AI in legal research – can you trust it?

Posted on by influence legal.

Australian courts have been dealing with the consequences of lawyers turning to AI to draft legal submissions, only to find out the AI had entirely made up case citations. One widely reported case involved an immigration lawyer who filed court documents containing 17 non-existent authorities, all generated by ChatGPT. The Federal Circuit and Family Court referred the matter to the NSW Office of the Legal Services Commissioner, with the judge warning about the risks of relying on “unverified” AI-generated content without proper checks or independent verification (The Guardian). This case and others like it have sparked broader discussion within the legal profession about the role of generative AI in legal practice, and the importance of lawyers upholding their professional obligations, particularly the duty of competence and the duty to the court.

An AI-generated image of a robot writing
How useful are AI tools for legal work? (An AI-generated image …)

A simple test

To test these issues, we asked ChatGPT to generate a short 150-word summary explaining the Australian copyright law principle of “substantial part” in copyright infringement cases, including case references. Here’s what it produced:

“In Australian copyright law, infringement can occur even where only a portion of the work has been reproduced, provided that the portion amounts to a “substantial part.” The test focuses on quality over quantity—even a small excerpt may infringe if it captures essential elements of the original work. The question is whether the part taken embodies the author’s skill, labour, or originality.

This principle was applied in Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300, where the High Court held that copying even a small section of computer code constituted infringement because it replicated a critical component of the program. Similarly, in EMI Songs Australia Pty Ltd v Larrikin Music Publishing Pty Ltd (2011) 191 FCR 444, the court held that a short musical phrase from Kookaburra reproduced in Men at Work’s Down Under was a substantial part, despite its brevity.”

In this instance, the AI performed relatively well. Both cases are real and correctly cited:

  • Autodesk Inc v Dyason (No 2) is a complex High Court decision involving copyright in computer software where the High Court ultimately reaffirmed their ruling in Autodesk Inc v Dyason (No 1) and determined that copying a functional but original look-up table amounted to reproducing a substantial part of the computer program.
  • The key issue in EMI Songs v Larrikin Music was whether Down Under, the iconic Australian anthem by Men at Work, infringed the copyright in the song Kookaburra. The court determined that the Down Under recordings reproduced a substantial part of the song, which constituted copyright infringement.

The summary itself was fairly accurate. It explained the core principle clearly (within the limits of 150 words): that Australian courts focus more on the quality than the quantity of what has been copied when assessing whether a “substantial part” has been taken. This was at the heart of the controversy in Autodesk, where the High Court wrestled with the tension between originality and whether something’s functional importance could also make it substantial, albeit minimal. ChatGPT correctly pointed to two of the most well-known cases in this area.

However, this was a relatively safe topic, relying on well-known cases. AI tools tend to produce far more errors and even fabricate cases when asked about more obscure areas of law or lesser-known precedents.

A more complex test

We decided to try ChatGPT on another question: “Write 100 words with case citations on the recoverability of pure economic loss in NSW law”. The response was:

“Under New South Wales (NSW) law, the recoverability of pure economic loss is generally limited. Pure economic loss refers to financial loss not resulting from physical damage to a person or property. In Demerara Distillers Ltd v. Fair Trading [2018] NSWCA 266, the Court held that pure economic loss is typically not recoverable in negligence unless there is a special relationship between the parties, as seen in Sullivan v. Moody [2001] HCA 59. Courts apply a restrictive approach to prevent indeterminate liability, adhering to the principle that recovery for economic loss should be confined to situations with proximity or reliance.”

Looks plausible? As far as we can tell, the first cited case doesn’t exist, and the case citation belongs to an unrelated case – though there is an interesting-looking Jamaica Fair Trading complaint involving Demerara Distillers and the geographical indication for “Jamaican Rum”.

The second case does exist at its citation, but the run-on sentence suggests that it includes a determination on pure economic loss, which is not the case – it’s about the existence of a duty of care. In the relevant recent High Court decision Mallonland Pty Ltd v Advanta Seeds Pty Ltd [2024] HCA 25, the first case is not mentioned, and Sullivan is mentioned in the context of evaluating the existence and scope of the duty, rather than in the context of pure economic loss.

