Marketing and the law [Sixth edition.] 9780409350685, 0409350680
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Marketing and the Law SIXTH EDITION
Mark Bender LLM MEd GrCertHiEd GrCertDisRes GrCertTMLawPrac LLB(Hons) BBus DipFP Director, Australian Capital College
Samantha Christie BA(Hons) LLB(Hons) LLM(Melb) Barrister and Solicitor of the Supreme Courts of Victoria and New South Wales and of the High Court of Australia Lecturer, School of Law, Deakin University
Susan Carter BA(Hons) LLB(Hons) Solicitor of the Supreme Court of New South Wales Director, Law Extension Committee, University of Sydney
Simone Lockhart BEc (Syd) LLB(Hons)(UTS) LLM (Cambridge) Solicitor of the Supreme Court of New South Wales Sessional Lecturer, Business School, University of Sydney
LexisNexis Butterworths Australia 2020
LexisNexis AUSTRALIA LexisNexis Butterworths 475–495 Victoria Avenue, Chatswood NSW 2067 On the internet at: www.lexisnexis.com.au ARGENTINA LexisNexis Argentina, Buenos Aires AUSTRIA LexisNexis Verlag ARD Orac GmbH & Co KG, Vienna BRAZIL LexisNexis Latin America, Sao Paulo CANADA LexisNexis Canada, Markham, Ontario CHILE LexisNexis Chile, Santiago CHINA LexisNexis China, Beijing, Shanghai CZECH REPUBLIC Nakladatelství Orac sro, Prague FRANCE LexisNexis SA, Paris GERMANY LexisNexis Germany, Frankfurt HONG KONG LexisNexis Hong Kong, Hong Kong HUNGARY HVG-Orac, Budapest INDIA LexisNexis, New Delhi ITALY Dott A Giuffrè Editore SpA, Milan JAPAN LexisNexis Japan KK, Tokyo KOREA LexisNexis, Seoul MALAYSIA LexisNexis Malaysia Sdn Bhd, Petaling Jaya, Selangor NEW ZEALAND LexisNexis, Wellington POLAND Wydawnictwo Prawnicze LexisNexis, Warsaw SINGAPORE LexisNexis, Singapore SOUTH AFRICA LexisNexis Butterworths, Durban SWITZERLAND Staempfli Verlag AG, Berne TAIWAN LexisNexis, Taiwan UNITED KINGDOM LexisNexis UK, London, Edinburgh USA LexisNexis Group, New York, New York LexisNexis, Miamisburg, Ohio
Copyright © 2019. LexisNexis Butterworths. All rights reserved.
ISBN:
9780409350678 (pbk). 9780409350685 (ebk).
© 2020 Reed International Books Australia Pty Limited trading as LexisNexis. 1st Edition Butterworths, 1997; 2nd Edition, 2002 (reprinted 2002, 2003 and 2004 (two times)); 3rd Edition, 2006; 4th Edition, 2011 (reprinted 2011, 2013 and 2014 (two times)); 5th Edition, 2015. This book is copyright. Except as permitted under the Copyright Act 1968 (Cth), no part of this publication may be reproduced by any process, electronic or otherwise, without the specific written permission of the copyright owner. Neither may information be stored electronically in any form whatsoever without such permission. Inquiries should be addressed to the publishers. Typeset in Bliss Pro and Palatino. Printed in Australia. Visit LexisNexis Butterworths at www.lexisnexis.com.au
Table of Contents Preface�����������������������������������������������������������������������������������������������������������������������������������������������vii Acknowledgements��������������������������������������������������������������������������������������������������������������������������ix Table of Cases�����������������������������������������������������������������������������������������������������������������������������������xi Table of Statutes������������������������������������������������������������������������������������������������������������������������� xxxv CHAPTER 1 CHAPTER 2 CHAPTER 3 CHAPTER 4 CHAPTER 5 CHAPTER 6 Copyright © 2019. LexisNexis Butterworths. All rights reserved.
CHAPTER 7 CHAPTER 8 CHAPTER 9 CHAPTER 10 CHAPTER 11 CHAPTER 12 CHAPTER 13 CHAPTER 14 CHAPTER 15 CHAPTER 16 CHAPTER 17 CHAPTER 18 CHAPTER 19
Introduction to the Law and Marketing������������������������������������������������������� 1 Protecting Inventive Ideas��������������������������������������������������������������������������� 45 Protecting Commercial Secrets�������������������������������������������������������������������97 Protecting Copyright Material�������������������������������������������������������������������127 Protecting Commercial Designs�����������������������������������������������������������������187 Passing Off and Unfair Trading������������������������������������������������������������������213 Registration of Trade Marks���������������������������������������������������������������������� 267 Product Packaging and Labelling��������������������������������������������������������������333 Product Liability�������������������������������������������������������������������������������������������367 Advertising����������������������������������������������������������������������������������������������������� 425 Selling Techniques����������������������������������������������������������������������������������������495 Introduction to Competition Law�������������������������������������������������������������543 Collusive Conduct����������������������������������������������������������������������������������������585 Misuse of Market Power�����������������������������������������������������������������������������645 Mergers����������������������������������������������������������������������������������������������������������� 677 Resale Price Maintenance��������������������������������������������������������������������������� 697 Exclusive Dealing������������������������������������������������������������������������������������������ 725 Franchising����������������������������������������������������������������������������������������������������� 753 e-Marketing and e-Commerce������������������������������������������������������������������785
Index������������������������������������������������������������������������������������������������������������������������������������������������ 827 v
Copyright © 2019. LexisNexis Butterworths. All rights reserved.
Copyright © 2019. LexisNexis Butterworths. All rights reserved.
Preface Marketing and the Law, now in its sixth edition, is a reference for business decision makers, legal practitioners, and students. It has been developed as a resource to enable readers to quickly ascertain key legal principles to assist in a wide range of marketing decision making. Numerous case examples and flowcharts are included to simplify the process of applying relevant law in common marketing contexts. This sixth edition of the text incorporates case law and statutory amendments made since the previous edition, including recent substantial changes in competition and intellectual property law. Whilst the text deals with the laws that impose control upon the activities of marketers, with an emphasis upon the need for compliance, it also explains how the law can on occasions positively benefit the marketer, and even be utilised to obtain a competitive advantage in the marketplace. The current authors recognise and remember Dr Brendan Sweeney, a founding author of this text, who passed away in 2019. His eloquent contributions, along with those of Bruce Clarke and Nadine Courmadias, continue to provide a sound base for this edition. There are many individuals at LexisNexis Australia who have made valuable contributions to the production of this text; in particular, Jocelyn Holmes, Sharon Szeto and Melanie Hastings. Finally, the authors thank their families and professional colleagues for their assistance, support, wisdom, and advice. Mark Bender Samantha Christie Susan Carter Simone Lockhart October 2019
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Acknowledgments
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The authors and publishers are grateful to the holders of copyright in material from which extracts appear in this work. While every care has been taken to establish and acknowledge copyright, the publishers tender their apologies for any accidental infringement. The publishers would be pleased to come to a suitable arrangement with the rightful owners in each such case.
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Table of Cases References are to paragraph numbers; bold font indicates case discussions
24 Hour Fitness Inc, Re (2001) 54 IPR 411; [2001] ATMO 121 .... 7.21 7-Eleven Stores Pty Ltd, Re (1994) ATPR 41-357 .... 15.14 7-Eleven Stores Pty Ltd, Independent Newsagents Association, Re (1998) ATPR 41-666 .... 12.58
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A A & M Records Inc v Napster Inc (2000) 50 IPR 232; 239 F 3d 1004 (2001) .... 4.61 A Schroeder Music Publishing Co Ltd v Macauley [1974] 3 All ER 616; [1974] 1 WLR 1308 .... 11.22 Abiomed Inc v Turnbull 379 F Supp d 90 (D Mass 2005) .... 19.50 Abundant Earth Pty Ltd v R & C Products Pty Ltd (1985) 59 ALR 211; 4 IPR 387; (1985) ATPR 40-532 .... 6.27C3 ACCC action against Readers Digest (2003) .... 11.35C ACCC and Citymove Pty Ltd (2011) Infringement notice proceedings .... 10.41C ACCC v ABB Transmission & Distribution Ltd (2001) ATPR 41-815; [2001] FCA 383 .... 13.39 — v Adepto Publications Pty Ltd [2013] FCA 247 .... 10.40C, 10.43, 10.44 — v Air New Zealand Ltd [2014] FCA 1157 .... 13.11, 13.14 — v Alice Car & Truck Rentals Pty Ltd (1997) ATPR 41-582 .... 13.24C
— v Amcor Printing Papers Group Ltd (2000) 169 ALR 344; [2000] FCA 17 .... 13.8 — v Ampol Petroleum (Victoria) Pty Ltd (1996) ATPR 41-469 .... 16.28C2 — v Apple Pty Ltd [2012] FCA 646 .... 10.51C — v Australia and New Zealand Banking Group Ltd [2013] FCA 1206 .... 12.42 — v — [2016] FCA 1516 .... 13.25 — v Australian Safeway Stores Pty Ltd (1997) 145 ALR 36; (1997) ATPR 41-562 .... 1.48, 16.18C — v — (No 2) (2003) 198 ALR 657; [2003] FCAFC 149 .... 13.24, 14.12, 14.23, 16.18 — v Baxter Healthcare Pty Ltd (No 2) (2008) 249 ALR 674; [2008] FCAFC 141 .... 17.11C2, 17.23, 17.26 — v Birubi Art Pty Ltd [2018] FCA 1595 .... 8.16C, 10.37 — v Black & White Cabs Pty Ltd [2010] FCA 1399 .... 17.15C1 — v Cadbury Schweppes Pty Ltd (2004) 61 IPR 270; (2004) ATPR 42-001; [2004] FCA 516 .... 8.10C — v CC (NSW) Pty Ltd (1999) 165 ALR 468; (1999) ATPR 41-732 .... 13.8, 13.23, 13.43C2 — v Cement Australia Pty Ltd (2013) 310 ALR 165; [2013] FCA 909 .... 12.37, 12.44, 13.54 — v Channel Seven Brisbane Pty Ltd (2009) 239 CLR 305; 255 ALR 1; [2009] HCA 19 .... 10.58, 10.58C
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Marketing and the Law — v Chen (2003) 201 ALR 40; (2003) ATPR 41-948; [2003] FCA 897 .... 6.33 — v Colgate-Palmolive Pty Ltd (2002) ATPR 41-880; [2002] FCA 619 .... 16.18, 16.23, 16.28 — v Cotton On Kids Pty Ltd [2012] FCA 1428 .... 8.7C — v D M Faulkner Pty Ltd [2004] FCA 1666 .... 13.43 — v Danoz Direct Pty Ltd (2003) 60 IPR 296; [2003] FCA 881 .... 10.24C, 10.26, 10.43 — v Dermalogica Pty Ltd (2005) 215 ALR 482; (2005) ATPR 42-046; [2005] FCA 152 .... 16.23 — v Derodi Pty Ltd [2016] FCA 365 .... 8.13C — v Dimmeys Stores Pty Ltd (1999) ATPR 41-716; [1999] FCA 1175 .... 9.66C2 — v — (2001) ATPR 41-811; [2001] FCA 299 .... 9.66C2 — v Energy Australia Pty Ltd [2014] FCA 336 .... 11.44C — v Fila Sport Oceania Pty Ltd (2004) ATPR 41-983; [2004] FCA 376 .... 12.46, 17.11C1 — v Flight Centre Ltd (No 2) [2016] HCA 49 .... 13.21 — v George Weston Foods Ltd (2000) ATPR 41-763; [2000] FCA 690 .... 13.21 — v Geowash Pty Ltd (Subject to a Deed of Company Arrangement) (No 3) [2019] FCA 72 .... 18.14, 18.24, 18.25, 18.25C — v Get Qualified Australia Pty Ltd (in liq) (No 2) [2017] FCA 709 .... 18.25 — v GIA Pty Ltd (2002) ATPR 41-902; [2002] FCA 1298 .... 8.14C1 — v Giraffe World Australia Pty Ltd (1999) 166 ALR 74; (1999) ATPR 41-718; [1999] FCA 1161 .... 11.33C, 11.34 — v Gordon Superstore Pty Ltd [2014] FCA 452 .... 10.49C1 — v Hewlett-Packard Australia Pty Ltd [2013] FCA 653 .... 10.31 — v Hungry Jack’s Pty Ltd (1996) ATPR 41-538 .... 9.66, 10.69 — v Internic Technology Pty Ltd (1998) 42 IPR 225; (1998) ATPR 41-646 .... 10.11 — v Ithaca Ice Works Pty Ltd (2000) ATPR 41-777; [2000] FCA 997 .... 13.30 — v Jetplace Pty Ltd [2010] FCA 759 .... 10.43, 10.70 — v Jetstar Airways Pty Ltd [2019] FCA 797 .... 10.31
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— v JJ Richards & Sons Pty Ltd [2017] FCA 1224 .... 11.31C — v Kyloe Pty Ltd (2007) ATPR 42-194; [2007] FCA 1522 .... 18.13 — v Le Sands Restaurant and Le Sands Café Pty Ltd t/as Signature Brasserie [2011] FCA 105 .... 10.54C — v Leahy Petroleum Pty Ltd (2004) 141 FCR 183; [2004] FCA 1678 .... 13.8, 13.13, 13.23C4 — v — (2007) ATPR 42-162; [2007] FCA 794 .... 13.13, 13.23C4 — v — (No 2) (2005) 215 ALR 281; (2005) ATPR 42-051; [2005] FCA 254 .... 13.23C4 — v LG Electronics Australia Pty Ltd [2018] FCAFC 96 .... 10.31, 11.18 — v Link Solutions Pty Ltd (No 2) (2010) 272 ALR 280; [2010] FCA 919 .... 17.15 — v Lovelock Luke Pty Ltd (1997) 39 IPR 439; (1997) ATPR 41-594 .... 8.14 — v Lux Pty Ltd [2004] FCA 926 .... 11.24C, 11.32 — v Maritime Union of Australia (2001) 114 FCR 472; 187 ALR 487; [2001] FCA 1549 .... 11.32 — v Mayo International Pty Ltd (1998) ATPR 41-653 .... 16.15 — v McCaskey (2000) 104 FCR 8; 183 ALR 159; [2000] FCA 1037 .... 11.32 — v Medibank Private Ltd [2018] FCAFC 235 .... 18.25 — v Metcash Trading Ltd (2011) 284 ALR 662; [2011] FCAFC 151 .... 12.36, 12.38, 12.42, 15.8, 15.8C2 — v Mitsubishi Electric Australia Pty Ltd [2013] FCA 1413 .... 16.15, 16.19, 16.21C — v MNB Variety Imports Pty Ltd (1998) ATPR 41-617 .... 1.46, 9.66 — v Mobil Oil Australia Ltd (1997) ATPR 41-568 .... 13.13 — v Morild Pty Ltd [2017] FCA 1308 .... 18.18C — v Murray (2002) ATPR 41-899; [2002] FCA 1252 .... 10.61 — v Navman Australia Pty Ltd (2007) ATPR 42-208; [2007] FCA 2061 .... 16.13, 16.17C, 16.19 — v Nissan Motor Company (1998) ATR 41-660 .... 10.37, 10.67 — v Nissan Motor Company (Australia) Pty Ltd & Thomas Wightman [1998] ATPR 40-660; [1998] FCA 1048 .... 10.55
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Table of Cases — v NW Frozen Foods Pty Ltd (1996) ATPR 41-515 .... 13.23C1 — v Optell Pty Ltd (1998) 41 IPR 49; (1998) ATPR 41-640 .... 10.38, 10.48 — v Ozsale Pty Ltd [2016] FCA 1049 .... 8.9C — v Pioneer Concrete (Qld) Pty Ltd (1996) ATPR 41-457 .... 13.39, 13.43C1 — v Prouds Jewellers Pty Ltd (No 2) (2008) ATPR 42-230; [2008] FCA 476 .... 10.69 — v Renegade Gas Pty Ltd (t/as Supagas NSW) [2014] FCA 1135 .... 12.25, 13.39C1 — v Roche Vitamins Australia Pty Ltd (2001) ATPR 41-809; [2001] FCA 150 .... 13.30, 13.39 — v Signature Security Group Pty Ltd (2003) ATPR 41-908; [2003] FCA 3 .... 10.45 — v Simply No-Knead (Franchising) Pty Ltd (2000) 178 ALR 304; [2000] FCA 1365 .... 18.8 — v SIP Australia Pty Ltd (1999) ATPR 41-702; [1999] FCA 858 .... 12.25, 13.30 — v Skins Compression Garments Pty Ltd [2009] FCA 710 .... 16.15C2, 16.23C2, 16.28 — v Skippy Australia Pty Ltd [2006] FCA 1343 .... 10.37, 10.49 — v Smash Enterprises Pty Ltd [2011] FCA 375 .... 8.8C — v South East Melbourne Cleaning Pty Ltd (in liq) (No 2) [2015] FCA 25 .... 18.15 — v StoresOnline International Inc (2007) ATPR 42-196; [2007] FCA 1597 .... 10.70 — v Stott [2013] FCA 88 .... 10.73 — v Target Australia Pty Ltd (2001) ATPR 41-840; [2001] FCA 1326 .... 10.21, 10.45 — v Tasmanian Salmonid Growers Association Ltd [2003] FCA 788 .... 13.35C — v Teac Australia Pty Ltd [2007] FCA 1859 .... 16.23 — v Telwater Pty Ltd [2009] FCA 263 .... 16.15C1, 16.28 — v TF Woollam & Son Pty Ltd (2011) 285 ALR 236; [2011] FCA 973 .... 13.43C3 — v The Tasmanian Salmonid Growers Association Ltd (2003) ATPR 41-954; [2003] FCA 788 .... 12.27 — v TPG Internet Pty Ltd (2013) 250 CLR 640; 304 ALR 186; [2013] HCA 54 .... 10.13C, 10.16, 10.22, 10.45, 10.54 — v Trading Post Australia Pty Ltd [2011] FCA 1086 .... 6.34C, 19.54
