Attorney General releases terms of reference for Australian copyright inquiry

Posted by Charles Alexander and John Fairbairn

Earlier today the Commonwealth Attorney General released the long awaited draft Terms of Reference for the Australian Law Reform Commission's (ALRC) Inquiry into Copyright.

Titled 'Copyright and the Digital Economy', the draft terms are potentially broad ranging and will involve balancing the rights of copyright owners with the interests of new content services and the public in fostering the digital economy.

The ALRC will particularly report on 'whether the exceptions in the Copyright Act are adequate and appropriate in the digital environment'. The development of new products and services and the use of copyright material as part of social networking is specifically mentioned.

The Terms of Reference expressly require the Commission to take into account the government's Convergence Review, the final report of which is due later this month.

Interested stakeholders are invited to make submissions on the proposed draft terms of reference by 27 April 2012.

The Commission is to report no later than 30 November 2013 and it is reasonable to expect that legislative amendments flowing from that report would not be expected before late 2014.

Court restrains Apotex from releasing new generic drug

Posted by Nicholas Liau ● Partner: Paul Kallenbach

Image courtesy of Grumpy-Puddin

Court cases often take months to go to trial. In the meantime, parties sometimes need guidance from the courts as to what they can and can't do before the trial.

Apotex (a pharmaceutical company) has been trying to release a generic version of the drug rosuvastatin, which (it is alleged) may infringe existing patent rights belonging to AstraZeneca. In a recent series of cases, the Federal Court has restrained Apotex, as well as other companies, from marketing this product until the outcome of the final trial. Based on the these decisions, it appears that in pharmaceutical cases, the courts will usually be reluctant to let a new entrant into the market while questions of patent infringement are still muddying the waters.

Balance of convenience

To obtain an injunction restraining Apotex from selling its product, one of the issues AstraZeneca had to show was that 'the balance of convenience' favoured the issuing of such an injunction. In deciding this, the Court had to consider the possible harms to both parties, both with and without the order.

In Apotex v AstraZeneca [2011] FCA 1520 and Apotex v AstraZeneca (No 2) [2011] FCA 213 the Federal Court considered that allowing Apotex to sell its generic version of rosuvastatin would do irreversible damage to AstraZeneca's business, even if AstraZeneca were to eventually win the final trial. An injunction was granted to prevent such damage to AstraZeneca's business. There are a number of reasons particular to the pharmaceutical industry which means that this is a likely outcome.

Firstly, the Court found that the benefit payable by the government under the Pharmaceutical Benefits Scheme (PBS) for sales of rosuvastatin would drop significantly. Under the rules of the PBS, the amount payable is based on the market price of a particular drug. The price of Apotex's drug would be about 75% cheaper than AstraZeneca's if it were allowed to go on sale in Australia. Allowing Apotex's drug to be released on the market would depress the market price for rosuvastatin, meaning that AstraZeneca would receive less money under the PBS. This process is irreversible; even if AstraZeneca were to win the final trial, the workings of the PBS mean that the new (lower) payment would still apply to its drug. This would deprive AstraZeneca of its right to charge higher prices under its patents, effectively denying it the very rights which are meant to be protected by patent.

Bad behaviour

Secondly, the Court found that the 'first mover advantage' is particularly strong in the generic pharmaceutical market. The first generic manufacturer to get its drug to market will always be able to offer a substantial discount on the original drug, allowing it to capture a large market share. Pharmacies are often involved in long term supply contracts, and typically only stock one generic brand of each drug; this limits the possibility of new entrants gaining significant market share. This would usually be something which leans towards allowing a new entrant (such as Apotex) to release its product (after all, it had gone to the trouble of trying to develop and market its generic product quickly to become the first mover).

Nonetheless, the Court took account of the way in which Apotex had approached the litigation, and lambasted it for its conduct.

The Court found that 'Apotex engaged in a carefully orchestrated marketing exercise designed to catch AstraZeneca by surprise'. Apotex had begun to market the drug in Australia in anticipation of its release, but had been evasive about its intentions when questioned by AstraZeneca. It was only days before the drug was due to be released that Apotex finally sued AstraZeneca, claiming that its patents were invalid. In other words, Apotex's first mover advantage was mainly gained because of its poor conduct as a litigant. Apotex knew that AstraZeneca would seek to enforce its patents if Apotex tried to release a generic product, but it continued to make preparations for the drug's sale. The Court found that Apotex was not then able to complain that these preparations would be wasted if an injunction were granted to AstraZeneca. The Court commented that Apotex could have challenged the validity of AstraZeneca's patents much earlier.

