Jurassic Park's dinosaur wrangler validly sacked for 'grossly offensive and disgusting' Facebook comments

Posted by Rory Jolley and Michael Tehan

The Fair Work Commission has again this week confirmed that employers may validly sack employees for injudicious use of social media use – whether at work or not.   The message to employees is clear: you need to think carefully before making comments on social media relating to your employment.

Cameron Little had been employed with Credit Corp Group Ltd (Credit Corp) for over three years when he chose to use his Facebook account to criticise an organisation, Christians Against Poverty (CAP), with which his employer had professional dealings. Mr Little did not identify himself on Facebook as an employee of Credit Corp; rather he held himself out as a 'Dinosaur Wrangler' working for 'Jurassic Park'.

Credit Corp's business involved the collection of consumer debt that had been written off by the original lender.   CAP was a third party organisation which assisted its clients with their debt obligations (and dealt with Credit Corp in this context).

On 27 June 2013, while on annual leave, Mr Little posted on the CAP Facebook page:

For reals bro, you should put a little more of funding into educating consumers on how the world works rather than just weaselling them out of debt, blah blah blah, give a man a fish/teach a man to fish.

He also posted:

No thanks, just take my advice and try to educate people about things like 'interest' and 'liability' rather than just weasel them out of contracts. #simple

CAP was able to identify Mr Little as an employee of Credit Corp.  Despite Mr Little's listed occupation, he had, some six days previously, posted the following on Facebook:

On behalf of all the staff at The Credit Corp Group I would like to welcome our newest victim of butt rape, Jack Hoye. I'm looking Forward to sexually harassing you behind the stationary cupboard big boy.

Not surprisingly, CAP alerted the business as to the circumstances, and Mr Little's employment was terminated shortly afterwards.   Mr Little subsequently lodged an unfair dismissal application.   In defending himself, Mr Little stated (amongst other things) that he thought his Facebook page was private.   He conceded, however, that other employees of Credit Corp were among his Facebook friends.

In finding that the dismissal was not unfair, Deputy President Peter Sams noted that Credit Corp had policies dealing with and prohibiting the kind of conduct engaged in by Mr Little.  He indicated, however, that it would not have mattered if the situation was otherwise.   He stated that written polices were hardly necessary for an employee like Mr Little to recognise that his comments about CAP were likely to damage his employer's reputation, and that the 'deeply offensive' sexual comments made about the new employee were 'grossly offensive and disgusting'.

Deputy President Sams also found that the fact that Mr Little made the Facebook comments in his own time was of no consequence, as it was not when the comments were made that was important, but the effect and impact of those comments on the employer and on other employees.  He stated that, whilst Mr Little was perfectly entitled to hold and express personal views, he could not do so in a manner which adversely affected his employer's reputation and viability.

Finally, Deputy President Sams stated that he had trouble accepting that Mr Little believed his Facebook page was private.   In any event, he said, the maintenance of the page's privacy settings were Mr Little's responsibility.   This follows from the clear warning delivered by a Full Bench of the Fair Work Commission in last year's Linfox case when rejecting an appeal against a finding that a dismissal for certain offensive Facebook comments was unfair. In that case, the Full Bench stated:

It is apparent ... that the findings of the Commissioner as to the Applicant’s understanding about the use of Facebook were an important part of the circumstances taken into account in concluding that the dismissal was unfair. It is also apparent that, with increased use and understanding about Facebook in the community and the adoption by more employers of social networking policies, some of these factors may be given less weight in future cases.

This case is one more in a growing body of case law developed by the Fair Work Commission relating to the discipline of employees in relation to their use of social media.  It is now beyond doubt that discipline may be appropriate where comments made online are sufficiently injurious to an employer.  Of course, it would be better if such comments are not made at all.  To minimise this risk so far as possible, an employer should have in place a good social media policy, and ensure that its staff are properly trained.  Should anything untoward then occur, the employer will be well placed to appropriately deal with the situation.

Enforcing IP rights globally - evidentiary challenges

Posted by Matt Davies and Paul Kallenbach

The recent decision of the Australian High Court in Aristocrat Technologies Australia Pty Ltd v Global Gaming Supplies Pty Ltd [2013] HCA 21(Aristocrat) serves as an intriguing illustration of the evidentiary challenges confronting those seeking to enforce their intellectual property rights in a global marketplace.

The somewhat complex facts involved the manufacture and refurbishment of pokies machines in Australia by the respondent (Global) which were sold to purchasers located principally in South America.  The applicant (Aristocrat Tech) alleged that infringing copies of its computer programs (constituting the games and the artwork displayed on the gaming machines) were contained within the refurbished machines. 

Interestingly, of the 54 impugned export transactions identified by Aristocrat Tech, which involved some 618 pokies machines, there was no evidence identifying precisely which components in each machine were allegedly infringing. This was the case even following the execution of search orders in respect of Global's premises.

In an attempt to overcome this evidentiary hurdle, Aristocrat Tech tendered a number of business communications, including 6 email chains between Global and certain international purchasers. These emails were described on appeal as 'essential' to the primary judge's reasoning process and His Honour's conclusion that, although their content did not reveal an offer to act in a manner constituting an infringement of the Copyright Act, it did indicate a 'willingness to assist the "serial counterfeiters" in South America in carrying out their actions'.

On appeal to the Full Federal Court, Global argued, and the Full Court held, that use of the emails to demonstrate the credit of the witnesses and the existence of a joint venture which involved the production and sale of infringing pokies machines amounted to tendency evidence.  This finding was made notwithstanding the absence of the term 'tendency' in the primary judge's written decision.

Section 97 of the Evidence Act 1995 (Cth) creates a general rule excluding the use of tendency evidence with exceptions when evidence is considered by the court to be of 'significant probative value' and provided that strict notice requirements are complied with.  As Aristocrat Tech did not recognise that the evidence it adduced was tendency evidence, the notice requirements were ignored and consequently, on appeal to the Full Court, the evidence was ruled to be inadmissible.

The importance of this case is underscored by the High Court's decision to refuse special leave yet still publish reasons for its decision (something it is not required to do).  In finding the decision made by the Full Court to have been reasonably open, the joint judgement of the High Court stated: 'it would be difficult to find a clearer indication of the use of evidence as indicative of a tendency'.

Aristocrat provides a reminder of the strict requirements accompanying the use of tendency evidence, and that the assessment of whether evidence is being adduced to establish a tendency will be a matter of substance over form.  It is also highlights the practical evidentiary hurdles facing those seeking to enforce their intellectual property rights globally.

Apotex v Sanofi-Aventis continued: High Court upholds patentability of methods of medical treatment - but finds no infringement

Posted by Nicole Reid and Paul Kallenbach


Image courtest of opensourceway

The High Court has handed down its decision in the litigation between Sanofi-Aventis and Apotex. The case concerns Apotex's proposal to sell a generic version of Sanofi-Aventis' leflunomide drug, ARAVA®, for which Apotex obtained registration on the Australian Register of Therapeutic Goods (ARTG).