— v Tubemakers of Australia Ltd (2000) ATPR 41-745; [1999] FCA 1787 .... 13.30 — v Tyco Australia Pty Ltd (2000) ATPR 41-740; [1999] FCA 1799 .... 13.43 — v Ultra Tune Australia Pty Ltd [2019] FCA 12 .... 18.14, 18.24, 18.24C1 — v Valve Corporation (No 3) [2016] FCA 196 .... 10.31 — v Virgin Mobile Australia Pty Ltd (No 2) [2002] FCA 1548 .... 10.69 — v Visy Industries Holdings Pty Ltd (No 3) (2007) 244 ALR 673; [2007] FCA 1617 .... 13.16, 13.39 — v Visy Paper Pty Ltd (No 2) (2004) 212 ALR 564; (2004) ATPR 42-032 .... 13.39 — v WD & HO Wills (Australia) Pty Ltd (Fed Ct, 23 February 1998, unreported) .... 13.21 — v Wizard Mortgage Corp Ltd (2002) ATPR 41-903; [2002] FCA 1317 .... 10.38 — v Z-Tek Computer Pty Ltd (1997) 148 ALR 339; (1997) ATPR 41-580 .... 10.70 Accor Australia and New Zealand Hospitality Pty Ltd v Liv Pty Ltd (2017) 345 ALR 205; [2017] FCAFC 56 .... 7.47 ACI Fibreglass Pty Ltd Application (1974) 1 TPCD [241] .... 13.51 ACI Operations Pty Ltd (1991) ATPR (Com) 50-108 .... 12.59 Acohs Pty Ltd v Ucorp Pty Ltd (2010) 86 IPR 492; [2010] FCA 577 .... 4.8 — v Ucorp Pty Ltd (2012) 287 ALR 403; 95 IPR 117; [2012] FCAFC 16 .... 4.36 Adams v ETA Foods Ltd (1987) 78 ALR 611; (1987) ATPR 40-831 .... 10.37, 10.61, 10.62 Adelaide Chemical & Fertilizer Co Ltd v Carlyle (1940) 64 CLR 514 .... 8.4, 9.10C2 Adidas AG v Pacific Brands Footwear Pty Ltd (No 3) (2013) 308 ALR 74; 103 IPR 521; [2013] FCA 905 .... 7.48 Advance Hair Studio Pty Ltd v TVW Enterprises Ltd (1987) 77 ALR 615; 10 IPR 97; (1987) ATPR 40-816 .... 10.58 Advanced Building Systems Pty Ltd v Ramset Fasteners (Aust) Pty Ltd [1999] FCA 898 .... 2.51 Advantage Rent-A-Car Inc v Advantage Car Rental Pty Ltd (2001) 52 IPR 24; [2001] FCA 683 .... 4.44 Ah Toy J Pty Ltd v Thiess Toyota Pty Ltd (1980) 30 ALR 271; 5 TPC 824; (1980) ATPR 40-155 .... 13.49
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Marketing and the Law Air New Zealand Ltd v ACCC [2017] HCA 21 .... 15.8 Aktiebolaget Hassle v Alphapharm Pty Ltd (2002) 212 CLR 411; 194 ALR 485; [2002] HCA 59 .... 2.19C Aldi Stores Ltd Partnership v Frito-Lay Trading Co GmbH (2001) 190 ALR 185; 54 IPR 344; [2001] FCA 1874 .... 7.48, 7.48C2, 7.52 Amalgamated Mining Services Pty Ltd v Warman International Ltd (1992) 111 ALR 269; 24 IPR 461 .... 4.18 Amco Wrangler Ltd v Jacques Konckier (1978) 10 IPR 376 .... 7.27 American Express Co v NV Amev (1985) 5 IPR 267; [1985] RPC 466 .... 7.50 Anaesthetic Supplies Pty Ltd v Rescare Ltd (1994) 122 ALR 141; 28 IPR 383 .... 2.10, 2.28C Angoves Pty Ltd v Johnson (1982) 43 ALR 349 .... 7.28, 7.56C1, 7.75 Anheuser-Busch Inc v Castlebrae Pty Ltd (1991) 32 FCR 64; 23 IPR 54 .... 7.42 Annand and Thompson Pty Ltd v Trade Practices Commission (1979) 25 ALR 91 .... 10.39 Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VLR 37 .... 3.8C1, 3.19, 3.28 Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55; [1976] 1 All ER 779 .... 4.69 Apand Pty Ltd v Kettle Chip Co Pty Ltd (1994) 30 IPR 337; (1994) ATPR 41-353 .... 10.18 — v — (No 2) (1999) 162 ALR 505; 43 IPR 225; [1999] FCA 483 .... 6.31C Apco Service Stations Pty Ltd v ACCC (2005) ATPR 42-078; [2005] FCAFC 161 .... 13.8, 13.13, 13.24 Apotex Pty Ltd v Sanofi-Aventis Australia Pty Ltd (2013) 304 ALR 1; 103 IPR 217; [2013] HCA 50 .... 2.10C Apple Inc v Wholesale Central Pty Ltd [2010] ATMO 7 .... 7.49 Architects (Australia) Pty Ltd v Witty Consultants Pty Ltd [2002] QSC 139 .... 6.33C1 Argy v Blunts & Lane Real Estate Pty Ltd (1990) 26 FCR 112; 94 ALR 719 .... 10.9 Arnotts Ltd v TPC (1990) 97 ALR 555; (1990) ATPR 41-061 .... 15.8C1
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Arrow Pharmaceuticals Ltd v Merck & Co Inc (2004) 213 ALR 182; 63 IPR 85; [2004] FCA 1282 .... 2.9 Ascot Four Pty Ltd v ACCC (2009) 255 ALR 441; [2009] FCAFC 61 .... 10.45C2 Association of Molecular Pathology v Myriad Genetics Inc (2013) 569 US 12-398 .... 2.11 AstraZeneca AB v Apotex Pty Ltd (2014) 312 ALR 1; 107 IPR 177; [2014] FCAFC 99 .... 2.18C, 2.51C1 Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd (2006) ATPR 42-106; [2006] FCAFC 22 .... 10.12, 10.21 ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (1990) 97 ALR 513; 19 IPR 323; (1991) ATPR 41-069 .... 14.20C, 14.33, 17.23 Attwood v Lamont [1920] All ER Rep 55 .... 3.36 .au Domain Administration Ltd v Domain Names Australia Pty Ltd (2004) 207 ALR 521; 61 IPR 81; [2004] FCA 424 .... 10.12, 10.13 Austereo Pty Ltd v DMG Radio (Australia) Pty Ltd (2004) 209 ALR 93; 61 IPR 257; [2004] FCA 9968 .... 7.23 Australasian Health & Nutrition Association Ltd (t/as Sanitarium Health Food Co) v Irrewarra Estate Pty Ltd (t/as Irrewarra Sourdough) (2012) 292 ALR 101; [2012] FCA 592 .... 7.14, 7.47C3, 7.62, 7.63 Australasian Performing Right Association Ltd v Canterbury-Bankstown League Club Ltd [1964–5] NSWR 138 .... 4.59 — v Commonwealth Bank of Australia (1992) 111 ALR 671; 25 IPR 157 .... 4.46 — v Jain (1990) 26 FCR 53; 96 ALR 619; 18 IPR 663 .... 4.59 — v Metro on George Pty Ltd (2004) 210 ALR 244; 61 IPR 575; [2004] FCA 1123 .... 4.59C Australia Meat Holdings Pty Ltd v TPC (1989) ATPR 40-932 .... 12.35, 12.44, 12.44C, 12.55, 15.20, 15.22 Australian Automobile Chamber of Commerce, Re (1978) 3 TPR 244 .... 13.27 Australian Automotive Repairers’ Association (Political Action Committee) Inc v Insurance Australia Ltd (No 6) [2004] FCA 700 .... 17.15
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Table of Cases Australian Broadcasting Corp v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; 185 ALR 1; [2001] HCA 63 .... 3.15C Australian Communications and Media Authority v Clarity1 Pty Ltd (2006) 155 FCR 377; [2006] FCA 1399 .... 19.14C — v Mobilegate Ltd (2009) 261 ALR 326; [2009] FCA 1225 .... 19.15, 19.15C Australian Federation of Construction Contractors’ Application (1975) 1 TPCD [244] .... 13.55C Australian Football League v The Age Co Ltd (2007) 15 VR 419 .... 3.5 Australian Gas Light Co v ACCC (2003) ATPR 41-966; [2003] FCA 1525 .... 12.36, 15.8 Australian Home Loans v Phillips (1998) ATPR 41-626 .... 4.17 Australian Olympic Committee, Inc v Telstra Corporation Ltd [2016] FCA 857 .... 10.30C Australian Postal Corporation v Digital Post Australia (2013) 308 ALR 1; 105 IPR 1; [2013] FCAFC 153 .... 7.48 Australian Securities and Investments Commission v National Exchange Pty Ltd (2003) 202 ALR 24; 47 ACSR 128; [2003] FCA 955 .... 10.12 Australian Tape Manufacturers Association Ltd v Commonwealth of Australia (1993) 176 CLR 480; 112 ALR 53; 25 IPR 1 .... 4.60 Australian Wine Importer’s Trade Mark, Re (1889) 6 RPC 311 .... 7.50 AUSvance LLC Infringement Notice proceedings .... 19.12C Autodesk Inc v Dyason (No 1) (1992) 173 CLR 330; 104 ALR 563; 22 IPR 163 .... 4.43 — v — (No 2) (1993) 176 CLR 300; 67 ALJR 270; 111 ALR 385 .... 4.43 Azuko Pty Ltd v Old Digger Pty Ltd (2001) 52 IPR 75; [2001] FCA 1079 .... 2.23, 2.23C2
B Baigent v Random House Group Ltd (2006) 69 IPR 143; [2006] EWHC 719 (Ch) .... 4.42 Bailey & Co Ltd v Bocaccio Pty Ltd & Pacific Wine Co Pty Ltd (1986) 4 NSWLR 701; 77 ALR 177; 6 IPR 279 .... 4.67 Baker & Priem (No 2), Re Application by (1989) 15 IPR 660; (1989) AIPC 90-599 .... 5.14
Ballard v Sperry Rand Australia Ltd (1975) 6 ALR 696; (1975) ATPR 40-006 .... 10.49 Banner Universal Motion Pictures Ltd v Endemol Shine Group Ltd [2017] EWHC 2600 Ch; [2017] WLR(D) 686 .... 4.13 Barratta v TPA Pty Ltd (Civil Claims) [2012] VCAT 679 .... 9.17 Barrett v Ecco Personnel Pty Ltd [1998] NSWCA 30 .... 3.19 Barton v Croner Trading Pty Ltd (1984) 54 ALR 541; (1984) ATPR 40-470 .... 10.43 — v— (1985) 5 IPR 59; (1985) ATPR 40-525 .... 10.37 — v Gary Lai Pty Ltd (1984) ATPR 40-495 .... 10.67 Bateman v Slatyer (1987) 71 ALR 553; 8 IPR 33; (1987) ATPR 40-762 .... 10.23, 11.21 Baywatch Productions Co Ltd v Home Video Channel [1997] FSR 22 .... 7.53 Beale v Taylor [1967] 3 All ER 253; [1967] 1 WLR 1193 .... 9.19C Beck v Montana Constructions Pty Ltd (1963) 80 WN (NSW) 1578 .... 4.36 Bedford Industries Rehabilitation Association Inc v Pinefair Pty Ltd & Porter (1996) ATPR 41-448 .... 6.25 Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; [1968] RPC 301 .... 2.55 Beecham Group plc v Colgate-Palmolive Co (2001) 58 IPR 161; [2001] ATMO 119 .... 7.16 Benetton Group SpA, Re Application by (1989) 14 IPR 188 .... 7.21 Bently Fragrances Pty Ltd v GDR Consultants Pty Ltd (1985) 5 IPR 183; 11 FCR 29; (1985) ATPR 40-589 .... 6.22C Berlei Hestia Industries v Bali Co Inc (1973) 129 CLR 353; 1 ALR 443; [1973] HCA 43 .... 7.63C2 Betta Stores Ltd, Re (1977–8) ATPR (Com) 16,927 .... 13.73 BHP Petroleum Pty Ltd, Re (1986) ATPR (Com) 50-112 .... 13.72C Bilski v Kappos 130 S Ct 3218 (2010) .... 2.8 Black Cabs & Eastern Group Taxis Co-operative Ltd (1990) ATPR (Com) 50-098 .... 13.74 Blockbuster Entertainment Inc v Civic Video Pty Ltd [1999] ATMO 25 .... 7.23
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Marketing and the Law Blount Inc v Registrar of Trade Marks (1998) 40 IPR 498; [1998] FCA 440 .... 7.28C BM Auto Sales Pty Ltd v Budget Rent A Car System Pty Ltd (1976) 12 ALR 363; (1976) 51 ALJR 254 .... 6.9C, 6.13, 7.75 BMW Australia Ltd v ACCC (2004) 207 ALR 452; (2004) ATPR 42-012; [2004] FCAFC 167 .... 9.66C1 Bollinger v Costa Brava Wine Co Ltd (No 2) [1961] 1 All ER 561; [1961] RPC 116 .... 6.8C, 6.15 Bonz Group (Pty) Ltd v Cooke [1994] 3 NZLR 216 .... 4.20 Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC (2003) 215 CLR 374; 195 ALR 609; [2003] HCA 5 .... 12.40, 14.11, 14.12, 14.14, 14.26, 14.26C Boston Deep Sea Fishing & Ice Co v Ansell (1888) 39 Ch D 339; [1886–90] All ER Rep 65 .... 3.20 BP Australia Ltd v Trade Practices Commission (1986) ATPR 40-701 .... 16.17C BP plc v Woolworths Ltd (2004) 212 ALR 79; 62 IPR 545; [2004] FCA 1362 .... 7.75 Bradken Resources Pty Ltd v Lynx Engineering Consultants Pty Ltd (2012) 97 IPR 424; [2012] FCA 944 .... 2.23 Bradmill Industries Ltd v B & S Products Pty Ltd (1980) 53 FLR 385; (1980) ATPR 40-191 .... 7.75 Bridge Stockbrokers Ltd v Bridges (1984) 57 ALR 401; 5 IPR 81; (1985) ATPR 40-502 .... 10.18 Bright Tunes Music Corp v Harrisongs Music Ltd 420 F Supp 177 (1976) .... 4.40 Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 .... 10.34, 12.22 Bristol-Myers Squibb Co v F H Faulding & Co Ltd (2000) 170 ALR 439; 46 IPR 553; [2000] FCA 316 .... 2.9, 2.10, 2.60 British Franco Electric Pty Ltd v Dowling Plastics Pty Ltd [1981] NSWLR 448 .... 5.8C British Leyland Corp v Armstrong Patents Co Ltd [1986] AC 577; 6 IPR 102; [1986] 1 All ER 850; [1986] 2 WLR 400 .... 4.18 Brock v Terrace Times Pty Ltd (1982) 40 ALR 97; 56 FLR 464 .... 6.25 Brock and Co Ltd’s Application (1909) 26 RPC 683 .... 7.14
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Brodel v Telstra Corp Ltd [2004] FCA 505 .... 4.11 Broderbund Software Inc v Computermate Products (Australia) Pty Ltd (1991) 22 IPR 215; (1992) ATPR 41-155 .... 12.46 Broken Hill Proprietary Co Ltd v Koppers Pty Ltd (1981) ATPR 40-203 .... 17.28 Brown v Southport Motors Pty Ltd (1982) 43 ALR 183; (1982) 67 FLR 254; (1982) ATPR 40-306 .... 11.19 Buckley v Tutty (1971) 125 CLR 353; [1972] ALR 370 .... 13.7 Budget Eyewear Australia Pty Ltd v Specsavers Pty Ltd (2010) 86 IPR 479; [2010] FCA 507 .... 4.9 Budget Rent-A-Car System Pty Ltd v Dewhirst (1984) ATPR 40-485 .... 10.23C1 Bunnings Group Ltd v Laminex Group Ltd (2006) 230 ALR 269 .... 9.14 Burberrys v J C Cording & Co Ltd (1909) 100 LT 985; 26 RPC 693 .... 6.3 Burge v Swarbrick (2007) 232 CLR 336; 234 ALR 204; 72 IPR 235; [2007] HCA 17 .... 4.20, 4.20C1 Burger King Corporation v Registrar of Trade Marks (1973) 128 CLR 417; 1A IPR 504; [1973] HCA 15 .... 7.21C1, 7.25 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; 212 ALR 357; [2004] HCA 60 .... 10.12, 10.16 Butt v Long (1953) 88 CLR 476; 27 ALJR 576 .... 3.36 Button v Suregold Pty Ltd; Button v Panagopoulos; Button v Buzza (1988) ATPR (Digest) 46-035; [1988] FCA 203 .... 8.9 Buttrose v Senior’s Choice (Australia) Pty Ltd [2014] FCCA 2156 .... 6.42
C Cadbury Ltd, Re Application by (2002) 55 IPR 561; [2002] ATMO 56 .... 7.26 Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (2007) 159 FCR 359 .... 6.21 — v — (No 4) (2006) 229 ALR 136; 69 IPR 23 .... 6.31 — v — (No 8) (2008) 75 IPR 557; (2008) ATPR 42-229; [2008] FCA 470 .... 6.31
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Table of Cases — v Pub Squash Co Pty Ltd [1980] 2 NSWLR 851; 32 ALR 387; [1981] 1 All ER 213 .... 6.11, 6.11C1, 6.11C2, 6.13, 6.23, 6.37 Cadbury Schweppes Pty Ltd & Effem Foods Pty Ltd v Société des Produits Nestlé SA [2003] ATMO 74 .... 7.18 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; 257 ALR 610; 73 ACSR 1; [2009] HCA 25 .... 10.12 Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45; 169 ALR 677; [2000] HCA 12 .... 6.3, 6.13, 6.15, 6.24, 6.30C, 7.43, 10.13, 10.17 Candy v Bauer Media Ltd [2013] NSWSC 979 .... 3.6 Cantarella Bros Pty Ltd v Modena Trading Pty Ltd (2014) 2315 ALR 4; 109 IPR 154; [2014] HCA 48 .... 7.12, 7.13C Capital Networks Pty Ltd v .au Domain Administration Ltd (2004) ATPR (Digest) 46-254; [2004] FCA 808 .... 18.13 Capital Webworks Pty Ltd v Adultshop.com Ltd [2000] FCA 492 .... 19.66 Carey-Hazell v Getz Bros & Co (Australia) Pty Ltd (2004) ATPR 42-014; [2004] FCA 853 .... 9.56 Carlill v Carbolic Smoke Ball Co is [1893] 1 QB 256 .... 1.29 Carpet Call Pty Ltd v Chan (1987) ASC 55-553; (1987) ATPR (Digest) 46-025 .... 9.14, 9.18C2 Cassidy v Saatchi & Saatchi Australia Pty Ltd (2004) ATPR 41-980; [2004] FCAFC 34 .... 10.55 Cassini v Golden Era Shirt Co Pty Ltd (1985) 6 IPR 247; (1986) AIPC 90-263 .... 7.27 Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd (1986) 68 ALR 376; (1986) ATPR 40-751 .... 17.11, 17.15 Castrol Australia Pty Ltd v Emtech Associates Pty Ltd (1980) 33 ALR 31; (1980) ATPR 40-183 .... 3.27 Catnic Components Ltd v Hill & Smith Ltd [1978] FSR 405; [1982] RPC 183 .... 4.17 — v — [1981] FSR 60 .... 2.47 CBS Songs Ltd v Amstrad Consumer Electronics plc [1988] AC 1013; [1988] 2 All ER 484; 11 IPR 1 .... 4.60, 4.60C CCOM Pty Ltd v Jiejing Pty Ltd (1994) 122 ALR 417; 28 IPR 48 .... 2.7
Central Equity Ltd v Central Corporation Pty Ltd (1995) 32 IPR 481 .... 6.23 Chase Manhattan Overseas Corp v Chase Corporation Ltd (1986) 70 ALR 303; 8 IPR 569; (1986) ATPR 40-750 .... 7.75 Children’s Television Workshop Inc v Woolworths (NSW) Ltd [1981] 1 NSWLR 273; (1980) 1B IPR 609 .... 6.14C, 6.15, 6.26, 6.42, 6.45 Chocolaterie Guylian NV, Re (1999) 46 IPR 201; [1999] ATMO 28 .... 7.18 — v Registrar of Trade Marks (2009) 258 ALR 545; 82 IPR 13; [2009] FCA 891 .... 7.18 Chocosuisse Union des Fabricants Suisses de Chocolat v Cadbury Ltd [1999] RPC 826 .... 6.8C, 6.15, 6.41C Chris Ford Enterprises Pty Ltd v BH & JR Badenhop Pty Ltd (1985) 60 ALR 400; 4 IPR 485; (1985) ATPR 40-568 .... 5.20, 6.36 Clark Equipment Co v Registrar of Trade Marks (1964) 111 CLR 511; 38 ALJR 215; [1964] HCA 55 .... 7.12, 7.21, 7.21C2 Clarke, Re 17 USPQ 2d 1238 (TTAB 1990) .... 7.31 — v Earl of Dunraven & Mount-Earl (The Satanita) [1897] AC 59; [1895] P 248 .... 13.7 — v New Concept Import Services Pty Ltd (1982) 2 TPR 183; (1982) ATPR 40-284 .... 9.68C — v Pacific Dunlop Ltd (1989) ATPR 40-983 .... 9.66 Clifford Davis Ltd v WEA Records Ltd [1975] 1 All ER 237; [1975] 1 WLR 61 .... 11.22 Coca-Cola Co v All-Fect Distributors Ltd (1999) 47 IPR 481; (2000) ATPR 41-735; [1999] FCA 1721 .... 7.47, 7.49 — v PepsiCo Inc (No 2) (2014) 109 IPR 429; [2014] FCA 1287 .... 7.47 — v The Big Australian (Australia) Pty Ltd [1999] ATMO 58 .... 7.42C2, 7.52 Coca-Cola Trade Marks, Re (1985) 3 IPR 575; [1986] RPC 421 .... 7.18 Coco v A N Clark (Engineers) Ltd (1968) 1A IPR 587; [1969] RPC 41 .... 3.3, 3.4, 3.16, 3.21, 3.26, 3.28, 3.28C Colgate Palmolive Pty Ltd v Rexona Pty Ltd (1981) 37 ALR 391; (1981) ATPR 40-242 .... 10.26C1 — v Smithkline Beecham Holdings (Australia) (1997) 39 IPR 147; (1997) ATPR 41-579 .... 10.68C
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Marketing and the Law Collier Constructions Pty Ltd v Foskett Pty Ltd (1991) 97 ALR 460; 19 IPR 44 .... 4.19, 10.23 Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) 72 ALR 601; (1987) ATPR 40-782 .... 11.21 Collis v Coles Myer Ltd (17 February 1988, Court of Petty Sessions, Perth, Complaint No 77968 of 1987) .... 11.15C1 Colorado Group Ltd v Strandbags Group Pty Ltd (2007) 243 ALR 127; 74 IPR 246; [2007] FCAFC 184 .... 7.21 Comité Interprofessional du Vin de Champagne v N L Burton Pty Ltd (1981) 38 ALR 664; (1981) ATPR 40-258; (1982) 1 TPR 128 .... 6.8C, 6.27 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; 46 ALR 402; 57 ALJR 358 .... 11.22C, 18.25 Commissioner of Patents v Microcell Ltd (1959) 102 CLR 232; 1A IPR 52 .... 2.9 Commonwealth Director of Public Prosecutions v Nippon Yusen Kabushiki Kaisha [2017] FCA 876 .... 13.17 Communication Credit Union Ltd v National Westminster Finance Australia Ltd (1983) 51 ALR 375; 1 IPR 507; (1983) ATPR 40-410 .... 6.27 Compagnie Industrielle de Precontrainte et D’Equipment des Constructions SA v First Melbourne Securities Pty Ltd (1999) 44 IPR 512; [1999] FCA 660 .... 4.18 Computer Edge Pty Ltd v Apple Computer Inc (1986) 161 CLR 171; 65 ALR 33; 6 IPR 1; [1986] HCA 19 .... 4.12 Computermate Products (Australia) Pty Ltd v Ozi-Soft Pty Ltd (1988) 83 ALR 492; 12 IPR 487 .... 4.66 ConAgra Inc v McCain Foods (Australia) Pty Ltd (1991) 101 ALR 461; 22 IPR 175; (1991) ATPR 41-121 .... 6.6 — v —(1992) 106 ALR 465; 23 IPR 193 .... 6.3 Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594; 92 ALR 193; 17 IPR 39 .... 10.7, 10.9 Confetti Records (a firm) v Warner Music UK Ltd (t/a East West Records) [2003] EWHC 1274 .... 4.26 Connect TV Pty Ltd v All Rounder Pty Ltd (No 5) (2016) 338 ALR 96; 118 IPR 133; [2016] FCA 338 ....4.48