What does ChatGPT itself say about its legal knowledge?

When asking ChatGPT what its general legal knowledge was on Australian case law, this is what came up:

“My legal knowledge is current up to mid 2024, including Australian law. However, it can access the most recent legal cases, news, or legislative updates through web search in real time.”

That is one of the risks that courts and regulators have been warning about. Anything newer would still need to be researched on legal databases to ensure accuracy.

What about client confidentiality?

AI tools are certainly useful for summarising documents and even creating plain-language versions of advices. But the warning is on the label: “Don’t share sensitive info. Chats may be reviewed and used to train our models.” So, lawyers and consultants must take care not to upload material without first redacting anything that is confidential to the client.

AI can be useful as a starting point for legal research, or early drafting, but human review remains non-negotiable. While these tools can offer a starting point, they should not replace thorough legal analysis or proper source-checking, no matter how convenient the technology might seem.

Author: Ashna Govil, graduate lawyer.

Copyright byline: NY Times sues OpenAI & Microsoft

Posted on by influence legal.

The New York Times made progress last month in its legal action against Open AI and Microsoft, with a New York federal judge issuing an opinion stating that the newspaper has made a case that the defendants are responsible for inducing users to infringe its copyright through ChatGPT’s use of NY Times articles to produce its output.

Background

The NY Times was among the first major media organisations to challenge generative A.I. models, taking action against OpenAI and Microsoft in 2023.

Newspaper and laptop
Photo by Anna Keibalo on Unsplash

The NY Times argues that language models used in training ChatGPT and Microsoft’s Copilot engage in plagiarism by reproducing published articles in their output. The media organisation describe ChatGPT output as reciting Times content verbatim and mimicking expressive style. The NY Times has also put forward that generative AI models threaten the economic integrity of journalism by providing substitute outlets for information without permission or payment.

The NY Times has sought orders that OpenAI and Microsoft should compensate them for copyright infringement and destroy any training data extracted from its website or printed publications.

OpenAI’s response

OpenAI has maintained the position that the claim against it is without merit. It states that ChatGPT is trained on publicly available material in a way that is grounded in fair use, also accusing the NY Times of creating prompts that push ChatGPT to mimic published articles. While OpenAI has agreed that its language models are trained using material from across the web, the company’s position is that reciting content verbatim is a rare failure of the tool, and that intentionally manipulating ChatGPT to regurgitate third party content is contrary to its terms of use.

Current status

This order allows the NY Times to continue pursuing its claims against OpenAI and Microsoft, in contrast to last year’s judgement in California which rejected claims by authors, whose works were allegedly used to train ChatGPT, that the output of generative AI systems violates the rights of copyright owners.

Author: Zaki Zeini, paralegal.

How does your ‘right to repair’ work?

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Not every purchase from our wishlist or our favourite brands is an ideal experience. Sometimes we receive that thing we’ve been really looking forward to and are disappointed because it isn’t working the way we expected or breaks down. It’s even more of a problem if you’ve made a significant purchase like a car, agricultural machinery, or IT hardware.

Customers in this situation may want the product to be repaired by the supplier under the customers’ consumer rights. In some situations, especially in the context of large-scale equipment, customers may also want the right to access information and technology to repair the equipment themselves.

Consumer rights to have goods repaired

The right to have goods repaired is one of a range of consumer rights under Schedule 2 of the  Competition and Consumer Act 2010. When these rights apply, a supplier may be required to replace, repair or refund for goods that don’t meet the consumer guarantees. Specific remedies will depend on whether the issue is a major or minor failure.

In some cases, for example where goods have stayed in good working order for a reasonable length of time, the supplier may be entitled to charge for repair services. Some customers will want to be able to have access to the information and technology needed to repair the goods themselves, or use a third party repairer, but this may run into conflict with the supplier’s intellectual property rights in firmware, manuals, underlying analysis, and equipment patents.