 

The background to this case is set out in our post on the first instance decision.   In brief, Sanofi-Aventis had a patent for the compound leflunomide, which expired in 2004.   It also obtained a secondary patent that claims a method of preventing or treating psoriasis using leflunomide (Patent), and its infringement proceedings against Apotex relied on that Patent.  Leflunomide is used in Australia to treat psoriatic arthritis and rheumatoid arthritis, but not psoriasis alone, and these were the indications for which Apotex's generic version was approved.   However, psoriasis and psoriatic arthritis are now understood to be related disorders, and almost all patients with psoriatic arthritis will have, or are likely to develop, psoriasis.   The administration of leflunomide will treat both disorders.

 

In the first instance proceeding, Apotex raised a number of invalidity challenges against the Patent in addition to asserting non-infringement.   However, Apotex only asked the High Court to consider:

• whether the Patent was invalid on the basis that it was not a 'manner of manufacture' within the meaning of section 18(1) of the Patents Act 1990 (Cth), because it was a method of medical treatment; and
• if the Patent was valid, whether Apotex had infringed the Patent.

 

Manner of manufacture

 

A majority of the High Court held that the invention the subject of the Patent was a manner of manufacture, upholding the view of the Full Federal Court (the majority of which had regarded this position as 'representing orthodoxy in Australian patent law').

 

In separate judgments, Chief Justice French, and Justices Crennan and Kiefel, reviewed the history and earlier judicial interpretation of the 'manner of manufacture' requirement, and held that methods of medical treatment were patentable manners of manufacture.   Chief Justice French found that, despite statements by some courts that methods of medical treatment were not patentable, the judicial authority evidenced no 'clear and consistent foundation' for their exclusion.

 

Justices Crennan and Kiefel (with whom Justice Gageler largely agreed) listed a number of reasons for their view, including, 'critically', the lack of a distinction on economic or ethical grounds between product claims and combined product/method claims (which are patentable), and method claims.

 

The majority of the Court applied the test that, in order to be a manner of manufacture, the invention not be 'essentially non-economic', and pointed to the economic interest in ensuring that individuals are fit and healthy.   It was, however, noted by the Court that methods of medical treatment that are do not constitute use of a pharmaceutical product (for example, procedures used by medical staff in physically treating patients) may still fall outside the scope of what is patentable on the basis of this test.

 

In dissent, Justice Hayne held that a method of prevention or treatment of human disease is not a manner of manufacture, on the basis it does not have its own 'economic utility'.   His Honour interpreted previous authority as requiring that, in order for a method to be patentable, the method itself must have economic utility (as distinct from the outcome of applying that method having economic utility).   This sets a higher bar than the 'essentially non-economic' test applied by the rest of the Court.   In Justice Hayne's view, the effect of using a medical treatment on an individual is personal to that individual, and can only indirectly be said to have an economic effect, by enabling that individual to make a more valuable contribution to economic activity.

 

Infringement

 

The Full Federal Court had held that Apotex had infringed the Patent under section 117 of the Patents Act, which deals with indirect infringement.   Section 117 provides that the supply of a product to a person: 

• for any use to which the supplier has reason to believe the person will put the product; or
• in accordance with any instructions for use of the product, or inducements to use the product included in advertising,

will also infringe a patent if that use of the product by the person would infringe the patent.

 

Apotex's product information document, as approved under the Therapeutic Goods Act 1989 (Cth), stated that its drug was to be used for the treatment of rheumatoid arthritis and psoriatic arthritis, and expressly stated that its use to treat 'psoriasis that is not associated with manifestations of arthritic disease' was not indicated.   Despite this, the Full Federal Court held that Apotex's supply would be infringement under section 117 because it would treat any psoriasis that the patient had, even if it was not administered for that purpose, and almost every person who has psoriatic arthritis will also have or develop psoriasis.   The Full Federal Court also found that Apotex had reason to believe that its generic leflunomide product would be used to treat psoriasis, even though this was not listed as an indication.

 

The High Court overturned this decision on infringement.   It held that the Patent would not be infringed by a person who administered Apotex's leflunomide product for the purposes of treating a condition other than psoriasis, and section 117 could not render Apotex liable for contributory infringement where there was no primary infringement.   The High Court also placed weight on the fact that Apotex's product was registered on the ARTG only for the indicated uses (namely, psoriatic and rheumatoid arthritis).  In that context, it could not be said that Apotex was either instructing or inducing people to use its product in accordance with the patented method, or that it had reason to believe that they would do so.

 

This decision is valuable because it is the first High Court decision confirming that methods of medical treatment are patentable manners of manufacture, in the face of some lingering doubts from earlier case law.  Even though the Patent was upheld, however, the two decisions of the lower courts finding infringement were overturned.  The High Court gave Sanofi-Aventis' secondary patent a narrower scope of operation, meaning that generic pharmaceutical manufacturers may be able to circumvent method patents by drafting their product information documents to specifically exclude the patented use.

Google Books, fair use and fair dealing

Posted by Nick Liau and Paul Kallenbach

Since the inception of the Google Books project in 2004, Google has scanned and digitised over 30 million books.  Google Books enables users to search for text within digitised books.  Users' search results return short extracts of books together with title and other bibliographical details.  Google's search engine can thus be employed to perform complex analyses of the Google Books database, for instance, by enabling users to search for how frequently certain words or phrases are used across time.  Users are not, however, able to view or download the full content of the books contained within the Google Books database.

Many of the books scanned during the project are protected by copyright.  Google did not seek the permission of all copyright owners before scanning those copyright works and incorporating them into the Google Books database. 

In The Authors Guild & Ors v Google, a number of publishers and authors sued Google for copyright infringement, asserting that Google's scanning and digitisation of books constituted a breach of copyright.  However, on 14 November, the United States District Court dismissed this action, finding that Google had not breached copyright, on the basis that Google's use fell within the 'fair use' defence under section 107 of the US Copyright Act.

The 'fair use' defence in the US is a broad-based defence to copyright infringement.  Whether a particular use is 'fair use' is assessed on a case-by-case basis; US case law tells us that, in general terms, a finding of fair use is more likely where:

·                the use of the material was educational, as opposed to commercial;

·                the original work had already been published;

·                only a small amount of the work was reproduced; and

·                the alleged infringer's use of the work is unlikely to affect the market or value of the original work.

In the Google Books case, the US District Court held that Google's reproduction of books did not infringe copyright on the basis of 'fair use' because:

·                Google Books is not a tool which can be used to read books – instead, it 'adds value to the original' due to the new search and analytical methods it makes available;

·                the proportion of each book which could be viewed by users was limited; and

·                the service was likely to enhance the sales of books by showing users small extracts of books, encouraging them to buy the original to read the whole text.

Australia's Copyright Act 1968 (Cth) lacks any equivalent broad-based 'fair use' exception.  Rather, the Australian Copyright Act sets out a number of narrowly defined 'fair dealing' defences, which include use of a copyright work for the purpose of news reporting, criticism or review, parody and satire, and study or research.

While, on its face, the 'study or research' fair dealing exception (in section 40 of the Australian Copyright Act) might appear to cover Google's activities in this case, this exception has been interpreted narrowly by Australian courts.  That is, it is not enough that the copied materials will ultimately be used for study or research purposes.  Rather, the party who is doing the copying must be the same party doing the study or research.  Thus, while a student's use of quotes obtained from digitised content stored on an online platform may well fall within the fair dealing exception, the platform's digitisation and communication of the content itself may not meet the requirement of being for the purposes of study or research.