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Continental TV Inc v GTE Sylvania Inc 433 US 36 (1977); 53 L Ed 2d 568 (1977) .... 17.23 Coogi Australia Pty Ltd v Hysport International Pty Ltd (1998) 157 ALR 247; 41 IPR 593 .... 4.20, 4.20C2 Cook v Bank of New South Wales (1982) 2 BPR 9580 .... 11.24 — v Deeks [1916] 1 AC 554; [1916–17] All ER Rep 285 .... 3.20 — v Pasminco Ltd [2000] FCA 677 .... 9.52 Cooper v Universal Music Australia Pty Ltd (2006) 237 ALR 714; 71 IPR 1; [2006] FCAFC 187 .... 4.47, 4.62, 4.63 Cooper Basin Natural Gas Supply Arrangements, Re (1997) ATPR 41-593 .... 12.62 Co-operative Bulk Handling Ltd (No 3), Application by [2013] ACompT 3 .... 12.60, 17.28C Corby v Allen & Unwin Pty Ltd (2013) 297 ALR 761; 101 IPR 181; [2013] FCA 370 .... 4.27C Cortis Exhaust Systems Pty Ltd v Kitten Software Pty Ltd (2001) ATPR 41-837; [2001] FCA 1189 .... 4.17 Cosmetic, Toiletry and Fragrance Association Foundation v Fanni Barns Pty Ltd (2003) 57 IPR 594; [2003] ATMO 10 .... 7.32 Courier Pete Pty Ltd v Metroll Queensland Pty Ltd (2010) 87 IPR 397; [2010] FCA 735 .... 5.20 Cranleigh Precision Engineering Ltd v Bryant [1964] 3 All ER 289; [1965] 1 WLR 1293; [1966] RPC 81 .... 3.11, 3.19, 3.19C3, 3.26 Cricketer Ltd v Newspress Pty Ltd & David Syme & Co Ltd [1974] VR 477 .... 6.5C2, 6.22, 6.40 Crowder v Hilton [1902] SALR 82 .... 3.11 CSR Ltd v Resource Capital Australia Pty Ltd (2003) ATPR 41-929; [2003] FCA 279 .... 6.33, 6.33C3 Cuisenaire v Reed [1963] VR 719; (1962) 1B IPR 235 .... 4.20 Cummins v Vella [2002] FCAFC 218 .... 4.5, 4.39, 4.40C, 4.44
D D & R Byrnes (Nominees) Pty Ltd v Central Queensland Meat Export Co Pty Ltd (1990) ATPR 41-028 .... 17.13 D B & A E Newman Pty Ltd v Barossa Co-operative Winery Ltd (1981) 28 SASR 501 .... 13.4
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Table of Cases Dainford Ltd v Sanrod Pty Ltd (1985) ATPR 40-513 .... 11.19 Dalgety Australia Operations Ltd v FF Seeley Nominees Pty Ltd (1985) 68 ALR 458; 5 IPR 97 .... 5.7C — v — (1986) 64 ALR 421; 6 IPR 361 .... 5.7C Dallas Buyers Club LLC v iiNet Ltd (No 1) [2014] FCA 1232 .... 4.48 Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (1982) 44 ALR 173; (1982) ATPR 40-315 .... 12.37, 17.9, 17.9C, 17.23 Daniels & Daniels v White & Sons Ltd [1938] 4 All ER 258 .... 9.2C, 9.5 Danisco A/S v Novozymes A/S (No 2) (2011) 91 IPR 209; [2011] FCA 282 .... 2.51C2 D’Arcy v Myriad Genetics Inc (2014) 313 ALR 627; 107 IPR 478; [2014] FCAFC 115 .... 2.11C Darwalla Milling Co Pty Ltd v F Hoffmann-La Roche Ltd [2006] FCA 915 .... 12.26 Data Access Corporation v Powerflex Services Pty Ltd (1999) 166 ALR 228; 45 IPR 353; [1999] HCA 49 .... 4.43 David Golf & Engineering Pty Ltd v Austgolf Corporation Pty Ltd (1993) ATPR 41-207 .... 10.69 Davids Holdings Pty Ltd v Attorney-General (Cth) (1994) 121 ALR 241; (1994) ATPR 41-304 .... 12.43 Dawson v Pacific Chase Investments (General) [2012] NSWCTTT 432 .... 9.18C1 — v World Travel Headquarters Pty Ltd (1981) ATPR 40-240 .... 10.43, 10.52 DC Comics Ltd v Cheqout Pty Ltd [2013] FCA 478 .... 7.42C5 — v Pan American Grain Mfg Co Inc 77 USPQ2d 1220 (TTAB, 2005) .... 6.42 De Garis v Neville Jeffress Pidler Pty Ltd (1990) 95 ALR 625; 18 IPR 292 .... 4.30 Decor Corporation Pty Ltd v Bo-Water Scott Ltd (1985) 5 IPR 288; (1985) ATPR 40-587 .... 10.16C, 10.27 — v Dart Industries Inc (1988) 13 IPR 385 .... 2.27, 2.47 Del Casale v Artedomus (Aust) Pty Ltd (2007) 73 IPR 326 .... 3.14 Demagogue Pty Ltd v Ramensky (1992) 110 ALR 608; (1993) ATPR 41-203 .... 10.25
Dennison Manufacturing Co v Monarch Marketing Systems Inc (1983) 66 ALR 265; 1 IPR 431 .... 2.14 Desktop Marketing Systems Pty Ltd v Telstra Corporation Ltd (2002) 192 ALR 433; 55 IPR 1; [2002] FCAFC 112 .... 4.10 Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 .... 3.16, 3.17C1, 3.28 Digga Australia Pty Ltd v Norm Engineering Pty Ltd (2008) 245 ALR 407; 75 IPR 251; [2008] FCAFC 33 .... 4.56C, 5.30 Digital Pulse Pty Ltd v Harris (2002) 40 ACSR 487; [2002] NSWSC 33 .... 3.35, 3.39 Doherty v Traveland Pty Ltd (1982) ATPR 40-323 .... 10.52 Donoghue v Allied Newspapers Ltd [1938] Ch 106; [1937] 3 All ER 503 .... 4.5C, 4.28 — v Stevenson [1932] AC 562; [1932] SC (HL) 31 .... 9.4, 9.4C1, 9.9, 9.49 Doolan v Magnamail Pty Ltd (1982) ATPR 40276 .... 10.37 Dorling v Honnor Marine Ltd [1965] Ch 1; [1964] 1 All ER 241 .... 4.18, 4.40 Dow Jones & Co Inc v Gutnick (2002) 210 CLR 575; 194 ALR 433; [2002] HCA 56 .... 19.57, 19.57C Dowdell v Knipsel Fruit Juices Pty Ltd [2003] FCA 851 .... 9.52 Dowling v Dalgety Australia Ltd (1992) 106 ALR 75; (1992) ATPR 41-165 .... 12.36, 14.12 Dowsett v Reid (1912) 15 CLR 695; 19 ALR 15 .... 11.22 Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (1999) 44 IPR 281; [1999] FCA 461 .... 5.32, 6.36 Drake v Mylar Pty Ltd [2011] NSWSC 1578 .... 9.55 Ducret v Chaudhary’s Oriental Carpet Palace Pty Ltd (1987) 76 ALR 183; (1987) ATPR 40-804 .... 10.37 Dura-Post (Australia) Pty Ltd v Delnorth Pty Ltd (2009) 81 IPR 480; [2009] FCAFC 81 .... 2.32C — v — [2009] HCATrans 328 .... 2.32C Duracell Australia Pty Ltd v Union Carbide Australia Ltd (1988) ATPR 40-918 .... 10.26, 10.27
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Marketing and the Law
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E E & J Gallo Winery v Lion Nathan Australia Pty Ltd (2009) 175 FCR 386; [2009] FCAFC 27 .... 7.50, 7.62 — v — (2010) 241 CLR 144; 265 ALR 645; 86 IPR 224; [2010] HCA 15 .... 7.50, 7.54, 7.62 Eagle Homes Pty Ltd v Austec Homes Pty Ltd (1999) 87 FCR 415; 161 ALR 503; 43 IPR 1 .... 4.19 Eastern Express Pty Ltd v General Newspapers Pty Ltd (1991) 103 ALR 41; (1991) ATPR 41-128 .... 13.54C, 17.23 — v — (1992) 106 ALR 297; (1992) ATPR 41-167 .... 13.54C, 14.11C, 14.26, 17.23 Eastman Kodak Co v Image Technical Services Inc 504 US 451 (1992) .... 12.46 eBay International AG v Creative Festival Entertainment Pty Ltd (2006) 170 FCR 450; [2006] FCA 1768 .... 19.9, 19.9C Edgetec International Pty Ltd v Zippykerb (NSW) Pty Ltd (2012) 98 IPR 1; [2012] FCA 281 .... 7.47 EdSonic Pty Ltd v Cassidy (2010) 272 ALR 589; 88 IPR 317; [2010] FCA 1008 .... 4.29 Effem Foods Pty Ltd v Wandella Pet Foods Pty Ltd (2006) 69 IPR 243; [2006] FCA 767 .... 7.42C2 Elconnex Pty Ltd v Gerard Industries Pty Ltd (1993) 25 IPR 173 .... 2.21 Electric Lamp Manufacturers (Australia) Pty Ltd, Re (1982) ATPR (Com) 50-033 .... 13.72 Electrix Ltd v Electrolux Ltd [1960] AC 722; [1959] 3 All ER 170 .... 7.14 Electrolux Ltd v Hudson [1977] FSR 312 .... 2.40C2 Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd (2008) 172 FCR 580; 80 IPR 566; [2008] FCAFC 197 .... 4.11, 4.17, 4.44, 4.44C Emap Elan Ltd v Pacific Publications Pty Ltd (1997) 37 IPR 1; (1997) ATPR 41-551; [1997] FCA 50 .... 6.5C2, 6.22, 6.40C EMI Music Publishing Ltd v Papathanasiou [1993] EMLR 306 .... 4.40 Emrik Sporting Goods Pty Ltd v Stellar International Sporting Goods Pty Ltd (1981) 53 FLR 319; (1981) ATPR 40-217 .... 6.7 English Hop Growers Ltd v Dering [1928] 2 KB 174 .... 13.4 Equity Access Pty Ltd v Westpac Banking Corp (1989) 16 IPR 431; (1990) ATPR 40-994 .... 6.27
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Ernest Turner Electrical Instruments Ltd v Performing Right Society Ltd [1943] Ch 167; [1943] 1 All ER 413 .... 4.46 Erven Warnink BV v J Townend & Sons (Hull) Ltd [1979] 2 All ER 927; (1979) 1A IPR 666 .... 6.8C Esco Corp v US 340 F2d 1000 (1965) .... 13.10 Estee Lauder Cosmetics Ltd, Re (2000) 50 IPR 131; [2000] ATMO 46 .... 7.25 ETW Corporation v Jireh Publishing Inc 332 F 3d 915 (6th Cir, 2003) .... 6.42 Eva v Mazda Motors (Sales) Pty Ltd (1977) ATPR 40-020 .... 10.43 Exxon Corporation v Exxon Insurance Consultants Ltd [1982] Ch 119; [1981] 3 All ER 241 .... 4.11C, 4.12
F F H Faulding & Son Ltd v Imperial Chemical Industries of Australia and New Zealand Ltd (1965) 112 CLR 537; 39 ALJR 95 .... 7.12 Faccenda Chicken Ltd v Fowler (1986) 6 IPR 155; [1987] Ch 117; [1986] 1 All ER 617 .... 3.7, 3.13, 3.19, 3.19C2 Facton Ltd v Rifai Fashions Pty Ltd (2012) 287 ALR 199; 95 IPR 95; [2012] FCAFC 9 .... 4.69 Far Horizons Pty Ltd v McDonald’s Australia Ltd [2000] VSC 310 .... 18.8 Federation of Australian Underwater Instructors, Re (1983) ATPR (Com) 50-055 .... 13.74 Ferntree Homes Pty Ltd v Bohan (2001) 54 IPR 267; [2002] FCA 16 .... 4.40 Festival Industries v Mikasa (NSW) Pty Ltd (1971) 18 FLR 260 .... 16.15, 16.18 Fila Canada Inc v Jane Doe & John Doe (1966) 35 IPR 104 .... 2.56 Finger v Malua Motors Pty Ltd (1978) ATPR 40-061 .... 10.37 Fire Nymph Products Pty Ltd v Jalco Pty Ltd (1983) 47 ALR 355; 74 FLR 102; 1 IPR 79 .... 6.25 Firmagroup Australia Pty Ltd v Byrne & Davidson Doors (Vic) Pty Ltd (1987) 180 CLR 483; 73 ALR 321; 9 IPR 353 .... 5.3, 5.3C, 5.24 Flamingo Park Pty Ltd v Dolly Dolly Creations Pty Ltd (1986) 65 ALR 500; 6 IPR 431; (1986) ATPR 40-675 .... 5.32 Fletcher Challenge Ltd v Fletcher Challenge Pty Ltd [1981] NSWLR 196; (1981) 5 ACLR 532 .... 6.5, 7.75
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Table of Cases FNH Investments Pty Ltd v Sullivan (2003) 59 IPR 121; [2003] FCAFC 246 .... 4.69C Fomento Industrial SA & Biro Swan Ltd v Mentmore Manufacturing Co Ltd [1956] RPC 87 .... 2.16, 2.16C2 Food Channel Network Pty Ltd v Television Food Network GP (2010) 269 ALR 17; 86 IPR 437; [2010] FCAFC 58 .... 7.42 Foodland Associated Ltd, Re (1979) 4 TPR 109 .... 13.67 Ford Motor Co of Australia Ltd v Ford Sales Co of Australia Ltd (1977) ATPR 40-043 .... 13.49, 17.9C Fortescue Metals Group, Re (2010) 271 ALR 256; [2010] ACompT 2 .... 14.37C Foster’s Australia Ltd v Cash’s (Australia) Pty Ltd (2013) 299 ALR 134; 101 IPR 546; [2013] FCA 527 .... 5.21C Fractionated Cane Technology v Ruiz-Avila [1988] 2 Qd R 610; 13 IPR 609 .... 3.7 Francis Day & Hunter Ltd v Bron (1963) 1A IPR 331; [1963] Ch 587; [1963] 2 All ER 16 .... 4.40 — v Twentieth Century Fox Corp Ltd [1939] 4 All ER 192 .... 4.11 Franklin v Giddins [1978] Qd R 72; (1978) 1B IPR 807 .... 3.25C Fraser v Thames Television Ltd [1984] QB 44; [1983] 2 All ER 101 .... 3.4, 3.12C Freeman Cosmetic Corporation v Jenola Trial Pty Ltd (t/as South Pacific Cosmetics) (1993) ATPR 41-270 .... 6.25 Freshfood Holdings Pty Ltd, Re (2005) 64 IPR 607; [2005] ATMO 8 .... 7.18 Frucor Beverages Ltd v Coca Cola Company (2018) 358 ALR 336; 132 IPR 318 .... 7.26 Fry Consulting Pty Ltd v Sports Warehouse Inc (No 2) (2012) 288 ALR 727; 94 IPR 551; [2012] FCA 81 .... 7.21, 7.42C5
G GA Nominees Pty Ltd v Bardon Motors Pty Ltd (1985) ATPR 40-519 .... 11.19 Galaxy Electronics Pty Ltd & Gottlieb Enterprises Pty Ltd v Sega Enterprises Ltd (1997) 145 ALR 21; 37 IPR 462; [1997] FCA 403 .... 4.21 Gallagher v Pioneer Concrete (NSW) Pty Ltd (1993) 113 ALR 159; (1993) ATPR 41-216 .... 13.48
Gardam v George Wills & Co ltd (No 1) (1988) 82 ALR 415; 12 IPR 194; (1988) ATPR 40-884 .... 10.61 — v Splendid Enterprises Pty Ltd (1987) 33 A Crim R 123; (1987) ATPR 40-779 .... 9.66 Gardenia Overseas Pte Ltd v The Garden Co Ltd (No 2) (1994) 29 IPR 485 .... 7.69 Gartside v Outram (1856) 26 LJ Ch 113; 5 WR 35 .... 3.27 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; 63 ALR 600; 6 IPR 462; (1986) ATPR 40-666 .... 6.28 General Sportscraft Co Ltd v Sportscraft Consolidated Pty Ltd (1993) AIPC 90-967 .... 7.50 George Weston Foods Ltd v Goodman Fielder Ltd (2000) 49 IPR 553; [2000] FCA 1632 .... 10.21 GHD-Parsons Brinckerhoff Pty Ltd Application (1975) 1 TPCD [303] .... 13.66 Gillette Australia Pty Ltd v Energizer Australia Pty Ltd (2002) 193 ALR 629; 56 IPR 1; [2002] FCAFC 223 .... 10.27, 10.27C4 Giorgianni v R (1985) 156 CLR 473; 58 ALR 1; [1985] HCA 29 .... 10.56 Given v CV Holland (Holdings) Pty Ltd (1977) 15 ALR 439; (1977) ATPR 40-029 .... 10.36, 10.37 — v Snuffa Pty Ltd; Quinn (1978) ATPR 40-083 .... 10.37, 10.43, 10.48 GlaxoSmithKline Australia Pty Ltd v Reckitt Benckiser (Australia) Pty Ltd (No 2) [2018] FCA 1 .... 10.13, 10.26, 10.27C5 Glendale Chemical Products Pty Ltd v ACCC (1998) 90 FCR 40; (1999) ATPR 41-672 .... 9.53C1 Global One Mobile Entertainment Pty Ltd v ACCC [2012] FCAFC 134 .... 10.45 Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 55 ALR 25; (1984) ATPR 40-463 .... 10.58 Google Inc v ACCC (2013) 249 CLR 435; 294 ALR 404; 99 IPR 197; [2013] HCA 1 .... 6.22, 6.24, 6.31, 6.34C, 10.55, 10.58, 19.54, 19.54C Google LLC v Weeks [2018] FCCA 3150 .... 7.53 Graham Barclay Oysters Pty Ltd v Ryan (2000) 177 ALR 18; [2000] FCA 1099 .... 9.55, 9.55C — v — (2002) 211 CLR 540; 194 ALR 337; [2002] HCA 54 .... 9.55C
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Marketing and the Law Gram Engineering Pty Ltd v Bluescope Steel Ltd (2013) 106 IPR 1; [2013] FCA 508 .... 5.23 Grant v Australian Knitting Mills (1935) 54 CLR 49; [1935] AC 85 .... 9.17C2 — v Commissioner of Patents (2005) 67 IPR 1; [2005] FCA 1100 .... 2.8C1 Grays (NSW) Pty Ltd (2013) Infringement Notice proceedings .... 19.13C1 Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (1982) 1 ACLC 1 .... 3.18, 3.20 Greenfield Products Pty Ltd v Rover-Scott Bonnar Ltd (1990) 95 ALR 275; 17 IPR 417 .... 4.18, 4.18C2, 4.20 Greenland v Chaplin (1850) 155 ER 104 .... 9.6 Griggs Group Ltd v Evans & Raben Footwear [2005] EWCA Civ 11 .... 4.32C, 4.35 Grove Hill Pty Ltd v Great Western Corp Pty Ltd (2002) 55 IPR 257; [2002] FCAFC 183 .... 2.23, 2.50C Guild v Eskandar Ltd [2001] FSR 645 .... 4.20 Guthrie v Doyle Dane & Bernbach Pty Ltd (1977) 16 ALR 241; (1977) ATPR 40-037 .... 10.61
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H Half Court Tennis Pty Ltd v Seymour (1980) 53 FLR 240 .... 4.19 Hall v Cox [1899] 1 QB 198 .... 11.6 — v La Ronde 66 Cal Rpt 2d 399 (1997) .... 19.50 Hamlyn v John Sands Ltd (1985) ASC 55-393; (1985) ATPR 40-554 .... 9.66 — v Mark Foy’s Pty Ltd (1982) ATPR 40-316 .... 9.72 — v Moppet Grange Pty Ltd (1984) ATPR 40-439 .... 9.66 — v Norman Ross Stores Pty Ltd; Waltons Stores (Interstate) Ltd (1984) ASC 55-378; (1985) ATPR 40-514 .... 9.66 Hanimex Pty Ltd v Kodak (Australasia) Pty Ltd (1982) 74 FLR 447; (1982) ATPR 40-287 .... 10.27C1 Hansen Beverage Co v Bickfords (Australia) Pty Ltd (2008) 251 ALR 1; 79 IPR 174; [2008] FCAFC 181 .... 6.6, 6.6C, 6.40C, 10.12C, 10.30 Hartnell v Sharp Corporation of Australia Pty Ltd (1975) 5 ALR 493; (1975) ATPR 40-003 .... 10.37, 10.43 Harvey Norman Infringement Notice Proceedings (2011) .... 11.15C2
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Hawkes & Son (London) Ltd v Paramount Film Service Ltd [1934] Ch 593 .... 4.39 Heating Centre Pty Ltd v TPC (1986) 65 ALR 429; (1986) ATPR 40-674 .... 16.14C Heavenly Trade Mark [1967] RPC 306 .... 7.21 Helena Rubinstein v Von Bronneck (1943) 43 SR (NSW) 283; 60 WN (NSW) 117 .... 6.30 Henderson v Bowden Ford Ltd (1979) ATPR 40-129 .... 10.39 — v Pioneer Homes Pty Ltd (No 2) (1980) 29 ALR 597; (1980) ATPR 40-159 .... 10.25 — v Radio Corp Pty Ltd (1960) 60 SR (NSW) 576; 77 WN (NSW) 585; 1A IPR 620 .... 6.15 Henry Thorne & Co v Sandow (1912) 29 RPC 440 .... 7.21 Hexagon Pty Ltd v Australian Broadcasting Commission (1975) 7 ALR 233 .... 6.45 Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169; [1946] 1 All ER 350 .... 3.18C1 Hogan v Koala Dundee Pty Ltd (1988) 83 ALR 187; 12 IPR 508 .... 6.12, 6.19 — v Pacific Dunlop Ltd (1988) ATPR 40-914 .... 6.42 ‘Hollie Hobbie’ Trade Mark, Re (1984) 1 IPR 486 .... 6.42 Hollis v Vabu Pty Ltd (2001) 207 CLR 1; 181 ALR 263; [2001] HCA 44 .... 2.39 Honey v Australian Airlines Ltd (1989) 14 IPR 264; (1989) ATPR 40-961 .... 6.43C2 Hoover (Australia) Pty Ltd v Email Ltd (1991) 104 ALR 369; (1991) ATPR 41-149 .... 10.12, 10.27 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre (1978) 140 CLR 216; 18 ALR 639; 1B IPR 818 .... 6.19, 6.27C1, 7.75, 10.14, 10.18, 10.19, 10.25, 11.18 Hospitals Contribution Fund of Australia Ltd v Switzerland Australia Health Fund Pty Ltd (1987) 78 ALR 483; (1988) ATPR 40-846 .... 10.27, 10.69 Howard Auto-Cultivators Ltd v Webb Industries Pty Ltd (1946) 72 CLR 175; 20 ALJR 117 .... 7.14 Howard Smith Industries Pty Ltd Application (1977-8) ATPR 40-023 .... 13.66 HP Bulmer Ltd [1978] RPC 79 .... 6.11C4 Hughes v Western Australia Cricket Association Inc (1989) 69 ALR 660; (1986) ATPR 40-736 .... 12.36, 13.74
