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Environment and Communications Legislation Committee

GORDON, Mr Paul, In-house Legal Counsel, Redbubble Limited

HOSKING, Mr Martin, Chief Executive Officer, Redbubble Limited

Committee met at 08:39

CHAIR ( Senator Duniam ): I declare open this public hearing of the Senate Environment and Communications Legislation Committee in relation to its inquiry into the Copyright Amendment (Service Providers) Bill 2017. This is a public hearing and a Hansard transcript of the proceedings is being made. Before the committee starts taking evidence I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness because of evidence given to a committee, and such action may be treated by the Senate as a content. It is also a contempt to give false or misleading evidence to a committee. The committee prefers all the evidence to be given in public, but under the Senate's resolutions witnesses have the right to request to be heard in private session. It's important that witnesses give the committee notice if they intend to asked to give evidence in camera. In addition, if the committee has reason to believe that evidence about to be given may reflect adversely on a person, the committee may also direct that that evidence be heard in private session. If a witness objects to answering a question, the witness should state the ground upon which the objection is taken and the committee will determine whether it will insist on an answer, having regard to the ground which is claimed. If the committee determines to insist on an answer, the witness may request that the answer be given in camera. Such a request may also, of course, be made at any other time.

On behalf of the committee I would like to thank all those who have made submissions and sent representatives here today. I welcome Mr Martin Hosking and Mr Paul Gordon from the Redbubble. You've both received information on parliamentary privilege and the protection of witnesses. I invite one or both of you to make a brief opening statement and then we will get onto questions.

Mr Hosking : I thank the committee for this opportunity. I'm accompanied by the Redbubble's in-house legal counsel, Paul Gordon. In my introductory remarks I want to cover three things: a little context about Redbubble; why safe harbours and IP reform in general are important to Australia; and Redbubble's specific experience.

A little bit about my background: I started my career in Foreign Affairs and Trade as a diplomat. I went on to the management consultancy McKinsey, and I was one of the founding team at LookSmart, which was the first Australian technology company to list on the Nasdaq. I was a major funder and chairman of Aconex, which was recently acquired by Oracle. Then I came to Redbubble. So I've had over 20 years experience with the technology here in Australia.

Over 11 years ago two friends and I started Redbubble in Melbourne. Our mission was to serve independent artists. It remains our mission. We are creating the world's largest marketplace for independent artists, bringing more creativity into the world. I'm both humbled and proud by what so many people have achieved. Over 170 million people visited Redbubble's marketplace last year. Over 11 million works are on the website from more than 600,000 artists. Artists have earned over $100 million from the marketplace. This year alone there will be more than $40 million. Putting that in context, it's more than the Australia Council provides to the visual arts each year. Redbubble employs over 220 people directly and over 600 people are employed in high-end manufacturing jobs in the broader marketplace. Those jobs are in the Western world. Over 93 per cent of sales are outside Australia. I believe we are the largest global consumer technology company that has come from Australia. I am tremendously proud of this, but I want to also be honest. We are an unusual Australian success story. Australia has not nurtured technology companies well. Less than one per cent of the ASX is in technology, versus about 20 per cent of US listed companies.

This is the context for my second point: why safe harbours are important. The current copyright laws were created for a pre-internet world. They do not work in the age of the internet, most particularly because they do not deal with the reality of user generated content—UGC. A myriad of new services have emerged which are platforms for other people's content. The United States appreciated this new reality and adopted the Digital Millennium Copyright Act—DMCA— with safe harbours to recognise this: namely, that platforms for others content could not be held liable for that content provided—and this is critical—that they undertook appropriate action to protect rights holders interest. Almost every other country in the OECD follows suit—except Australia.

The safe harbour framework has nurtured new platforms such as Facebook, Snap, Reddit, Google, Instagram, eBay, YouTube, SoundCloud et cetera, which has in turn nurtured a myriad of independent artists, business people and performers who have used these platforms to gain distribution. Australia has largely been left outside this. It's no surprise that the IP reform laws are being opposed by existing intermediaries such as News Corp. If we allow creators to directly find their audience, News Corp and other corporations face a more dynamic and difficult competitive environment. For 20 years they have resisted the threat represented by the internet. I know this because I've seen it. That is their problem. But the simple reality is that the internet as we know it depends on user generated content. Without safe harbours, the platforms on which UGC is shared cannot exist. To oppose safe harbours for the platform is, at its simplest, to oppose UGC. This new reality is well entrenched and cannot be rolled back.

