or any other relevant entity. We accept that, as Seven submitted, by the Disputed Payment, Seven paid for access to the ITVR Signal, as an ingredient in its broadcasting in Australia of the relevant Olympic Games and in order that no other licensed broadcasting service within the meaning of the Broadcasting Service Act would have that access and ingredient by which to make such broadcasts. The fact that the host broadcaster had a recording of the ITVR Signal was immaterial since the host broadcaster did not have the right to broadcast in Australia and nor did the IOC. 99 We reject the submissions advanced by the Commissioner in support of the proposed new ground 6 on the basis that they are misconceived. We would refuse the Commissioner's application for leave to amend his amended notice of appeal on the basis that we are not satisfied that it is expedient and in the interests of justice to grant such leave.