About "The Second Australian Complaint" - by Brendan Scott, Esq.

Wednesday, February 25 2004 @ 09:48 AM EST

Contributed by: PJ

Brendan Scott is the attorney who designed the strategy behind the most recent Australian complaint against SCO by Open Source Victoria. He kindly offered to explain a bit about the case, and he reads Groklaw, so he saw our comments and questions on the article about the case being filed with the Australian Competition and Consumer Commission, and he has addressed some questions raised. It's a good explanation of how a lawyer looks at a law and strategizes so as to form the complaint to fit the law he has to work with.

The article highlights some things I didn't know: specifically, that the ACCC has discretion to act or not to act. They decide based on the harm they perceive to consumers. Presumably, knowing a great many people in Australia would be affected by SCO's conduct if they don't act and are interested in them doing so might influence the decision. Also, they are asking for a remedy I didn't notice. In fact, none of us here did. "The complaint also suggests that if the GPL is invalid, then SCO should be required to grant a valid licence on terms which have substantially the same effect as the GPL."

Bear in mind that they spell things somewhat differently in the UK and Australia than in the US, although we share a common tongue. I Americanized one word and then decided to leave the article as is. Groklaw is read internationally, and we have many readers in Australia and the UK, and GNU/Linux is international software as well. I decided there is no reason it has to be American spelling. I'm just explaining so you won't think there are mistakes.


About "The Second Australian Complaint"
by Brendan Scott, Esq.

I was responsible for constructing the legal arguments behind the most recent complaint by OSV to the ACCC. When I saw that there was some discussion of the complaint on Groklaw, I offered to write a short article setting out some of the context of the complaint and the relevant Australian legislation. This is that article. I am an Australian attorney and I run a legal practice called Open Source Law based in Sydney, Australia. The OSV complaint has been mirrored on Groklaw but if you want the original from OSV get it here.

The ACCC and the Trade Practices Act

The complaint was filed with a statutory authority called the Australian Competition and Consumer Commission ("ACCC") . The ACCC describes itself like this:

"The Australian Competition and Consumer Commission is an independent Commonwealth statutory authority... The ACCC promotes competition and fair trade in the market place to benefit consumers, business and the community. It also regulates national infrastructure services. Its primary responsibility is to ensure that individuals and businesses comply with the Commonwealth competition, fair trading and consumer protection laws."

While the complaint does not reference it explicitly, it relies on a piece of legislation called the Trade Practices Act 1974 (Cth) ("TPA"). This is the main piece of legislation administered by the ACCC. The object of the TPA (s2) is:

"to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection."

It is broken into a number of parts, the two most notable being Part IV -- provisions relating to the maintainance and promotion of competition in markets -- and Part V, consumer protection. If you were to describe it in the vernacular you might say that Part V of the Act is designed to keep vendors honest. For example, it has a broad prohibition against engaging in misleading or deceptive conduct in trade or commerce (the famous (at least in Australia) "section fifty-two")).

Part V is useful for consumers because it is specifically designed to overcome a number of deficiencies with contract law. For example, contract law requires privity (i.e., you need to be a party to the contract to sue on it) or some form of standing (e.g., that you are directly affected by the facts in question) and proof of loss. The TPA has a broad notion of standing and the ACCC (even though it is not a party to any of the transactions) has explicit powers to take action against vendors to enforce compliance with the Act. It is not necessary to prove loss or damage in order to secure a remedy under the TPA.

The law also has a broad concept of what is misleading or deceptive. For example, information can be completely true, but still be misleading. This might occur where it is presented out of context or not presented with all relevant qualifiers. Finally, intention or good faith is irrelevant to determining whether a company has engaged in misleading or deceptive conduct. A company can "really, truly" believe a representation to be true and not misleading and have no intention to mislead or deceive and yet still fall foul of the Act if their conduct does in fact mislead or deceive.

The Act treats all misleading or deceptive conduct as bad but considers some such conduct as being worse than others. Thus "mere" misleading or deceptive conduct under section 52 can result in an injunction or an order for corrective advertising, but other specific types of such conduct can result in pecuniary penalties being imposed. One of those more serious forms of conduct is in relation to representations as to "the ... effect of any ... right" (sections 53(g) and 75AZC(k)).