Table of Cases Hugin v Commissioner of European Communities [1979] ECR 1869 .... 12.46 Hunter Pacific International Pty Ltd v Martec Pty Ltd (2016) 121 IPR 1; [2016] FCA 796 .... 5.24 Hurley v McDonald’s Australia Ltd (2000) ATPR 41-741; [1999] FCA 1728 .... 11.24 Hutchence v South Sea Bubble Co Pty Ltd (1986) 64 ALR 33; 6 IPR 473; (1986) ATPR 40-667 .... 6.14, 6.42, 6.43C1, 10.21, 10.43, 11.21
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I IceTV Pty Ltd v Nine Network Australia Pty Ltd (2009) 239 CLR 458; 254 ALR 386; 80 IPR 451; [2009] HCA 14 .... 4.8, 4.10, 4.41C IF Asia Pacific Pty Ltd v Galbally [2003] VSC 192 .... 3.35 Impala Kitchens Pty Ltd v Hager (1992) ASC 56-134 .... 11.38C Initial Services Ltd v Putterill [1968] 1 QB 396; [1967] 3 All ER 145 .... 3.27 Interfirm Comparison (Australia) Pty Ltd v Law Society of NSW [1975] 2 NSWLR 104; (1975) 5 ALR 527; [1977] RPC 137 .... 3.13 Interlego AG v Croner Trading Pty Ltd (1991) 102 ALR 379; 21 IPR 37; (1991) ATPR 41-124 .... 6.36C — v — (1992) 111 ALR 577; 25 IPR 65; (1993) ATPR (Digest) 46-098 .... 6.36C, 10.13, 10.17 International Business Machines Corp v Smith, Commissioner of Patents (1992) 105 ALR 388; 22 IPR 417 .... 2.7 Interstate Parcel Express Co Pty Ltd v Time-Life International (1977) 138 CLR 534; 15 ALR 353; 1B IPR 253 .... 4.66C Irish Distillers Ltd v S Smith & Son Pty Ltd (1986) 7 IPR 509; (1987) ATPR 40-756 .... 10.18 Irving’s Yeast Vite v Horsenail (1934) 1B IPR 427; 51 RPC 110 .... 7.56C4
J J A Booth & Co v Fraser [1953] AR (NSW) 566 .... 10.37 J Lyons & Co Ltd’s Application [1958] RPC 466 .... 7.50 J McPhee & Son (Australia) Pty Ltd v ACCC (2000) 172 ALR 532; (2000) ATPR 41-758; [2000] FCA 365 .... 13.43
J Rapee & Co v Kas Cushions (1989) 90 ALR 288; 15 IPR 577 .... 5.15 Jansen Pharmaceutical v Pfizer Pty Ltd (1986) ATPR 40-654 .... 10.26 Jellinek’s Application (1946) 63 RPC 59 .... 7.50 Jetstar Airways Pty Ltd v Free [2008] VSC 539 .... 11.29C Jewellery Group Pty Ltd v ACCC [2013] FCAFC 144 .... 10.45 JGL Investments Pty Ltd, Re Application by (1989) 15 IPR 349; (1989) AIPC 90-595 .... 7.21 John Haig & Co Ltd v Forth Blending Co Ltd (1953) 70 RPC 259 .... 6.22C, 8.3 Joseph Crosfield & Sons Ltd, Re [1910] 1 Ch 130; (1910) 26 RPC 850 .... 7.21
K Kadkhudayan v WD & HO Wills (Australia) Ltd (2001) ATPR 41-822; [2001] FCA 645 .... 16.22 — v — (2002) ATPR 41-874; [2002] FCAFC 110 .... 16.22 Kailash Centre for Personal Development Inc v Yoga Magik Pty Ltd [2003] FCA 536 .... 19.65 Kalamazoo (Australia) Pty Ltd v Compact Business Systems Pty Ltd (1985) 5 IPR 213 .... 4.9 Karo Step Trade Mark, Re [1977] RPC 255 .... 4.17 Karoun Dairies SAL v Karoun Dairies Inc [2013] ATMO 28 .... 7.62 Kaye v Robertson [1991] FSR 62 .... 3.15 Keehn v Medical Benefits Fund of Australia Ltd (1977) 14 ALR 77; (1977) ATPR 40-047 .... 10.48 Keller v LED Technologies Pty Ltd (2010) 268 ALR 613; 87 IPR 1; [2010] FCAFC 55 .... 5.24C Kenman Kandy Australia Pty Ltd v Registrar of Trade Marks (2002) 56 IPR 30; [2002] FCAFC 273 .... 7.18 Kettle Chip Co Pty Ltd v Apand Pty Ltd (1993) 119 ALR 156; 27 IPR 321; (1994) ATPR 41-287; [1993] FCA 819 .... 6.25, 6.31, 6.31C — v — (1998) 155 ALR 134; 40 IPR 481; [1998] FCA 586 .... 6.31C Kevlacat Pty Ltd v Trailcraft Marine Pty Ltd (1987) 79 ALR 534; 11 IPR 77 .... 4.55 Keystone Knitting Mills Ltd Trade Mark, Re [1929] 1 Ch 92; (1928) 45 RPC 421 .... 7.21
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Marketing and the Law Kimberly-Clark Australia Pty Ltd v Arico Trading International Pty Ltd (2001) 207 CLR 1; 177 ALR 460; 50 IPR 513; [2001] HCA 8 .... 2.24 — v Multigate Medical Products Pty Ltd (2011) 92 IPR 21; [2011] FCAFC 86 .... 2.48C King Features Syndicate Inc v O & M Kleeman Ltd [1941] AC 417; (1941) 1B IPR 215; [1941] 2 All ER 403 .... 4.18, 4.44, 6.42 Kingswood Distillery Pty Ltd v Guinness United Distillers & Vintners (Australia) Ltd (2002) AIPC 91-829; [2002] ATMO 78 .... 7.42C2 Kirin-Amgen Inc v Board of Regents of University of Washington (1995) 33 IPR 557; (1996) AIPC 91-231 .... 2.11 Kirk v J & R Fleming Ltd [1928–35] Macg Cop Cas 44 .... 4.11 Kirshenboim v Salmon & Gluckstein Ltd [1898] 2 QB 19 .... 10.51 Knott Investments Pty Ltd v Winnegbago Industries Inc (2013) 299 ALR 74; 101 IPR 449; [2013] FCAFC 59 .... 6.5, 6.16C Koninklijke Philips Electronics NV v Remington Products Australia Pty Ltd (2000) 177 ALR 167; 48 IPR 257; [2000] FCA 876 .... 5.24, 5.32, 6.25, 6.36 Korczynski v West Lofts (Aust) Pty Ltd (1985) 62 ALR 225; (1986) ATPR 40-643 .... 10.37 Krueger Transport Equipment Pty Ltd v Glen Cameron Storage & Distribution Pty Ltd (2008) 78 IPR 262; [2008] FCA 803 .... 3.12, 4.18C1 Ku-ring-gai Co-operative Building Society (No 12) Ltd, Re (1978) 22 ALR 621; 36 FLR 134 .... 10.9 Kugler v Koscot Interplanetary 293 A 2d 682 (1972) .... 11.34 Kwik Copy Trade Mark [1982] RPC 102 .... 7.21
L Larmer v Dome Lighting Products (1978) ATPR 40-070 .... 10.43 — v Power Machinery Pty Ltd (1977) 14 ALR 243; 29 FLR 490; (1977) ATPR 40-021 .... 10.9, 10.43, 11.18 Larrikin Music Publishing Pty Ltd v EMI Songs Australia Pty Ltd (2010) 263 ALR 155; 83 IPR 582; [2010] FCA 29 .... 4.14, 4.39, 4.45C — v — (No 2) (2010) 270 ALR 481; 87 IPR 357; [2010] FCA 698 .... 4.14, 4.39, 4.45C
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LED Technologies Pty Ltd v Elecspess Pty Ltd (2008) 80 IPR 85; [2008] FCA 1941 .... 5.20, 10.13 — v Roadvision Pty Ltd (2012) 287 ALR 1; 94 IPR 481 .... 5.24 Lee Kar Choo t/as Yeen Thye Co v Lee Lian Choon t/as Chuan Lee Co [1967] 1 AC 602 .... 8.3 Lego System Aktieselskab v Lego M Lemelstrich Ltd [1983] FSR 155 .... 6.15 Leica Geosystems Pty Ltd v Koudstaal (No 3) (2014) 109 IPR 1; [2014] FCA 1129 .... 3.8C2 Lennox v Megray Pty Ltd & Gaggino (1985) 6 IPR 543; (1986) ATPR 40-640 .... 10.51 L’Estrange v F Graucob Ltd [1934] All ER Rep 16; [1934] 2 KB 394 .... 11.22 Levi v Colgate-Palmolive Pty Ltd (1941) 41 SR (NSW) 48; 58 WN (NSW) 63 .... 9.4C2 Levy, Ex p (1909) 9 SR (NSW) 688; 26 WN (NSW) 134b .... 11.6 Liebig’s Extract of Meat Co Ltd Trade Mark, Re; Re Wailes, Dov & Co (1902) 22 NZLR 165 .... 7.14 Life Savers (Australia) Ltd’s Application (1952) 22 AOJP 3106 .... 7.18 Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd [2017] FCAFC 74 .... 3.29 Lift Shop Pty Ltd v Easy Living Home Elevators Pty Ltd [2013] FCA 900 .... 6.35C — v — (2014) 311 ALR 207; 106 IPR 419; [2014] FCAFC 75 .... 7.47C4 Lincoln Industries Ltd v Wham-O Manufacturing Co [1984] 1 NZLR 641; (1984) 3 IPR 115; [1985] RPC 127 .... 4.18 Lion Laboratories Ltd v Evans [1985] QB 526; (1984) 3 IPR 276; [1984] 2 All ER 417 .... 3.27C Lockwood Security Products Pty Ltd v Doric Products Pty Ltd (2007) 235 CLR 173; 235 ALR 202; 72 IPR 447; [2007] HCA 21 .... 2.21C2 Lott v JBW & Friends Pty Ltd (2000) 76 SASR 105; [2000] SASC 3 .... 4.17 Lucas v Economic Freedom Pty Ltd (1986) ATPR (Digest) 46-008 .... 11.19 Ly v The Queen (2014) 315 ALR 398; [2014] FCAFC 175 .... 4.72, 7.59C Lyngstad v Anabas Products Ltd [1977] FSR 62 .... 6.42
Table of Cases
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M Macadamia Processing Company and Suncoast Gold Pty Ltd, Re (1991) ATPR 50-109 .... 13.72 MacFarlane v John Martin & Co Ltd (1977) ATPR 40-034 .... 10.37 Mackay Airport Pty Ltd, Re (2013) 101 IPR 594; [2013] ATMO 17 .... 7.21 MacPhee v Peters Foods Australia Pty Ltd (in liq) (2004) 60 IPR 51; [2003] FCA 1528 .... 10.15, 10.37 Macquarie Bank Ltd v David (2008) 79 IPR 72; [2008] FCA 1417 .... 19.64 Madden v Seafolly Pty Ltd (2014) 313 ALR 1; [2014] FCAFC 30 .... 10.9 Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; 185 ALR 152; 53 IPR 1; [2001] HCA 70 .... 3.5, 3.11 Mainland Products Ltd v Bonlac Foods (NZ) Ltd [1998] 3 NZLR 341; (1988) 42 IPR 388; 8 TLCR 224 .... 7.56C3 Maize v Atlantic Refining Co 352 Pa 51 (1945) .... 9.11, 9.51 Makita (Australia) Pty Ltd v Black & Decker (Australasia) Pty Ltd (1990) 18 IPR 270; (1990) ATPR 41-030 .... 10.25, 10.27, 10.27C2 Malleys Ltd v JW Tomlin Pty Ltd (1961) 35 ALJR 352; 1A IPR 559 .... 5.7 Mantra Group Pty Ltd v Tailly Pty Ltd (No 2) (2010) 267 ALR 347; 86 IPR 19; [2010] FCA 291 .... 7.47, 19.55C Mantra Pty Ltd v Spagnuolo (2012) 290 ALR 158; 96 IPR 464; [2012] FCA 769 .... 7.12 Mareva Compania Naviera SA v International Bulkcarriers SA (The Mareva) [1980] 1 All ER 213 .... 2.57 Mark Foy’s Ltd v Davies Co-op & Co Ltd (1956) 95 CLR 190; 1A IPR 470; [1956] HCA 41 .... 7.47C1, 7.48C2, 7.56C3 Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) 75 ALR 581; (1987) ATPR 40-809 .... 12.46, 13.56C, 16.20, 17.14, 17.24 Marks & Spencer plc v One In A Million (1997) 42 IPR 309; [1998] FSR 265 .... 6.33C2, 19.65C Marlbro Shelving Systems Pty Ltd v ARC Engineering Pty Ltd (1983) 72 FLR 418; (1983) ATPR 40-355 .... 6.25
Mars Australia Pty Ltd v Sweet Rewards Pty Ltd (2009) 81 IPR 354; [2009] FCA 606 .... 6.11, 6.11C3, 6.13, 6.25, 6.41, 7.48 — v — (2009) 84 IPR 12; [2009] FCAFC 174 .... 6.11C3 Mars Australia Pty Ltd (formerly Effem Foods Pty Ltd) v Société des Produits Nestlé SA (2010) 86 IPR 581; [2010] FCA 639 .... 7.26 Master Abrasives Corporation v Williams 469 NE 2d 1196 (1984) .... 18.13 Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101; 249 ALR 44; [2008] HCA 38 .... 18.22 Mayne Nickless Ltd (t/as M SS Alarm Services (reg’d)) v Crawford (1992) ASC 56-188 .... 9.44C McCarthy v Australian Rough Riders Association Inc (1988) ATPR 40-836 .... 13.49C, 13.74 McCormack v Hankscraft Co 278 Minn 322 (1967) .... 9.52 McCormick & Co Inc v McCormick (2000) 51 IPR 102; [2000] FCA 1335 .... 7.50 McDonald’s Corporation, Re Applications by (1986) 9 IPR 509 .... 7.42 — v Bellamy (2004) 62 IPR 133; (2004) AIPC 91-995 .... 7.42C1 — v Lubowski [2004] ATMO 56 .... 7.42C1, 7.52 McDonald’s System (Aust) Pty Ltd v McWilliam’s Wines Pty Ltd (No 2) (1979) 28 ALR 236; 41 FLR 436; (1979) ATPR 40-140 .... 7.53 McGrath v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230 .... 10.24 McIllhenny Co v Blue Yonder Holdings Pty Ltd formerly t/as Tabasco Design (1997) 149 ALR 496; 39 IPR 187; (1997) ATPR 41-587 .... 7.53 McInnes v Global Imports Pty Ltd (1993) ASC 56-199; (1993) ATPR 41-206 .... 9.66 McWilliams Wines Pty Ltd v McDonald’s System (Aust) Pty Ltd (1980) 33 ALR 394; (1980) ATPR 40-188 .... 10.17, 10.19 Meat & Livestock Australia Ltd v Cargill, Inc [2018] FCA 51; (2018) 354 ALR 95; 129 IPR 278 .... 2.11 Media Council of Australia, Re (1996) ATPR 41-497 .... 12.62 — (No 2), Re (1987) 88 FLR 1; (1987) ATPR 40-774 .... 10.1, 10.77
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Marketing and the Law Medical Benefits Fund of Australia Ltd v Cassidy; John Bevins Pty Ltd v Cassidy (2003) 205 ALR 402; (2003) ATPR 41-971; [2003] FCAFC 289 .... 10.16, 10.21, 10.43, 10.50, 10.56C2 Medtel Pty Ltd v Courtney (2003) 198 ALR 630; (2003) ATPR 41-939; [2003] FCAFC 151 .... 9.35C Melbourne Chinese Press Pty Ltd v Australian Chinese Newspaper Pty Ltd (2004) 63 IPR 38; [2004] FCAFC 201 .... 4.17, 6.40C Mense & Ampere Electrical Manufacturing Co Pty Ltd v Milenkovic [1973] VR 784 .... 3.11, 3.17C2 Merchandising Corp of America Inc v Harpbond Ltd [1983] FSR 32 .... 4.7, 4.17 Metrans Pty Ltd v Courtney-Smith (1983) 1 IPR 185 .... 3.14 Metro-Goldwyn-Mayer Studios Inc v Grokster Ltd 125 SCt 2764 (2005) .... 4.61 Meyers Taylor Pty Ltd v Vicarr Industries Ltd (1977) 137 CLR 228 .... 2.13 Miller v Cunninghams Warehouse Sales Pty Ltd (1994) ATPR 41-321 .... 9.66 — v Fiona’s Clothes Horse of Centrepoint Pty Ltd (1989) ATPR 40-963 .... 9.43, 10.49 Milpurrurru, Marika, Payunka & Public Trustee for the Northern Territory v Indofurn Pty Ltd, Bethune, King & Rylands (1994) 130 ALR 659; 30 IPR 209 .... 4.39 Minnesota Mining & Manufacturing Co, Re [2002] ATMO 8 .... 7.26 — v Beiersdorf (Australia) Ltd (1980) 144 CLR 253; 29 ALR 29; 1A IPR 231 .... 2.19, 2.21C1, 2.47 Mogul Steamship Co Ltd v McGregor Gow & Co [1892] AC 25; [1891–4] All ER Rep 263 .... 13.4 Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia (2002) ATPR 41-879; [2002] FCAFC 197 .... 12.36 Moore v Microsoft Corp 741 NYS 2d 91 (NY App Div 2002) .... 19.9 Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414; 56 ALR 193; 3 IPR 545 .... 3.13C2, 6.3 Morphett Arms Hotel Pty Ltd v Trade Practices Commission (1980) 30 ALR 88; (1980) ATPR 40-157 .... 13.10C Motorcycling Events Group Australia Pty Ltd v Kelly [2013] NSWCA 361 .... 9.22C
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Mr Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd (1981) 36 ALR 23; (1981) ATPR 40-226 .... 11.19 Muscat v Le (2003) 204 ALR 335; 60 IPR 276; [2003] FCA 1540 .... 4.18 Musidor BV v Tansing (t/as Apple Music House) (1995) 123 ALR 593; 29 IPR 203 .... 7.47C2
N Narhex Australia Pty Ltd v Sunspot Products Pty Ltd (1990) 18 IPR 535; (1990) ATPR 41-036 .... 10.27 Nashua Australia Pty Ltd, Re (1975) 1 TPCD [168] .... 17.11 National Phonograph Company of Australia Ltd v Menck (1911) 12 CLR 15; 28 RPC 229; [1911] AC 336 .... 2.45 National Research Development Corporation v Commissioner of Patents (1959) 102 CLR 252; 1A IPR 63; [1961] RPC 134 .... 2.7C, 2.9 Nationwide News Pty Ltd v ACCC (1996) 142 ALR 212; 37 IPR 391; (1997) ATPR 41-543 .... 10.49C2, 11.11 — v Copyright Agency Ltd (1996) 65 FCR 399; 136 ALR 274; 34 IPR 53 .... 4.21 Nature’s Care Manufacture Pty Ltd v Australian Made Campaign Ltd [2018] FCA 1936; (2018) 363 ALR 717 .... 8.15C Neobev Pty Ltd v Bacchus Distillery Pty Ltd (admins apptd) (No 3) (2014) 104 IPR 249; [2014] FCA 4 .... 2.37 Network Ten Pty Ltd v TCN Channel Nine Pty Ltd (2004) 218 CLR 273; 205 ALR 1; 59 IPR 1; [2004] HCA 14 .... 4.21, 4.21C New South Wales Dairy Corp v Murray Goulburn Co-operative Co Ltd (No 1) (1989) 86 ALR 549; 14 IPR 26 .... 7.50 New South Wales Glass Merchants’ Association, Re (1980) 4 TPR 237 .... 13.71 News Ltd v Australian Rugby Football League Ltd (1996) 135 ALR 33; (1996) ATPR 41-466 .... 12.28, 12.38, 12.46, 13.48 Newton-John v Scholl-Plough (Australia) Ltd (1986) 11 FCR 233; (1986) ATPR 40-697 .... 6.14, 6.42, 6.43, 10.21C Nexus Adhesives Pty Ltd v RLA Polymers Pty Ltd (2012) 97 IPR 160; [2012] FCAFC 135 .... 3.18, 3.28
Table of Cases Nike International Ltd v Champion Socks Pty Ltd [2001] ATMO 117 .... 7.42, 7.49 Noodle Box Pty Ltd v Dave’s Noodle Box [2002] FCA 579 .... 7.48C1 Norcast S.ár.L v Bradken Ltd (No 2) (2013) 302 ALR 486; [2013] FCA 235 .... 12.35, 13.19, 13.43, 13.43C4 Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535; [1891–4] All ER Rep 1 .... 3.31, 3.32, 3.34C, 18.26 Norton Australia Pty Ltd v Streets Ice Cream Pty Ltd (1968) 120 CLR 635 .... 8.4, 9.11C Nostac Enterprises v New Concept Imports Services Pty Ltd (1981) ATPR 43-135 .... 6.42 NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90; 210 ALR 312; [2004] HCA 48 .... 14.21, 14.21C Nutrientwater Pty Ltd v Baco Pty Ltd (2010) 265 ALR 140; 84 IPR 452; [2010] FCA 2 .... 6.11, 6.11C3, 6.25 NV Philips Gmb v Mirabella International (1995) 183 CLR 655; 132 ALR 117; 70 ALJR 13 .... 2.9 NW Frozen Foods Pty Ltd v ACCC (1996) 141 ALR 640; (1997) ATPR 41-546 .... 12.25 Nylex Corporation Ltd v Sabco Ltd (1987) ATPR 40-752 .... 6.24, 6.25
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O Obadiah Pty Ltd, Application by (1980) ATPR 40-176 .... 13.71 O’Brien v Smologonov (1983) 53 ALR 107; 2 IPR 68; (1983) ATPR 40-418 .... 10.9, 11.18 O’Brien Glass Industries Ltd v Cool & Sons Pty Ltd (1983) 48 ALR 625; (1983) ATPR 40-376 .... 13.56, 16.19, 17.10 O’Bryen v Coles Myer Ltd (1993) ATPR 41-209 .... 8.9C, 9.66 O’Dwyer v Leo Buring Pty Ltd [1966] WAR 67 .... 9.10C2 O’Mustad & Son v S Allcock & Co Ltd [1963] 3 All ER 416; [1963] RPC 41 .... 3.5 Opals Australia Pty Ltd v Opal Australiana Pty Ltd (1993) ATPR 41-264 .... 6.27C3 Optus Networks Pty Ltd v Telstra Corporation Ltd (2010) 265 ALR 281; [2010] FCAFC 21 .... 3.28 Optus Networks Pty Ltd Infringement Notice proceedings .... 19.13C2
