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Intellectual Property

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What's happening in intellectual property

April 2018

In this issue: we give another update on the proposed changes to Australia's IP laws; examine the impact of the ACCC v Heinz decision on food packaging; look at franchising issues, which are back in the spotlight; show how failure to identify who is an inventor can have serious consequences; give an update on online copyright infringement laws; and look at the difficulties in developing an implementation policy for direct .au registrations.

Update on changes to Australia's IP laws

In brief: Federal Parliament is considering a Bill to amend Australia's IP laws to implement some aspects of the Government's response to the Productivity Commission's (PC) inquiry into IP arrangements. IP Australia has also released its response to public consultation on several other of the PC's recommendations, including proposed changes to the inventive step requirements for Australian patents. Senior Associate Lauren John reports.

The Bill

We've previously discussed the exposure draft of the legislation to implement partially the Federal Government's response to the PC's final report on its inquiry into Australia's IP arrangements. IP Australia recently released its response to the public consultation on the exposure draft and, in early April, the Intellectual Property Laws Amendment (Productivity Commission Response Part 1 and Other Measures) Bill 2018 was introduced to the House of Representatives.

The Bill includes amendments to:

  • clarify the circumstances in which the parallel importation of trade marked goods does not infringe a registered trade mark;
  • reduce the grace period for filing non-use applications under the Trade Marks Act 1995 (Cth) from five to three years; and
  • various IP Acts, to allow the court to award additional damages in relation to unjustified threats of infringement.

Curiously, the Bill omits amendments to 'phase out' the innovation patents system that had been included in the exposure draft. Only weeks after confirming its decision to proceed with the abolition of innovation patents, IP Australia has announced that the Government will undertake 'further industry consultation' to understand better the needs of innovative SMEs before the phase out occurs.

As to the parallel importation amendments, IP Australia stated that a number of the submissions it received expressed concerns about the new s122A, particularly the requirement that it must have been 'reasonable for the person to assume' that the mark had been applied or used with the relevant consent. The Bill contains a revised form of s122A, which:

  • requires the parallel importer to make 'reasonable inquiries in relation to the trade mark' before the time of trade mark use; and
  • amends the 'reasonable to assume' limb, so that the parallel importer must establish that 'at the time of use, a reasonable person, after making those inquiries, would have concluded that the trade mark had been applied…' with the relevant consent.

Outcome of consultation on other aspects of Government's response

There was a separate consultation last year in relation to the Government's response to the PC's recommendations from the most recent inquiry and also previous IP inquiries. IP Australia recently released its response to the consultation, after receiving 18 non-confidential submissions.

Among other matters, IP Australia proposes to amend Australia's inventive step requirements for patents, with plans to introduce a Bill during the spring 2018 parliamentary period. Controversially, it proposes to amend s7(2) of the Patents Act 1990 (Cth) to reflect Art 56 of the European Patent Convention and to amend the definition of 'prior art base' for inventive step purposes. This is despite 14 of 15 submissions on that subject opposing any changes to the requirements, with many expressing concern that insufficient time has elapsed to evaluate the full impact of the 'Raising the Bar' reforms in 2013.

The proposed new IP laws will have significant impacts for businesses, and we will continue to keep you updated on developments.

High sugar content can invalidate health claims

In brief: The Federal Court has found that the packaging of the Little Kids Shredz children's food range, produced by food giant Heinz, misled consumers because it suggested the high-sugar products were nutritious and healthy. Lawyer Eliza Lockhart reports.

Background

In June 2016, the ACCC commenced proceedings in the Federal Court against Heinz, alleging it made misleading representations in relation to its 'Little Kids Shredz' product line.

The ACCC’s complaint focused on the prominent visual depictions of fresh fruit and vegetables on the Shredz packaging, along with statements such as ‘99% fruit and veg’ and ‘our range of snacks and meals encourages your toddler to independently discover the delicious taste of nutritious food’.

The ACCC argued (among other things) the packaging's allusions to nutrition and health were misleading because they were inconsistent with the product's high sugar content.

The packaging conveyed a misleading impression

Significantly, none of the claims made on the Shredz packaging, when taken individually, appear to be inaccurate. The key statement displayed prominently on the front of the package – that the product is made with or from 99 per cent fruit and vegetable purees – is seen to be accurate when examining the ingredients list. However, the literal truth is not a defence if the overall impression is misleading.

