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Intellectual Property

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What's happening in intellectual property

December 2018

In this issue: we report on how a top European court denied copyright protection for taste; ROKT's major win in the fight for software-related inventions; who, or what, is the author of computer-created works, and whether those works are entitled to copyright protection; how the Federal Court is handling the issue of offers of compromise and indemnity costs; the key points from Sigma v Wyeth; the world’s first counterfeit and piracy watch list; the brand war between Sportsbet and BetEasy; and the Network 10 rebrand trade mark controversy.

Tough cheese: Top European court denies copyright protection for taste

In brief: Dutch food company Levola attempted to claim copyright in the taste of its cheesy dip, but the European Court of Justice left it feeling blue. Summer Clerk Sarah Muller and Lawyer Ammy Singh report.

The facts

It was not a 'gouda' day in court for Dutch food company Levola when its attempt to claim copyright in the taste of its cheesy dip was denied by the European Court of Justice.

Levola argued that it owned copyright in the taste of its signature dip Heksenkaas, a popular spread made of cream cheese and fresh herbs. It alleged that a rival company, Smilde Foods, had infringed this copyright by making and selling a similar cheesy dip to a supermarket chain in the Netherlands. While Levola holds a patent for the method of manufacturing Heksenkaas, its claim was directed at protecting its interest in the flavour of its dip.

A Dutch Regional Court of Appeal referred the central question to the European Court of Justice (the ECJ), asking whether the taste of a food product is eligible for copyright protection under the EU Copyright Directive on the harmonisation of certain aspects of copyright and related rights (the Directive). The ECJ shredded this proposition in its judgment on 13 November 2018, deciding that the taste of a food product cannot be considered a 'work' that is an expression of an original intellectual creation. It found that the subject matter of a 'work' under the Directive must be 'expressed in a manner which makes it identifiable with sufficient precision and objectivity'.

The court concluded that, unlike writing, music, films or images, the taste of a food product cannot 'be pinned down with precision and objectivity'. Rather, taste varies subjectively from person to person, depending upon the person's age, food preferences, and the context or environment in which they are eating. As there is no way to measure scientifically whether a certain food product is objectively different from another similar product, the taste cannot be precisely identified.

What does this mean?

The implications of this 'grating' judgment flow throughout Europe, precluding all national laws from being capable of granting copyright protection to taste. Accordingly, food companies operating in Europe may have to 'grin and camembert it' when food products tasting very similar to their own enter the market.

Meanwhile, in Australia, the question of whether there is copyright in the taste of a food product has not been explicitly considered by the courts. However, it is unlikely that taste alone could attract copyright protection. Copyright can subsist in the written form of a recipe, but will not protect the actual food product created by following the recipe.

If this decision leaves a bad taste in your mouth, there are other options for food companies in Australia to protect the unique aspects of their products. For example, a recipe may be protected as a 'trade secret', provided that the recipe remains confidential. This approach has borne past success for the world-famous trade secrets of McDonald's Big Mac sauce, and KFC's secret mixture of 11 herbs and spices. Food brands can also be protected as registered trade marks, and manufacturing methods and processes may be patentable. Food for thought.

Victory for software innovators as APO gets ROKTed

In brief: Australian start-up ROKT has had a major win in the fight for software-related inventions. Senior Associate and Patent Attorney Pasquale Aliberti considers the ramifications.

Background

In recent years, Australian courts have issued a series of decisions against patentability of software inventions. As a result, the Australian Patent Office (the APO) has developed a practice of rejecting software patents unless the invention provides substantial changes in the way computers operate. Now, though, ROKT has challenged the Commissioner of Patents in the Federal Court (Rokt Pte Ltd v Commissioner of Patents [2018] FCA 1988) and won.

Can I patent my software?

Not all inventions are eligible for patent protection. For example, a business scheme or a pure discovery may not qualify for patent protection, because it is directed to non-eligible subject matter. The High Court, in NRDC, set out basic principles for ascertaining whether a process is patentable: the invention should belong to a useful art (not a fine art); and it should be valuable in the field of economic endeavour and provide a useful effect. The NRDC test, used in modern times, has led to a significant number of patents being granted that claim general business methods combined with standard computing hardware. To address the issue, the Federal Court more recently adopted a narrower approach to the NRDC test, in Research Affiliates LLC v Commissioner of Patents [2014] FCAFC 150 and Commissioner of Patents v RPL Central Pty Ltd [2015] FCAFC 177. The court formulated a new test that requires establishing what is the substance of the invention, and assessing whether the substance is directed to new and improved computer technology. This recalibration in the test requires a change in the conventional operation of a computer. This, however, is a rare occurrence and would not apply to most software-related inventions.