Ormonoid Roofing & Asphalts v Bitumenoids Ltd (1930) 31 SR (NSW) 347; 48 WN (NSW) 66 .... 3.28 Oroton Pty Ltd v Kovac (1994) 31 IPR 145 .... 7.42 Outboard Marine Australia Pty Ltd v Hecar Investments (No 6) Pty Ltd (1982) 44 ALR 667; (1982) ATPR 40-327 .... 17.9, 17.9C, 17.23, 17.24, 17.24C Owens-Corning Fiberglass Corp, Re 774 F 2d 1116 (Fed Cir 1985) .... 7.26
P Pacific Dunlop Ltd v Bonny (1995) 31 IPR 511 .... 7.42 — v Hogan (1989) 87 ALR 14; 14 IPR 398; (1989) ATPR 40-948 .... 6.45, 10.19, 10.29C Pacific Publications Pty Ltd v IPC Media Pty Ltd (2003) 57 IPR 28; [2003] FCA 104 .... 6.25 Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50; (2015) 236 FCR 199 .... 18.25 Paisley v Aitchison trading as Dean Cars (Civil Claims) [2012] VCAT 1483 .... 9.17C1 Panasonic Australia Pty Ltd v Burstyner (1993) ASC 56-214; (1993) ATPR 41-224 .... 9.33 Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711; [1971] 3 All ER 16 .... 11.20 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 1; 42 ALR 1; 1A IPR 684; (1982) ATPR 40-307 .... 5.32, 5.32C, 6.25, 10.11, 10.13, 10.17, 10.18 Parry’s Pty Ltd v Simpson Ltd (1983) 76 FLR 60 .... 16.30C Partridge v Crittenden [1968] 2 All ER 421 .... 19.7 Partyka v Wilkie (1982) ASC 55-213 .... 11.24 Pasterfield v Denham [1999] FSR 168 .... 4.26 Paul Dainty Corp Pty Ltd v National Tennis Centre Trust (1990) 94 ALR 225; (1990) ATPR 41-029 .... 17.15C2 Pepsico Australia Pty Ltd v Kettle Chip Co Pty Ltd (1996) 135 ALR 192; 33 IPR 161 .... 7.56C2 Perez v Fernandez (2012) 260 FLR 1; [2012] FMCA 2 .... 4.26C3 Performing Right Society Ltd v Harlequin Record Shops Ltd [1979] 2 All ER 828 .... 4.46 Perre v Apand Pty Ltd (1999) 198 CLR 180; 164 ALR 606 .... 9.4
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Marketing and the Law Peter Bodum A/S v DKSH Australia Pty Ltd (2011) 280 ALR 639; 92 IPR 222; [2011] FCAFC 98 .... 6.3, 6.31 Peter Isaacson Publications Pty Ltd v Nationwide News Pty Ltd (1984) 56 ALR 595; 3 IPR 255 .... 6.21 Peter Szabo and Associates Pty Ltd, Re (2005) 66 IPR 370; [2005] APO 24 .... 2.8C1 Peter Williamson Pty Ltd v Capitol Motors Ltd (1982) 41 ALR 613; 61 FLR 257; (1982) ATPR 40-291 .... 16.20C2 Peters Ice Cream (Vic) Ltd v Todd [1961] VR 485 .... 3.36 Petty v Penfolds Wines Pty Ltd (1994) ATPR 41-320 .... 13.56C Pfizer Ltd’s Patent [2001] FSR 16 .... 2.19 Pharma-Buy Application, Re (1975) 3 TPR 452 .... 13.67, 13.73 Philmac Pty Ltd v Registrar of Trade Marks (2002) 56 IPR 452; [2002] FCA 1551 .... 7.24, 7.26C Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal [2010] FCA 1118 .... 14.37C Pinetrees Lodge Pty Ltd v Atlas International Pty Ltd (1981) 38 ALR 187; 59 FLR 244 .... 6.38C Pioneer Electronics Australia Pty Ltd v Lee (2000) 51 IPR 291; [2000] FCA 1926 .... 4.67 Playcorp Group of Companies Pty Ltd v Peter Bodum A/S (2010) 84 IPR 542; [2010] FCA 23 .... 5.32 Players Trade Mark, Re [1965] RPC 363 .... 7.34C2, 7.38, 7.52 Pokémon Company International, Inc v Redbubble Ltd (2017) 351 ALR 676; 129 IPR 1; [2017] FCA 1541 .... 4.50 Polaroid Corporation v Sole N Pty Ltd [1981] 1 NSWLR 491 .... 7.48C1 Polite Chnika Ipari Szouetkezet v Dallas Print Transfers Ltd [1982] FSR 529 .... 6.7 Polo/Lauren Company LP v Ziliani Holdings Pty Ltd (2008) 75 IPR 143; [2008] FCA 49 .... 4.67 Polwood Pty Ltd v Foxworth Pty Ltd (2008) 244 ALR 626; 75 IPR 1; [2008] FCAFC 9 .... 2.37C Populin v HB Nominees Pty Ltd; Populin v Binder (1982) 41 ALR 471 .... 2.47 Poulet Frais Pty Ltd v Silver Fox Co Pty Ltd (2005) 220 ALR 211; [2005] FCAFC 131 .... 18.8, 18.24C2
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Press-Form Pty Ltd v Hendersons Ltd (1993) 112 ALR 671; 26 IPR 113 .... 4.55, 5.16 Printers & Finishers Ltd v Holloway (No 2) [1964] 3 All ER 731; [1965] RPC 239 .... 3.19C1 Product Management Group Pty Ltd v Blue Gentian LLC (2015) 116 IPR 54; 240 FCR 85; [2015] FCAFC 179 .... 2.32 Professional Liquor & Catering Enterprise Pty Ltd v Corporate Affairs Commission [1982] ACLD 563 .... 7.70
Q Qantas Airways Ltd, Re [2004] ACompT 9 .... 15.14 Qantas Airways Ltd v Cameron (1996) 66 FCR 246; 145 ALR 294; (1996) ATPR 41-487 .... 11.24 QCMA, Re; Application for Authorisation of Acquisition of Macquarie Generation by AGL Energy Ltd (AGL Energy case) [2014] ACompT 1 .... 15.14 QIW Retailers Ltd & Attorney-General (Cth) v Davids Holdings Pty Ltd (No 3) (1993) 114 ALR 579; (1993) ATPR 41-226 .... 12.43 Quadramain Pty Ltd v Sevastopol Investments Pty Ltd (1976) 133 CLR 390; 8 ALR 555; (1976) ATPR 40-013 .... 12.17 Queensland Co-operative Milling Association Ltd and Defiance Holdings Ltd, Re (1976) 8 ALR 481; (1976) ATPR 40-012 .... 12.41, 12.44, 12.45, 12.47, 12.51, 12.59, 12.60, 13.70 Queensland Grocery Groups, Re (1979) ATPR 35-340 .... 13.67, 13.73C Queensland Independent Wholesalers Ltd, Re (1995) 132 ALR 225; (1995) ATPR 41-438 .... 12.57, 12.58, 12.59 Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577; [1989] HCA 6 .... 1.29, 12.41, 12.43, 12.51, 14.3, 14.9C1, 14.10, 14.11, 14.21
R R v Associated Northern Collieries (1911) 14 CLR 387; [1911] HCA 73 .... 13.10 R & C Products Pty Ltd v Hunters Products Pty Ltd (1988) ATPR 40-839 .... 6.30C, 10.13 — v S C Johnson & Sons Pty Ltd (1994) ATPR 41-364 .... 6.37C, 10.23
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Table of Cases R Conroy Pty Ltd v L’Oreal (2004) AIPC 92-007 .... 7.62 Radio 2UE Sydney Pty Ltd v Chesterton (2009) 238 CLR 460; 254 ALR 606; [2009] HCA 16 .... 19.57 — v Stereo FM Pty Ltd (1982) 44 ALR 557; (1982) ATPR 40-318 .... 12.36, 13.23 Radio Corporation Pty Inc v Disney (1937) 57 CLR 448 .... 6.42 Rank Film Production Ltd v Dodds [1983] 2 NSWLR 553 .... 4.46 Ransley v Black & Decker (A/Asia) Pty Ltd (1978) 3 TPR 138; 2 TPC 343 .... 10.43 — v Spare Parts & Reconditioning Co Pty Ltd (1975) ATPR 40-055 .... 10.37 Rasbora Ltd v JCL Marine Ltd [1977] 1 Lloyd’s Rep 645 .... 9.10C1 Ravenscroft v Herbert & New English Library Ltd [1980] RPC 193 .... 4.39 Rawhide Trade Mark, Re [1962] RPC 133 .... 7.42C4 REA Group Ltd v Real Estate 1 Ltd (2013) 102 IPR 1; [2013] FCA 559 .... 6.5, 6.27C4, 7.48 Real Estate Institute of the ACT, Re (1985) ATPR 50-087 .... 13.71 Reardon v Morley Ford Pty Ltd (1980) 33 ALR 417; 49 FLR 401; (1980) ATPR 40-190 .... 11.13, 11.17C Reckitt & Colman Products Ltd v Borden Inc (1990) 17 IPR 1; [1990] 1 All ER 873; [1990] 1 WLR 491 .... 6.3, 8.3, 8.3C, 10.17 Redrock Holdings Pty Ltd v Hinkley (2001) 50 IPR 565; [2001] VSC 91 .... 4.29C Regent’s Pty Ltd v Subaru (Australia) Pty Ltd (1998) 42 IPR 421; (1998) ATPR 41-647 .... 12.46 Registrar of Trade Marks v Muller (1980) 31 ALR 177; 54 ALJR 513 .... 7.21 Rentokil Pty Ltd v Lee (1996) ATPR 41-451 .... 3.31, 3.35, 3.35C1 Research Affiliates LLC v Commissioner of Patents (2014) 316 ALR 135; 109 IPR 364; [2014] FCAFC 150 .... 2.8C2 Retail Confectionery and Mixed Business Association (Vic) (1977–8) ATPR (Com) 35-340 .... 13.74C Retail Tobacco Sellers Association of Victoria (1982) ATPR (Com) 50-040 .... 13.74 Retra Service Association (1977–8) ATPR (Com) 35-340 .... 13.74
Retractable Technologies Inc v Occupational and Medical Innovations Ltd (2007) 72 IPR 58; [2007] FCA 545 .... 3.29 Review 2 Pty Ltd v Redberry Enterprise Pty Ltd (2008) 79 IPR 214; [2008] FCA 1588 .... 5.12 Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477; 68 ALR 77 .... 2.48 Roadshow Films Pty Ltd v iiNet Ltd (2012) 286 ALR 466; 95 IPR 29; [2012] HCA 16 .... 4.63, 4.63C, 4.71 Robb v Green [1895] 2 QB 315 .... 3.18C2 Robe River Mining Co Pty Ltd and Hamersley Iron Pty Ltd, Re Applications by [2013] ACompT 2 .... 14.37C Robert Hicks Pty Ltd (t/as Auto Fashions Australia) v Melway Publishing Pty Ltd (1998) 42 IPR 627; (1999) ATPR 41-668 .... 12.55 Robertson v Lewis [1976] RPC 169 .... 4.28 Robyn Rihanna Fenty v Arcadia Group Brands Ltd (t/a Topshop) [2015] EWCA Civ 3 .... 6.42 Rodrigues v ABE Copiers Pty Ltd (1983) ATPR 40-379 .... 10.39 Roland Corporation v Lorenzo & Sons Pty Ltd (1991) 105 ALR 623; 22 IPR 245 .... 4.17, 4.44 Rolls-Royce Ltd’s Application [1963] RPC 251 .... 2.12 Rolls-Royce Motors Ltd v DIA (Engineering) Pty Ltd (1981) 50 FLR 340 .... 6.38C Ron Hodgson (Holdings) Pty Ltd v Westco Motors (Distributors) Pty Ltd (1980) 29 ALR 307 .... 16.20, 16.23C1 Rosedale Associated Manufacturers Ltd v Airfix Products Ltd [1957] RPC 239 .... 5.15 Roses Only & Lush Pty Ltd v Mark Lyons Pty Ltd (1999) 47 IPR 593; [1999] FCA 1000 .... 6.25 Row Weeder Pty Ltd v Nielsen (1997) 39 IPR 400 .... 2.37 Rowntree plc v Rollbits Pty Ltd (1988) 10 IPR 539 .... 7.39, 7.51C Rural Press Ltd v ACCC (2003) ATPR 41-965; [2003] HCA 75 .... 12.36, 13.8, 13.39C2, 13.44, 13.49, 14.18 Rural Traders Co-operative (WA) Ltd, Re (1979) ATPR 40-110 .... 12.59 Ryan v Great Lakes Council (1999) ATPR 46-191; [1999] FCA 177 .... 10.25
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Marketing and the Law
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S S C Johnson & Son Inc, Re Application by (1989) 15 IPR 349; (1989) AIPC 90-595 .... 7.21 Sabre Corp Pty Ltd v Laboratories Pharma-ACare Pty Ltd (1995) 31 IPR 445; (1995) ATPR 41-396 .... 10.23 Safe Sport Australia Pty Ltd v Puma Australia Pty Ltd (1985) 4 IPR 120 .... 5.14 SAGASCO Resources Ltd, Re (1992) ATPR (Com) 50-118 .... 13.72 Saints Gallery Pty Ltd v Plummer (1988) 80 ALR 525; (1988) ATPR 40-882 .... 11.19 Saltman Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All ER 413 .... 3.5, 3.11C, 3.24 Samuel Taylor Pty Ltd v Registrar of Trade Marks (1959) 102 CLR 650 .... 7.21 Sanrod Pty Ltd v Dainford Ltd (1984) 54 ALR 179; (1984) ATPR 40-464 .... 11.20 Schweppes Ltd v Rowlands Proprietary Ltd (1913) 16 CLR 162; [1913] HCA 18 .... 7.14 Scotch Whisky Association v De Witt (2008) 75 IPR 280; [2008] FCA 73 .... 7.41C1 Seager v Copydex Ltd [1967] 2 All ER 415; [1967] 1 WLR 923; [1967] RPC 349 .... 3.24C, 3.26 Secretary, Department of Health v Peptide Clinics Australia Pty Ltd [2019] FCA 1107 .... 8.27 Sest v Copperart Pty Ltd (1989) ATPR 40-945 .... 10.45C1 Seven Network Ltd v News Ltd (2009) 262 ALR 160; [2009] FCAFC 166 .... 12.42 Shacklady v Atkins & Carroll (1994) 126 ALR 707; 30 IPR 387 .... 4.40 Sharman v Kunert (1985) 1 NSWLR 225; (1985) ASC 55-425 .... 11.24 Shoshana Pty Ltd v 10th Cantanae Pty Ltd (1987) 79 ALR 279; 11 IPR 249; (1988) ATPR 40-851 .... 10.19 Shredded Wheat Co v Kellogg Co of Great Britain (1939) 57 RPC 137 .... 7.21 Siddons Pty Ltd v Stanley Works Pty Ltd (1991) 99 ALR 497; 20 IPR 1; (1991) ATPR 41-111 .... 8.14C2, 10.20, 10.37 Silver Fox Co Pty Ltd v Lenard’s Pty Ltd (2004) ATPR 42-024; [2004] FCA 1225 .... 11.21 Silver Top Taxi Services (1990) ATPR (Com) 50-103 .... 13.74
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Sim v HJ Heinz Co Ltd [1959] 1 All ER 547; [1959] RPC 75 .... 6.44 Simplot Australia Pty Ltd v McCain Foods (Aust) Pty Ltd (2001) 52 IPR 539; [2001] FCA 518 .... 6.11, 6.27C2 Sinanide v La Maison Kosmeo (1928) 44 TLR 574 .... 4.11 Singapore Airlines v Taprobane Tours WA Pty Ltd (1991) 104 ALR 633; (1992) ATPR 41-159 .... 12.38, 14.9C2 Sizzler Restaurants International v Sabra International Pty Ltd (1990) 20 IPR 331 .... 7.42C3 Smith Kline & French Laboratories (Australia) Ltd v Secretary, Department of Community Services and Health [1989] FCA 384 .... 3.3 SNF (Australia) Pty Ltd v Ciba Speciality Chemicals Water Treatments Ltd (2012) 96 IPR 365 .... 2.32C — v — [2013] HCATrans 54 .... 2.32C Snow v Eaton Centre (1982) 70 CPR (2d) 105 .... 4.26C1 Société Des Produits Nestlé SA v Aldi Stores [2010] FCA 218 .... 7.27 Solar Thompson Engineering Co Ltd v Barton [1977] RPC 537 .... 2.45 Solarhart Industries Pty Ltd v Solar Shop Pty Ltd (2011) 281 ALR 544; 92 IPR 165; [2011] FCA 700 .... 6.15, 7.47 Sony Music Australia Ltd v Tansing (t/as Apple House Music) (1993) 27 IPR 649; (1993) 27 IPR 640; (1993) ATPR 41-279 .... 6.26C, 6.42 South Australian Brewing Co Pty Ltd v Carlton & United Breweries Ltd (2001) 185 ALR 719; 53 IPR 90; [2001] FCA 902 .... 7.56 Southern Cross Beverages Pty Ltd, Cadbury Schweppes Pty Ltd, Application of (1981) ATPR 40-200 .... 12.46, 17.28 Southern Cross Refrigerating Co v Toowoomba Foundry Pty Ltd (1954) 91 CLR 592; 1A IPR 465 .... 7.34, 7.49 Spencer Industries Pty Ltd v Collins (2003) 58 IPR 425; [2003] FCA 542 .... 2.40C1 St Lukes Health Insurance v Medical Benefits Fund of Australia Ltd (1995) ATPR 41-428 .... 10.12, 10.22, 10.22C Stannard v Reay [1967] RPC 589 .... 6.5C1
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Table of Cases Star Industrial Co Ltd v Yap Kwee Kor t/as New Star Industrial Co (1975) 1B IPR 582; [1976] 2 FSR 256 .... 6.2 State of Victoria v Pacific Technologies (Australia) Pty Ltd (No 2) (2009) 81 IPR 525; [2009] FCA 737 .... 4.11 Stationers Supply Pty Ltd v Victorian Authorised Newsagents Association Ltd (1993) ATPR 41-255 .... 17.15 Stenor Ltd v Whitesides (Clitheroe) Ltd [1948] AC 107; [1947] 2 All ER 241; (1947) 65 RPC 1 .... 5.7 Sterling Winthrop Pty Ltd v Boots Co (Aust) Pty Ltd (1995) 32 IPR 361; (1995) ATPR 41-433 .... 10.25, 10.26C2 — v R & C Products Pty Ltd (1994) ATPR 41-308 .... 6.25, 8.3, 10.13 Steven v Parke, Davis & Co 9 Cal 3d 51 (1973) .... 9.51 Stevens v Kabushiki Kaisha Sony Computer Entertainment (2005) 221 ALR 448; 65 IPR 513; [2005] HCA 58 .... 4.12 Stirling Harbour Services v Bunbury Port Authority (2000) ATPR 41-783; [2000] FCA 1381 .... 12.37, 17.18, 17.23, 17.25, 17.25C Stone & Wood Group Pty Ltd v Intellectual Property Development Corporation Pty Ltd (2018) 357 ALR 15; [2018] FCAFC 29 .... 6.11, 6.11C4, 6.13, 6.25 Streetscape Projects (Australia) Pty Ltd v City of Sydney (2013) 295 ALR 760; 92 ACSR 417; [2013] NSWCA 2 .... 3.29 Strong v Woolworths Ltd [2012] HCA 5 .... 9.12C Stuart Alexander and Co (Interstate) Pty Ltd v Blenders Pty Ltd (1981) 37 ALR 161 .... 6.22C, 6.25, 10.16C, 10.27, 10.27C3 Sullivan v FNH Investments Pty Ltd (2003) 57 IPR 63; [2003] FCA 323 .... 4.11 Sunbeam Corp v Morphy-Richards (Aust) Pty Ltd (1961) 180 CLR 98; 1B IPR 625 .... 2.15 Surge Licensing Inc v Pearson (1991) 21 IPR 228; (1991) ASC 56-077 .... 6.45 SW Hart & Co Pty Ltd v Edwards Hot Water Systems (1985) 159 CLR 466; 61 ALR 251; 5 IPR 13; [1985] HCA 59 .... 4.18, 4.40 Swarbrick v Burge (2004) 208 ALR 19; 61 IPR 543; [2004] FCA 813 .... 4.18 Sydney Markets Ltd v Sydney Flower Market Pty Ltd [2002] FCA 124 .... 6.33, 6.33C4
Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354; [2002] FCAFC 157 .... 6.3, 6.11, 6.11C2, 6.25, 8.3
T Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177; (1982) ATPR 40-303 .... 6.19, 6.32C, 10.11, 10.13 Talbot v General Television Corporation Pty Ltd [1980] VR 224; [1981] RPC 1 .... 3.4, 3.6, 3.12C, 3.24, 3.29 Talmax Pty Ltd v Telstra Corp Ltd [1997] 2 Qd R 444; (1996) 36 IPR 46; (1996) ATPR 41-535 .... 6.42, 6.43C2, 10.29 Tame v State of New South Wales; Annetts v Australian Stations Pty Ltd (2002) 191 ALR 449; 36 MVR 1; [2002] HCA 35 .... 9.6 Targetts Pty Ltd v Target Australia Pty Ltd (1993) 26 IPR 51; (1993) ATPR 41-231 .... 6.10C Tasmanian Automobile Chamber of Commerce (1978) ATPR (Com) 16,995 .... 13.74 Taverner Rutledge Ltd v Trexapalm Ltd [1977] RPC 275 .... 4.11 TCN Channel Nine Pty Ltd v Network Ten Pty Ltd (No 2) (2005) 216 ALR 631; 65 IPR 571; [2005] FCAFC 53 .... 4.48C, 4.50 Telstra Corporation Ltd (2013) Investigation of the Office of the Australian Information Commissioner .... 19.45C Telstra Corporation Ltd v Australasian Performing Right Association Ltd (1997) 146 ALR 649; 71 ALJR 1312; 38 IPR 294; [1997] HCA 41 .... 4.46 — v Barry Cheng Kwok (WIPO Administrative Panel decision, 21 June 2000, unreported) .... 19.62 — v Optus Communications (1996) 26 IPR 515; (1997) ATPR 41-541 .... 10.16, 10.27 — v Phone Directories Company Pty Ltd (2010) 273 ALR 725; 90 IPR 1; [2010] FCAFC 149 .... 4.8, 4.10C — v Royal & Sun Alliance Insurance Pty Ltd (2003) 57 IPR 453; [2003] FCA 786 .... 4.39, 4.42C2, 6.37, 6.42 Tenant Trading (Australia) Pty Ltd, Application of (1974-5) ATPR (Com) 8608 .... 13.66 Terrapin Ltd v Builders Supply Company (Hayes) Ltd (1959) 1B IPR 777; [1960] RPC 128 .... 3.26