The court found that the combination of imagery and words on the Shredz packaging conveyed to the ordinary, reasonable consumer that the product was healthy and nutritious, even though the packaging did not make any express claim to that effect.

It held this representation was misleading because the product's sugar content was more than 60 per cent and therefore it could not be considered beneficial to children's health.

The court referred to World Health Organization guidelines and Heinz's internal guidelines on the acceptable sugar intake for children to establish that Heinz's nutritionists ought to have known a representation that a product containing approximately two-thirds sugar was beneficial to children would be misleading.

A taste of things to come?

This case is the first shot in what is likely to become a protracted battle to define the edges of acceptable advertising of high-sugar foods, as the anti-sugar movement gathers pace (the UK commenced its 'sugar tax' this month, joining a growing list of countries to have taken similar steps). Over the past decade, sugar has emerged as the leading nutrient of concern in many jurisdictions. Indeed, Heinz’s Shredz products were brought to the ACCC's attention through a complaint by the Obesity Policy Coalition.

The Coalition is a lobby group that comprises Cancer Council Victoria, Diabetes Victoria and Deakin University, and seeks to influence food labelling and advertising rules. It is at the forefront of the movement to regulate sugar in diets (sugary drinks, particularly) and, we suspect, its policies have had a strong influence on the ACCC’s allegations against Heinz.

Franchising in the spotlight

In brief: Franchising issues are top of the agenda, with the Senate beginning a parliamentary inquiry into the operation and effectiveness of the Franchising Code of Conduct. Meanwhile, the ACCC has recommitted itself to focusing on Franchising Code issues and business-to-business unfair contract terms. Senior Associate Julia Taylor and Lawyer Anna Conigrave report.

Background

The Franchising Code is a mandatory code regulating the conduct of participants in the franchising industry. Its aim, largely, is to protect the interests of Australian franchisees (generally, small businesses) who are often contracting with large, multinational, corporate franchisors.

Governments have long grappled with how best to regulate franchising. A national franchising code of conduct was first introduced in 1998. Between 2006 and 2013, there were at least eight Commonwealth and state reviews of franchising, and numerous amendments to the 1998 code. In 2014, the 1998 code was repealed and replaced with the current Franchising Code. Since then, other measures have been implemented to regulate franchising, including the business-to-business unfair contract terms regime and workplace law reforms. It seems the Senate isn't convinced these measures are the answer, and further change may be on the way.

Senate inquiry

On 22 March 2018, the Senate referred an inquiry into the operation and effectiveness of the Franchising Code to the Parliamentary Joint Committee on Corporations and Financial Services. The inquiry also covers the Oil Code of Conduct, which is a separate mandatory code regulating wholesalers and resellers of certain petroleum products.

The terms of reference for the inquiry are broad and require the Committee to report by 30 September 2018 on matters including:

  • the operation and effectiveness of provisions of the Franchising Code and Oil Code relating to disclosure to prospective franchisees, dispute resolution, and termination of agreements;
  • the enforcement of breaches of the Franchising Code, Oil Code and other relevant laws;
  • the imposition of restraints of trade on former franchisees;
  • the impact of the Australian Consumer Law unfair contract provisions on franchise agreements; and
  • the extent to which other mandatory industry codes of conduct contain positives or negatives for franchising relationships, when compared to the Franchising Code.

Interestingly, in a statement issued by the Franchise Council of Australia (FCA), Executive Chairman (and former Minister for Small Business) Bruce Billson said that the FCA wasn't consulted on the terms of reference, although it is 'the recognised and respected representative body of the franchise community'. The FCA has encouraged 'all stakeholders in the success of Australian franchising to contribute to the parliamentary inquiry'. No doubt there are many issues that will be ventilated by both franchisors and franchisees.

The Committee is accepting submissions until 4 May 2018.

ACCC focus on franchising continues

The ACCC is responsible for enforcing compliance with the Franchising Code and related consumer laws. Last year, the ACCC took five enforcement actions in respect of alleged breaches of the Franchising Code. Its victories included securing court-ordered penalties against the Pastacup franchisor for breaches of the Franchising Code. It also took action in respect of business-to-business unfair contract terms, including obtaining a court declaration (by consent) that certain terms in JJ Richards' standard form contract with small businesses were unfair and void.