How are software patents being examined?

The APO has relied on the recent court decisions to distil its own test for assessing computer-implemented inventions. The 'test' the APO currently applies is largely based on the UK decision in Aerotel and requires, among other things, that the actual or alleged contribution to the art is actually technical in nature. Although the Aerotel decision was discussed in Research Affiliates, the court did not find that this was the appropriate test to assess patentable subject matter in Australia. Nevertheless, the APO's rigid application of the Aerotel approach has, in the past few years, prevented patents for a large number of software inventions from being granted.

It’s not over yet for software innovators!

Encompass Corporation owned granted innovation patents for software that allows creation of a graphical network representation of entities, by drawing data from multiple sources and performing federated searches on one or more of the entities. Earlier this year, Justice Perram, in Encompass Corporation Pty Ltd v InfoTrack Pty Ltd [2018] FCA 421, found Encompass’s patents to be invalid. In arriving at this conclusion, His Honour could not establish that the 'substance' of the patented inventions was directed to new computer technology. This will come as no surprise, given the majority of software-type inventions do not aim to change the way computers function (eg by performing operations on binary data). After all, a key advantage and power of computers is that different software can enable a general machine to perform a variety of customised tasks without having to change the machine itself.

Software innovators have not raised the white flag just yet, as shown by their rare victory against the APO in the ROKT case. Justice Robertson allowed a patent for software that provides a series of smart advertising messages within e-commerce platforms to trigger engagement by leveraging the psychology behind how a shopper would respond to specifically ordered messages. His Honour, despite having the Encompass decision before him, found that the use of a computer in the ROKT invention was integral, rather than incidental – ie it couldn't happen without computers.

What happens next?

Encompass Corporation appealed the decision, and the Federal Court appointed a Full Bench of five judges (as opposed to the usual three) for the appeal, which was heard in November 2018. During the hearing, the court appeared to acknowledge that some forms of software should be patentable in Australia, and now the Full Bench has the rare opportunity to set a higher authority and provide guidance to software innovators about what type of software qualifies for patent protection in Australia. A decision is expected by mid-2019, and we will keep you updated on the outcome and its implications.

Artificial intelligence and copyright – time to rethink authorship?

In brief: The use of artificial intelligence for good and evil has long been the subject of fiction. However, such stories are becoming less far-fetched, raising the issue of who or what is the author of computer-created works, and whether those works are entitled to copyright protection. Senior Associate Alexia Mayer takes a closer look.

Fiction vs fact

In the popular children's book The 39-Storey Treehouse, author/illustrator duo extraordinaire Terry and Andy seek to meet their publisher's deadline and solve their book-writing problems forever, by inventing a 'Once-upon-a-time machine'. By setting the dial to 'milk-snortingly funny' and making some choices regarding characters and setting, the Once-upon-a-time machine should write and illustrate the book, leaving Andy and Terry free to procrastinate to their hearts' content. Now, such stories about artificial intelligence (AI) are progressively seeming more likely.

Creativity has traditionally been considered a purely human endeavour, and machines a mere tool used to implement human-made decisions. Increasingly, however, machines are being used to predict human behaviour (eg based on Facebook activity) and make design choices, thanks to machine learning software. In recent times, we have seen a portrait generated by an algorithm and a data set of thousands of portraits sell for a vast sum at auction; an AI-created Rembrandt-esque portrait debut in Amsterdam; local news stories and novels generated by AI; and even an AI-designed NASA space antenna. There are clear benefits to businesses in harnessing AI to make product development cheaper, quicker, and possibly even superior, but the rise of AI poses IP issues that could have a significant impact on business' ability to protect what they have developed.

Who is the author?