I understand that reform is hard. The old world of intellectual property was more comfortable. It was the world of the 19th, not 21st century. Every committee that has looked at this issue for over 17 years has recommended reform in the national interest. It is understood that there will be vested interest opposing reform. That does not mean it is not in the national interest. Looking through the lens of national interest, failure to reform for Australia has not blocked the rise of Google or Facebook or prevented consumers from getting access to the UGC they want. All it has meant is that start-ups that rely on UGC for their business have not and will not get going in Australia. Redbubble is the exception, not the rule. I want to be very clear here that the lack of reform has had a huge opportunity cost. It can be measured by the simple yardstick of Australia's failure to nurture companies that depend on user generated content. The combined worth of the three companies that have emerged with the internet—Google, Facebook and Amazon—is greater than the entire ASX top 300 companies combined. In other words, three companies have created more value in 20 years than all of corporate Australia has in 200 years. The US culture of innovation and competition and innovation has been critical to this success.

I want to note that safe harbours are not a licence for piracy. In fact, the reverse is true: by putting obligations on the service providers they enable a regime by which rights holders can protect their interests while also providing for a legal foundation for the platform.

This brings me to Redbubble's experience. For 11 years Redbubble has been using the DMCA framework to determine our IP procedures. We, like the rights holders, have no interest in pirated work and we have gone to considerable expense and effort to protect the interest of rights holders. You may hear our position on these issues misrepresented. Fortunately, we have an external party to provide clarity. In a recent court case brought by Pokemon against Redbubble, after looking at all the evidence the judge found: 'Redbubble's business is not directed to profit from infringing of intellectual property.' He went on: 'Redbubble was seeking to comply with its obligations under law and had processes in place to prevent and mitigate breaches which were reasonable and defensible.' He went on to say, 'Redbubble took conscious, considered and reasonable steps, both proactively and responsibly, to prevent infringements and to prevent the continuation of infringements.'

Redbubble's policy and procedures have come into being because of the existence of safe harbours. We want to keep our good actor status. Specifically, the DMCA framework requires us to act appropriately once a content owner's desires are made known. It provides an opportunity to clarify the legal rights and responsibilities for all actors in the space, including platforms, content owners and artists. It provides all parties with a simple, low-cost method for dealing with infringing content and resolving disputes non-litigiously. We have found that safe harbours promote collaboration between all parties—content owners, artists and platforms—in the fight against infringement. Redbubble has leveraged and built upon the US safe harbour framework to build a collaborative relationship with content owners in the management of content on the website and, where appropriate, has entered into a proactive policing arrangements to remove problematic content. It is clear that once a safe harbour regime is established it becomes a floor for practices. To maintain protection, it is incumbent on the service providers to continually upgrade their services as technology develops, as Redbubble has done.

Before concluding I want briefly comment on the proposed legislation. The proposed distinction between the education and not-for-profit entities and commercial online service providers is unworkable. There are countless examples of the education and not-for-profit sectors engaging with commercial entities on projects with potential commercial output. An example of this is Redbubble's recent successful collaboration with the State Library of Victoria. Such cooperation could not proceed under the proposed legislation. All governments have recognised that it is in our national interest to have more cooperation between libraries, universities, government organisations and commercial enterprises. The compromise embedded in the proposed legislation simply means that such cooperation, where it involves UGC, is impossible.

In passing I should comment on the suggestion that there will be a gradual extension of safe harbours to commercial enterprises. This is a 'Yes minister' compromise. For 17 years we have been looking at this issue. The call for further review is simply a call to continue to do nothing except the status quo.

In conclusion, this committee has a relatively stark choice. Does it want Australia to embrace the possibilities of the internet or not? Our laws are over 100 years out of date. They serve only those who resist innovation or increased competition. We know we have a problem when laws allow the unnecessary and sometimes simply vexatious litigation that Redbubble has seen. When a company like Redbubble has to defend itself against an outlaw motorcycle gang, the Hells Angels, over an image on a product that they alone bought, we have a legal environment that is clearly untenable.