In a recent ACCC media release, the ACCC Deputy Chair, Dr Michael Schaper, was quoted as saying that, this year, the ACCC will have 'a particular focus on Franchising Code of Conduct issues involving large or national franchisors', and will 'continue its work in relation to business-to-business unfair contract terms'.

Watch this space

We will provide updates during the course of the year on the status of the parliamentary inquiry, and noteworthy ACCC enforcement action.

Make sure your IP doesn't end up in the bin!

In brief: A recent Australian Patent Office decision is a salient reminder to carefully assess the contribution of all those involved in design projects, so as to identify who is an inventor. Failure to do so can have serious consequences down the track, affecting the ownership of an invention and the ability to commercially exploit its IP. Managing Associate Tracey Webb reports.

Background

The facts in Khoury v Sherrard [2018] APO 20 were as follows. To combat smells emanating from open wheelie bins, the Sherrards conceived of a device that could bias the hinged lid in a closed position. They approached Form Designs Australia Ltd (FDLP) with their prototype, and a brief to design a mechanism that would be quick and easy to attach. The Sherrards and FDLP signed a service contract, which stated the Sherrards would own any IP arising from the design project, but only after entering into a royalty agreement with FDLP. Mr Khoury, of FDLP, subsequently developed two versions of a bin closer (the Khoury device) in line with the Sherrards' brief.

The Sherrards applied for patent protection for the bin closer (through their company, Sherrards Pty Ltd) and included drawings based on the Khoury device in the patent specification. The patent application named the Sherrards as the two inventors. About a year later, the relationship between them and FDLP soured, without a royalty agreement being established.

The dispute

Mr Khoury applied to the APO to be added as an inventor and co-applicant of the patent application. The Hearing Officer needed to determine whether he was an 'eligible person' who could be granted a patent for the invention under s15 of the Patents Act 1990 (Cth).

In applying the test established in University of Western Australia v Gray [2009] FCAFC 116, the Hearing Officer:

  • assessed the inventive concept, finding that it was a self-closing device embodying the features of the Khoury device;
  • determined that conception of the inventive concept occurred when FDLP actually produced the drawings; and
  • held that both the Sherrards and Mr Khoury were responsible for the inventive concept and were therefore co-inventors, since without the contribution of each, the inventive concept would not have been conceived.

As no royalty agreement was ever entered into, Mr Khoury's rights as a co-inventor were never transferred to the Sherrards' company. As a consequence, he was held to be an eligible person, along with the Sherrards.

Implications

Mr Khoury may now be added as a co-applicant of the patent application and thus acquire equal rights with the Sherrards to exploit the invention. This means neither party can license or assign the patent application without the other's consent.

This case is a timely reminder to ensure that collaborative arrangements are established within a proper legal framework and that assignments of IP from contractors do not depend on subsequent actions.

Recent developments in online copyright infringement laws

In brief: A Senate Committee has approved a Bill to expand the safe harbour regime under the Copyright Act and the Federal Government has closed consultation on the effectiveness of site blocking legislation. Senior Associate Kaelah Ford and Law Graduate Ammy Singh report.

Senate Committee recommends limited safe harbour expansion

In late March, the Senate Environment and Communications Legislation Committee released its report on the Copyright Amendment (Service Providers) Bill 2017. The Bill provides for the expansion of the 'safe harbour regime' under the Copyright Act, which currently enables carriage service providers (CSPs) to avoid liability for acts of copyright infringement by users of their networks, by complying with certain conditions, including taking down infringing material when they have been notified of a suspected infringement by a copyright owner.

If passed, the Bill will extend safe harbour protection to the following online service providers:

  • educational institutions;
  • public or Parliamentary libraries;
  • archives and specified galleries and museums;
  • key cultural institutions; and
  • organisations assisting persons with a disability.

The Senate Committee did not accept the Productivity Commission's 2016 recommendation that the regime be extended to cover all online service providers. Advocates for this approach say that it would allow Australian technology companies to compete in the global market, given that the US, the UK and the EU all have more expansive safe harbour regimes. These views were echoed in the Greens' dissenting report.