In Australia, the concept of authorship under the Copyright Act 1968 (Cth), and as developed by the courts, is one of human intellectual effort. When machines are used by a person merely as a tool (such as the use of a word processor to create a literary work), this is unproblematic, but what about works created by AI that could be interpreted as lacking a human author? It is at this end of the continuum between use of a machine as a tool and a machine actually making significant independent decisions in the creation of a work that issues of copyright become murky. There is a real risk that works created by AI that involve a lower degree of human decision making might be found by a court to be free of copyright, and hence able to be copied by competitors, regardless of the significant human investment in developing the AI that generated the works.

Similarly, under US law it appears that a human author is required. In the widely reported case of a monkey taking a selfie, the U.S. Court of Appeal for the Ninth Circuit disregarded the commercial settlement reportedly reached between the parties and chose to rule on PETA's appeal, holding that although the monkey had constitutional standing to bring a claim, he lacked standing to file his copyright suit because animals were not expressly authorised to file copyright infringement suits under the statute.

If AI-created works are to be protected under copyright law, who should be deemed to be the author? The person who uses the AI to create a work, even if all they did was switch on the machine? The person who created the AI (eg by coming up with the algorithms)? Or, most controversially, the machine itself, which could then perhaps constitute an exception to the rule that the author of a copyright work is the first owner of any copyright subsisting in it (ie in a similar manner that an employer is the owner of any copyright subsisting in works created by an employee under the terms of their employment contract)? Potentially complicated issues of joint ownership and the appropriate duration of copyright protection afforded to AI-created works could also arise.

In some jurisdictions, attempts have been made to expressly adapt copyright law to deal with computer-created works. For example, the New Zealand Copyright Act 1994, which provides that the author of a work is the person who creates it, deems the creator of a computer-generated literary, dramatic or artistic work to be 'the person by whom the arrangements necessary for the creation of the work are undertaken'. The same wording is used in the UK legislation; it remains to be seen whether Australia follows suit.

What's next?

Clearly, there are important public policy and practical issues to be grappled with. Given the exciting technological developments in AI, the issues of authorship and copyright in AI-generated works will need to be addressed in Australia sooner rather than later.

Indemnity costs and offers of compromise

In brief: How is the Federal Court currently handling the issue of offers of compromise and indemnity costs? Lawyer Phoebe St John recaps Reckitt Benckiser v GSK Australia (No 2) to find out the latest.

How does it affect you?

The relationship between offers of compromise and indemnity costs is a tricky one for the courts to navigate. Although one party may strongly believe it is in the best interests of the case that proceedings should settle, the other might have just as strong reasoning for it to continue. Where does one draw the line regarding the reasonableness of refusing an offer to settle?

In the recent case of Reckitt Benckiser (Australia) Pty Ltd v GlaxoSmithKline Australia Pty Ltd (No 2) ([2018] FCAFC 153 (14 September 2018), the Full Court of the Federal Court had to decide exactly that.

The facts

In June this year, GlaxoSmithKline (GSK) served a notice of offer of compromise on Reckitt Benckiser, as per rule 25.01 of the Federal Court Rules, while appeal proceedings were on foot. The offer essentially stated that the appeal be dismissed and there be no order as to costs in relation to those proceedings. The offer was open for 14 days after service, but Reckitt did not respond.

Reckitt was ultimately unsuccessful in the proceedings, so GSK sought an order for Reckitt to pay its costs of the appeal – before the date of the offer on a party-and-party basis, and after the date of the offer on an indemnity basis. Essentially, GSK was seeking indemnity costs to penalise Reckitt for maintaining a cause of action with minimal prospects of success, for wilful disregard of the law, for an ulterior motive, or for simply being unreasonable. The basis of GSK's argument was that its offer was one of genuine compromise; that Reckitt's prospects of success were low; and that additional costs in preparing for, and attending, the appeal would have been avoided if Reckitt had accepted its offer.

However, the Full Court was not persuaded that the rejection of the offer was unreasonable in all the circumstances, nor that any order for indemnity costs was appropriate. It stipulated that the grounds of appeal upon which Reckitt relied were genuinely raised and reasonably arguable (even if they did not succeed before the court). Moreover, the appeal was clearly very commercially important to Reckitt. Indeed, the primary judge had declared that it had engaged in misleading or deceptive conduct, and made false representations in contravention of the ACL. The court did not find it unreasonable for Reckitt to persist with its legal action in order to defend its commercial conduct. Accordingly, it ordered Reckitt to pay GSK's costs on a party-and-party basis, not on an indemnity basis.