A few days ago in Watson Pharma v AstraZeneca [2012] FCA 200, AstraZeneca sought similar orders in relation to two other companies that were trying to release a generic version of the drug in a similar fashion to Apotex (Watson Pharma and Ascent Pharma). The Court was supportive of the approach to the 'balance of convenience' used in the Apotex case, and granted injunctions in AstraZeneca's favour.

The trial is expected to begin in October. In the meantime, it appears that AstraZeneca's patent rights are safe.

Setting up IT projects for failure

Posted by Ron Pila

Image courtesy of jurvetson

In our earlier post (Just what is causing IT project failures?) we referred to a report prepared by the Victorian Ombudsman in conjunction with the Victorian Auditor-General (Own motion investigation into ICT-enabled projects released November 2011) (Ombudsman's Report) which looked into the factors that contributed to the failure of public sector ICT projects.

Those factors can be divided into:

• things done at the outset that result in a project being set up for failure; and
• 'mistakes' made during the course of the project.

In this post, we consider the factors that set up projects for failure. In a subsequent post, we'll look at the 'mistakes' made during projects that were identified in the Ombudsman's Report.

Many IT projects are perceived to be failures because they substantially exceed their budgets or run significantly late. Often, at least in part, this is due to the manner in which the budgets and timelines were set in the first place. Several of the key themes and factors identified in the Ombudsman's Report illustrate how this occurs. These include: 

Planning

The Ombudsman's Report commented on the fact that insufficient time and effort was devoted to planning of projects and this had a material impact on their success. This was particularly evident in the manner in which business cases were prepared and used.

Business cases are often prepared as a 'tick the box' exercise to obtain funding rather than a medium to allow management to make a fully informed decision. They should be seen as a project road map, not a sales pitch to secure funding.

In the projects reviewed in the Ombudsman's Report, many of the business cases that had been prepared were not sufficiently comprehensive. Also, they covered only the Agency's preferred way forward and did not present alternative options. 

Optimism bias

The Ombudsman's Report refers to 'optimism bias', which is a tendency of individuals to underestimate cost, time and complexity and overestimate benefits.

An example of optimism bias at work is the Myki project, which was scheduled to take two years to deliver despite the fact that no similar project in the world was conducted in under four to five years. It is no surprise that it is running significantly overdue. As project costs are linked to project duration, this would also account for part of the budget blow-out.

If we accept that optimism bias is human nature, it will not be easy to overcome. However, it is important to recognise this tendency and to curtail its impact by rigorous planning. 

Funding processes

With limited funds and lots of potentially competing projects, project sponsors can be tempted to 'gild the lily' when applying for funding. This could be in the form of understating the project costs or timelines or overstating the resulting benefits. This will set a level of expectation that the project is simply unable to meet, leading it to be labelled a failure. 

Public announcements

In the public sector, it is common for Ministers to make public announcements about projects, including how much they will cost and when they will be complete. This is often done on limited information and prior to obtaining commitments from vendors about the actual cost and time frames involved. These announcements take on a life of their own as project participants are reluctant to admit that what has been announced cannot be achieved. 

Procurement

The Ombudsman's Report comments on the potential for the use of innovative procurement techniques to get projects off on a better footing. In particular, reference is made to the interactive vendor engagement process which allows the customer and vendor(s) to have a detailed dialogue about the project scope before finalising their contractual commitments. This allows vendors to provide more accurate pricing with fewer assumptions, providing greater certainty to both parties.

Setting up projects on a more sound basis will go a long way towards ensuring expectations are met and that those projects are seen to be successful.

The seven deadly sins of cloud computing

By Anthony Lloyd

Image courtesy of paul (dex)

Much has been written about the legal implications and risks associated with cloud computing. Some of the potential risks are large and cloud-specific, while others are simply regular issues associated with obtaining services from a third party. All of them need to be properly managed. However, the level of due diligence, customised terms, and type of cloud solution you need depends on the complexity and business criticality of your systems. That need increases exponentially if complex and business critical systems are sent into the cloud by a regulated entity such as a bank or insurance company.

There are six deadly sins to be avoided, and one which should be committed, in relation to the cloud. Most of them are committed by those who focus too much on protecting their client's or company's position at the expense of delivering business outcomes, or who don't understand the solution their client or company needs for their business model. As a result they may ask for too much, or not enough.

Sloth:  Don't be so lazy you don't move your data out of Australia simply because of data privacy restrictions. Current privacy legislation and even prudential regulation don't mean you can't move your data offshore, but you do need to put in place proper provisions with your cloud providers, particularly in respect of sensitive information. However, be aware that in the future it may be that some types of data simply cannot be moved. For example, currently draft legislation provides that certain health records won't be able to be held or taken out of Australia. 