The ACCC has a discretion to act (or decline to act) on complaints it receives and will do so based on the harm it perceives to consumers. Typically, where the ACCC considers that there is a breach of the TPA, they will contact the company involved, explain why, and get that company to agree to give an undertaking to carry out remedial action. If such an undertaking is given, it can be enforced in court. If the company disputes the breach or the proposed remedies, then the case can end up in court.

Where a breach of the TPA has been established, a court has the power to order the payment of damages (to a person who has suffered loss as a result of the breach), to grant an injunction (including a mandatory injunction) requiring the corporation to do or refrain from doing certain things, and, for certain breaches, the court can also impose pecuniary penalties (similar to a fine) as a result of the breach. For example, for a breach of section 75AZC the pecuniary penalty can be up to (a little over) AU$1 million for a corporation. As a component of protection of consumers involves making consumers aware of their rights, it is usual for corrective advertising to be a requirement of an undertaking or court order.

The Complaint

I have looked at a number (but not all) of the comments on Groklaw in relation to the complaint. In the aggregate they tease out most of the key elements in the complaint.

When developing the argument, some of the relevant key elements were that:

(a) it should be independent of who holds copyright in the kernel;

(b) as far as possible it should rely only on official SCO documents and SCO actions and statements;

(c) it should be reasonably evident on its face and comparatively straightforward;

(d) it should admit of effective remedies; and

(e) should be commonsensical.

The common sense element of the argument is that a person should be bound by their own past conduct. This should be self-evident as a general proposition, but is especially so in relation to third parties who acted in good faith on that conduct.

The complaint does not relate to any element of the SCOSource initiative to the extent that that initiative relates to copies of the Linux kernel which can't be traced back to a valid licensee of SCO (sorry for the multiple negatives). It therefore only seeks to require SCO to be bound by its own past conduct and, subject to this qualification, does not prevent SCO from any future conduct, including selling licences to new customers. However, if upheld, it ought to prevent SCO from representing that a licence over these kernels was required from SCO as, technically, such a licence could also be obtained from the resellers that SCO established with its earlier Linux distributions (i.e., any licensee that can trace their copy back to a valid licensee of SCO's). If corrective advertising was also ordered it is conceivable that that advertising could be required to refer to this fact.

The remedies sought under the complaint are basically that where SCO has purported to licence the Linux kernel on a certain basis (and, in particular, on the terms of the GPL), then they should be held to that. The complaint also suggests that if the GPL is invalid, then SCO should be required to grant a valid licence on terms which have substantially the same effect as the GPL (the comments on Groklaw may have missed this element of the complaint). If this was the case, then establishing that you are a valid licensee of the kernel from SCO would allow you to license others on the terms of the GPL - as was the explicit intention of Caldera (as evidenced by its contemporaneous SEC filings) at the time it licensed the kernel. Not only would this protect consumers (and, in particular, those consumers who wished to acquire the Linux kernel from an existing Caldera/SCO licensee), it also has competition benefits by preserving and promoting competition in the Linux market and so fulfills another of the objectives of the TPA.

Note on Copyright Holding

SCO is engaged in other cases in which copyright in parts of the Linux kernel is disputed by them. The existence of a dispute over copyright holding muddies the waters in discussions over SCO's conduct. However, in this instance copyright holding in the Linux kernel seems to be irrelevant. If, for the sake of the argument (only!), we assume that SCO does hold copyrights in parts of the Linux kernel, that copyright holding would not of itself allow them to deny, vary or retract an earlier licence grant. Indeed, they might be in a better position if they did not hold the copyrights, because they could then argue that they have no capacity to grant the licence sought in the remedies (however, even then, that could leave them open to damages claims).

For example, if a company sold pencils which it did not own, an appropriate remedy would be for them to perfect the ownership of the persons who bought the pencils (e.g., by buying them from the person who did in fact own them) if they were able to. Imagine if a company sold pencils which it did in fact own and later said, "Well, I didn't realise they were mine. If I had known I owned them, I wouldn't have sold them to you/you have to pay me more money/I am changing the terms of sale". In these circumstances it would be surprising if the original terms of sale were not enforced.


As I mentioned above, the various sites which have analysed the complaint have done a good job at dissecting it. If successful, it would give peace of mind and security to people who, perhaps years ago, purchased a licence from SCO in good faith.

Orthography note: Around here "licence" is a noun, "license" is a verb.

Other papers I have written on open source are available from the Open Source Law website: www.opensourcelaw.biz.

Copyright 2004 Brendan Scott