What does it mean?

The significance of this decision is that the mere refusal of an offer to settle does not, of itself, warrant an order of indemnity costs if the litigation goes ahead. It is important to keep this in mind, even if in making the offer, you truly believe that the opponent's prospects of success are low.

Four key principles from Sigma v Wyeth

In brief: Justice Jagot's mammoth judgment in Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth [2018] FCA 1556 sets down important principles relating to claims for damages under the usual undertaking as to damages, where an interlocutory injunction has been wrongly granted. Senior Associate Tracy Lu reports.

Background

Wyeth was the patentee of a method patent, which related to its product EFEXOR-XR (venlafaxine), a leading anti-depressant in Australia that had annual sales in the order of $114 million.
In 2009, generic companies Sigma, Alphapharm and Generic Health challenged the validity of the method patent. Wyeth cross-claimed for infringement and obtained interlocutory injunctions against each of the generic companies.
In November 2010, Justice Jagot, at first instance, upheld the validity of the method patent and granted permanent injunctions against each of the generic companies.
In October 2011, the Full Court allowed the appeal by the generic companies and found the method patent invalid.
In May 2012, the High Court dismissed Wyeth's application for special leave.
The form of the usual undertakings as to damages in relation to the grant of an interlocutory injunction is to submit to such order (if any) as the court may consider to be just for the payment of compensation, to be assessed by the court or as it may direct, to any person, whether or not a party, adversely affected by any operation of the interlocutory injunction or any continuation (with or without variation) thereof.

Key principles

What is the real cause?

Justice Jagot repeated a number of times in the judgment that the damage claimed must be shown to be caused by the operation of the interlocutory injunction. That means, any relevant damage ceased when the permanent injunction was granted at first instance (even if it was later lifted by the Full Court). No compensation is payable for damage as a result of the grant of the permanent injunction – that is just a risk that a party who gets involved in legal proceedings has to take. However, the fact that a permanent injunction was granted does not mean that the interlocutory injunction was not wrongfully granted, so it does not cancel out the earlier damage.

Her Honour also found that any action taken by a claimant based on an undertaking given to obtain an interlocutory injunction that bound a different person but not the claimant itself was not caused by the operation of the interlocutory injunction.

For example, if Party C saw that Party A sought and was granted an interlocutory injunction against Party B in relation to the same allegedly infringing conduct that Party C is engaging in, and Party C then changed its conduct, which caused damage to Party C, Party C cannot claim under the undertaking given to obtain the interlocutory injunction against Party B if it was later found to be wrongly granted. This is because Party C's actions were caused by Party C's anticipation that Party A would seek a similar injunction against Party C: ie the damage was a result of anticipated litigation.

Unknown unknowns in the real world are still unknown unknowns in the hypothetical world

In assessing what compensation is payable, the court has to conduct a comparison between what economic benefits have been received by the claimant in the real world and what economic benefits would have been received by the claimant in the hypothetical world.

Given that in the real world, it was known by the time the case was decided by the Full Court that the patent was invalid, should it be assumed therefore that in the hypothetical world, an interlocutory injunction would have been refused? Justice Jagot's answer is no – in the hypothetical world as at 2009 (the time of the interlocutory injunction), the generic companies could not be assumed to know what only became known in the real world in 2011 (the time of the Full Court decision finding that the patent was invalid). Rather, it is to be assumed that the patentee still had a valid patent and still would have commenced the proceedings. The only difference is that the patentee would not have applied for an interlocutory injunction. Then it would be up to the generic companies to decide whether they would enter the market at risk under those circumstances.

The winner does not take it all

Wyeth argued that the generic companies had to prove, on the balance of probabilities, that they would have obtained PBS listing or sold their products on the PBS market, or would have sold their products on the private market, in order to be awarded damages. That is, if the generic companies can cross the 51 per cent threshold on the balance of probabilities, they would get 100 per cent of the damages, or if they cannot cross the threshold, they would get 0 per cent of the damages.

Justice Jagot found instead that the generic companies' loss was a loss of opportunity to use their ARTG registration. The registration itself gave the registration holder certain rights that were valuable, including the opportunity to pursue PBS listing or supply products. Therefore, if there is a 20 per cent possibility that a generic company would have supplied the PBS market, it would be compensated for that 20 per cent, rather than 0 per cent.