I want to make clear that this is not about Google or Facebook. They will thrive and prosper whatever this committee does. It's not even about Australian creators, musicians and filmmakers. All of them benefit from platforms that give them global distribution. It's really about the new idea, the new start-up, the next Facebook, Instagram or Snap in some garage in Hobart or Perth; some company that wants to be a platform for UGC in some form. Australia needs these companies if we going to continue to prosper. Right now, if that company came to me or any other angel or VC investor for funding, all we could honestly say is that they need to relocate out of Australia. They need to move anywhere else in the OECD, where they have some legal protection, where a Hells Angel's case is not possible. Australia cannot even begin to count the loss from such foregone opportunities, but undoubtedly it will continue to slip further down the innovation ranks.

I urge this committee to seize the day and recommend the government that they extend safe harbour protections to good actors under well-defined conditions that protect the interest of good parties. This needs to be done in the national interest. Thank you. I welcome questions.

Senator URQUHART: Thank you for that, Mr Hosking. In your submission you state that the limited safe harbour scheme will be impracticable to administer. Can you tell us why you consider that the bill introduces complexity and confusion?

Mr Hosking : It probably is illustrated by the relationship we have with the State Library. The State Library would theoretically be covered by the safe harbours. I think that's envisaged. The State Library, like all libraries in Australia, is looking at what they mean in a world that is moving beyond books in some form. They came to us and said, 'We're trying to imagine the State Library as a hub for innovation, working with RMIT and all of universities around the area and with start-ups.' As part of that, they were very keen to cooperate with us directly. That cooperation involved a competition where our online reach was matched the State Library's great off-line presence—their physical building. We reached out and had a competition which had thousands of entries and received hundreds of thousands of people from all over the world viewing those entries. We selected 10 winners. Those 10 winners are now for sale in the State Library. I think the total sales of that is about $20,000, which has gone through to the State Library. More importantly, the content was available in the State Library. It was on a banner at the front of the State Library. It was part of the sound and light exhibition, the White Night exhibition which we have here. It just showed how that cooperation and vitality of a platform such as Redbubble, working with an offline platform at the State Library, come together. I'm not sure what the State Library would have done if they hadn't had some sense that there would have been safe-harbour protections. Who would have determined, if it's not copyright infringing, that there wasn't some problem with that work? It requires some sort of protection in order for that to happen. That's the sort of thing which would have been prevented.

Senator URQUHART: The Australian Libraries Copyright Committee made a comment that it was unclear in the bill, as it's currently drafted, whether the scheme would cover interactive projects, such as the State Library collaboration. That's a project.

Mr Hosking : That's a project; exactly. You talk to the CEO or the chair of the State Library and they were thrilled with it, as were we. It was a really powerful example of a corporation working with a government institution to create something of unique value.

Senator URQUHART: Have you been able to clarify the status of that project?

Mr Hosking : No. Like everything else, it exists in a sort of netherworld.

Senator URQUHART: Do you think that the bill will adversely affect the entities which the bill aims to assist?

Mr Hosking : I'm not sure I'm the best person to comment on that, to be honest.

Mr Gordon : From the perspective of rights holders, their remedy, viz a viz the notice and takedown process, will depend on the status of the platform being a not-for-profit, education or commercial enterprise. It does create that confusion around the distinction and from the perspective of the artist whose work is taken down. The application of the counter-notice process that applies under the safe harbour will, again, depend on the status of the platform. That simplicity of the rights and obligations of all parties in the DMCA process is lost with that distinction.

Mr Hosking : Readings bookshop was also involved in that. They provide the offline sales within the State Library. So we had two commercial enterprises and one non-commercial creating an environment that was serving the interests of all parties.

Senator URQUHART: In your submission you say that the internet depends on user-generated contact, which, in turn, has been assisted by the protections that the safe harbour's provided by legislation—things like the US Digital Millennium Copyright Act. Can you expand on how the protections assist with user-generated content?