What about a customer’s right to repair goods without using the supplier’s services?

A broken phone.
The Australian Productivity Commission has advocated for easier repair options for consumers that are less costly and enable the life of a product to be extended.

Many US jurisdictions have longstanding rights for a customer to repair goods, or use a third party supplier, without going back to the original supplier, and for third parties to resell repaired goods as long as they are correctly described and don’t infringe trade marks of the original provider. This has been particularly relevant in the automotive, healthcare and IT industries.

The EU recently introduced right to repair rules which require manufacturers to provide parts and tools at a reasonable price. Under these rules, manufacturers will be obliged to provide spare parts and tools at reasonable prices, and will not be permitted to restrict repairs by contract terms or IT techniques. Manufacturers also won’t be able to refuse to repair a product just because it was previously repaired by a third party. The EU’s reasoning included extending product life and reducing e-waste.

In Australia, so far the right to repair is limited. In 2022, legislative changes introduced an obligation for suppliers to share vehicle service and repair information. The Motor Vehicle Repair and Service Information Sharing Scheme requires manufacturers, importers and others to provide information covered by the scheme to repairers and Registered Training Organisations at a fair market price.

Recent policy considerations

The Australian Productivity Commission has advocated for a broader right to repair, across industries, to provide Australian consumers with wider repair options that are less costly.

Author: Zaki Zeini, graduate lawyer

Development: EU reaches political consensus on an AI Act

Posted on by influence legal.
Artificial intelligence
The AI regulatory framework will guarantee safety, legality, trustworthiness, and respect for fundamental rights in AI systems.

In 2023, the widespread adoption of Artificial Intelligence (AI) accelerated thanks to models such as ChatGPT and the recent debut of ‘Gemini’ by Google. As AI models continue to become more capable, the legal services sector faces yet another disruptive technological frontier, demanding vigilant oversight and management.

World’s first AI regulatory regime

Pioneering the oversight of AI application, the European Council and Parliament have successfully negotiated a provisional agreement to draft an EU AI Act. Delegates have emphasised that the key tenants guiding AI regulation will prioritise: ethics, safety and trustworthiness. The AI Act will become the first global standard for governing AI models, marking a historical step towards responsible innovation and supporting the development of human-centric AI.

The EU’s AI Act is poised to mirror the influential impact of the General Data Protection Regulation (GDPR). Much like the GDPR, the EU aims to provide an overarching framework that promotes accountability and consistent standards for the development and application of AI systems.

How will it work?

The EU AI Act will focus regulation on identifiable risks, categorising them into four levels: (1) minimal or no risks, (2) limited risks, (3) high risks and (4) unacceptable risks. The Act will also contain rules to encourage a unified market for AI programs, in line with the EU’s organised strategy on artificial intelligence, aiming to speed up AI investment throughout Europe.

Regulation will also extend to banning certain applications of AI that pose a threat on the rights and democracy of EU citizens. It was agreed that the AI Act should prohibit the following:

  • Systems which categorise individuals based on political, religious, philosophical beliefs, sexual orientation and race;
  • Gathering facial images from the internet or CCTV without specific targets in mind to build databases for facial recognition;
  • Models that identify and interpret emotions in professional settings;
  • Social scoring based on behaviour or personal characteristics;
  • AI models designed to influence or manipulate human behaviour in a way that undermines freedom of choice.
  • AI used to exploit the vulnerabilities of people based on age, disability, social or economic situation.

However, negotiators have agreed that certain exceptions to these bans will require judicial approval for law enforcement purposes and strictly defined criminal activities.

Addressing recent innovations in AI

One area of AI that has not been fully addressed by this resolution is how generative AI systems and foundation models are to be governed within this framework. Due to the agreement concentrating on proposals from 2021 and 2022, the proposals drafted do not incorporate these recent innovations of AI. The agreement has not yet articulated essential definitions to clarify and precisely categorise generative AI systems for providing clarity and precision. Although they may fall within scope of ‘general-purpose’ AI, proper discussions may have to wait until the adoption process.

What next?