However, for the manufacturers and suppliers to the generic companies who were not themselves the subject of the interlocutory injunction, they did not have ARTG registrations and must prove on the balance of probabilities (51 per cent) that they would have supplied the products, or some additional products, to the generic companies, if not for the interlocutory injunctions.

Not supported by contemporaneous documents? It's fake news

Justice Jagot was particularly scathing about the credibility of many of the generic companies' witnesses. However, even assuming that the witnesses were honest and careful, her Honour considered the evidence now of what the witnesses thought they would have done almost 10 years ago, in the hypothetical world, to be likely inherently unreliable. It takes no stretch of the imagination to see how this evidence could be tainted by hindsight.

Therefore, Justice Jagot placed much heavier reliance on the contemporaneous documents of the generic companies as indications of what the generic companies are likely to have done: eg what was their appetite for risk and what was their financial capability to pursue a particular hypothetical course of action.

Conclusion

The precise quantum of damages payable to the generic claimants are yet to be calculated according to the formulae set down by Justice Jagot and can be expected to be substantial. It is another reminder to originators to consider carefully the pros and cons of applying for an interlocutory injunction and the likelihood of ultimate success – particularly now that the compulsory statutory price reduction upon the initial listing of a generic brand on the PBS is 25 per cent.

EU leads the way with counterfeit crackdown

In brief: The European Commission has recently established the world’s first counterfeit and piracy watch list, which aims to crack down on counterfeiting and piracy both within the European Union and in external suspect markets. Partner Tim Golder and Vacation Clerk Scott Sidley report.

Background

A recent study by the European Intellectual Property Office estimated that 5 per cent of products imported into the European Union (EU) are counterfeited/pirated. Counterfeiting/piracy has significant impact on the pharmaceutical, tech, music and automotive industries, among others.

After extensive public consultation earlier this year, the European Commission's watch list came into effect on 7 December 2018. The watch list will be updated every two years with names of the most significant online and physical marketplaces outside the EU involved in counterfeiting/piracy.

The list aims to initiate a crackdown on the listed suspect markets, by alerting enforcement authorities, governments and consumers to the threats posed by these marketplaces, and acknowledges the shift to online IP infringement. The watch list addresses four key areas: websites providing copyrighted content, e-commerce platforms, online pharmacies and physical marketplaces.

Alongside the IP initiative, the watch list will also be used to alert European consumers to the safety risks and negative environmental impacts that can be involved in the use and production of products purchased from suspect suppliers.

Implications

The EU Commissioner for Trade, Cecilia Malmström, has been a strong supporter of the introduction of the watch list. Malmström notes that IP infringement is detrimental to the European economy, and that she expects the watch list to provide European companies with ‘a level playing field’ in trade outside the EU. Law-abiding EU companies are currently forced to compete with organisations and individuals that rely on counterfeiting/piracy, many of which operate unchecked by their domestic regulators. The watch list puts these individuals on notice and encourages regulators to eradicate IP infringement, so that legitimate businesses do not have their business stolen by counterfeiters/pirates.

It is hoped that this initiative will increase consumer awareness around counterfeiting/piracy, as well as encourage marketplace owners, enforcement authorities and governments to stamp out IP infringement. It is also expected to provide some of the most significant benefits to pharmaceutical, tech and car manufacturers, by combating the sale of counterfeits. Online measurers should also benefit digital content creators, with crackdowns on major digital infringers such as BitTorrent sites.

Although the watch list focuses on the EU and the interests of European companies, implementation of the watch list should produce flow-on effects that will benefit other markets around the globe.

While the EU watch list appears to be a positive step in IP protection, its ultimate effectiveness is still to be seen.

BetEasy raises the stakes in brand war with Sportsbet

In brief: When an interlocutory injunction sought by Sportsbet forced CrownBet to forget about rebranding to Sportingbet, CrownBet did anything but forget SportsBet's arguments. In a continuing legal battle over wagering brand names, CrownBet, now known as BetEasy, is seeking cancellation of the SPORTSBET trade mark on the same grounds Sportsbet used to successfully oppose the rebranding. Trade Marks Attorney Jules Thai reports.