This is a threshold issue under Australian copyright law – it simply does not matter how fair or reasonable the dealing may be, if the dealing does not fall within one of the defined 'fair dealing' (or other) exceptions under the Copyright Act, it will constitute copyright infringement. 

As we have previously discussed on this blog, there is ongoing debate in Australia as to whether it should follow the US and adopt a broad-based fair dealing exception.  The Google Books decision neatly illustrates the practical ramifications of the divergence between US and Australian copyright law in the area of exceptions to copyright infringement. 

As has been widely reported, Australia is currently involved in negotiations with eleven other countries, including the US, over the Trans Pacific Partnership (TPP) trade agreement. The TPP includes a large number of clauses devoted to intellectual property issues.  The negotiations are being conducted behind closed doors, but a recent draft of the agreement has been leaked via WikiLeaks.  The most recent available clause dealing with limitations and exceptions to copyright infringement is not prescriptive on the issue, which suggests that a broad-based fair use exception would not be inconsistent with the TPP (or at least with the current draft of the TPP).

The Winnebago appeal: why you should act promptly against persons trading off your reputation

Posted by Nicole Reid and Paul Kallenbach

Last year, we wrote about the Federal Court decision concerning the use by an Australian company of the name 'Winnebago' and the 'W' logo for its motor homes, without any association with or permission from the well-known US company that started using the branding first, Winnebago Industries Inc (Winnebago).

Since then, Knott Investments Pty Ltd (Knott) has appealed against the court's orders permanently restraining it from using the Winnebago name and logo in relation to motor homes on the basis that it had engaged in passing off and misleading or deceptive conduct. Although Knott was largely unsuccessful in its appeal, it was able to secure a reduction in the extent of the relief awarded to Winnebago. Knott is now entitled to continue to use the Winnebago branding, subject to certain conditions.

Estoppel, acquiescence and delay

On appeal, Knott argued that Winnebago's failure to commence litigation in relation to Knott's use between 1985 (when Winnebago first learned of Knott's use of Winnebago's branding in Australia) and 2010 was a barrier to Winnebago now securing relief. The Full Federal Court found that Winnebago's conduct and the terms of the settlement agreement entered into by the parties in 1992 were not sufficient to give rise to a reasonable belief that Winnebago had accepted Knott's use of the Winnebago branding in Australia. Although the terms of the agreement were uncertain, Knott continued to use the Winnebago branding at its own risk and without any assurance that Winnebago would not enforce its rights in the brand against Knott in the future.

However, as discussed below, the fact that Winnebago had delayed in taking any action against Knott was relevant to the Court's findings on the appropriate relief.

Knott's Australian trade mark

Knott also appealed against the primary judge's decision to cancel its registration in Australia of the 'Winnebago' logo. This element of the appeal failed. The Court found that the primary judge had been correct in finding that use of the mark was contrary to law because it amounted to passing off, given Winnebago's reputation in Australia.

Knott also failed in its argument that the primary judge's discretion should have been exercised in favour of Knott, on the basis that it was Winnebago's inaction that caused any deception or confusion in the minds of the public. The Court found that Knott had also contributed to the deception and confusion, by deliberately adopting the Winnebago name and taking certain steps to associate itself in the minds of the public with the US brand. Therefore the decision to cancel Knott's trade mark was appropriate.

Relief

The Court pointed out that, since 1978, Knott had built up a substantial business in Australia without the interference of Winnebago. Although it is likely that Knott was, to some extent, assisted by the growing reputation of Winnebago's own vehicles around the world, the Court also stated that it would be unjust to ignore the contribution made by Knott itself in building up goodwill in the Winnebago brand in Australia.

Consequently, the Court held that Knott should be entitled to continue to use the Winnebago branding, as long as relief could be fashioned that would protect the public from being deceived about any connection between Knott's vehicles and Winnebago, and protect Winnebago's own trade reputation.

The Court set aside the primary judge's order restraining Knott from selling motor homes under the Winnebago branding. Instead, it ordered that Knott be required to use a disclaimer in its advertising and on its vehicles stating that the vehicles are 'not manufactured by, or by anyone having any association with, Winnebago of the United States'. Such a disclaimer must be used clearly and prominently so as to protect members of the public from being misled. The Court did not, however, agree with Winnebago that the disclaimer must be of equal prominence to the Winnebago name itself, as that would not properly take into account the entitlement of Knott to use the name in light of its own contribution to its Australian reputation.

The Court also ordered that Knott be required to ensure that each person who bought or hired one of its vehicles signs a form stating that he or she has been notified of the disclaimer. Although recognising that such an order would be 'novel', the court found that it was appropriate in order to ensure that, to the extent possible, members of the public would not be deceived about the trade origin of Knott's vehicles.

The extent of the damages to which Winnebago is entitled, if any, will be the subject of a further hearing.

As we said in our earlier article, this case illustrates some of the difficulties for overseas companies in preventing Australian businesses from trading off their reputations if the overseas company has not taken action to carry out business in Australia itself. The significant reduction by the Full Federal Court in the relief awarded to Winnebago reinforces the practical difficulties caused by waiting a long time before taking action against an Australian infringer that has been given time to build up its own separate goodwill - and legal rights - in the overseas company's brand.

The vexed issue of 'orphan' copyright works

Posted by Genevieve Watt and Paul Kallenbach

The application of copyright law to works for which the rights holder (or holders) cannot be found (so-called 'orphan works') is a question that has recently been under consideration in several jurisdictions. Given the ease with which works can be de-identified when reproduced or transmitted using digital means, this is not surprising.

In many jurisdictions, orphan works have been in a state of limbo in which it is not possible to obtain permission to legally use them, nor to work out whether copyright may in fact have expired.   Those who may wish to use orphan works are, for this reason, usually left to adopt a 'risk management' approach of weighing up the benefit of using the works against the risk of a potential infringement action.

Privacy Commissioner's draft APP guidelines - white papers

Posted by Paul Kallenbach

The Privacy Commissioner has released the first two tranches of draft guidelines on the new Australian Privacy Principles (APPs) for consultation purposes.  The new APPs come into effect on 12 March next year.

Minter Ellison's Privacy team has produced white papers on each of these draft guidelines, which analyse them in detail, highlighting issues or concerns raised by them, and outlining what will happen next.

You can download our white paper on the first tranche of draft APP guidelines here, and on the second tranche here.

The blurred line between inspiration and infringement in copyright law

Posted by Ella Biggs, Nicole Reid and Kylie Diwell

The popular US hit 'Blurred Lines' has been the subject of allegations of copyright infringement for the song's similarity to two other songs, Marvin Gaye's 'Got To Give It Up' and Funkadelic's 'Sexy Ways'.  The reported response of the owners of the copyright in the two earlier works (Gaye's family and Bridgeport Music Inc), seeking compensation from Pharrell Williams, Robin Thicke and Clifford Harris, Jr (the composers of 'Blurred Lines'), raises significant issues for copyright law in relation to where the line between inspiration and infringement lies.

In a highly publicised move, on 15 August 2013, Williams, Thicke and Harris filed for a declaration from the Central District Court of California that 'Blurred Lines' did not infringe the copyright in the earlier works.  In their submissions to the Court, the plaintiffs stated that, although 'Blurred Lines' was inspired by Gaye's music and the song was intended to 'evoke the era' of Gaye, this did not amount to copyright infringement.  They sought a declaration by the Court to this effect.

