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Focus: Free Trade Agreement – February 2004

Australia-United States Free Trade Agreement: impacts on IP, communications and technology

In brief: The recently announced agreed text of the Free Trade Agreement between the United States and Australia has major implications for the sectors of the Australian economy and society that focus on intellectual property, telecommunications, media, entertainment and electronic commerce. Partner Paul Zawa and Senior Associates Raani Costelloe, John Dieckmann and Rachel Nemes report.

It is too early to tell what the exact impact of the Free Trade Agreement (FTA) will be for a number of reasons:

  • A detailed FTA document is yet to be finalised and released. What is available at the moment is the summary statements of the respective US and Australian trade negotiators, which naturally have different emphases.
  • For the FTA to become law in each country, it must be passed through the US and Australian domestic legislatures. Non-government members in the Australian Senate, having voiced reservations, may prove to be a stumbling block for the Australian Government, given that the government does not have a Senate majority.

Having said that, the public statements of the US and Australian government representatives indicate that major commitments have been made in the following seven areas:

Intellectual Property
Copyright

More digital amendments: The wide range of commitments referred to in the FTA statements suggest that the Copyright Act 1968 will be due for another major overhaul only three years after the substantial Digital Agenda amendments came into force in March 2001. The US statements are more specific on Australia's commitments than the Australian statements in this respect.

Extension of copyright protection by a further 20 years: The US view is that Australia has agreed to increase the term of protection of copyright for an additional 20 years. The example given by the US is in relation to works where the term will continue for 70 years from the author's death. At present, Australian copyright law provides that protection for 50 years from the author's death in relation to most works (eg literary, musical and artistic works). As far as films and sound recordings are concerned, it appears likely that the term of copyright will be extended to 70 years.

Internet Service Provider liability: The US statement indicates that Australia will be required to introduce a regime requiring ISP compliance with rights-holders' requests if an ISP is to avoid liability for the infringing actions of its subscribers, which is similar to the US regime. This would be more favourable to rights-holders and place more obligations on ISPs.

Anti-circumvention: The FTA will provide for tighter controls on circumventing technological protection (such as embedded codes on discs). This may require changes to the existing provisions introduced by the Digital Agenda amendments to the Copyright Act in 2001. The Australian statement says that there will be a mechanism for examining public interest exceptions and a transition period to provide the opportunity for public submissions.

Encrypted satellite signals and signal piracy: Both parties indicate that the FTA will increase criminal and civil protection against the unlawful decoding of encrypted satellite TV signals. The US statement refers to rules that prohibit the unauthorised receipt, as well as distribution of encrypted signals, which may mean Australian law will be amended to allow criminal or civil action against end-users, which is not the case at present. The commitment does not refer to the unauthorised reception of cable or other non-satellite  encrypted transmissions.

Flexibility in implementation: The Australian representative states that the FTA allows Australia considerable flexibility to implement its obligations in a way that reflects local interests and the local legal and regulatory environment.

Criminalisation of end-user piracy and counterfeiting

End-user piracy: The US suggests that Australian intellectual property law will be required to criminalise end-user piracy and counterfeiting. The scope of these obligations is unclear, although, as noted above, unauthorised receipt of encoded satellite broadcasts will be criminalised.

Trade marks

Cybersquatting: One issue that has been plaguing trade mark owners since the Internet's proliferation is the unauthorised registration of domain names based on well-known trade marks by third parties. The third parties then seek to sell the domain name to the rightful trade mark owner. The US statement refers to a system being implemented 'to resolve disputes about trade marks used in Internet domain names'. The meaning of this phrase is not clear at this stage. Currently, the administrator of Australian domain names, .au Domain Administration Limited (auDA) has a process for resolving disputes that, while based on the Uniform Dispute Resolution Policy (UDRP) administered by the Internet Corporation for Assigned Names and Numbers (ICANN), contains parts that are substantially different from the UDRP. It is not clear what changes the US would want adopted in the auDA policy.

Patents

Extension of term: The term of a standard patent is 20 years from the date of filing the complete specification. One criticism by patent holders is that, as the time taken to grant a patent is included in the 20-year limit, patent holders are disadvantaged as their patent term is significantly eroded. The FTA intends to compensate patent owners for such delays by extending the term of the granted patent

Pharmaceuticals

PBS appeal process: An independent review process will be established allowing companies to seek a review of decisions concerning the inclusion of a particular medicine in the Pharmaceutical Benefits Scheme.

Generics: Holders of pharmaceutical patents will be notified when a generic manufacturer seeks approval to market its product prior to the patents' expiration.