Background

In the August edition of InIP, we reported on Sportsbet's successful application for an interlocutory injunction against CrownBet to restrain it from rebranding to 'Sportingbet'. This meant a hasty reversion to its former name 'BetEasy'. At the same time, BetEasy faces a pending cancellation action brought by multiple parties against its previously retired trade mark 'sportingbet', on the grounds of non-use. In the wake of these challenges to its rebranding efforts, BetEasy has retaliated by filing a cross-claim in the proceedings with Sportsbet, asking the court to cancel the SPORTSBET trade mark by way of rectification, in an attempt to use Sportsbet's own claims of trade mark infringement and market confusion against it.

New cross-claim

In its cross-claim, BetEasy contends that there are a number of wagering companies doing business in Australia using trade marks comprising the words 'sport' and 'bet', or derivations of those words. Since many of these trade marks, such as TAB Sportsbet, predate Sportsbet's trade mark, BetEasy argues that SPORTSBET should not have been registered in the first place. Further, if the court agrees with Sportsbet's argument that the co-existence of Sportingbet with SPORTSBET would have caused consumer confusion, then it should follow that the SPORTSBET trade mark should be revoked. In response, Sportsbet has conceded that 'sport' and 'bet' appear in the trade names of some sports betting services, but otherwise rejects BetEasy's arguments and denies that SPORTSBET is liable to cancellation.

Watch this space

While the matter has not yet been heard, a tightly fought contest is expected. It is likely to be relevant that the trade mark SPORTSBET overcame the section 44 (substantially identical or deceptively similar trade mark) objection raised against it, based on honest concurrent use. Further, in its July decision, the Federal Court stated that Sportsbet already had a 'very high level of brand recognition'.

The takeaway

A second rebranding and the ensuing court action are no doubt proving rather costly for BetEasy. This case serves as a reminder of the potential pitfalls that lie ahead in rebranding efforts, even if brand strategists and creative agencies are utilised. A trade mark specialist can help anticipate and navigate these pitfalls, and should also be consulted before launching a brand that may potentially infringe another trader's trade marks or contravene the Australian Consumer Law.

Fairfax says it's the BOSS

In brief: Network 10 has recently undergone a rebrand, with new channel names and logos. However, this was not without controversy, after Fairfax Media raised concerns about potential trade mark infringement. Lawyer Edward Thien reports.

Background

Acquired by CBS last year, Network 10 has now undergone a major rebranding. Its main channel (Channel Ten) has had its logo updated, and secondary channels ELEVEN and ONE have had their names revamped – becoming 10 PEACH and 10 BOSS, respectively. The 10 BOSS element of this rebrand might cause it problems; indeed, Fairfax Media has taken issue over the logo's similarity to its BOSS magazine trade mark.

The trade marks

Network 10's new 10 BOSS trade mark:

Fairfax's BOSS magazine trade mark:

Network 10 is also using the below trade mark, which has the 'BOSS' element less pronounced.

Both Fairfax and Network 10's trade marks feature 'BOSS' in capital letters and red colouring. In Network 10's favour is that its use of 'BOSS' is arguably not as dominant as Fairfax's. Network 10 still has its '10' symbol as a key component of its mark. Ultimately, should any trade mark infringement litigation result, the court will need to determine whether Network 10's marks are 'substantially identical or deceptively similar' to Fairfax's. While it looks like Network 10 has sought to avoid controversy by changing the channel's name again to 10 BOLD, it is still possible that Fairfax could take issue with the original rebranding.

Target audiences

The BOSS magazine, published in the Australian Financial Review, was launched in March 2000. It is marketed as being 'Australia’s premier magazine for business leaders and high-achievers – and those who wish to learn from them'. Similarly, 10 Boss is targeting an older audience, with 10 Peach being used to capture the youth audience.

Fairfax's TV venture

Fairfax and Network 10 operate in different areas of the media landscape. However, this is set to change, with Fairfax and Nine Entertainment (which operates Channel 9) recently receiving approval from the Federal Court for a merger between the two companies. Having received approval for the deal from the ACCC in early November, this decision was then challenged by one of Fairfax's shareholders. The Federal Court's decision to uphold the ACCC's approval may yet be appealed. Otherwise, the deal is expected to be finalised by the end of the calendar year. This background adds a further level of intrigue to any potential dispute between Network 10 and Fairfax.

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