A fundamental principle of copyright law is that it protects expression, not ideas.  This principle forms the basis for consideration of whether or not copyright has been infringed.  The 'Blurred Lines' case raises the question of whether merely being reminiscent of the sound of a musical work infringes the copyright in that work (ie, whether it is the reproduction of a substantial part of that work).  Although this is an American case, the facts provide a useful way to hypothesise about how copyright law would apply in Australia, if a similar case were to arise.

To establish copyright infringement in Australia, a court's analysis focuses on whether a substantial part of the original work has been used in the allegedly infringing work.  In EMI Songs Australia Pty Ltd vLarrikin Music Publishing Pty Ltd[1] (the Kookaburra Case), it was alleged that the Men at Work song 'Down Under' infringed the copyright in the song 'Kookaburra Sits in the Old Gum Tree'.  The Full Federal Court found that the copyright in the earlier song had been infringed on the ground that the tune of the flute riff that was used in 'Down Under' was a substantial part of the Kookaburra song, notwithstanding that the flute riff formed only a small part of the infringing work.  The Court made the comment that '[t]here will be an infringement [of copyright] if that in which the whole meritorious part of the original work consists is incorporated in a new work'.[2] 

Applying the judgment in the Kookaburra Case to the 'Blurred Lines' case, it appears that an assessment would be undertaken with regard to the specific melody or arrangement of notes (or, potentially, another musical element of the work, such as the rhythm, or a combination of musical elements) in order to determine whether or not a substantial part of the original work has been reproduced (the expression of the work).  Without direct reference to notes or melodies (being the basis on which the Kookaburra Case was decided), in Australia at least, it would be significantly more difficult to establish that a substantial part of the original copyright work had been taken, as this would require consideration of the more amorphous aspects of the works (such as the fact that 'Got to Give It Up', like 'Blurred Lines', is sung in a high male voice and the similar tempo, use of a cowbell and what one commentator referred to as a 'slinky bass line' in both of the songs), which are more likely to be considered (non-protectable) ideas.  The plaintiffs are seeking to make this argument in their lawsuit, arguing that 'Blurred Lines' evokes the era of Marvin Gaye, in an homage to him, rather than amounting to an (infringing) copying of his work.  We will wait to see if the case does make it to a judgment and, if so, whether the defendants can succeed in arguing that the musical elements of 'Got To Give It Up' and 'Sexy Ways' are sufficient to attract copyright protection and have been appropriated in 'Blurred Lines'.

In the Kookaburra Case, upon finding that copyright had been infringed by Men at Work, Justice Emmett commented on the significance of cultural works providing tribute to iconic works without fear of copyright.[3]  (A similar argument is made in this article by Partner Paul Kallenbach.) No doubt these arguments will be relevant in the case of Williams, Thicke and Harris in their attempt to ascertain the blurred lines between inspiration and infringement in copyright law. 

---

[1] (2011) 191 FCR 444.

[2] Ibid [45] (Emmett J).

[3] Ibid [100].

ACIP releases Options Paper on review of the Innovation Patent System

Posted by Peter Kearney

Last month, the Advisory Council on Intellectual Property (ACIP) released an Options Paper outlining a number of options for reforming the Innovation Patent System.

This is the latest step in ACIP's review of the Innovation Patent System which commenced in February 2011, when the then Minister for Innovation, Industry, Science and Research requested that ACIP investigate the effectiveness of the innovation patent system in stimulating innovation by Australian small and medium sized business enterprises.

ACIP released an Issues Paper in August 2011 to seek the views of interested parties. A number of written submissions were received. ACIP also conducted a number of public forums in October 2011 to discuss the key issues.

As part if its review, ACIP commissioned Verve Economics to conduct a study to determine how effective the innovation patent system is in stimulating innovation by Australian SMEs. The Verve report on The Economic Value of the Australian Innovation Patent was released in March 2013.

The Options Paper canvasses a number of options for the future of the innovation patent system and invites further submissions. Submissions close on 4 October 2013.

Background to the review

The ACIP review was initiated against the background of a number of concerns being raised about the relevance and operation of the innovation patent system. These include:

• that an innovation patent is overly generous given that it has a very low inventiveness threshold but the same remedies against infringement as a standard patent
• that some applicants are using the innovation patent system to protect higher-level inventions for strategic or tactical purposes rather than trying to protect lower-level inventions
• that an applicant for a pending standard patent has the opportunity to file multiple divisional innovation patents so that a person accused of infringement may find themselves initially defending proceedings for infringement of a first patent, and subsequently see the proceedings amended to include one or more innovation patents drafted to address the weaknesses of the first patent.

The Options Paper outlines 3 broad options for the future of the innovation patent system: 

• Option A: No change
• Option B: Abolish the innovation patent system
• Option C: Change the innovation patent system

Option A: No change

 

The Options Paper notes that the Raising the Bar Act has made substantial changes to the legislation supporting the innovation patent system (effective from 15 April 2013) and that it may be reasonable to see how these changes interact and 'bed down' before making any more changes to the system.

The paper also comments that the responses to surveys of innovation patent inventors conducted as part of the Verve Economics assessment of the innovation system indicated that individuals and SME user groups appear to be generally satisfied with the system.

 

Option B: Abolish the innovation patent system

 

The Options Paper lists a number of factors said to favour abolition of the innovation patent system, as well as a number of factors against.

 

Issues said to support abolition include:

• The system is under-utilised: only about 300 innovation patents are certified each year from about 1,400 innovation patents that are granted
• The system is not achieving its intended goals or policy outcomes, citing the large portfolios of certified innovation patents held by large companies and the large number of granted divisional innovation patents with standard patent parents
• Indications that sophisticated users are strategically using the system with no quantifiable benefits flowing to the public
• The system creates uncertainty and increases legal costs because of the very low inventive threshold and the fact that an innovation patent does not need to be certified (and once certified, is very difficult to revoke).
• A perception that a lot of ‘poor’ quality, uncertified innovation patents are being granted and placed on the Register of Patents.

Issues which are said to contradict abolition include:

• If the system is abolished, sole inventors/self-filers and SMEs might be discouraged from entering the patent system because the inventive threshold for a standard patent is too high and the standard patent system is seen as being too difficult to navigate without expensive professional help
• Abolishing the system might remove IP protection that is genuinely useful to SMEs
• Abolishing the innovation patent system will re-establish the ‘gap’ in promoting, protecting and disclosing lower level inventions identified by ACIP in its 1995 Review of the Petty Patent System
• The public mischief caused by having uncertified innovation patents on the Register of Patents may not be as great as is popularly made out since more than half of all innovation patents cease within three years of their date of filing

Replacing the system

 

The Options Paper raises options for replacing the innovation patent system with an alternative system for protecting low-level inventions. The primary proposal canvassed is to change the registered designs system to permit registration of features of shape or configuration which serve a purely functional purpose.

 

Option C: Change the system

 

Recent changes

 

The paper notes a number of significant changes to the innovation patent system due to the final implementation of the Raising the Bar Act on 15 April 2013, including:

• changes to the deadline for filing a divisional innovation patent which will prevent applicants strategically filing divisional innovation patents during court or opposition proceedings
• various amendments that have tightened up the disclosure requirements for an innovation patent specification 
• an increase in the inventiveness level applicable to innovation patents due to the removal of the geographical restriction on common general knowledge used for assessing whether a difference over the prior art involves no substantial contribution to the working of the invention. 