Test data: Legislative and regulatory provisions will be reviewed to ensure that test data and confidential information submitted to the government for product approval will be protected against unfair commercial use for a period of five years.

Australian audio-visual content in existing and new media

Local content flexibility: The Australian representative states that Australia has protected its right to ensure local content on Australian media and retain the capacity to regulate new and emerging media, including digital and interactive television. This presumably means that the Australian Government will have the flexibility to change and expand the Australian content requirements imposed on broadcasters of drama programs under the Broadcasting Services Act 1992.

Unprecedented US access: Despite the Australian statement, the Australian film industry is concerned with the US view that the FTA contains unprecedented provisions to improve market access for US films and television programs over a variety of media, including cable, satellite and the Internet.

Telecommunications

Investment: The US representative suggests that all US investment in Australia in new businesses will be exempt from review by Australia's Foreign Investment Review Board and that thresholds for acquisitions by US investors in nearly all sectors will be raised significantly from A$50 million to A$800 million. However, the Australian representative specifically mentions several sectors that are excluded from this deal, as they are considered areas of national interest – one of which is telecommunications.

Telstra: The Australian representative indicates that existing foreign investment limits relating to Telstra have been preserved.

Open services markets: The US view is that Australia will accord substantial access to US services suppliers in a wide range of sectors, which include telecommunications services.

Competition: The FTA will build on WTO rules for major suppliers of telecommunications that control essential facilities or have a dominant market position. The Australian representative states that the parties must prevent anti-competitive conduct and ensure that major suppliers provide interconnection, resale of services, leased circuit services and co-location of equipment on reasonable, non-discriminatory terms and conditions.

Regulation: Australia states that the FTA will contain strong provisions on transparency and review for regulatory decisions. However, a hands-off regulatory approach will be adopted where markets are functioning competitively.

Information technology

One of the most publicised aspects of the FTA involves the so-called creation of an 'open market' for professional services. From the press releases issued by the Australian and US representatives, the key features appear to be:

  • Australian providers will be exempt from penalties currently imposed under US law for the supply of products to the US Federal Government by non-US entities;
  • Australian suppliers will receive non-discriminatory access to US markets (while the scope of this right is not clear, as an example the Australian representative states that Australian companies will be treated the same as US companies for the purposes of legislation affording preferential treatment to US companies);
  • Australia has agreed to eliminate a range of local industry development programs, such as local content and offsets conditions in Commonwealth Government contracts;
  • Australia has agreed to improve access for US nationals and create rights for US providers to 'invest and establish a local services presence in Australia'; and
  • US suppliers have been granted 'substantial access' to the Australian services market, 'subject to very limited exceptions' and will be entitled to bid for Commonwealth Government contracts, with the apparent exception of 'low-value' contracts.

It also appears that each government has committed to work further with its states and territories to gain additional concessions, although it is not clear what those additional concessions might be.

The FTA appears likely to result in the lowering of barriers to entry in the Australian and US IT and telecommunications services markets, and hence create both threats and opportunities for Australian and US providers of IT and telecommunications services alike. While that may generate significant opportunities for Australian industry, the net effect of the agreement on Australian and US industry remains unknown.

Ecommerce

No duties: Both Australia and the US representatives state that the FTA provides that there will be no customs duties on digital products, including products traded electronically.

Digital certificates: In addition, both countries will work towards the recognition of digital certificates used for electronic transactions with each other's governments (such as government procurement) and the development of electronic authentication in business transactions.

Right to regulate: The Australian representative indicates that each country will retain the right to regulate ecommerce for public policy reasons, such as health, welfare, education and in addressing gambling and spam.

Foreign ownership of Australian media

The Australian representative states that the FTA preserves Australia's existing foreign investment limits relating to the media and that foreign investments in media will continue to be screened regardless of value (while, as outlined above, investment in the telecommunications industry will be subject to screening above the existing threshold of A$50 million).

Competition law

Cooperation: The Australian representative indicates that the ACCC and the US Federal Trade Commission will cooperate further in detecting and notifying breaches, investigating cases, and coordinating enforcement of consumer protection laws.

Consultation: Australian delegates say that the parties have also agreed to consult and inform each other of competition matters that may affect bilateral trade and investment. There will be a joint working group established to examine competition laws and policies.

Fraud: The Australian representative indicates that there will be a stronger basis for pursuing companies based in the US, as Australian and US government agencies may take action to recover money owed to consumers and investors who are defrauded, deceived or misled.

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