Mr Hosking : The new platform to emerge, which relies on user-generated contact—such as Facebook, Instagram and Redbubble or Snap or any of the others—is uploaded by millions of users and many millions of works are uploaded every day. In Redbubble's case it's many thousands of works. The platforms cannot know or review what's been uploaded. It is simply impossible. There is no way of knowing whether something is in violation of copyright or is infringing on an intellectual property law in some country or other. It is genuinely and absolutely impossible. I state that as an absolute. I could show you a whole series of images. Some of them you might think are in violation, but you will not know.

All of these platforms exist because all of that content has been uploaded and shared by the users. It's not being created by the platforms; it's not being reviewed by the platform; it's not being curated by the platform. It's being uploaded by the users. None of those platforms could exist if they were going to be held legally liable every time there was some infringement of some form or other. They would simply close down. When it comes to the heart of it, that is what the opponents of the safe harbours are asking for. They are wanting a legal environment in which those companies that share user-generated content cannot legally exist. They are arguing against the internet itself. They'll say lots of other things but that is the simple reality of the situation. If the safe harbours didn't exist and those companies didn't have a legal environment in which they were comfortable, they would have to close.

Senator STEELE-JOHN: I would like to explore that in a little more depth. I expect when we hear from people on the other side of the argument they reference things like YouTube's content ID system, which cost them about $50 million to develop. Could you, in detail, take us through the exact nature of the cost prohibitiveness of attempting to apply systems to companies such as yourselves?

Mr Hosking : It's an interesting one. The safe harbours have provided YouTube and others with the framework by which those systems come into being. In a sense, they give you an operating space by which you can continue to develop regimes by which you can work with the rights holders. I'm not arguing and have never argued that we should have a situation where any content uploaded is a free-for-all. That's not the case. There are particular rights and obligations that are imposed on companies, and correctly. As the companies get more mature, they should be held to invest more in those protection policies. In the recent case of Redbubble, the judge did not say, 'Redbubble, you're being a passive actor; everything's uploaded; you're okay.' The judge found we are putting in place continually upgraded systems, so the rights holders could achieve their objectives without going through the litigation.

Let's take one specific example, the Hells Angels case, which has cost well over a million dollars in legal fees and has gone on for months. The Hells Angels could have got all of their objectives by simply noting to us, 'This content needs to be taken down and, by the way, we'd like a policing arrangement.' A total of $120 worth of sales went through, that was all. That's the nature of it, and they were the people who acquired it. We understand that we as a platform have obligations on us and that we need to be more than passive in the way in which we respond. We need to have a responsive attitude towards rights holders. We need to take down content where they identify it and we need to go beyond that to identify their concerns.

In YouTube's case, they've got a lot of money. They've got the technology to invest behind that and it's a legitimate expectation that they do that. It's a legitimate expectation on Redbubble that we put a lot of effort into maintaining the protection of rights holders. I accept that responsibility. We're an organisation of 220 people with $200 million in sales. I don't expect us to be a platform where if we did nothing that would be okay. That's not what the judge found and that's not what I'm asking for. What we're asking for is that the committee recommend safe harbours and they recommend, as part of that process, that good actors have continual obligations to protect the interests of rights holders, and those evolve over time. The larger the corporation the larger the obligation should be.

To your point, Senator, if you're a brand-new start-up, no, you should not have the same obligations of YouTube. You should not have the same obligations as Redbubble. But as you get going you would be expected to put more resources into this area.

Mr Gordon : It's important to get the scope right, in the first place, of who the safe harbour applies to and, then, under that, via codes of conduct or conditions attached into the safe harbour, you reinforce that good actor status.

Mr Hosking : This is what the US did. They put in place the DMCA 17 years ago. That has allowed them to continually upgrade the frameworks and obligations of the rights holders. We have not had that, so we have no legal clarity. All we have is the opportunity to waste millions of dollars in legal fees, on the side of all parties, because nobody knows what to do.

Senator URQUHART: Going to the legal action, and you spoke about Pokemon in your opening statement, is Redbubble the only company in Australia where actions such as that have been brought?

Mr Gordon : There are a large number of authorisation copyright claims. The most famous cases have been against pure internet service providers, like iiNet. The Pokemon case against Redbubble is probably the first, of its nature, against a marketplace of a type like Redbubble, but that's because Redbubble is a relatively unique business, I believe, in Australia.