ACIP discusses a number of options for further changes to the system.

 

Raising the level of innovation

 

ACIP states that it found general agreement that the level of innovation set in the current test for 'innovative step' is too low but there is no agreement within the stakeholder group as to what is an appropriate level of innovation.

 

Stakeholder suggestions for changing the test include: 

• a test of ‘not clearly obvious’; ACIP notes that it is difficult to see how a Federal Court judge would be able to distinguish between what is obvious and what is clearly obvious
• a test of assessing the substantial contribution made by the innovation against the relevant prior art so that the substantial contribution would have to make a substantial contribution to the working of the prior art; ACIP notes that it is not entirely clear how this would differ in practice from the existing test
• raising the level of the test for innovative step by amending section 7(4) of the Patents Act to permit direct reference to the common general knowledge alone or in combination with any one of the kinds of information set out in section 7(5)
• applying the test of inventiveness as was applicable under the Patents Act 1952 so that the level of innovation would be by reference to what would be obvious having regard to common general knowledge in Australia; ACIP notes that current practices relating to the quick retrieval and use of digital information may generate difficulties in distinguishing between what is generally known and what information can be very readily converted into what is known.

The paper says that ACIP has spent considerable time wrestling with this issue, noting that:

• if the level of innovation is raised to the ‘inventive step’ level, then the innovation patent system is rendered ineffective and it might as well be abolished; but
• if the level of innovation is raised to an intermediate level, then it is difficult to conceive of a suitable test that will be easily understood by users, IP professionals, patent examiners and the courts.

ACIP invites further stakeholder comment on their preferred option for the level of innovation and how this option will make the innovation patent system more robust.

 

Reducing remedies

 

The Options Paper raises the option of removing the possibility of seeking injunctive relief from those innovation patents that are not being commercially exploited. Alternatively, the term of injunctive relief could be reduced by an amount equal to the delay in seeking certification.   These options are intended to encourage innovation patentees to use their patents and also discourage undesirable behaviour (such as delaying infringement actions).

 

Limiting the monopoly

 

The Options Paper suggests that an alternative to raising the level of innovation might be to limit or restrict the monopoly of an innovation patent to a single embodiment. If the monopoly is restricted to a single embodiment fully disclosed in the specification, then an interested party can better predict the extent of the potential monopoly and make a more informed commercial decision based on this prediction.

 

Changing processes – formalities check, compulsory certification

 

The Options Paper discusses a number of possible changes to processes for examination including a proposal for compulsory examination, either before grant, or within three years of the date of grant.

 

ACIP states that it has some concerns with the compulsory examination proposal since it will substantially increase the costs of obtaining an innovation patent. Such a move could be seen as directly hindering or restricting access to the system by individuals and SMEs.

 

Exclusions

 

At the present time, the only specific exclusions from the innovation patent system are plants and animals, and the biological processes for the generation of plants and animals, except if the invention is a microbiological process or a product of such a process. ACIP has considered broadening this list of exclusions from the innovation patent system. ACIP considers that the following could be excluded from the system:

• methods and processes
• chemical compositions and pharmaceuticals
• software

ACIP notes that a number of utility model systems in other jurisdictions provide for one or more of these exclusions.

 

Limiting access to the innovation patent system

 

Finally, the Options Paper considers whether measures should be taken to limit access to the innovation patent system. The paper notes that it would arguably be inconsistent with the Paris Convention provisions if access to the innovation patents system was restricted solely to Australian applicants and to applicants resident in Australia.

 

Alternatively, the paper raises the possibility of excluding applications from all but individual applicants and SMEs. The paper states that such a restriction would be consistent with the objective of the innovation patent system to stimulate innovation in Australian SMEs, but also remarks on the difficulty of administering the exclusion without creating undue bureaucracy. The paper points to recent changes to the R&D Tax Incentive Program as possibly providing a suitable model. Under this program, R&D tax incentives are available to entities with an aggregated assessable income of less than $20 million in an income year. An entity’s assessable income is aggregated with the income of its affiliates, entities that it is affiliated with and entities connected with it.

The 'Australia tax' and the report into IT pricing

Posted by Genevieve Watt and Paul Kallenbach

The question of IT pricing, and the perception that Australian consumers and businesses are overcharged for IT products, was referred to the House of Representatives Standing Committee on Infrastructure and Communications (the Committee) by then Minister for Broadband Communications and the Digital Economy, Stephen Conroy, on 18 May 2012.

Following a 12 month inquiry, the Committee released its report, entitled 'At what cost? IT pricing and the Australia tax', on 29 July 2013.

The referral letter for the inquiry pointed to the 'growing interest in the differentials that exist in prices for IT hardware and software sold in Australia', particularly in light of the increase in the value of the Australian dollar, and also highlighted the increasing importance of the internet to Australian consumers and businesses.   In this context, the letter raised a concern that Australian businesses' ability to compete internationally may be compromised if they are faced with higher prices for IT products (including hardware and software). The report also specifically discusses how IT pricing can affect low income consumers (including students and people with disabilities), noting that access to technology and the internet is central to participation in modern society.

The report analyses the various explanations generally given for the higher prices paid by Australians for IT goods, including our geographical remoteness, small and scattered population, and historically weak currency, while questioning whether there are in fact any structural or market-based reasons for vendors to charge higher prices.

The overriding conclusion reached by the Committee is that Australians are often charged higher prices than their counterparts overseas, and that in many cases this is not justifiable on the basis of the cost of doing business in Australia. Instead, the Committee found that, along with a range of goods in general, many IT products are more expensive in Australia simply because of regional pricing strategies (colloquially referred to as the 'Australia tax').

The inquiry

The terms of reference for the inquiry required the Committee to:

• inquire into whether a difference in prices exists between IT hardware and software products, including computer games and consoles, e-books and music and videos sold in Australia over the internet or in retail outlets, as compared with markets in the US, UK and economies in the Asia Pacific;
• establish what these differences are;
• determine why these differences exist; 
• establish what the impacts of these differences might be on Australian businesses, governments and households; and
• determine what actions might be taken to help address any differences that operate to the disadvantage of Australian consumers.

During its inquiry, the Committee received 133 submissions and 15 supplementary submissions, more than half of which were from consumers. The remaining submissions were from business and industry bodies. In contrast to the high level of participation from consumers, who expressed dissatisfaction at their perception that Australians pay higher prices for IT goods, certain industry players were less willing to contribute to the inquiry. As was widely reported at the time, the Committee ultimately took the unusual step of summonsing the Vice President of Apple Australia, the Managing Director of Adobe Australia and New Zealand, and the Managing Director of Microsoft Australia to appear and give evidence at a public hearing.

 

Report

 

It is clear from the content of the Report that the Committee relied heavily on evidence received via consumer submissions, including those that provided a comparison of prices paid for particular IT products across different countries. While the report acknowledges the limitations of such price comparison evidence, the Committee points out that there is a lack of statistics on IT pricing and e-commerce retail sales in Australia, as they are not currently collected by the ABS. While largely relying on consumer submissions for evidence of the existence (or otherwise) of price differentials, the report does carefully analyse many of the main arguments given to explain charging higher prices for IT products in Australia.