The regime will establish new accountability measures for entities involved in AI. These include providers, deployers, importers, distributors and product manufacturers. Entities should proactively prepare for upcoming regulations by conducting risk assessments on their in-house AI systems, raising awareness, developing ethical frameworks, assigning responsibility, and establishing formal governance structures.

Author: Zaki Zeini, paralegal.

Hobbit havoc: fan-fiction faces the copyright Eye of Sauron

Posted on by influence legal.
Background

In 2022, Demetrious Polychron, a US author, created and released his own continuation of the beloved ‘The Lord of the Rings’ series by J.R.R. Tolkien. Following the debut of Amazon’s prequel series ‘The Rings of Power’, Polychron took legal action in April 2023 against both Tolkien’s estate and Amazon. Polychron alleged that their series had used elements from his work, constituting copyright infringement. However, the case brought by Polychron was dismissed after a Californian judge concluded that the author himself had infringed copyright by profiting from a work that directly utilised characters and storylines owned by the Tolkien estate and Amazon.

Book
Originality is the threshold for copyright protection.

In a subsequent turn of events in June 2023, Tolkien’s estate initiated a separate lawsuit against Polychron. Their claim centred on the fact that the author had published a derivative work without the necessary authorisation from the owners of ‘The Lord of the Rings’ intellectual property. The lawsuit against Polychron proved successful, resulting in the presiding judge issuing a permanent injunction against the author.

The presiding judge remarked that Polychron’s request for copyright protection was “unreasonable” and “frivolous” because his work was completely based on characters from The Lord of the Rings.

This injunction prohibits Polychron from publishing or selling his derivative work and mandates the destruction of all existing copies of the author’s work.

Authorship protection in Australia

In Australia, the Copyright Act 1968 (Cth) safeguards published and unpublished books as ‘literary works’. When someone creates a literary work, like a book, they become the owner for a duration of time. This ownership grants them the sole right to copy, publish, modify, or share their work with the public. There is no need for authors to officially register their work to secure copyright protection for it.

For a literary work to gain copyright protection in Australia, a few criteria must be met:

  • the author should be an Australian citizen,
  • the work must have been initially published in Australia, and
  • it needs to be an original creation.

If someone carries out actions that fall within the exclusive rights granted to the copyright owner without their permission, they could be infringing upon the copyright of the original creator. This means reproducing, publishing, adapting, or sharing it with the public can lead to a copyright infringement claim.

If you would like guidance regarding potential copyright infringement or the scope of your copyright protection, please contact us.

Author: Zaki Zeini, paralegal.

Remember to express your IP licences clearly!

Posted on by influence legal.

The recent decision in Realestate.com.au Pty Ltd v Hardingham [2022] HCA 39 overturned a significant copyright ruling and has potential for significant flow-on effects for photographers and other content creators.

Background

House for sale
Real estate photographers will need to adjust how they do business after this decision.

Hardingham, an independent real estate photographer, took photos of properties for real estate agents under oral contracts. The agents uploaded the photos to realestate.com.au (REA). REA then provided the photos to RP Data, a service that allows real estate agencies to use photos for property marketing campaigns.

When agents uploaded the photos to REA, they accepted clickwrap terms which gave REA “an irrevocble and perpetual licence to use the content … for any purpose related to our business”. RP Data argued that this licence meant it was able to use the photos once permitted to do so by REA. Hardingham contended that the licence had to be subject to a limitation so that it ended once the property was sold or leased.

At first instance Thawley J found that the sub-licence from REA to RP Data should be permitted because it was inferred from the parties’ conduct and should be implied to give business efficacy to the arrangements. It was not subject to any time limit.

On appeal to the Federal Court, the Full Court found that they were not satisfied that the terms should be implied or inferred, and that any implied licence did not extend beyond the property marketing campaign.

High Court

In December, the High Court overturned the Federal Court’s decision. The question, in this case, was what a reasonable person would consider, based on the parties’ words and conduct.