Senator URQUHART: How has that legal action affected the way you run the operation?

Mr Hosking : I will let Paul answer in detail in a second. We have appealed the case, by the way, because the case was found against us. The nature of the damages is indicative. Because of all the actions we took, the judge said it was wasted—well, he didn't say that; that was my commentary. He said a lot of money has gone into legal fees, but only one dollar of damages is to be awarded. We see, in that case, the obligation to continue to improve the arrangements we have to protect the interests of rights holders, but those are going on anyway. That's not fundamentally changing what we use.

Mr Gordon : It's important to note in each case—in both Hells Angels and Pokemon—as soon as we knew the content was there, upon notification, it was taken down immediately. Following that, our usual process of proactive policing kicks in, so that we screen the site proactively and remove content that we believe to be problematic. But as Martin said, that process happens anyway and our technology tools to detect fraudulent uploaders happens anyway.

Mr Hosking : That's why there was no injunction found, because the judge said, 'You're already doing what you need to do. Anything I would injunct, you are already doing.'

Senator STEELE-JOHN: I just wanted to take you to what might be a slightly difficult question to answer. You referenced in your opening statement how you feel about the laws as they currently stand in this area: if Facebook started up in Australia, for instance, the law would kind of force that to go overseas. Can you give us the idea of the kind of opportunity costs that you think the Australian industry more, and broadly the economy, is suffering due to the current framework?

Mr Hosking : It's a really important question. I'm going to take a little bit further. I'm not despairing but I'm unhappy with the situation in Australia for something that is so relatively straightforward as this. It requires reforms as relatively simple as this, but we cannot make them. Every other country in the OECD has been able to take this path. This is not complex, really. I know that there are vested interests and I know that News Corp doesn't like it. News Corp doesn't like the internet. That's a given. But it's still a relatively straightforward thing. This is indicative of that. There are also other opportunities which would also find very difficult to give rise in Australia. With something like Airbnb, I could imagine the hotel industry would oppose it—or whatever it is. As a country, we talk about innovation, but we are not actually prepared to take the regulatory steps to allow that innovation to occur.

It's very hard to talk about what has been lost when it hasn't actually been gained. Opportunity costs are the hardest things to measure, because you don't know what could have been. This is a specific example: I do invest in start-ups. I'm a limited partner in the Blackbird funds, as well as directly. If somebody came to me and said, 'I have got a new pilot program. It's a lot better than Instagram or whatever it is, like a new version of Snapchat,' then you would simply say to them, 'Look, it's a great idea. All you need to do is just move it to America. Let's fund it in Silicon Valley and start it up there.' You wouldn't hint. They want to go there anyway in general. Our challenge is to hold these sort of companies here in Australia. That's the lost opportunity.

It's going to be very hard one to measure, other than the fact that we have so dramatically underperformed in the age of the internet. We will talk about how innovative Australia is—et cetera, et cetera—and I think we're pretty good in some dimensions; but in terms of creating actual substantial commercial opportunities out of innovation, we don't see them. I see Aconex, because I invested in it, being $1.8 billion historical. We've got WiseTech, obviously. We've got the folks from Atlassian, who had to list on the Nasdaq. But we don't have many companies at real scale. Redbubble is here before the committee, but we are a small company. We are $200 million in sales and $220 million of work. That's considered to be the most successful global consumer technology company out of Australia. It's small beer. Facebook could snap it up an instant. We've got to be honest about the fact that we have not created really substantial companies. I think Redbubble has the opportunity of becoming one, provided we are obviously allowed to continue operating here in Australia.

Senator STEELE-JOHN: What I hear you saying is you're the exception, not the norm.

Mr Hosking : Absolutely, we're the exception. You see the companies, all the time, relocating into the United States. This is another reason why you would do this. In 2007, we had a significant conversation about whether we should relocate at that point. We didn't do so because we thought the specific laws around IP reform were going to change here. They didn't change then. It was recommended then, it was recommended in 2010 and it was recommended in 2015. Did we change them? We still can't do it.

Mr Gordon : I think going forward, it's going to be easier and easier to be able to choose your location of domicile for a business. Global competitiveness has just become increasingly important.