 

One such explanation is the idea that Australians face price discrimination because businesses price products based on what the market can bear, rather than on the basis of a mark up of production costs. According to the report, this type of price discrimination can arise when consumers in different geographic locations are willing to pay different amounts for particular goods or services, and those consumers can be practically separated into different markets. In other words, Australians are charged more because they are willing to pay more, and are unable to obtain goods from neighbouring markets at a lower price.

 

Some IT vendors admitted to such practices. Microsoft, for instance, stated that in a free economy it will set prices according to what a regional market would stand. Both Adobe and Microsoft also stated that if consumers are not happy with the prices they charge, they can buy a competitors' products, although Adobe also justified price differentials on the basis of the costs of doing business in the region and running a regional operation.

Such market-based justifications were not entirely accepted by the Committee, which suggested that certain software vendors 'digitally handcuff' customers to their products by making interoperability difficult. Consumer groups also rejected claims that market forces effectively impose competition restraints.

 

A related issue raised by the report is the imposition by certain IT vendors and rights holders of geoblocking techniques, which verify a consumer's location based on their IP or residential address or credit card details, and prevent Australian consumers from purchasing IT products from overseas websites at cheaper overseas prices. In defence of this practice, the report discusses the view of many IT vendors that geoblocking is a legitimate tool enabling them to set regional prices, which is often used to protect the rights of distributors who have exclusive rights in a particular territory.

 

In defence of setting higher prices in Australia, some industry groups and IT companies also submitted that their Australian prices are the result of a range of factors, including exchange rates, the local cost of doing business, relative market size, tariffs, parallel importing, regulations (including green schemes and warranties), wages and the supply chain. Some also pointed to the national warranty regime and Australian Consumer Law, which are more extensive and provide more protections to consumers than corresponding regimes in other countries. On the flipside, the report also notes that when Australian consumers do purchase IT products from overseas websites at cheaper prices, a question arises as to whether the Australian Consumer Law (or any equivalent regime of consumer protection) applies.

 

Some industry groups, including Adobe, also argued that IT prices are inflated due to the margin set by channel partners - the conduits through which goods and services are delivered to consumers in Australia - which they argued often deliver value added services to their customers, such as desktop support, which can increase prices.

 

These arguments are, of course, contrary to the issues highlighted by many consumer submissions. Consumers raised a particular concern about the price differentials for products that are digitally delivered (such as software purchased online), with many of them noting that in this case there appears to be less justification for charging Australians higher prices, as the cost of doing business is no higher. In justifying its price differentials for digitally delivered products, however, Microsoft pointed to the local cost of providing services including maintenance, support and advertising, associated with those products. Apple also pointed out that it has to pay rights holders, including record labels, movie studies and TV networks, and that these entities often set a higher wholesale price in Australia. ARIA similarly stated that record labels incur their own costs in producing music, such as talent sourcing and marketing, and that it is not correct to assume that digitally delivered products are cost-free; while MacMillian Publishers Australia stated that e-books involve many of the usual costs associated with publishing (such as paying the author, commissioning writers and content, editing, designing and marketing) and that there are additional costs associated with digitisation and combating piracy.

 

Not all IT vendors relied on the above arguments to justify their Australian pricing. In contrast to Microsoft and Adobe, for example, the Vice-President of Apple Australia stated that Apple has an overall model of offering equivalent pricing around the world, and that in the case of many of its recently released hardware and software products, US and Australian prices differed by only one to five percent. Even where there was a price difference, Apple pointed out that published prices in Australia include a GST component, whereas in the US the sales tax is added at a later stage.

 

The report separately discusses the issue of IT pricing and copyright infringement, recognising that Australia has some of the highest rates of online piracy around the world. The Committee also, however, acknowledged the opposing views that despite piracy, the entertainment industry experienced significant growth in the last decade, and that infringement sometimes stems from lack of availability of affordable online content. The Committee also noted the view of many consumers that copyright law provisions and techniques like geoblocking have unduly restricted their rights to access copyright material, and accepted that technological protection measures, designed to prevent unauthorised access to copyright material, can restrict competition in copyright markets by preventing consumers from accessing legally acquired content. Balancing the opposing perspectives, the Committee recommended certain amendments to the Copyright Act, which are set out below. These recommendations have been among the most controversial of the Report's results.

 

Finally, the Report analyses ways to increase competition and protect consumer rights, noting that existing competition problems in copyright markets could perhaps be even worse in a case where content is only available in digital form. The report also notes the view of some observers that the balance copyright seeks to strike between the interest of rights holders and promoting the creative industries, and the public interest in accessing copyright material, has swung too far in favour of rights holders.

 

Recommendations

 

As is clear from the above summary, consumer dissatisfaction with the 'Australia tax' was found to be high, despite the justifications offered by some IT industry players. Following the inquiry, the Committee made the following ten recommendations in its report (which perhaps indicate that the Committee, overall, was more persuaded by the consumers' arguments):

1. that the ABS develop a comprehensive program to monitor and report expenditure on IT products, hardware and software, both domestically and overseas, as well as the size and volume of the online retail market;
2. that, considering the importance of IT products to education, and in the interests of greater transparency in this area, the Australian Government, in consultation with Universities Australia and CAUDIT, conduct a comprehensive study of the future IT needs of and costs faced by Australian universities in order to provide clearer financial parameters for negotiations;
3. that the Australian Government consider a whole-of-government accessible IT procurement policy, to be developed by relevant agencies including AGIMO, and in consultation with relevant stakeholder groups including ACCAN;
4. that the parallel importation restrictions still found in the Copyright Act 1968 (Cth) (Copyright Act ) be lifted, and that the parallel importation defence in the Trade Marks Act 1995 (Cth) be reviewed and broadened to ensure it is effective in allowing the importation of genuine goods;
5. that the Australian Government amend the anti-circumvention provisions found in section 10(1) of the Copyright Act to clarify and secure consumers' rights to circumvent technological protection measures that control geographic market segmentation;
6. that the Australian Government investigate options to educate Australian consumers and businesses as to the extent to which they may circumvent geoblocking mechanisms in order to access cheaper legitimate goods; the tools and techniques they may use to do so; and the way in which their rights under the Australian Consumer Law may be affected should they choose to do so;
7. that the Australian Government, in conjunction with the relevant agencies, consider the creation of a 'right of resale' in relation to digitally distributed content, and clarification of 'fair use' rights for consumers, businesses, and educational institutions, including restrictions on vendors' ability to 'lock' digital content into a particular ecosystem;
8. that section 51(3) of the Competition and Consumer Act 2010 (Cth) (CC Act) be repealed;
9. that the Australian Government consider enacting a ban on geoblocking as an option of last resort, should persistent market failure exist in spite of the changes to the CC Act and the Copyright Act recommended in the Committee's report; and
10. that the Australian Government investigate the feasibility of amending the CC Act so that contracts or terms of service which seek to enforce geoblocking are considered void.

Response to recommendations

 

Unsurprisingly, some of the Committee's recommendations have been met with controversy, foremost among them the recommendations in relation to amending the Copyright Act. In particular, the recommended introduction of a right of resale for digital content has been criticised by industry figures on the basis that resellers can sell a product that is for practical purposes brand-new, for second-hand prices, and illegally make and resell multiple copies of a digital product that was purchased once.