Others have opposed an expansive safe harbour regime, drawing a distinction between service providers that are mere conduits of online content, and those that have the ability to exercise control over the content on their platforms. For example, the Australian Copyright Council submitted that a US-style regime encourages wilful blindness on the part of the platform, shifting all risk to the copyright owner who must monitor and issue takedown notices.

While the Bill is likely to pass in its current form, this may not be the end of the story, as online service providers are likely to continue to seek broader protection.

Site blocking legislation – three years on

On 13 February 2018, the Federal Government sought submissions on the Copyright Amendment (Online Infringement) Act 2015, which has been in operation since June 2015. Under the Act, copyright owners can apply to the Federal Court to block access to an online location operated outside Australia that has the primary purpose of infringing, or facilitating the infringement of, copyright (think torrent sites like Pirate Bay).

Stakeholders were asked to comment on the efficiency of the site blocking mechanism, the application process, and whether or not any amendments are required to improve the Act.

Overall it appears that both rights holders and CSPs are content with the Act's operation, though concerns have been raised about the protracted nature of the application process. Some stakeholders have also suggested that the 'primary purpose' threshold be amended to a 'substantial purpose or effect' test and that the requirement for a website to be located outside of Australia be removed, which is likely to be the subject of further debate.

The Federal Government has not indicated when it expects to release the findings of its review. Watch this space.

Direct .au registrations, a new internet tax or a way to strengthen the .au market?

In brief: In the most significant change since the .au domain was introduced more than 30 years ago, .au Domains Administration (auDA), the industry body for Australian-specific domain names, has approved the registration of .au second-level domain names, known as direct registration. Lawyer Elliott Burton outlines the issues in developing an implementation policy for direct registration, which is due in the next few months.

Currently, Australian domain names need to be registered under a third level extension (TLD) such as 'example.com.au' or 'example.net.au'. The proposed expansion would allow businesses, not for profits, government, education and individuals to register as 'example.au'. This is a significant expansion to the Australian domain name market.

auDA believes that direct registrations would benefit the Australian community by:

  • making domains short, more appealing and more memorable;
  • providing more choice by opening up another layer of potential domains;
  • responding to market demand (based on public surveys);
  • being more appealing to individuals than the current '.id.au' domain; and
  • strengthening the .au brand in the global market.

However, some commentators are concerned that direct registrations will cost Australian businesses, going so far as to term the proposal a new internet tax. Businesses may have invested significant resources in a '.com.au' or '.net.au' domain name, only to have that goodwill diluted by the same name being made available as a direct registration. To maintain control over the name, affected businesses will need to spend money on direct registrations (even if just as a defensive registration), and may even have to pay a premium to recover the domain from another party who registers it first (if they are able to obtain the domain name at all).

There are two important questions auDA needs to resolve in its implementation policy, which will indicate the extent to which existing domain name holders will be affected:

  1. While auDA has acknowledged that the holder of an existing TLD should have priority in registering the same name as a direct registration, it has not decided a cut-off date for that eligibility. auDA has indicated that the direct registration announcement date (18 April 2016) could be used, meaning all registrations after that date would not be given priority. However, auDA has also acknowledged that uncertainty around the launch date for direct registrations, lack of public awareness about direct registrations, and the length of time since the announcement may mean that a later cut-off date should be chosen; and
  2. auDA's policy will need to set out how it will deal with competing claims, where different registrants own the same domain names under different TLDs. Dealing with competing claims is a complex issue and any approach will result in someone missing out on the direct registration. auDA's possible approaches include:
    • conducting a lottery, with the winning ticket being assigned the direct registration;
    • an auction whereby the name goes to the highest bidder;
    • priority for the longest continuous registration or registrant of a TLD domain name;
    • an order of priority approach, with priority given to existing registrants;
    • a combination of the above; or
    • different approaches (yet to be outlined).

We'll have to wait and see how auDA decides to deal with these issues. Whichever approach it takes, it is likely to raise new issues for Australian businesses holding .au domain names. auDA's draft policy is due to be published in June/July 2018.

Update

After publication of our story above, recommendations for reform of auDA were released, following a Government review. In accepting all 29 recommendations, the Minister for Communications, Senator the Hon Mitch Fifeld, has issued a Terms of Endorsement which will seek to reform the management framework of auDA. As a result of implementing the recommendations of the review, auDA has indicated it will not be in a position to consider direct registration until the second half of 2019 at the earliest.

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