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Marketing and the Law TGI Friday’s Australia Pty Ltd v TGI Friday’s Inc (1999) 45 IPR 43; [1999] FCA 304 .... 6.3 Thai Silk Co Ltd v Aser Nominees Pty Ltd (1991) ATPR 41-146 .... 6.24 Thomas v Southcorp Australia Pty Ltd [2004] VSC 34 .... 9.53C2 Thomas Marshall (Exports) Ltd v Guinle [1979] Ch 227; [1978] 3 All ER 193 .... 3.7, 3.13C1, 3.20 Thompson v Magnamail Pty Ltd (No 1) (1977) ATPR 40-032 .... 10.37 — v Riley McKay Pty Ltd (No 3) (1980) ATPR 40-175 .... 10.43 Thomson v B Seppelt & Sons Ltd (1925) 37 CLR 305; [1925] HCA 40 .... 7.21, 7.21C2 Thorp v CA Imports Pty Ltd (1989) 16 IPR 511; (1990) ATPR 40-996 .... 10.61 Tidy v Trustees of the Natural History Museum (1995) 39 IPR 501 .... 4.26C2 Tillmans Butcheries Pty Ltd v Australian Meat Industry Employees’ Union (1979) 27 ALR 367; (1979) ATPR 40-138 .... 12.36 Tobacco Institute (Aust) Ltd v Australian Federation of Consumer Organisations Inc (1992) 111 ALR 61; 24 IPR 529; (1993) ATPR 41-199 .... 10.9, 10.23C2, 10.26 Toddler Kindy Gymbaroo Pty Ltd v Gym-Mark Inc (2013) 101 IPR 579; [2013] ATMO 15 .... 7.62 Tooheys Pty Ltd v Coopers Brewery Ltd [2003] FCA 148 .... 10.68 Tooltechnic Systems (Australia) Pty Ltd — Authorisation No. A91433 (2014) .... 16.2, 16.15, 16.25C Tooth & Co Ltd, Re; Re Tooheys Ltd (1979) ATPR 40-113 .... 12.41C, 12.45, 12.59, 17.9, 17.29C Torpedoes Sportswear Pty Ltd v Thorpedo Enterprises Pty Ltd (2003) 204 ALR 90; 59 IPR 318; [2003] FCA 901 .... 6.42, 7.42C2 Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145 .... 11.24 Totalizator Agency Board v Turf News Pty Ltd [1967] VR 605 .... 6.13C, 6.14, 6.15, 6.26 Trade Practices Commission v Allied Mills Industries Pty Ltd (No 4) (1981) 37 ALR 225; (1981) ATPR 40-237 .... 13.14C — v Australian Autoglass Pty Ltd (1988) ATPR 40-881 .... 13.25
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— v Bamix Australia Pty Ltd (1985) ATPR 40-534 .... 16.28C1 — v Bata Shoe Co of Australia (1980) ATPR 40-161 .... 16.2, 16.10, 16.14, 16.15, 16.20C1, 16.28 — v Calderton Corp Pty Ltd (1994) ATPR 41-306 .... 11.10, 11.10C — v Carlton & United Breweries Ltd (1990) ATPR 41-037 .... 14.23C — v CC (NSW) Pty Ltd (No 2) (1995) ATPR 41406 .... 13.43C2 — v Commodore Business Machines Pty Ltd (1989) ATPR 40-976 .... 16.15 — v CSR Ltd (1991) ATPR 40-076 .... 1.46, 12.25, 17.9, 17.11 — v Cue Design Pty Ltd (1996) ATPR 41-475 .... 8.12C — v David Jones (Australia) Pty Ltd (1986) 64 ALR 67; (1986) ATPR 40-671 .... 13.14C, 13.21 — v Email Ltd (1980) 31 ALR 53; 43 FLR 383; (1980) ATPR 40-172 .... 13.8, 13.11C — v Gillette Company (No 1) (1993) ATPR 41267 .... 15.18 — v Golden Australia Paper Manufacturers Pty Ltd (1995) ATPR 41-370 .... 8.10C, 10.61 — v Golden Fleece Petroleum Ltd (1985) ATPR 40-528 .... 16.10 — v ICI Australia Petrochemicals (1983) ATPR 40-634 .... 16.2, 16.25 — v JJ & YK Russell Pty Ltd (1991) ATPR 41-090 .... 13.25 — v Kensington Hiring Co Pty Ltd (1981) ATPR 40-256 .... 16.23C1 — v Leslievale Pty Ltd (1986) 64 ALR 573 .... 16.1 — v Madad Pty Ltd (1979) 40 FLR 453; (1979) ATPR 40-105 .... 16.10, 16.15C2 — v Malleys Ltd (1979) 25 ALR 250; (1979) ATPR 40-118 .... 16.15 — v Mobil Oil Australia Ltd (1984) 3 FCR 168; 55 ALR 527; (1984) ATPR 40-482 .... 11.13 — v Nicholas Enterprises Pty Ltd (No 2) (1979) 26 ALR 609; (1978) ATPR 40-126 .... 10.34, 12.22, 12.44, 13.10C, 13.24 — v Orlane Australia Pty Ltd (1984) 51 ALR 767; (1984) ATPR 40-437 .... 16.16, 16.22C — v Pacific Dunlop Pty Ltd (1994) ATPR 41-307 .... 8.14C1 — v Parkfield Operations Pty Ltd (1985) 7 FCR 534; 62 ALR 267; (1985) ATPR 40-639 .... 13.23, 13.25
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Table of Cases — v Patterson Cheney Pty Ltd (1990) ATPR 41-059 .... 13.25 — v Penfolds Wines Pty Ltd (1991) 104 ALR 601; (1992) ATPR 41-163 .... 16.10 — v Pioneer Concrete (Vic) Pty Ltd (1985) ATPR 40-590 .... 13.23 — v Pye Industries Sales Pty Ltd (1979) ATPR 40-088 .... 16.17C — v Service Station Association Ltd (1992) 109 ALR 465; (1992) ATPR 41-179 .... 13.8, 13.23C3 — v — (1993) ATPR 41-260 .... 13.23C3 — v Sharp Corporation of Australia Pty Ltd (1975) 8 ALR 255; (1975) ATPR 40-010 .... 16.23C1 — v Simpson Pope Ltd (1980) 30 ALR 544; (1980) ATPR 40-169 .... 16.23C1, 16.30C — v Sony (Australia) Pty Ltd (1990) ATPR 41-053 .... 11.13 — v Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 49-091 .... 10.67, 16.2, 16.15C2, 16.28 — v Telstra Corp Ltd (1993) ATPR 41-256 .... 10.27 — v TNT Australia Pty Ltd (1995) ATPR 41-375 .... 1.46 — v Tubemakers of Australia Ltd (1983) 47 ALR 719; (1983) ATPR 40-358 .... 13.25 Transpacific Industries Pty Ltd v Whelan [2008] VSC 403 .... 3.35C2 Tru Tone Ltd v Festival Records Retail Marketing Ltd (1988) 2 NZBLC 103,081 .... 12.46 Turner v General Motors (Aust) Pty Ltd (1929) 42 CLR 352; 1B IPR 415 .... 6.5 Twentieth Century Fox Film Corp & Matt Groening Productions Inc v South Australian Brewing Co Ltd & Lion Nathan Pty Ltd (1996) 66 FCR 451; 34 IPR 225 .... 6.42, 6.45C, 10.18 Twenty-First Australia Inc v Shade [1998] NSWSC 325 .... 3.35
U Uebeler v Boss Media AB 03 CV 4790 (2006) .... 19.50 Ultra Tune Australia Pty Ltd v ACCC [2019] FCAFC 164 .... 18.24, 18.24C1 Unilan Holdings Pty Ltd v Kerin (1992) 107 ALR 709; (1992) ATPR 41-169 .... 10.9 Unilever Australia Ltd v Goodman Fielder Consumer Foods Pty Ltd [2009] FCA 1305 .... 10.37 — v Karounas (2001) 52 IPR 361; [2001] FCA 1132 .... 7.63C1
Union Car Advertising Co v Collier 189 N E 463 .... 11.19 Union Shipping New Zealand Ltd v Port Nelson Ltd [1990] 2 NZLR 662 .... 17.23 United Brands Co & United Brands Continentaal BV v Commission of European Communities [1978] 1 CMLR 429 .... 12.46 United States v Aluminum Co of America 148 F2d 416 (1945) .... 12.35 — v Microsoft Corp 253 F 3d 34 (DC Cir, 2001) .... 12.11 — v Socony-Vacuum Oil Co 310 US 150 (1940) .... 13.23C2, 13.30, 13.35 — v Trenton Potteries Co 273 US 392 (1927) .... 13.19 United Telecasters Queensland Ltd v Guthrie (1978) 18 ALR 531; (1978) ATPR 40-062 .... 10.60, 10.62C Universal Music Australia Pty Ltd v ACCC (2003) 201 ALR 636; 57 IPR 353; (2003) ATPR 41947; [2003] FCAFC 193 .... 12.46, 14.12, 14.14, 17.4, 17.26, 17.26C — v Sharman Licence Holdings Ltd (2005) 220 ALR 1; 65 IPR 289; [2005] FCA 1242 .... 4.61 — v TPG Internet Pty Ltd [2017] FCA 435; (2017) 348 ALR 493; 126 IPR 219 .... 4.71 University of London Press Ltd v University Tutorial Press Ltd [1916] 2 Ch 601; (1916) 1B IPR 186 .... 4.8 University of New South Wales v Moorhouse & Angus & Robertson (Publishers) Pty Ltd (1975) 133 CLR 1; 6 ALR 193; [1975] HCA 26 .... 4.58 University of Western Australia v Gray (No 20) (2008) 246 ALR 603; 76 IPR 222; [2008] FCA 498 .... 2.40 Uranium Antitrust Litigation, Re 617 F 2d 1248 (1980) .... 12.35 US v Continental Can Co 378 US 441 (1964) .... 12.42
V Vacwell Engineering Co Ltd v BDH Chemicals [1971] 1 QB 88; [1969] 3 All ER 1681 .... 9.5C Vawdrey Australia Pty Ltd v Krueger Transport Equipment Pty Ltd [2009] FCAFC 156 .... 4.18C1 Victoria University of Technology v Wilson (2004) 60 IPR 392; [2004] VSC 33 .... 2.40C3
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Marketing and the Law Village Building Co Ltd v Canberra International Airport Pty Ltd (2004) 210 ALR 114; (2004) ATPR 42-019; [2004] FCAFC 240 .... 10.9 Virgin Enterprises Ltd v Virgin Star Pty Ltd (2005) 67 IPR 557; [2005] FCA 1846 .... 7.53 Visy Paper Pty Ltd v ACCC (2003) 201 ALR 414; [2003] HCA 59 .... 13.39, 17.4 Von Berg v Trade Practices Commission (now known as the ACCC) (1997) ATPR 41-545 .... 10.37
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W Walkabout Footwear Pty Ltd v Sunshine Aust Group Pty Ltd (1987) 9 IPR 558 .... 7.50 Wallace v Brodribb (1985) 58 ALR 737 .... 11.13 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; 76 ALR 513 .... 1.29 Warman International Ltd v Envirotech Australia Pty Ltd (1986) 67 ALR 253; 6 IPR 578; (1986) ATPR 40-714 .... 3.19, 4.18 Warner Bros Entertainment Inc v RDR Books 575 F Supp 2d 513 (2008) .... 4.42 Watteau v Fenwick [1893] 1 QB 346 .... 11.20 Welcome Real-Time SA v Catuity Inc (2001) 51 IPR 327; [2001] FCA 445 .... 2.8C1 Wessex Dairies Ltd v Smith [1935] 2 KB 80 .... 3.18 Weston v Hemmons (1876) 2 VLR (E) 121 .... 3.11 Wheatley’s Patent Application, Re (1984) 2 IPR 450 .... 2.23C1 Wholesale Telecom Corp v ITC Deltacom Comm’ns Inc 176 Fed Appx 76 (11th Cir 2006) .... 19.9 Wickham v Associated Pool Builders Pty Ltd (1988) ATPR 140-910 .... 6.42 Wilkinson v Katies Fashions (Aust) Pty Ltd (1986) 67 ALR 137; (1986) ATPR 40-721 .... 8.10C, 10.37, 10.61, 10.61C Willard King Organisation Pty Ltd v United Telecasters Sydney Ltd [1981] 2 NSWLR 547 .... 6.39 Williams v Nye (1890) 7 RPC 62 .... 2.21 — v Pisano [2015] NSWCA 177 .... 10.9 Wilson v Weiss Art Pty Ltd (1995) 31 IPR 423; (1995) AIPC 91-139 .... 4.36, 4.36C Windsurfing International Inc v Petit [1984] 2 NSWLR 196 .... 2.15, 2.16C1, 2.22 Wingate Marketing Pty Ltd v Levi Strauss & Co (1994) 121 ALR 191; 28 IPR 193; (1994) ATPR 41-303 .... 7.55C
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WN Sharpe v Solomon Bros [1915] 32 RPC 15 .... 7.21 Wolanski’s Registered Design, Re (1953) 88 CLR 278 .... 5.7 Wombles Ltd v Wombles Skips Ltd [1977] RPC 99 .... 4.11, 6.45 Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 205 ALR 522; [2004] HCA 16 .... 9.4 Woolly Bull Enterprises Pty Ltd v Reynolds [2001] FCA 261 .... 7.62 Woolworths Ltd v BP plc (No 2) (2006) 235 ALR 698; 70 IPR 25; [2006] FCAFC 132 .... 7.26 Workwear Industries Pty Ltd v Pacific Brands Workwear Group Pty Ltd (2013) 104 IPR 1; [2013] FCA 1042 .... 6.17 World of Technologies (Aust) Pty Ltd v Tempo (Aust) Pty Ltd (2007) 71 IPR 307; [2007] FCA 114 .... 5.12, 5.15C, 5.20 Wyong Shire Council v Shirt (1980) 146 CLR 40; 29 ALR 217 .... 9.5
Y Yanx Registered Trade Mark, Re; Ex parte Amalgamated Tobacco Corp; sub nom Menzala Cigarette Co Ltd (1951) 82 CLR 199; 1B IPR 504 .... 7.34C1, 8.14 Yardley of London (Australia) Pty Ltd v Chapman & Lester the Sales Promotion Agency Pty Ltd (1989) 17 IPR 345; (1990) ATPR 40-989 .... 6.39 Yau’s Entertainment Pty Ltd v Asia Television Ltd (2002) 54 IPR 1; [2002] FCA 338; [2002] FCAFC 78 .... 6.38C Yorke v Lucas (1985) 158 CLR 661; 61 ALR 307; [1985] HCA 65 .... 10.56C1 — v Ross Lucas Pty Ltd (1983) 46 ALR 319; 68 FLR 268; [1983] FCA 14 .... 10.18C Yorkshire Copper Works v Registrar of Trade Marks [1954] 1 All ER 570 .... 7.21, 7.21C2
Z Zaravinos v Dairy Farmers Co-operative Ltd & Pure-Pak Australia (1985) 59 ALR 603; (1985) ATPR 40-559 .... 9.30 Zeccola v Universal City Studios Inc (1982) 46 ALR 189 .... 4.42C1 Zippo Manufacturing Co v Zippo.com Inc USPQ 2d 1062 (1997) .... 19.50
Table of Statutes References are to paragraph numbers
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Commonwealth Acts Interpretation Act 1901 .... 1.20 s 15AA .... 1.20 Arbitration Act 1974 .... 1.42 Australian Consumer Law Ch 3 .... 11.8, 11.38 Ch 4 .... 11.8, 11.38 Pt 2-3 .... 18.22 Pt 3-1 .... 1.55, 8.2, 8.10, 10.33, 10.66 Pt 3-2 .... 1.55, 9.1, 9.13, 9.41, 9.48, 9.50, 9.54, 9.61 Pt 3-2 Div 1B .... 9.41 Pt 3-2 Div 2 .... 1.55, 11.38 Pt 3-3 .... 8.2, 8.6, 8.7, 9.55, 9.64, 9.70 Pt 3-4 .... 8.2, 8.5, 8.6, 8.8, 9.55, 9.71 Pt 3-5 .... 1.55, 8.2, 8.6, 9.1, 9.32, 9.48, 9.49, 9.50, 9.51, 9.52, 9.53C1, 9.53C2, 9.54, 9.55C, 9.56, 9.57, 9.58, 9.62 Pt 4-1 .... 10.33 Pt 4-2 Div 2 .... 11.38 Pt 4-3 .... 9.64 Pt 4-3 Div 1 .... 8.9 Pt 4-4 .... 8.9 Pt 5-2 .... 9.23, 9.45 Pt 5-3 .... 8.14 Pt 5-4 .... 1.55 s 2 .... 6.18, 9.14, 9.21, 9.41, 9.55, 10.9 s 3 .... 9.14, 9.32, 9.42, 10.7, 11.8 s 4 .... 9.17, 10.24, 10.24C, 10.35 s 4(1) .... 10.24
s 4(2) .... 10.24 s 7 .... 9.31, 9.50 s 9 .... 9.51 s 9(2) .... 8.5, 9.51 s 18 .... 2.1, 2.51, 4.42C2, 5.32, 5.32C, 7.53, 7.55C, 6.6C, 6.10C, 6.11C3, 6.17, 6.18–6.20, 6.22, 6.22C, 6.23–6.26, 6.27C1, 6.27C2, 6.27C3, 6.28, 6.30C, 6.31C, 6.32C, 6.33, 6.33C1, 6.34C, 6.37C, 6.38C, 6.40C, 6.43C1, 6.45C, 8.10, 8.10C, 8.13C, 8.14, 8.16, 8.16C, 8.26, 10.6–10.9, 10.11, 10.14, 10.15, 10.16C, 10.17, 10.18, 10.22C, 10.24, 10.24C, 10.25, 10.26C1, 10.27C1, 10.27C4, 10.27C5, 10.29C, 10.30C, 10.31, 10.33, 10.35, 10.36, 10.40C, 10.56, 10.56C1, 10.58, 10.67, 10.70, 10.80, 11.17–11.19, 11.21, 11.33C, 18.23, 18.24, 18.25C, 19.54C, 19.59, 19.64 s 19 .... 10.58 s 20 .... 11.23, 18.25 s 21 .... 11.23, 11.24C, 18.23, 18.25, 18.25C s 21(4)(a) .... 18.25 s 21(6) .... 11.23 s 22 .... 11.23, 18.24C2, 18.25 s 22(2) .... 11.23 s 23 .... 11.27 s 24(1) .... 11.29 s 24(4) .... 11.29 s 25 .... 11.29
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Marketing and the Law Australian Consumer Law – cont’d s 25(1) .... 11.26 s 27(1) .... 11.28 s 27(2) .... 11.28 s 29 .... 1.39, 6.18, 6.19, 8.10, 10.6, 10.7, 10.30C, 10.36, 10.51, 10.80, 11.17, 11.18, 11.33C, 11.44C, 18.24, 19.59 s 29(1)(a)–(n) .... 10.36, 10.67 s 29(1)(a) .... 8.10C, 8.13C, 8.14, 10.26C1, 10.27C4, 10.27C5, 10.33, 10.37, 10.61C s 29(1)(b) .... 10.33, 10.38 s 29(1)(c) .... 10.26C1, 10.33, 10.39, 10.70 s 29(1)(d) .... 10.33, 10.40, 10.40C s 29(1)(e) .... 10.33, 10.41 s 29(1)(f) .... 10.33, 10.42 s 29(1)(g) .... 6.43C1, 8.13, 10.16C, 10.24C, 10.26C1, 10.27C1, 10.27C5, 10.33, 10.40C, 10.43, 10.44 s 29(1)(h) .... 10.33, 10.40C, 10.44, 19.54C s 29(1)(i) .... 8.12, 8.12C, 10.33, 10.45, 10.45C1, 10.49C2 s 29(1)(j) .... 10.33, 10.46 s 29(1)(k) .... 8.14, 8.14C1, 8.16, 8.16C, 10.33, 10.47 s 29(1)(l) .... 10.27C1, 10.33, 10.48 s 29(1)(m) .... 10.31, 10.33, 10.49, 10.49C1, 10.49C2 s 29(1)(n) .... 10.33, 10.50 s 29(2) .... 10.41, 10.42 s 30 .... 10.33 s 31 .... 10.33 s 32 .... 11.10, 11.10C, 11.11 s 32(1) .... 10.66, 10.67, 11.11 s 32(2) .... 11.11 s 32(3) .... 11.11 s 32(4) .... 11.1 s 33 .... 8.10, 8.10C, 8.13, 8.16, 8.16C, 8.17, 10.16C, 10.26C1, 10.33, 10.51, 10.80 s 34 .... 8.10, 8.16, 10.6, 10.33, 10.52, 10.67, 10.80 s 35 .... 11.12, 11.15C1, 11.16 s 35(1) .... 10.66 s 36(1)–(3) .... 10.66 s 38 .... 10.58 s 39 .... 11.35 s 40 .... 10.66, 11.35 s 40(2) .... 11.35 s 40(4) .... 11.35 s 41 .... 11.35
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s 41(2)(b) .... 11.35 s 42 .... 11.35 s 43 .... 10.66, 11.35 ss 44–46 .... 11.34 s 44 .... 11.33C s 45 .... 18.23 s 46 .... 11.34 s 47 .... 8.12, 10.33, 10.53, 10.67, 18.23 s 47(1) .... 10.66 s 48 .... 10.33, 10.53, 10.54, 10.54C, 10.67, 18.23 s 49 .... 11.33, 11.33C s 50 .... 11.32 s 51 .... 9.15 s 52 .... 9.15 s 53 .... 9.15 ss 54–59 .... 9.16 s 54 .... 9.15, 9.17, 9.18C1, 9.61 s 54(1) .... 9.17 s 54(2) .... 9.35 s 54(4) .... 9.35 s 54(6) .... 9.35 s 54(7) .... 9.35 s 55 .... 9.15, 9.18, 9.18C1 s 56 .... 9.15, 9.19, 9.61 s 56(2) .... 9.19 s 56(3) .... 9.19 s 57 .... 9.15, 9.19, 9.20 s 58 .... 9.34, 9.61 s 58(2) .... 9.38 s 59 .... 9.21, 9.61 s 59(1) .... 9.21 s 59(2) .... 9.15, 9.21 s 60 .... 9.22C, 9.41 s 61 .... 9.44C s 61(1) .... 9.41 s 61(2) .... 9.41 s 62 .... 9.41 s 63 .... 9.41 s 64 .... 9.22, 9.22C, 9.43, 9.44C s 64A .... 9.22, 9.22C, 9.44 s 65 .... 9.41 s 69(2) .... 11.38 s 70 .... 11.38 s 73 .... 11.39 s 74 .... 11.39, 11.44C s 75 .... 11.32, 11.39, 11.44C s 75AZC(1)(i) .... 10.37 s 76 .... 11.39
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Table of Statutes s 78 .... 11.40 s 79 .... 11.40 s 80 .... 6.28, 18.24 s 82 .... 6.28, 11.41, 18.24 s 82(3) .... 11.42 s 83(1) .... 11.42 s 84 .... 11.42 s 85 .... 11.42 s 85(1) .... 10.61 s 87 .... 6.28, 18.24 s 87B .... 8.8C, 16.29 s 89 .... 11.43 s 96(1) .... 11.36 s 96(3) .... 11.36 s 97 .... 11.36 s 97(3) .... 11.36 s 98 .... 11.36 s 99 .... 11.36 s 101A .... 17.28 s 104 .... 8.7, 9.65 s 105 .... 8.7 s 109 .... 9.68 s 114 .... 9.68 s 118 .... 9.68 s 122 .... 9.69 s 123 .... 9.70 s 127 .... 9.69 s 127(3) .... 9.69 s 129 .... 9.67 s 131 .... 9.65 s 132 .... 9.65 s 134 .... 8.8, 9.71 s 135 .... 8.8, 9.71 s 136 .... 8.26 ss 138–150 .... 9.62 s 138 .... 9.53 s 139 .... 9.53, 9.54 s 139B .... 1.48 s 139B(1) .... 10.10 s 139B(2) .... 10.10 s 140 .... 9.53, 9.53C2, 9.54 s 141 .... 9.53, 9.53C2, 9.54 s 142 .... 9.55 s 143 .... 9.58 s 146 .... 9.54 s 147 .... 9.50 s 150 .... 9.57 s 151 .... 1.39, 6.19, 10.7, 10.36, 10.67, 11.17, 19.59