 

It will indeed be interesting to see which, if any, of the Committee's recommendations are adopted (particularly by the new Federal Government) and what effect this may have on IT pricing for Australian consumers and businesses.

Privacy Commissioner says website privacy policies are too long, too complex, irrelevant and inaccessible

Posted by Helen Paterson and Charles Alexander

On 14 August 2013, the Office of the Australian Information Commissioner (OAIC) released the results of the privacy sweep of the websites most used by Australians. The privacy sweep was part of the first international internet privacy sweeps conducted in May this year, an initiative of the Global Privacy Enforcement Network in which nineteen privacy enforcement authorities from around the globe participated.

The theme of the sweep was privacy practice transparency. In this context, the websites were assessed for find-ability, contact-ability (i.e. how difficult it was to find contact information for the privacy officer), accessibility, readability (including length) and relevance. The Australian websites' policies were also tested against the new transparency requirements under the new Australian Privacy Principles (APPs), in particular APP 1 – Open and transparent management of personal information.

Under APP 1.3, APP entities must have a clearly expressed and up-to-date privacy policy. The privacy sweep revealed that many privacy policies will not comply with this requirement as they are too long, too complex, irrelevant and inaccessible.

The transparency dont's

47% of the Australian websites failed the read-ability test, being too long and unnecessarily complex. The Privacy Commissioner stated that '[o]n average, policies were over 2,600 words long. In my view, this is just too long for people to read through. Many policies were also complex, making it difficult for most people to understand what they are signing up to…'.

Other issues identified included that the policies:

1. contained irrelevant information or did not contain relevant information. For example, many policies used 'boilerplate' language which did not take into account the relevant privacy jurisdiction, such as sites with .au domain names which were unclear about whether the site complied with the Privacy Act 1988 (Cth);
2. contained over-generalised statements about privacy which offered no details on how organisations were collecting, using and disclosing personal information;
3. were hard to find on the website; and
4. either listed no privacy contact or made the contact information difficult to find.

The transparency do's

The results of the privacy sweep were not all doom and gloom. The following practices were commended:

1. using presentation tools to make the information easily understandable and readable to the 'average' person (the OAIC's preferred reading age level is 14). The presentation tools used included 'plain language; clear and concise explanations; and the use of headers, short paragraphs, FAQs, and tables, among other methods';
2. providing multiple options for contacting the privacy officer;
3. providing both a simplified and full policy to assist individuals in understanding what will happen to their personal information. The Privacy Commissioner stated that '[t]his attempt to use 'layered' privacy policies is encouraging'; and
4. tailoring policies for mobile apps and other technologies (such as assistive technologies like a screen reader).

What now?

The OAIC will use the results of the privacy sweep to inform the development of guidance on the APPs in the lead up to their commencement in March 2014 and to educate organisations about privacy policies.

The Privacy Commissioner stated that '[w]ith only 8 months to go until new privacy laws commence, organisations should be looking at their privacy policies now to ensure they comply with the new requirements'.  Organisations should be wary to ignore this clear call to action.

ALRC Commissioner appointed for 'Serious Invasions of Privacy in the Digital Era' Inquiry

Posted by Lucy McGovern and Veronica Scott

The Federal Attorney-General, Mark Dreyfus QC, has appointed Professor Barbara McDonald as lead Commissioner of the Australian Law Reform Commission's (ALRC) inquiry into Serious Invasions of Privacy in the Digital Era.

The Commissioner: Professor McDonald, a former Professor of Law at the University of Sydney, has lectured in tort, equity, remedies and media law. Preliminary comments suggests she will consider overseas developments and public opinion in the inquiry. Following her appointment, she reportedly stated 'I am fortunate that much work has already been done in Australia and overseas in the last few years, and that many people have commented on how the law should develop'.

The Inquiry: The ALRC has been asked to address prevention of, and remedies for serious invasions of privacy. Further details of the inquiry are available in our June update. The ALRC expects to provide a first consultation paper towards the end of September 2013 and a final report to the Attorney-General by 30 June 2014.

The National Cloud Computing Strategy - clear skies ahead?

Posted by Harry Aitken, Rosie Johnson and Paul Kallenbach

In late May of this year, Senator Stephen Conroy, Minister for Broadband, Communications and the Digital Economy (as he then was) announced The National Cloud Computing Strategy (Strategy) at the Cloud @ CeBIT Conference held in Sydney.  Unfortunately the conference was not held on SKYWALK at the Sydney Tower, which somewhat limits the number of 'sky' and 'cloud' puns we could have otherwise used in this paragraph.  But we digress ...      

cloud computing

noun the provision of services over the internet to allow users to remotely store, process and share electronic information.

Cloud computing is not, as the name might otherwise suggest, using technology to compute the structure, pattern and formation of clouds.  (We apologise in advance to any nephologists who may have stumbled across this blog post.)  Cloud computing, rather, is the use of computer platforms to deliver services over the internet.  Whenever you use your Gmail account, online banking service, Amazon or iTunes, you're engaging with the brave new(ish) world of cloud computing.

Returning to the Strategy, the Government's aim is to address three goals:

• for the Australian Government to be a leader in the use of cloud technology, creating efficiencies and generating value and to deliver better services and create more agility in the public service;
• for Australian small business, not-for-profit organisations and consumers to have the protection and tools they need to acquire cloud services with confidence; and
• for Australia to have a vibrant cloud sector supported by a skilled and cloud-aware information and communication technologies (ICT) workforce, able to create and adopt cloud services, effective competition in cloud services, and regulatory settings that support growth, foster innovation and protect users.

The Strategy goes on to detail steps which the Government considers might be taken in order to achieve these goals.

What is the Government proposing to do?

The Government plans to lead by example and adopt cloud computing in its own enterprise.   It also plans to assist other government agencies and non-government organisations to do the same by identifying training and skill development opportunities to facilitate the adoption of cloud computing and encourage lines of communication between Government agencies about what works and what doesn't.

The Strategy identifies that smaller businesses are likely to obtain the most benefit from the adoption of cloud computing mechanisms.   Consequently, in order to empower small businesses and not-for-profit organisations to utilise cloud computing, the Government will strive to enhance the information in the market in relation to cloud computing and the likely benefits to smaller businesses which might not otherwise take up the opportunity or be able to obtain sufficient information in order to make and informed decision.   The Government identifies that there is a lot of information about cloud computing but that is not easy to understand, and aims to release publications and information in a more digestible format.  The Government also plans to open the lines of communication between cloud service providers and consumers in order to better consider issues which may arise.

In relation to its aim of encouraging a vibrant cloud services sector, reliable internet access is central, and the Government not surprisingly touts the the National Broadband Network as a key aspect in providing the infrastructure necessary to facilitate the expanding use of cloud computing.  Using the tertiary education sector is another way identified by the Government to increase the knowledge and skills of cloud computing, hence a proposal to incorporate cloud computing into the ICT curriculum and encourage further research and development activities in this area.

Impact?

So how might the Strategy impact consumers and business owners?