Senator STEELE-JOHN: Absolutely. Submitters supporting the limitation of the scheme have argued that safe harbours were never intended to shield internet service providers from liability where those service providers themselves are engaged in the distribution of copyrighted material. Could you give us your response to that argument?

Mr Hosking : It has not been our experience. We have operated for 11 years under the DMCA in the United States. We have had conversations in the past with some rights holders about this issue. It is increasingly accepted that companies such as Redbubble, Facebook, Twitter, Instagram or Snapchat are protected by the safe harbours. This has not been an area of litigation in the United States to any significant extent.

Mr Gordon : Where there has been litigation in the United States, it has focused around whether the company is a good actor in the space and they are satisfying the requirements of the DMCA.

Mr Hosking : That's a critical issue. Companies which are not good actors, which genuinely host pirated work—that's whether they are in the United States or Megaupload in New Zealand—have been actively prosecuted not only by rights holders but by the US government. In the environment which has been created in the United States, the movie industry has thrived and the music industry has thrived. They will continue to operate. If you're just a site for pirated work and that's what your purpose and intent is, you will be prosecuted to the full extent of the law wherever you are and you will be litigated out of existence. That's the other reality of the DMCA.

Senator STEELE-JOHN: You mentioned a moment ago that you had cause to consider whether to stay in Australia and ultimately decided to because you thought we would get off our backsides and do something about this issue. Has the continuing interaction in this space played into any of your considerations around expansion or your further commitment to Australia? If you can't answer that in regard to your business, do you know of other businesses who are having this very much play on their mind as they consider whether to stay or go?

Mr Hosking : I can answer it in relation to our business, because we are a publicly listed company with directors who have governance responsibilities and they have obligations to shareholders. Of course, they have considered the legal environment that we operate in. It's relatively easy to redomicile a company. It's an issue which you would expect our directors to have actively considered, given their very specific obligations to shareholders.

I do know, in my involvement with the start-up community, of the issues with companies that are specifically focused on user-generated content as part of that platform. It may be in some very specific area. You may be a fitness company, for example, that has a fitness app and is wanting to use UGC as part of that. You may be concerned if somebody takes a photograph of somebody exercising in the gym, who has got an Adidas logo on their shirt. Legally, that could be considered to be an infringement. It's just a photograph of an Adidas logo on somebody's T-shirt, but that's the sort of thing where you say, 'There are dangers here. Maybe you should start off in the United States, for example.' When we look at UGC, you've got to go beyond just the narrow thing that is going to be another Facebook. It could be another something for the travel industry, fitness industry or finance industry. Anything that is using UGC could be potentially exposed to litigation. Any of those companies would be at threat in Australia.

Senator STEELE-JOHN: Wonderful. Thank you very much for your time.

CHAIR: I just wanted to go back to the DMCA, the US legislation that you have referenced. In terms of the bill we have before us and the point you have made about—putting it bluntly, I suppose—extending the safe harbour to commercial operations, is that the key difference between what are we talking about here and the DMCA? There are no other elements to the bill?

Mr Gordon : Yes, that is the key difference. The conditions attaching to the DMCA are much like the existing conditions that attach to the safe harbour that apply to the narrow class of carriage service providers here in Australia. Certainly, Redbubble is very open to those conditions. Redbubble is a very good actor in this space. Anything that tightens the screw on those conditions is actually good for us in terms of competitiveness but, certainly, the key distinction is the class of service providers to whom safe harbour applies.

CHAIR: What I was getting at was is it a case of simply extending the bill we are talking about now in the way in which it's been suggested, or is it a case of not knowing about the DMCA in any detail and whether that is far more comprehensive but, you're telling me, it's virtually this bill plus—

Mr Gordon : That's right, at its simplest level it is extending the definition of the service providers to whom the safe harbour applies.

CHAIR: That's fine.

Mr Hosking : In that context, as I mentioned to senators, we fully accept that as part of that there should be obligations. If you want to take the protection of the safe harbours, you should have obligations on you to protect the interests and rights of holders. That's fully understood.

CHAIR: Thank you both very much for your time today, and for your submission as well. I think we're out of questions now, so you're off the hook. Thank you very much.