The Court found that there was nothing in the oral contracts, between Hardingham and the original real estate agencies, to suggest that the photos could not be used after the campaign. They all knew that the photos uploaded to REA and RP Data remained there after the completion of the campaign and on a history tab for the property. That had been the case for a number of years.

So, the real estate agencies were capable of licensing the photos to REA on its standard terms, and REA was capable of licensing them to RP Data. Accordingly, RP Data did not infringe Hardingham’s copyright.

Action

This case has important implications for photographers and other content creators, and is an important reminder to put clear, written agreements in place when licensing copyright and other IP. You can exclude implied terms and make sure that the parties’ expectations match. If you would like assistance with documenting your copyright agreements, contact us.

Author: Ashna Govil, paralegal.

Beware of new unfair contract rules and higher penalties!

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Businesses need to take another look at their standard contracts, now that the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 has expanded the unfair contract terms laws and introduced higher penalties for breaches of the Act.

Unfair contract terms status

Until these amendments, unfair contract terms in standard contracts with small businesses and consumers were void, but not illegal. The first key amendment is that unfair contract terms have become illegal and are now subject to significant financial penalties. The ACCC has welcomed this change due to the “adverse consequences of unfair contract terms on consumers and small businesses.”

Extended definition of small business contract

The second key change expands the scope of “small business” contracts to which the regime will apply. Now, a small business contract is a contract where one party to the contract is a business that employs fewer than 100 persons (previously 20 persons) or has a turnover for the last year of less than $10 million.

Unbalanced scales and book
Check whether your standard contracts are balanced. Image by Freepik

Another key point in this change is that where a party permits minor amendments to a standard form contract, it will still be considered as a standard form contract. Previously, it was considered that any negotiated change would be sufficient to avoid the effect of the unfair contracts rules.

The party which drafted the contract is required to prove that it is not a standard form. Remember as well that the rules apply even where the party which drafted the contract is also a small business.

With the extended definition of a small business contract, the new laws empower courts to rewrite commercial standard form contracts, including the power to void, vary, or refuse to enforce unfair contract terms.

Increased penalties for breaches of the Act

The third key change is the very significant increase of the maximum penalties under the Act for engaging in anti-competitive conduct and breaches of the ACL:
• $50 million (currently $10 million)
• Three times the value of the reasonably attributable benefit obtained from the conduct or
• If the courts cannot determine the value of the benefit, 30% of the body corporate’s turnover during the period it engaged in the conduct.

The ACCC hopes these penalties will serve as a “strong deterrent message to companies…to not mislead or act unconscionably towards consumers.” These amendments took effect on 10 November 2023.

Businesses should review their standard form contracts for terms that provide a significant advantage but go beyond what is needed to protect their legitimate interests. If you would like assistance to review your standard contracts, contact us.

Author: Ashna Govil, paralegal.

War of the Titans: Epic Games v Apple

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On 10 September 2021, the United States District Court of the Northern District of California handed down its judgement in the widely publicised case between two technology powerhouses: Epic Games and Apple.

While the outcome of the case could be construed as somewhat of a loss to both sides, Judge Rogers’ judgement deals with interesting issues concerning how the operation of digital storefronts intersects with competition law.

Background

Game play screen on mobile phone
The Epic ruling has affected Apple’s no-steering rules for the App Store

For years, Epic Games’ CEO Tim Sweeney has been a vocal sceptic when it comes to the commission digital platforms charge software developers for transacting through their storefronts, questioning the standard 30% rate charged by companies like Apple.

Before commencing litigation in August 2020, Epic Games knowingly contravened its contractual agreements with Apple and implemented a feature within Fortnite that enabled users to make in-game purchases directly from Epic Games, bypassing Apple’s commission.

In response to this, Apple pulled Fortnite from the iOS App Store and as a result Epic Games sued Apple.

The claims

Epic Games made a total of 10 claims against Apple, most alleging that Apple’s practices regarding the iOS App Store were in contravention of US competition law. Apple made counter claims against Epic Games, including breach of contract for the Fortnite bypass feature.