The Strategy posits that cloud computing can enhance functionality, mobility, scalability and security for businesses, enable them to scale their processing up and down as their capacity changes, and employ a range of diverse services for each task.  The Strategy also suggests that everyday consumers may benefit – 33% of 1,000 sampled small and medium Enterprises (SMEs) who were surveyed in 2012 'indicated they would be quite likely to pass on cost savings achieved through the adoption of cloud services to their consumers'.   For business owners, greater efficiencies may lead to increased profits, which can be invested in things which will assist the growth of the business, including providing consumers with a greater range of goods and services. 

For cloud computing service providers, the Strategy aims to expand their market reach.  Ensuring appropriate measures are taken to protect users will be an area of government and media scrutiny going forward; however there are opportunities for providers with strong data protection mechanisms in place to make a big splash in the Australian market.  IDC predicts that the cloud computing market sector will be valued at $2,030 million by 2015, and by 2020, almost 40% of digital information will be affected by cloud computing in some manner.[1]

The regulatory setting

Presently, there is a complex mix of international, domestic and industry-specific regulations and standards which apply to cloud computing practices. 

Australian consumers and businesses have general contractual, consumer and privacy protection under the law of contract; the Privacy Act 1988 (most relevantly, the new APP 8, which comes into effect in March 2014, and will impose new obligations on government agencies and private sector organisations in relation to the the overseas disclosure of personal information ); the Competition and Consumer Act 2011 and the Australian Consumer Law; the Telecommunications (Interception and Access) Act 1979 and other statutes besides.  On the industry front, the Telecommunications Act 1997 seeks to promote competition and facilitate access to telecommunication infrastructure, while the Australian Prudential Regulatory Authority (APRA) regulates the outsourcing and offshoring activities of banks and other financial institutions through prudential standards, including, most relevantly, Prudential Standards CPS 231 and SPS 231.   

However, none of these instruments have been designed with the cloud in mind, and the emergence of cloud-based providers - who may fall outside existing legislative categorisations and standards - potentially weakens the efficacy of the regulatory framework.  Moreover, the cross-border nature of cloud services raises difficult issues of jurisdiction and enforcement, since national laws may not extend to the conduct of service providers who are based in other countries.

As a consequence, the Australian Communications and Media Authority (ACMA), in a recent paper,[2] has proposed that while the National Cloud Computing Strategy aims to stocktake the current regulatory framework, a 'single coherent framework' should still be sought. 

The Australian Computer Society's Cloud Consumer Protocol discussion paper may be a useful first step in this regard.  The paper aims to elicit feedback from cloud service providers and customers on the tools and protections that they require in order to acquire and deploy cloud services with confidence and trust. 

Submissions on the Cloud Consumer Protocol paper are open until 5 September 2013.  

[1] IDC EMC, The Digital Universe in 2020: Big Data, Bigger Digital Shadows and Biggest Growth in the Far East, cited in Australian Communications and Media Authority, The cloud – services, computing and digital data: Emerging issues in media and communications (Occasional paper 3, June 2013).

[2] Australian Communications and Media Authority, The cloud – services, computing and digital data: Emerging issues in media and communications (Occasional paper 3, June 2013). 

The importance of social media monitoring

Posted by Nicole Reid and Paul Kallenbach

The use and monitoring by companies and organisations of social media continues to be a fraught issue. Earlier this year, the ASX imposed additional obligations on listed companies to monitor social media for what is being said about them (see our blog post here). But there are potential risks, both legal and non-legal, for other companies too that do not pay sufficient attention to what is being posted on social media sites.

A range of companies have faced criticism for the way in which they have dealt with negative content posted to social media (for example, you might recall a Twitter campaign backfiring on McDonalds earlier this year, and a memorable response by the proprietors of a US restaurant to criticism directed at them). There can be serious reputational repercussions for organisations that are seen as not properly managing online dialogue with their customers and other stakeholders.

From a legal perspective, the biggest risks for organisations arise from content that third parties post to their social media sites. So far, there is limited guidance from Australian courts about when a company may have legal responsibility for such content. One exception to this is the Federal Court's decision in Australian Competition and Consumer Commission v Allergy Pathway Pty Ltd (No 2) [2011] FCA 74. In this case, Allergy Pathway was found guilty of contempt of court for breaching undertakings it had given to the ACCC not to make or publish representations similar to those which had earlier been found to be misleading or deceptive. The conduct that amounted to contempt of court was the posting to Twitter and Facebook by third parties of testimonials containing such representations. Although Allergy Pathway did not post the content itself, it became aware of the testimonials but failed to remove them, and the court agreed with the ACCC's argument that this was sufficient to render it liable for the content.

A similar position to that adopted by the Federal Court in the Allergy Pathway case was also taken by the Advertising Standards Bureau (ASB) in its decision that content posted to the official Victoria Bitter Facebook page breached the Advertiser Code of Ethics, even though the offending content was posted by users (albeit in response to questions posed by the company) rather than by the company itself.

The importance of the issue of responsibility for third party content is highlighted by the fact that two advertising industry bodies in Australia have recently released guidelines on monitoring social media. The best practice guideline issued in 2012 by the Australian Association of National Advertisers (AANA), the body that develops the Advertiser Code of Ethics applied by the ASB, advocates regular monitoring of social media against the standards in the Code and sets out specific timing for such monitoring to take place.

On the other hand, the guidelines issued in June by the Interactive Advertising Bureau Australia (IAB) take a more robust approach. The IAB states in the guidelines that user comments 'do not constitute advertising' unless they are endorsed by the organisation, and that organisations should not be too conservative in moderating social media as this may 'adversely impact their presence on social platforms'. The IAB does, however, note that there may be a need to remove illegal posts, and recommends that companies follow the recommendations published by the ACCC in relation to avoiding liability for misleading or deceptive content on social media (which are reproduced in the guidelines).

So what should an organisation do about moderating its own social media sites, especially in light of the competing views of these two industry bodies?

We agree with the IAB that a company should tailor its approach to social media monitoring taking into account the areas of risk for the company (both legal and non-legal), and the social media landscape in which it operates, as well as the resources available to monitor social media, rather than attempting to adopt a one-size-fits-all approach. However, in doing so, it is important that the full range of potential risks be considered. These risks include not only the risks of an adverse decision by the ASB or an action for misleading or deceptive conduct (by either the ACCC or a third party, such as a customer or a competitor), but also:

• legal liability for defamatory content if the organisation has published that content and does not have a defence available to it, such as innocent dissemination (see our earlier blog post considering this issue in the context of user generated reviews);
• legal liability for authorising copyright infringement (particularly where the organisation has solicited users to post content such as videos or photographs that may contain third party copyright content used without permission);
• legal liability for offensive material, including under legislation prohibiting racial or religious vilification; and
• other reputational risks from hosting content that may not breach any laws or advertising standards but that may offend customers or other members of the public (and may also breach the rules of Twitter, Facebook or other social media platforms).

We recommend that organisations develop their own views about the level of social media monitoring that is required, taking into account the guidance of both the AANA and the IAB, as well as factors specific to the organisation and the industry in which it operates.

It is also important to ensure that the individuals who carry out any such monitoring are aware of the various types of content that may be problematic, including the range of legal issues associated with user generated content, and the ways in which this can be dealt with.  Finally, as part of the organisation's preparation for effective social media monitoring, it should ensure that the terms of the organisation's social media sites clearly set out the organisation's expectations about what content may be posted, and what action it may take in relation to content that falls short of the required standards.