s 151(1)(a) .... 8.14, 10.33, 10.36 s 151(1)(b) .... 10.33, 10.38 s 151(1)(c) .... 10.33 s 151(1)(d) .... 10.33 s 151(1)(e) .... 10.33 s 151(1)(f) .... 10.33 s 151(1)(g) .... 10.33 s 151(1)(h) .... 10.33 s 151(1)(i) .... 10.33 s 151(1)(j) .... 10.33 s 151(1)(k) .... 8.14 s 151(1)(l) .... 10.33 s 151(1)(m) .... 10.33 s 151(1)(n) .... 10.33 s 151(5) .... 8.14 s 152 .... 10.33 s 153 .... 10.33 s 154 .... 11.10, 11.11 s 155 .... 10.33, 10.51, 10.52, 10.67 s 155(1)(a)–(n) .... 10.67 s 156 .... 10.33, 10.67 s 157 .... 11.12, 11.16, 11.17C s 157(4) .... 11.16 s 160 .... 10.58 s 161 .... 11.35 s 163 .... 11.35 s 165 .... 8.12, 10.53, 10.67 s 166 .... 10.33, 10.53, 10.54, 10.67 s 167 .... 11.33 s 168 .... 11.32 ss 188–191 .... 11.36 s 194(8) .... 8.9 s 195 .... 9.66 s 195(4) .... 8.9 s 199 .... 9.69 s 203 .... 9.72 s 203(9) .... 8.9 s 204(4) .... 8.9 s 207(1) .... 10.61 s 207(2) .... 10.61 s 208 .... 10.62 s 209 .... 10.60, 10.62C s 218 .... 10.63 s 219 .... 10.64 s 224 .... 10.56, 10.67, 10.69 s 224(2) .... 10.67 s 226 .... 10.59 s 236 .... 10.56, 11.20 s 237 .... 10.74
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Marketing and the Law Australian Consumer Law – cont’d s 243 .... 11.20 s 246 .... 10.69–10.71 s 247 .... 10.69 s 248 .... 10.73 s 255 .... 8.14, 8.15C, 8.16C s 255(1) .... 8.16 s 255(2) .... 8.15 s 260 .... 9.24 s 261 .... 9.27 s 262(2) .... 9.25 s 266 .... 9.28 s 268 .... 9.46 s 270 .... 9.47 ss 271–276 .... 9.61 s 271(1) .... 9.34 s 271(2) .... 9.38 s 271(3) .... 9.34, 9.36 s 271(4) .... 9.38 s 271(5) .... 9.34 s 271(6) .... 9.37, 9.40 s 272 .... 9.39 s 273 .... 9.39 s 274 .... 9.33, 9.37 s 276 .... 9.33, 9.37 s 276(1) .... 9.37 s 276A .... 9.33, 9.37 Australian Industries Preservation Act 1906 .... 1.36 Australian Securities and Investments Commission Act 2001 .... 10.7 Broadcasting Services Act 1992 .... 4.37, 10.79, 19.69 s 123 .... 10.79 Business Names Act 2011 .... 1.12 Business Names Registration Act 2011 .... 1.14, 7.70–7.72 Circuit Layouts Act 1989 .... 5.2, 5.21, 5.35 s 5 .... 5.35 s 11 .... 5.35 s 16 .... 5.35 s 16(2) .... 5.35 s 17 .... 5.35 s 19 .... 5.35 s 20 .... 5.35 s 21 .... 5.35 s 22 .... 5.35 Competition and Consumer Act 2010 .... 1.8, 1.12, 1.36, 1.55, 7.66, 9.1, 10.5, 11.8, 11.45, 12.1, 13.3, 14.26, 19.21
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Pt IIIA .... 12.16, 12.19, 12.20, 12.31–12.34, 14.21, 14.30, 14.31, 14.33–14.36, 14.39, 14.44 Pt IIIAA .... 11.47 Pt IV .... 1.13, 1.43, 2.42, 2.43, 12.17, 12.18, 12.20, 12.22–12.24, 12.26–12.28, 12.34, 12.35, 12.56, 12.58, 13.8, 14.15, 14.33, 15.2, 15.20, 15.21, 16.31, 17.17, 18.26 Pt IV Div 1 .... 1.55, 12.17, 13.5, 13.6, 13.7, 13.43C2, 13.57, 13.64, 13.65, 13.67, 13.69, 13.76, 16.31 Pt IV Div 1A .... 13.68 Pt IV Div 2 .... 12.17, 13.5–13.7, 13.57, 13.64, 13.65, 13.69, 16.31 Pt IVA .... 12.35 Pt IVB Div 2A .... 18.22 Pt V .... 12.35 Pt VI .... 12.16 Pt VII .... 12.16, 12.28 Pt VIII .... 12.21, 16.1 Pt X .... 12.16 Pt XI .... 11.8 Pt XIA .... 12.34 Pt XIB .... 12.16, 12.20 Pt XIC .... 12.16, 12.20 s 2 .... 12.6, 14.36 s 2B .... 14.21C s 4 .... 12.38, 16.9 s 4(4)(b) .... 15.7 s 4A .... 15.21 s 4A(1) .... 14.13 s 4A(1)(b) .... 15.21 s 4A(5) .... 14.13 s 4D .... 13.44, 13.49C s 4E .... 15.8 s 4F .... 12.36, 13.22, 13.47, 16.20, 16.20C s 4F(1)(b) .... 14.16 s 4G .... 12.36, 13.48, 14.18, 15.8, 17.22 s 4J(b) .... 13.62 s 5 .... 12.35, 15.19 s 5(1) .... 12.35, 15.20 s 5(3) .... 12.35 s 5(4) .... 12.35 s 5(5) .... 12.35 s 30 .... 15.12 s 44AA .... 14.36 s 44B .... 14.36 s 44CA(1) .... 14.36 s 44D(1) .... 14.36 s 44D(2) .... 14.36
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Table of Statutes s 44F(1) .... 14.43 s 44F(1)(a)–(d) .... 14.36 s 44G .... 14.36 s 44H(4) .... 14.36, 14.37 s 44H(4)(b) .... 14.37C s 44K .... 14.40 s 44K(2) .... 14.37 s 44M .... 14.42 s 44V .... 14.39 s 44W .... 14.39 s 44X .... 14.39 s 44ZZ(1) .... 14.41 s 44ZZ(2) .... 14.41 s 44ZZA .... 14.43 s 44ZZA(3) .... 14.43 s 44ZZAA .... 14.43 s 44ZZCA .... 14.39 ss 44ZZRA–44ZZZB .... 12.17 s 44ZZRD .... 13.34C ss 44ZZS–44ZZZB .... 13.68 ss 44ZZW–44ZZX .... 12.17 ss 45–50 .... 12.22 s 45 .... 1.55, 12.17, 13.5, 13.7, 13.16, 13.18, 13.35C, 13.39C1, 13.44, 13.45, 13.54C, 13.56, 13.57, 13.65–13.67, 13.69, 13.76, 14.6, 14.15, 14.20C, 16.18C s 45(1) .... 13.44, 13.47, 13.48, 13.54, 13.65 s 45(1)(c) .... 13.9 s 45(2) .... 13.17, 13.39C2, 17.4, 17.26C, 17.30, 17.31 s 45(2)(a)(i) .... 13.39C2, 13.44 s 45(2)(a)(ii) .... 17.4 s 45(2)(b)(i) .... 13.39C2, 13.44 s 45(2)(b)(ii) .... 13.39C2 s 45(3) .... 13.56 s 45(5) .... 13.65 s 45(6) .... 13.65, 17.4 s 45(7) .... 13.65 s 45(8) .... 13.65 s 45(8A) .... 13.65 s 45(9) .... 13.45 s 45AB .... 13.40 s 45AD .... 12.17, 13.22, 13.23, 13.23C4, 13.30, 13.35C s 45AD(2) .... 13.19, 13.43C3 s 45AD(3)(a) .... 13.32, 13.35C, 13.39C1 s 45AD(3)(b) .... 13.36, 13.39C1 s 45AD(3)(c) .... 13.40, 13.43C3 s 45AD(4) .... 13.21, 13.34, 13.38, 13.42
s 45AD(6) .... 13.19 s 45AF .... 12.17, 13.17 s 45AF(3) .... 13.17 s 45AG .... 12.17, 13.17, 13.23C1, 13.24C s 45AG(3) .... 13.17 s 45AJ .... 12.17, 13.17 s 45AK .... 13.17, 13.39C1 ss 45AL–45AV .... 13.58 s 45AO .... 13.31, 13.62 s 45AP .... 13.31, 13.62 s 45AU .... 13.31, 13.63 s 45B .... 12.17 ss 45D–45EB .... 12.17 s 46 .... 1.55, 12.15, 12.17, 12.18, 12.22, 12.28, 13.39C2, 13.54C, 13.56C, 14.1–14.7, 14.9, 14.9C1, 14.9C2, 14.10, 14.15, 14.16, 14.18–14.21, 14.21C, 14.22, 14.23C, 14.24, 14.25, 14.26C, 14.27–14.29, 14.33, 14.44, 14.45, 16.11, 16.18C, 16.31, 17.4, 17.11, 17.11C2, 17.26C, 17.27, 17.30 s 46(1) .... 1.9, 14.2, 14.7, 14.8, 14.10, 14.12– 14.16, 14.19, 14.22, 14.23, 14.26, 14.45 s 46(1)(a) .... 14.11C s 46(1)(c) .... 14.24C, 17.11C1, 17.11C2 s 46(1AAA) .... 14.29C s 46(3) .... 14.13 s 46(4) .... 14.10 s 46(5) .... 14.10 s 46(7) .... 14.12 s 46(8)(a) .... 14.8 s 46A .... 12.17, 14.2, 14.29 s 46A(1) .... 14.29 s 46A(2)(a) .... 14.29 s 46A(2)(b) .... 14.29 s 46A(2)(c) .... 14.29 s 47 .... 1.55, 12.17 12.22, 12.28, 13.45, 13.54, 13.64, 14.15, 16.32, 17.1, 17.4, 17.9, 17.11, 17.11C1, 17.11C2, 17.12–17.15, 17.15C2, 17.23, 17.24C, 17.25C, 17.26C, 17.28, 17.28C, 17.30, 17.31, 18.26 s 47(1) .... 17.1 s 47(2)–(7) .... 17.1, 17.21 s 47(2)–(9) .... 17.1 s 47(2) .... 17.1, 17.5, 17.11C2, 17.29C s 47(2)(f)(i) .... 17.13 s 47(2)(f)(ii) .... 17.13 s 47(3) .... 17.1, 17.5 s 47(3)(a) .... 17.24C s 47(3)(d) .... 17.24C
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Marketing and the Law Competition and Consumer Act 2010 – cont’d s 47(4) .... 17.1, 17.16–17.18 s 47(5) .... 17.1, 17.16 s 47(6) .... 17.1, 17.15, 17.15C1 s 47(7) .... 17.1, 17.15 s 47(8) .... 17.1, 17.21, 17.29C s 47(8)(c) .... 17.15C2 s 47(9) .... 17.1, 17.21 s 47(10) .... 17.1, 17.7, 17.11C2, 17.18 s 47(11) .... 17.21 s 47(12) .... 17.1 s 47(13) .... 17.6, 17.12, 17.15, 17.17 s 48 .... 1.55, 12.17, 12.18, 12.29, 13.45, 13.64, 16.1, 16.7, 16.10–16.12, 16.14C, 16.15, 16.15C1, 16.15C2, 16.17C, 16.18, 16.18C, 16.19, 16.20, 16.20C1, 16.22C, 16.23, 16.23C2, 16.24, 16.27, 16.28, 16.28C1, 16.28C2, 16.31–16.33, 17.13, 17.31, 18.26 s 49 .... 12.17, 13.56 s 50 .... 12.17, 12.35, 12.36, 12.44C, 13.45, 13.64, 14.15, 15.1, 15.3, 15.6, 15.7, 15.8, 15.8C1, 15.8C2, 15.12–15.14, 15.16, 15.20–15.22 s 50(3) .... 15.22 s 50A .... 15.19, 15.21, 15.22 s 50A(1B) .... 12.17, 15.21 s 50A(6) .... 15.21 s 50A(8) .... 15.21 s 51 .... 12.18 s 51(3) .... 12.18 s 51ACA(1) .... 18.10 s 51ACA(2) .... 18.10 s 51ACB .... 8.21, 18.10, 18.18C, 18.22 s 51AE(1) .... 18.10 s 76 .... 13.9, 14.27, 15.16, 15.22, 16.28 s 76(1) .... 12.24 s 76(1)(a) .... 14.27 s 76(1A) .... 12.23, 13.17, 15.22 s 76(1A)(b) .... 14.27 s 76(1B) .... 12.24, 13.17, 15.22 s 76(1B)(b) .... 14.27 s 76C .... 13.66 s 77A .... 12.24 s 79 .... 12.21 s 79(1) .... 13.17 s 80 .... 12.26, 15.22, 16.28 s 81 .... 15.22 s 82 .... 12.26, 14.27, 15.22 s 84 .... 1.48, 16.28
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s 84(1) .... 14.16 s 86C(2) .... 12.27 s 86E .... 12.24 s 87 .... 12.26, 12.35, 14.27 s 87B .... 1.47, 12.27, 15.13, 15.15, 15.22, 18.22 s 87B(4) .... 12.27 s 88 .... 14.28, 15.14, 17.1, 17.29 s 88(1) .... 16.25 s 88(2) .... 14.28, 15.14 s 88(3) .... 14.28, 15.14 s 88(4) .... 15.14 s 88(6) .... 15.14 s 89(3) .... 15.14 s 89(4) .... 15.14 s 90 .... 12.28, 17.1 s 90(1) .... 15.14 s 90(4) .... 15.14 s 90(5A) .... 13.69 s 90(5B) .... 13.69 s 90(6)–(8) .... 13.69 s 90(6) .... 13.69, 16.28 s 90(7) .... 14.28, 15.12, 15.14 s 90(7)(a) .... 12.57 s 90(7)(b) .... 12.57, 15.14, 16.25 s 90(8) .... 12.57 s 90(9A) .... 15.14 s 90(10B) .... 15.14 s 91 .... 12.57 s 91(1) .... 15.14 s 91(1A) .... 15.14 s 91B .... 12.62, 15.16 s 91B(3) .... 15.16 s 92 .... 15.16 s 92(1) .... 15.16 s 92(2) .... 15.16 s 93 .... 17.1, 17.28 s 93(1) .... 12.28, 16.26 s 93(3) .... 17.28 s 93(4) .... 17.28 s 93AB .... 13.60 s 93AB(1A) .... 13.60 s 93AC .... 13.60 s 93AAA(1) .... 16.26 ss 96–100 .... 16.1 s 96(3) .... 16.13 s 96(3)(a) .... 16.14, 16.15C1 s 96(3)(b) .... 16.15, 16.17C, 16.21C s 96(3)(c) .... 16.15C1, 16.16 s 96(3)(d) .... 16.17C, 16.18, 16.21C, 16.22
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Table of Statutes s 96(3)(d)(i) .... 16.18 s 96(3)(d)(ii) .... 16.18, 16.21C s 96(3)(e) .... 16.18 s 96(3)(f) .... 16.9, 16.11, 16.17, 16.17C s 96(4) .... 16.10 s 96(7) .... 16.23 s 96A .... 16.24 s 97 .... 16.15 s 97(a) .... 16.15 s 97(b) .... 16.15 s 98 .... 16.19, 16.21C s 98(1)(b) .... 16.21C s 98(2) .... 16.22 s 98(3) .... 16.22 s 99 .... 16.27 s 100 .... 16.18, 16.21 s 100(2) .... 16.21 s 101(1) .... 15.17 s 101(1AA) .... 15.17 s 101(2) .... 15.17 s 102(1) .... 15.17 s 109(2) .... 15.17 s 130 .... 11.20 s 134C .... 10.66 s 139A .... 9.22 s 139B .... 11.20 s 139B(1) .... 11.20 s 151AA .... 12.20 s 151AK .... 12.20 s 152AA .... 12.20 s 155 .... 12.31, 15.13 s 163A .... 12.26 Sch 2 .... 1.13, 1.35, 2.51, 4.11, 5.32, 6.1, 8.2, 8.26, 10.3, 10.5, 11.8, 18.23, 19.21 Competition and Consumer Amendment (Competition Policy Review) Act 2017 .... 1.36, 13.9, 14.28, 15.14, 17.15 Competition and Consumer Amendment (Misuse of Market Power) Act 2017 .... 1.36, 14.2, 14.7 Competition and Consumer (Industry Code — Electricity Retail) Regulations 2019 .... 18.11 Competition and Consumer (Industry Code — Horticulture) Regulations 2017 .... 18.11 Competition and Consumer (Industry Code — Oil) Regulations 2017 .... 18.11 Competition and Consumer (Industry Code — Sugar) Regulations 2017 .... 18.11
Competition and Consumer (Industry Codes — Food and Grocery) Regulation 2015 .... 18.10 Competition and Consumer (Industry Codes — Franchising) Regulation 2014 Sch 1 .... 18.11 Competition and Consumer (Industry Codes — Port Terminal Access (Bulk Wheat)) Regulations 2014 .... 18.11 Competition and Consumer Regulations 2010 reg 9(a) .... 16.26 Copyright Act 1905 .... 1.7 Copyright Act 1968 .... 1.7, 1.12, 1.55, 4.2, 5.9, 6.42, 7.58, 8.2, 10.30, 17.26C Pt III .... 4.13, 4.14 Pt IV .... 4.21, 4.57 Pt IVA Div 4 .... 4.36 Pt V Div 2AA .... 4.64 Pt V Div 2A Subdiv A .... 4.74 Pt V Div 2A Subdiv B .... 4.74 Pt V Div V .... 4.72 Pt IX .... 4.25 s 10 .... 4.7, 4.10, 4.15, 4.19, 4.47, 4.67, 5.16 ss 10AA–10AC .... 4.67 s 10AD .... 4.67 s 14 .... 4.38 s 21(3) .... 4.18, 4.44 s 22(3)(a) .... 4.37 s 22(4)(a) .... 4.37 s 22(5) .... 4.34 s 29(1)(a) .... 4.37 s 29A(1) .... 4.37 s 29A(2) .... 4.37 s 31 .... 4.23 s 32 .... 4.3, 4.4 s 32(4) .... 4.4 s 33(2) .... 4.37 s 33(3) .... 4.37 s 35 .... 4.33 s 35(2) .... 4.28 s 35(3) .... 4.28 s 35(4) .... 4.30 s 35(5) .... 4.31 s 35(6) .... 4.29 s 36 .... 4.38, 4.57, 4.59–4.61 s 36(1A) .... 4.57 s 36(1A)(c) .... 4.59C ss 37–38 .... 4.67 s 37 .... 4.65, 4.65C, 4.66C s 38 .... 4.65
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Marketing and the Law Copyright Act 1968 – cont’d ss 40–42 .... 4.50 s 44A .... 4.66 s 44C .... 4.67 s 44D .... 4.66 s 44E .... 4.66 s 44F .... 4.66 ss 47AB–47H .... 4.51 s 47C .... 4.52 s 47J .... 4.52 ss 54–64 .... 4.36 s 65 .... 4.16 s 66 .... 4.19 ss 74–77A .... 4.53, 4.56C s 75 .... 4.54 s 77 .... 4.18C2, 4.55, 4.56C s 77(1A) .... 4.56 s 77(2) .... 4.20C1 s 77(2)(a) .... 4.55 s 80 .... 4.37 s 85 .... 4.24, 4.48 s 86 .... 4.24, 4.48 s 87 .... 4.24, 4.48 s 88 .... 4.24, 4.48 s 93(2) .... 4.37 s 94(3) .... 4.37 s 95 .... 4.37 s 96 .... 4.37 s 97(3) .... 4.34 s 98(3) .... 4.34 s 99 .... 4.34 s 100 .... 4.34 s 100AE .... 4.34 ss 101–103 .... 4.67 s 101 .... 4.48, 4.57 s 101(1A) .... 4.57 s 102 .... 4.64 ss 103A–103C .... 4.50 s 111 .... 4.52 s 112C .... 4.67 s 112D .... 4.66 s 112E .... 4.63 s 115 .... 4.69 s 115(2) .... 3.18 s 115(3) .... 4.69 s 115(4) .... 4.69 s 115A .... 4.71 s 116 .... 4.69, 4.70 ss 116AA–116AJ .... 4.64
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s 116AH(1) .... 4.64 s 123AJ(1) .... 7.59C s 135(7) .... 4.72 s 190 .... 4.25 s 191 .... 4.25 ss 193–195AB .... 4.25 ss 195ABA–195ABE .... 4.25 ss 195AC–195AH .... 4.25 ss 195AHA–195AHC .... 4.25 ss 195AI–195AN .... 4.25 ss 195ALA–195ALB .... 4.25 s 195AR(2)–(3) .... 4.27 s 195AS(2)–(3) .... 4.27 ss 195AW–195AWA .... 4.25 s 195AXD(2) .... 4.27 s 195AXE(2) .... 4.27 s 195AXJ .... 4.25 s 202 .... 4.73 Copyright Amendment (Online Infringement) Act 2018 .... 4.71 Copyright Amendment (Service Providers) Act 2018 .... 4.64 Copyright (International Protection) Regulations 1969 .... 4.4 reg 4 .... 4.75 Copyright Regulations 2017 .... 4.55 reg 12(1) .... 4.55 reg 12(1)(a) .... 5.16 Corporations Act 2001 .... 3.18, 3.20 s 117 .... 7.74 s 144 .... 7.74 s 147 .... 7.74 s 182 .... 3.18 s 183 .... 3.18, 3.20 Corporations Regulations 2001 .... 7.74 Crimes Act 1914 s 4AA .... 10.66, 18.22 Crimes Amendment (Penalty Unit) Act 2017 .... 18.22 Defamation Act 2005 s 7(1) .... 19.57 Designs Act 2003 (Cth) .... 1.12, 1.55, 4.5, 5.1, 5.24, 7.58 s 5 .... 5.5 s 6(1) .... 5.6 s 6(2) .... 5.6 s 6(3) .... 5.6 s 6(4) .... 5.6 s 7(1) .... 5.5
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Table of Statutes s 7(2) .... 5.5, 5.9 s 7(3) .... 5.5, 5.8 s 8 .... 5.5 s 10 .... 5.18 s 10(2) .... 5.18 s 10(3) .... 5.18 s 13 .... 5.15C, 5.20 s 13(1)(b) .... 5.20 s 13(1)(c) .... 5.20 s 15 .... 5.10, 5.15C, 5.16 s 15(2) .... 5.13 s 16 .... 5.15C s 16(1) .... 5.11, 5.12 s 17 .... 5.16 s 17(1)(a) .... 5.16 s 17(1)(b) .... 5.16 s 18 .... 5.16 s 18(2) .... 5.16 s 19 .... 5.12, 5.24 s 19(1) .... 5.12, 5.24 s 19(4) .... 5.12 s 27(1)(b) .... 5.17 s 39 .... 5.21 s 43 .... 5.21, 5.22 s 43(1)(c) .... 5.21 s 65 .... 5.22 s 65(2) .... 5.22 s 66 .... 5.22 s 67 .... 5.22 s 68 .... 5.22 s 71(1) .... 5.23 s 71(1)(a) .... 5.23 s 71(1)(b)–(e) .... 5.23 s 71(3) .... 5.24 s 71(4) .... 5.23 s 72 .... 5.25 s 72(1) .... 5.25 s 72(2) .... 5.25 s 75 .... 3.18, 5.26 s 75(2)(a) .... 5.26 s 75(2)(b) .... 5.26 s 77 .... 5.27 s 90 .... 5.26 s 93 .... 5.26 s 132 .... 5.28 Designs Regulations 2004 reg 2.01 .... 5.16 reg 3.06(2) .... 5.17 reg 4.04 .... 5.21
reg 4.04(1)(e) .... 5.21 Do Not Call Register Act 2006 .... 19.17, 19.18, 19.38 Pt 4 .... 19.21 s 5 .... 19.18 s 5B .... 19.18 s 11 .... 19.19 s 11(1) .... 11.39, 19.18 s 11(2) .... 19.18 s 12 .... 19.21 s 12C .... 19.21 Sch 1 .... 19.17 Sch 1A .... 19.17 Sch 2 .... 19.17 Sch 3 .... 19.21 Electronic Transactions Act 1999 .... 19.5, 19.49 s 3 .... 19.5 s 4 .... 19.5 s 14 .... 19.49 Fair Work (Registered Organisations) Act 2009 .... 19.29 Federal Court of Australia Act 1976 Pt IVA .... 10.74 Flags Act 1953 .... 7.33 Food Standards Australia New Zealand Act 1991 .... 8.24 Gene Technology Act 2000 .... 2.10 Geneva Conventions Act 1957 .... 7.33 Industrial Chemical At 2019 .... 8.27 Intellectual Property Laws Amendment (Raising the Bar) Act 2012 .... 2.20 Sch 6 item 29 .... 2.23 Interactive Gambling Act 2001 .... 11.7 Major Sporting Events (Indicia and Images) Protection Act 2014 .... 7.33, 10.30 Melbourne 2006 Commonwealth Games (Indicia and Images) Protection Act 2005 .... 10.30 Mutual Recognition Act 1992 .... 8.29 Sch 2 .... 8.29 National Energy Retail Law .... 11.47 National Energy Retail Regulations .... 11.47 National Energy Retail Rules .... 11.47 National Measurement Act 1960 .... 8.18 National Trade Measurement Regulations 2009 .... 8.17 s 18JHA .... 8.20 Olympic Insignia Protection Act 1987 .... 7.33, 10.30 s 30 .... 10.31 s 36 .... 10.30C
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Copyright © 2019. LexisNexis Butterworths. All rights reserved.