Pride:  Not often related to the sin of Sloth, but the sin of pride here might be nationalistic pride. It's fine to keep your data onshore and only use Australian providers because of concern about the US Patriot Act, just remember not only does the Act apply to Australian subsidiaries of US companies, but the US has law enforcement treaties with Australia. You will face similar issues of government access to data in every country (those without legislative power to do so will be of greater risk), so think about whether any cloud is the right solution. 

Gluttony:  Having a great availability service level doesn't necessarily mean you get all you can eat from the cloud. Cloud service levels shouldn't be solely about availability and you should also consider disaster, security, and backup related service levels, among others. You also need to pay particular attention to how availability is measured. For example, if the measure is only by reference to infrastructure the service level may be met even if your service, platform or application isn't available (remember Amazon's EC2 outage?).

Wrath:  You don't need to fight for everything in relation to liability provisions. Does it really matter if an application testing platform isn't working if you have access to another one? If it's not a critical application and you don't miss development milestones then aren't you really only looking for a refund for an unsuitable service? Save your fight for consequential loss for when you are using the cloud to store confidential, sensitive, or important information.

Greed:  A sin you should commit in relation to the cloud. Be greedy about your data both in terms of its ownership and use but also about your ability to get it back, not only on termination, but also at any time during the contract term. You also need to get it back in a form that is usable and transferable to another provider or back into your own systems. That means getting it in a form you specify or as part of a package which gives you the ability to extract it.

Envy:  Don't be envious of others' move to cloud computing. If your solution needs to be heavily customised or an agreement heavily negotiated to meet your business model then it may soon erode the value of moving to a cloud solution. Equally, it might just be that certain of your data and systems should not be in the cloud. At least not yet.

Lust:  Don't lust over a cloud computing contract which covers off every risk. Getting back to my earlier point, you need to assess the business needs (paying appropriate attention to laws/regulations) and then get what is necessary to achieve those business needs while adequately protecting your business. If you really only want to get access to the cloud for some spare capacity to test a non-critical application, then it may be okay to sign the vendor's standard terms and conditions and get on with it. But do make sure you read them.

Just what is causing IT project failures?

Posted by Ron Pila

Image courtesy of jurvetson

We have all become accustomed to reading in the newspapers about yet another IT project failure.  These no longer surprise us - sadly this has almost become our expectation.  The statistics of IT project blow outs, as evidenced by a number of studies, are alarming.  These studies show that:

• 65-80% of IT projects either failed to meet their objectives, ran significantly late or cost far more than planned; and
• around 30% of IT projects are cancelled prior to completion.

The business cost of this is enormous.  Billions of dollars are wasted and the opportunity cost is larger still.

There is no doubt that software development is complex, one of the most complex activities undertaken by humans.  However, does that mean that we need to accept that massive blowouts and disappointment are an inevitable feature of IT projects?  Can steps be taken to improve these results?

The first step in finding a cure is to diagnose the cause.  There are a plethora of views as to the causes of IT project failures.  Of course, there is no single cause and therefore no single remedy. 

A number of contributing factors were recently identified in a report prepared by the Victorian Ombudsman in conjunction with the Victorian Auditor-General (Own motion investigation into ICT-enabled projects released November 2011) (Ombudsman's Report).  The Ombudsman's Report was based on investigations conducted in relation to 10 Victorian Government ICT projects.  The projects that were reviewed were, on average, in excess of 100% over budget with a combined over budget cost of $1.4 billion.  One of the projects has been cancelled and others have uncertain futures.

The Ombudsman's Report identified a range of reasons and factors why these projects had become challenged.  The Ombudsman grouped these reasons under five key 'themes' being:

• leadership, accountability and governance;
• planning;
• funding;
• probity and procurement;
• project management.

None of the issues raised in the Ombudsman's Report are particularly new.  In fact, the Ombudsman's Report makes the point that these issues have been raised many times in previous reports by the Ombudsman and the Auditor-General.  In the foreword to the Ombudsman's Report, the Ombudsman and the Auditor General state that:

... despite the extensive guidance and literature available, agencies are making the same mistakes around planning, governance, project management and procurement that our offices have observed and reported on for some years.

A review of the issues raised in the Ombudsman's Report shows that projects are either set up for failure in the manner in which they are established or fail due to 'mistakes' made in the course of the project.  In either case, many of the problems are avoidable.

           

Over the coming weeks we will dive deeper into the issues raised by the Ombudsman and strategies to avoid the pitfalls so as to ensure better project outcomes.