The ruling

Judge Rogers ruled against Epic Games for 9 out of the 10 claims, and ordered them to pay Apple US$3.6 million for bypassing Apple’s payment systems.

However, Judge Rogers did offer some criticism when examining Apple’s practices. Although Apple’s degree of success in the mobile gaming transaction market did not alone constitute monopoly status, she observed that the company is nearing ‘the precipice of substantial market power’. Additionally, the fact that Apple only ever seems to revise its App Store terms in light of legal action did not go unnoticed. Judge Rogers noted that there is little impetus for Apple to innovate its services in the absence of third-party digital storefronts on the iPhone platform.

The claim where Apple was held to be in contravention of competition law concerned its ‘anti-steering’ rules, which prohibit app developers from directing users to payment methods external to the App Store.

Apple’s 30% commission was considered legitimate; but preventing developers from informing consumers of their choices when making in-app purchases was found to be anti-competitive. The court issued a permanent injunction blocking Apple from enforcing these rules.

Implications

While Epic Games ultimately lost most of their claims, the ruling on Apple’s anti-steering rules is significant. Apple earns billions from in-app purchases, a revenue stream which is potentially undermined if developers can link to commission-free transactions.

Author: Andrew Geraghty, paralegal.

Are you up to date with the latest franchising disclosure requirements?

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From November 2021, franchisors must include new information in their disclosure documents for prospective franchisees.

Summary of new disclosure document requirements

Franchisors need to be aware of important changes to the pre-entry disclosure obligations of franchisors. Your disclosure documents must now include additional information on:

  • lease arrangements,
  • franchisee goodwill rights,
  • capital expenditure, and
  • instances of dispute resolution or arbitration that have occurred within the previous financial year.
Fast food
Are you up to date with the 2021 franchising code changes?

Additionally, you need to provide prospective franchisees with a Key Facts Sheet highlighting the most important information in the disclosure document.

Other Franchising Code amendments

Earlier amendments came into effect last July. The amendments were implemented in response to the Fairness in Franchising report handed down on 14 March 2019. As well as the more onerous disclosure obligations, some of the key recommendations from this report that have now been implemented are:

  • extending the cooling off period in franchise agreements, and
  • enhancing the collective powers of franchisee groups in dispute resolution.

Stemming from these recommendations, the amendments are intended to provide better protections to franchisees, improve fairness and transparency in franchising, and ultimately promote enhanced competition and fair trading within the sector.

Dispute resolution and termination changes

Options for alternative dispute resolution have been expanded and now include conciliation, mediation and arbitration.

By agreement with the franchisor or through the Australian Small Business and Family Ombudsman, multiple franchisees with similar disputes can now collectively participate in arbitration. Franchisees with similar disputes are permitted to discuss the nature of their disputes with one another when determining whether to act collectively, even if this would otherwise breach confidentiality clauses within their franchise agreements.

The cooling off period after a franchise agreement has been entered into has been extended from 7 days to 14 days. A franchisee now also has 14 days to terminate their franchise agreement after being provided with a proposed lease by the franchisor. Additional changes to termination requirements enable franchisees to dispute ‘special circumstances terminations’, of which they must be given 7 days’ notice by the franchisor.

Capex, marketing funds and legal costs

The prohibition on significant capex for franchisees has been extended from the auto industry to the rest of the market.

Franchisors should familiarise themselves with the changes for administering marketing funds, in addition to the new disclosure requirements and increased penalties for marketing fund non-compliance.

There is also a limitation on passing legal costs through to franchisees.

Restraint of trade clauses

Franchisors are now more limited in their ability to enforce restraint of trade clauses. A restraint will only have effect during the franchise term, and not after termination, unless the franchisee was in serious breach of the agreement immediately before termination.

Moving forward

These amendments cover many areas and place a number of more onerous obligations on franchisors when entering into agreements with franchisees. The ACCC has made a useful summary of the key provisions of the Franchise Code. In light of these changes, it is important for franchisors to ensure their franchise agreements and disclosure documents comply with these requirements.

Author: Andrew Geraghty, paralegal.