Rappers, moral rights and infringement

Posted by Nicole Reid ● Partner: Paul Kallenbach

Image courtesy of all that improbable blue

The Federal Magistrates Court of Australia has handed down a rare decision concerning the moral rights provisions in Part IX of the Copyright Act 1968 (Cth).  In Perez v Fernandez [2012] FMCA 2, the Court found that a performing artist's right of integrity of authorship in respect of his musical work had been infringed by the unauthorised mixing of a promotional recording into the song.

Briefly, the facts of the case were:

• Mr Armando Perez, a rapper who performs under the name 'Pitbull', was the author of a song entitled 'Bon Bon';
• Mr Jaime Fernandez, an Australian DJ and promoter, obtained from Mr Perez a promotional recording in connection with an Australian tour that was being promoted by Mr Fernandez in 2008 (which was subsequently cancelled and is the subject of separate litigation regarding alleged breaches of contract), in which Mr Perez referred to himself and Mr Fernandez; and
• Mr Fernandez used some audio editing software to mix that promotional recording into a recording of 'Bon Bon', and uploaded the edited song to his website, where it could be streamed.  He also played it in public during DJ performances.

Mr Perez argued that, by editing the song and making the edited version publicly available, Mr Fernandez had infringed Mr Perez's right under section 195AI of the Copyright Act not to have his work subjected to 'derogatory treatment'.  Derogatory treatment is defined (in section 195AJ) as including 'the doing, in relation to the work, of anything that results in a material distortion of, the mutilation of, or a material alteration to, the work that is prejudicial to the author's honour or reputation'.

Federal Magistrate Driver found that Mr Perez's right of integrity of authorship in respect of 'Bon Bon' had been infringed.  First, His Honour accepted that the editing of the song amounted to a material distortion or alteration of the song (the changed section lasted for approximately 10 seconds).  Second, he found that the alteration was prejudicial to Mr Perez's honour or reputation on the grounds that:

• some listeners would have thought that the alteration formed part of Mr Perez's original work and so inferred a connection between Mr Perez and Mr Fernandez.  His Honour accepted that 'associations between artists and DJs in the hip-hop/rap genre are highly significant' and accordingly such a perceived connection that did not exist could be assumed to be prejudicial.  He also accepted that, even if that were not the case, Mr Perez considered the association to be prejudicial to his reputation; and
• other listeners who were more familiar with the work of Mr Perez and Mr Fernandez would have understood the connection between the two individuals and that Mr Fernandez's alteration was intended to mock Mr Perez.

It was also found that the defence of reasonableness under section 195AS was not available to relieve Mr Fernandez from liability.  In fact, His Honour noted that a number of the factors that a court is obliged to take into account in assessing reasonableness instead pointed towards the harm caused by Mr Fernandez's conduct, including the nature of the work (a rap song), the purpose for which the work was used (promotion of Mr Fernandez and mockery of Mr Perez), and the context in which the work was used (which included the existing acrimonious relationship between the two individuals).

The court awarded $10,000 in damages for the breach of Mr Perez's moral rights (in addition to $2,312 in compensatory damages that was awarded to the owners of the copyright in the recording of 'Bon Bon' for breach of copyright).  The amount was determined taking into account that the infringement had caused Mr Perez distress and prejudiced his reputation, though mitigated by the finding that it had not caused his reputation any lasting damage and that Mr Fernandez had apologised for his conduct and agreed to undertakings to partially settle the matter.

The case is significant because there have been very few cases considering moral rights since Part IX was introduced into the Copyright Act more than a decade ago.  Unfortunately, Driver FM engaged in little explicit consideration of the legal principles relevant to determining whether or not alteration of a work is prejudicial to the author's honour or reputation, most likely because limited relevant evidence appears to have been placed before the court.  Mr Perez did not appear himself, although his attorney and advisor gave evidence about the distress suffered by Mr Perez, the significance of the conduct given the importance of perceived associations in the rap world, and the fact that Mr Perez could no longer offer another artist an exclusive right to remix 'Bon Bon'.  There was no evidence from any of Mr Perez's peers about what type of conduct may have been generally considered to be prejudicial.

Given the factors taken into account by Driver FM, it appears that his approach to assessing prejudice to honour or reputation was both objective and subjective (ie, finding that Mr Perez's moral rights had been infringed both because Mr Perez felt that the conduct damaged his honour and because it was reasonable for him to have felt that way, having regard to the musical genre in which he worked and the characteristics of the rap world).  Driver FM may also have been influenced by his finding that Mr Fernandez's conduct was part of a campaign against Mr Perez arising from the failed tour and had been intended to cause harm to Mr Perez.

We await further cases for guidance as to the interpretation of moral rights protections in Australia.