Marketing and the Law Patents Act 1990 .... 1.12, 1.55, 2.10, 3.2, 4.5, 5.3, 7.58 s 7 .... 2.20 s 7(1)(b) .... 2.15 s 7(2) .... 2.19 s 7(3) .... 2.19 s 7(4) .... 2.32 s 7A .... 2.22 s 9 .... 2.23, 2.51C s 14 .... 2.42 s 15 .... 2.36 s 18 .... 2.10C s 18(1) .... 2.6 s 18(1)(b) .... 2.13 s 18(1)(c) .... 2.22 s 18(1)(d) .... 2.23C2 s 18(1A) .... 2.6, 2.31 s 18(1A)(b)(ii) .... 2.31 s 18(2) .... 2.10 s 20 .... 2.60 s 24 .... 2.17 s 40(1) .... 2.24 s 40(2) .... 2.24, 2.60 s 40(3) .... 2.24, 2.27, 2.60 s 59 .... 2.26 s 67 .... 2.29 ss 70–79A .... 2.2 s 101 .... 2.60 s 117 .... 2.51, 2.51C2 s 117(1) .... 2.51C1 s 117(2)(c) .... 2.51C1 ss 118–119C .... 2.49 s 119 .... 2.17, 2.52 s 120(1A) .... 2.33 s 122(1) .... 2.54, 2.55, 3.18 s 122(1A) .... 2.54 s 123(1) .... 2.54 s 128 .... 2.59 s 131 .... 2.59 s 133 .... 2.44 s 133(2)(a) .... 2.44 s 133(2)(b) .... 2.44 s 135 .... 2.44 s 138 .... 2.60 s 138(4) .... 2.60 Sch 1 .... 2.41, 2.46 Patents Regulations 1991 .... 2.17 regs 2.2–2.2D .... 2.17 reg 5.4(1) .... 2.26
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Personal Property Securities Act 2009 .... 2.42 Plant Breeder’s Rights Act 1994 .... 2.10, 2.69 Privacy Act 1998 .... 11.46, 19.28, 19.29, 19.45 s 6 .... 19.30 s 13G .... 19.45 s 40(1A) .... 19.45 s 40(2) .... 19.45 Sch 1 .... 19.28 Privacy Amendment (Enhancing Privacy Protection) Act 2012 .... 19.28 Privacy Regulations 2013 .... 19.28 Prohibition of Human Cloning Act 2002 .... 2.10 s 20 .... 2.10 Resale Royalty Right for Visual Artists Act 2009 ss 8–10 .... 4.23 Restrictive Trade Practices Act 1971 .... 1.36 Spam Act 2003 .... 19.10, 19.11, 19.15, 19.38 s 6 .... 19.13 s 14 .... 19.15 s 16 .... 19.15C s 18 .... 19.13 s 24 .... 19.15 s 28 .... 19.15 s 29 .... 19.15 s 32 .... 19.15 Sydney 2000 Games (Indicia and Images) Protection Act 1996 .... 10.30 Telecommunications Act 1997 (Cth) .... 4.71, 19.10, 19.60 s 40 .... 19.21 s 125A(1) .... 11.39 s 125B(1) .... 19.18 s 128 .... 19.18, 19.25 s 129 .... 19.21 s 572B .... 19.21 Telecommunications (Do Not Call Register) (Telemarketing and Research Calls) Industry Standard 2007 s 4 .... 19.22 s 7 .... 19.25 Therapeutic Goods Act 1989 .... 8.27 Tobacco Plain Packaging Act 2011 .... 7.33 s 28(2) .... 7.33 Trade Marks Act 1905 .... 7.2 Trade Marks Act 1995 .... 1.12, 1.55, 5.4, 6.1, 6.42, 7.2, 7.5, 7.41, 10.30 Pt 4 .... 7.65 Pt 4 Div 2 .... 7.10 Pt 13 .... 7.54
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Table of Statutes Pt 14 .... 7.55, 7.59 Pt 16 .... 7.66 Pt 17 .... 7.65 s 6 .... 7.6 s 7(2) .... 7.46 s 7(4) .... 7.46 s 7(5) .... 7.46 s 10 .... 7.37, 7.48 s 14 .... 7.38 s 17 .... 7.6 s 19(2) .... 7.9 s 20(1) .... 7.43 s 20(2) .... 7.43 s 21 .... 7.43 s 24 .... 7.61 s 27 .... 7.9 s 27(1) .... 7.7 s 29 .... 7.42 s 39 .... 7.30 s 40 .... 7.31 s 41(1) .... 7.11 s 41(3) .... 7.25–7.28 s 41(4) .... 7.22, 7.24 s 41(4) note 1 .... 7.12, 7.21 s 41(5) .... 7.24 s 41(6) .... 7.26 s 42(a) .... 7.32 s 42(b) .... 4.44, 7.32, 7.33 s 43 .... 7.33, 7.34 s 44 .... 7.35 s 51A .... 7.9 s 57 .... 7.42 s 58 .... 7.42 s 58A .... 7.42 s 59 .... 7.42 s 60 .... 7.42, 7.42C5 s 61 .... 7.21, 7.42 s 61(1)(d) .... 7.21 s 62 .... 7.42 s 62A .... 7.42, 7.42C5 s 65C .... 8.7C s 69(1)(c) .... 7.43 s 70 .... 7.43 s 72 .... 7.42 s 72(3) .... 7.44 s 74 .... 7.41 ss 75–77 .... 7.44 s 84A .... 7.60 s 84A(6) .... 7.60
s 84D .... 7.60 s 87 .... 7.61 s 88(2)(b)–(e) .... 7.64 s 92 .... 7.62 s 93 .... 7.62 s 102 .... 7.43 s 120(1) .... 7.5, 7.45, 7.46, 19.66 s 120(2) .... 2.2, 7.45, 7.49 s 120(3) .... 7.45, 7.53 s 120(3)(d) .... 7.53 s 120(4) .... 7.53 s 122(1)(a) .... 7.27, 7.28, 7.56 s 122(1)(b) .... 7.28, 7.56, 19.55C s 122(1)(c) .... 7.56 s 122(1)(d) .... 7.56 s 122(1)(e) .... 7.56 s 122(1)(f) .... 7.56 s 122(1)(fa) .... 7.56 s 122(1)(g) .... 7.56 s 122(2) .... 7.41, 7.56 s 122A .... 7.54 s 124 .... 7.56 s 126(1) .... 7.57 s 126(2) .... 7.57 s 129(1) .... 7.58 s 129(2A) .... 7.58 s 130A .... 7.58 s 145 .... 7.59 s 146 .... 7.59 s 147 .... 7.59 s 147A .... 7.59 s 147B .... 7.59 s 148 .... 7.59 s 148(1) .... 7.59C s 150 .... 7.59 s 151 .... 7.59, 7.68 s 169 .... 7.66 s 225 .... 7.42 Trade Marks Regulations 1995 .... 7.7 reg 4.3(7) .... 7.31 reg 4.3(8) .... 7.31 reg 4.15 .... 7.30, 7.63 Sch 1 .... 7.8, 7.9 Trade Practices Act 1965 .... 1.36 Trade Practices Act 1974 .... 1.13, 1.36, 6.18, 7.53, 9.13, 10.4, 11.8, 17.11C1 Pt V .... 6.17, 11.8 Pt V Div 1A .... 9.64 Pt VA .... 9.51, 9.52, 9.53C1, 9.53C2, 9.55C
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Marketing and the Law Trade Practices Act 1974 – cont’d s 45 .... 13.23C1 s 50 .... 15.8C1 s 51A .... 10.24C s 51AC .... 18.24C2 s 52 .... 4.42C2, 6.6C, 6.10C, 6.11C3, 6.17–6.19, 6.22C, 6.27C1, 6.27C2, 6.27C3, 6.30C, 6.31C, 6.32C, 6.33, 6.34C, 6.36C, 6.37C, 6.38C, 6.40C, 6.43C1, 6.45C, 7.55C, 10.6, 10.16C, 10.22C, 10.24C, 10.26C1, 10.27C1, 10.27C4, 10.29C, 10.56C1, 10.70, 11.18, 18.24C2, 19.54C, 19.64 s 53 .... 6.18, 6.34C, 10.6 s 53(a) .... 10.26C1, 10.27C4, 10.59C, 10.61C s 53(b) .... 10.26C1 s 53(c) .... 6.43C1, 10.16C, 10.24C, 10.26C1, 10.27C1, 10.70 s 53(d) .... 19.54C s 53(e) .... 10.45C1, 10.49C2 s 53(eb) .... 8.14C1 s 53(f) .... 10.27C1 s 53(g) .... 10.49C2 s 55 .... 10.6, 10.16C s 55A .... 10.6 s 65C .... 8.8C s 68 .... 9.22C, 9.44C s 74 .... 9.22C, 9.43C, 9.44C s 75AD .... 9.55C s 75AF .... 9.53C2 s 75AG .... 9.53C2 s 85(3) .... 10.62 Trade Practices (Consumer Product Information Standards) (Cosmetics) Regulations 1991 .... 8.27 Trade Practices (Consumer Product Safety Standards) (Children’s Nightwear and Paper Patterns for Children’s Nightwear) Regulations 2007 .... 8.7C Trade Practices (Consumer Product Safety Standards) Regulations 1979 reg 11 .... 8.8C Trade Practices (Industry — Unit Pricing) Regulations 2009 .... 8.21 Trade Practices Regulations 1979 .... 8.8C Trans-Tasman Mutual Recognition Act 1997 .... 8.29 Treasury Laws Amendment (2018 Measures No 3) Act 2018 .... 1.43
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Treasury Laws Amendment (2018 Measures No 5) Act 2019 .... 12.18 Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 .... 11.31 US Free Trade Agreement Implementation Act 2004 .... 4.37, 4.75 War Precautions Repeal Act 1920 .... 7.33 Wine Australia Corporation Act 1980 .... 6.8C
Australian Capital Territory Business Names Act 1963 .... 7.70 Civil Law (Wrongs) Act 2002 .... 9.3 Dangerous Substances Act 2004 .... 8.28 Fair Trading (Consumer Affairs) Act 1973 Pt 4 .... 9.64 Legislation Act 2001 .... 1.20 s 139 .... 1.20 Lotteries Act 1964 .... 11.3 s 6 .... 11.5 s 7 .... 11.5 Medicines, Poisons and Therapeutic Goods Act 2008 .... 8.27 Mutual Recognition (Australian Capital Territory) Act 1992 .... 8.29 Sale of Goods Act 1954 .... 9.2 Unlawful Gambling Act 2009 .... 11.3
New South Wales Arbitration Act 2010 .... 1.42 Business Names Act 2002 .... 7.70 Civil Liability Act 2002 .... 9.3 s 5B .... 9.5 Competition Policy Reform (New South Wales) Act 1995 .... 12.34 Contracts Review Act 1980 .... 3.39 Dangerous Goods (Road and Rail Transport) Act 2008 .... 8.28 Explosives Act 2003 .... 8.28 Fair Trading Act 1987 .... 9.64 Pt 3 .... 9.64 Pt 3 Div 2 .... 10.5 Pt 4 Div 1 .... 9.64 Interpretation Act 1987 .... 1.20 s 33 .... 1.20 Lotteries and Art Unions Act 1901 .... 11.3, 11.7 s 3 .... 11.7 s 4B .... 11.5 Lotteries and Art Unions Regulation 2007 .... 11.7
Table of Statutes Mutual Recognition (New South Wales) Act 1992 .... 8.29 Poisons and Therapeutic Goods Act 1966 .... 8.27 Restraints of Trade Act 1976 s 4(1) .... 3.36 Sale of Goods Act 1923 .... 9.2 Work Health and Safety Act 2011 Sch 1 .... 8.28
Northern Territory Business Names Act 2007 .... 7.70 Consumer Affairs and Fair Trading Act 1990 Pt IV Div 14 .... 9.64 Dangerous Goods Act 2012 .... 8.28 Gaming Control Act 2005 .... 11.3 s 39 .... 11.5 Gaming Control (Community Gaming) Regulations 2011 reg 8 .... 11.5 Interpretation Act 1978 .... 1.20 s 62A .... 1.20 Medicines, Poisons and Therapeutic Goods Act 2012 .... 8.27 Mutual Recognition (Northern Territory) Act 1992 .... 8.29 Sale of Goods Act 1972 .... 9.2 Transport of Dangerous Goods by Road and Rail (National Uniform Legislation) Act 2010 .... 8.28
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Queensland Acts Interpretation Act 1954 .... 1.20 s 14A .... 1.20 Amendment of Major Sports Facilities Act 2001 .... 10.30 Arbitration Act 2013 .... 1.42 Business Names Act 1962 .... 7.70 Charitable and Non-Profit Gaming Act 1999 .... 11.3, 11.5 Sch 5 .... 11.7 Civil Liability Act 2003 .... 9.3 Explosives Act 1999 .... 8.28 Fair Trading Act 1989 Pt 4 Div 12 .... 9.64 Health Act 1937 .... 8.27 Lotteries Act 1997 .... 11.3 Major Sports Facilities Act 2001 .... 10.30 s 30G(2) .... 10.30
Mutual Recognition (Queensland) Act 1992 .... 8.29 Non-Profit Gaming Act 1999 .... 11.3, 11.7 Non-Profit Gaming Regulations 1999 .... 11.7 Non-Profit Gaming Rules 1999 .... 11.7 Sale of Goods Act 1898 .... 9.2 Transport Infrastructure Act 1994 .... 8.28 Transport Operations (Road Use Management) Act 1995 .... 8.28
South Australia Acts Interpretation Act 1915 .... 1.20 s 22 .... 1.20 Arbitration Act 2011 .... 1.42 Beverage Containers Act 1975 .... 8.29 Business Names Act 1996 .... 7.70 Civil Liability Act 1936 .... 9.3 Controlled Substances Act 1984 .... 8.27 Dangerous Substances Act 1979 .... 8.28 Explosives Act 1936 .... 8.28 Lottery and Gaming Act 1936 .... 11.3 Lottery and Gaming Regulations 2008 reg 17 .... 11.5 Mutual Recognition (South Australia) Act 1993 .... 8.29 Sale of Goods Act 1895 .... 9.2 Trade Standards Act 1979 .... 9.64
Tasmania Acts Interpretation Act 1931 .... 1.20 Arbitration Act 2011 .... 1.42 Business Names Act 1962 .... 7.70 Civil Liability Act 2002 .... 9.3 Dangerous Goods (Road and Rail Transport) Act 2010 .... 8.28 Explosives Act 2012 .... 8.28 Gaming Control Act 1993 .... 11.3 s 4A .... 11.5–11.7 Mutual Recognition (Tasmania) Act 1993 .... 8.29 Poisons Act 1971 .... 8.27 Sale of Goods Act 1896 .... 9.2 Sale of Hazardous Goods Act 1977 .... 9.64 Therapeutic Goods Act 2001 .... 8.27
Victoria Arbitration Act 2011 .... 1.42 Australian Grands Prix Act 1994 .... 10.30
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Marketing and the Law Business Names Act 1962 .... 7.70 Commonwealth Games Arrangements Act 2001 .... 10.30 Dangerous Goods Act 1985 .... 8.28 Drugs, Poisons and Controlled Substances Act 1981 .... 8.27 Fair Trading Act 1999 .... 11.26 Pt 3 .... 9.64 Food Act 1984 .... 8.23 Gambling Regulation Act 2003 .... 11.3 s 5.7.1 .... 11.5 s 5.7.2 .... 11.5 Gambling Regulation Amendment Regulations 2012 .... 11.7 Gambling Regulations 2005 .... 11.7 Interpretation of Legislation Act 1984 .... 1.20 s 35 .... 1.20 Major Events (Aerial Advertising) Act 2007 .... 10.30 Major Sporting Events Act 2009 .... 10.30 Mutual Recognition (Victoria) Act 1999.... 8.29 Therapeutic Goods (Victoria) Act 1994 .... 8.27 World Swimming Championships Act 2004 .... 10.30 Wrongs Act 1958 .... 9.3
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Western Australia Arbitration Act 2012 .... 1.42 Business Names Act 1962 .... 7.70 Consumer Affairs Act 1971 .... 9.64 Dangerous Goods Safety Act 2004 .... 8.28 Gaming and Wagering Commission Act 1987 .... 11.3 s 102 .... 11.7 s 102(b) .... 11.5 s 104 .... 11.5 s 104(1) .... 11.7 Gaming and Wagering Commission Regulations 1988 .... 11.7 Interpretation Act 1984 .... 1.20 s 18 .... 1.20 Major Events (Aerial Advertising) Act 2009 .... 10.30 Medicines and Poisons Act 2014 .... 8.27 Mutual Recognition (Western Australia) Act 2001 .... 8.29 Poisons Act 1964 .... 8.27 Sale of Goods Act 1895 .... 9.2
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International Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) .... 2.10, 2.63, 5.34 art 27(3)(a) .... 2.10 Australia New Zealand Closer Economic Relations Trade Agreement [1983] ATS 2 .... 14.29 Berne Convention for the Protection of Literary and Artistic Works .... 4.2, 4.67, 4.75 EC Treaty (Treaty Establishing the European Committee) 2004 art 82 .... 12.11 European Patent Convention .... 2.65 General Agreement on Trade in Services (GATS) .... 5.34 Locarno Agreement Establishing an International Classification for Industrial Designs 1968 .... 5.21 Madrid Protocol relating to the Madrid Agreement Concerning the International Registration of Marks 1989 .... 7.67 Marrakesh Agreement .... 5.34 Paris Convention for the Protection of Industrial Property 1970 .... 2.28, 2.62, 5.34 Patent Cooperation Treaty .... 2.64 Rome Convention .... 4.4 Universal Copyright Convention .... 4.2, 4.4
United Kingdom Commonwealth of Australia Constitution Act 1900 .... 1.5, 1.6 s 51 .... 1.7 s 90 .... 1.7 s 109 .... 1.7 s 114 .... 1.7 s 115 .... 1.7 s 119 .... 1.7 s 128 .... 1.8 Merchandise Marks Act 1862 .... 7.2 Patents Act 1977 .... 2.10 Sale of Goods Act 1893 .... 9.2 Statute of Monopolies 1623 .... 2.7 s 6 .... 2.7 Trade Marks Registration Act 1875 .... 7.2
United States Anticybersquatting Consumer Protection Act, 15 USC [1125] (1999) …. 19.61
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Introduction to the Law and Marketing
1
Marketing — The Legal Environment ............................................ 1.1 The Function of Marketing ............................................................. 1.2 The Law and the Marketing Mix .................................................... 1.3 Law and the Australian Legal System ............................................. 1.4 What is law? .................................................................................... 1.4 Parliamentary law ........................................................................... 1.5 A. A short history of government in Australia ...................... 1.6 B. Federalism — sharing power between parliaments ......... 1.7 C. Changing the division of power between parliaments .... 1.8 D. Referring to and finding parliamentary law ...................... 1.9 E. The structure of parliaments in Australia ...................... 1.10 F. The process of creating parliamentary law ........................ 1.11 G. Parliamentary law and marketing ................................... 1.12 i. Competition and Consumer Act (formerly the Trade Practices Act) ........................................................ 1.13 ii. Business names registration ........................................... 1.14 H. Administering the law — the doctrine of the separation of powers ............................................................ 1.15 I. Interpreting a statute — the role of the courts ................ 1.16 i. Literal rule ........................................................................ 1.17 ii. Golden rule ............................................................................ 1.18 iii. Mischief rule ......................................................................... 1.19 iv. Use of extrinsic materials in interpreting statutes ....... 1.20 v. Rebuttable presumptions ...................................................... 1.21 vi. Other interpretive devices .......................................... 1.22
1
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Marketing and the Law
Case law (common law) .............................................................. A. Distinction between common law systems and civil law systems ............................................................... B. Doctrine of precedent (stare decisis) .............................. i. Hierarchy of courts in Australian states ...................... ii. Hierarchy of federal courts in Australia ...................... iii. Courts in other jurisdictions ........................................ C. Finding case law ................................................................ D. Law reporting and the internet ........................................ E. Common law and equity .................................................. F. The process of extracting the law from a case ............... The primacy of parliamentary law over case law ...................... A. The law of negligence ....................................................... B. Consumer protection law ................................................. C. Competition law ...................................................................... An age of regulation ...................................................................... Private law and public law ............................................................... Civil cases and criminal cases .................................................... Dispute resolution ...................................................................... A. Resolving disputes through the courts ........................... B. Alternative dispute resolution ......................................... The Law and Compliance ............................................................... What is a legal compliance program? ....................................... Reasons to adopt a legal compliance program ........................ A. Benefits of compliance programs ..................................... B. Avoiding the costs of breaching the law ......................... C. Compliance program as part of the ACCC’s enforcement activities ............................................................. Designing an effective compliance program ........................... The Law and Competitive Advantage .......................................... Product ......................................................................................... Price ....................................................................................................... Promotion ....................................................................................... Place ............................................................................................ The competitive process ........................................................... Summary and Objectives of this Text ..........................................
2
1.23 1.24 1.25 1.26 1.27 1.28 1.29 1.30 1.31 1.32 1.33 1.34 1.35 1.36 1.37 1.38 1.39 1.40 1.41 1.42 1.43 1.44 1.45 1.45 1.46 1.47 1.48 1.49 1.50 1.51 1.52 1.53 1.54 1.55
Chapter 1: Introduction to the Law and Marketing
Marketing — The Legal Environment
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Business people must be diligent to understand the legal system’s relationship to their marketing decisions. Federal, state and local regulations affect marketing practices, as do the actions of independent regulatory agencies. These requirements and prohibitions touch on all aspects of marketing decision making: designing, labelling, packaging, distributing, advertising, and promoting goods and services. All marketers should be aware of the major regulations that affect their activities.1
1.1 This text concentrates on the legal environment in which marketing decisions are made in Australia. ‘Marketing law’ is merely a shorthand way of referring to those legal rules, remedies, and sanctions that are likely to have the greatest impact on marketing decisions. These decisions are not made in a vacuum. No reasonable marketing executive should regard the law as irrelevant to the decisionmaking process. The law is more than just a matter for the lawyers. It is a matter for business people to assimilate, place in perspective, and comply with. Any firm that does not have an effective legal compliance system in place nowadays runs an enormous risk, as will be amplified below. The legal regulations discussed in this text do not form a discrete body of law. The rules have different origins and different reasons for existing. Some come from the common law (judge-made law), but the majority are created by statute (parliamentary law). Some are federal laws, while others are initiated by the states and territories. Some are designed to protect consumers, some are designed to protect traders, and some are designed to protect the competitive system itself. Some attract criminal sanctions, while others have a non-criminal application only. The connecting factor between these laws is their relevance to marketers. One role the law performs is drawing the boundary between what the community regards as fair and unfair behaviour. When put into a marketing context, the law defines the difference between acceptable competitive conduct and unacceptable competitive conduct. Competitive conduct may be unacceptable because it adversely affects the consumer (such as misleading advertising or manufacturing unsafe products), a competitor (such as misleading advertising, unauthorised use of a competitor’s trade name, trade secrets, copyright, or patent rights), or the competitive process itself (such as price fixing and market rigging, abuses of market power, and anti-competitive conduct and arrangements generally).
The Function of Marketing 1.2 Put at its simplest, the role of marketing is to identify the wants or needs of customers and to determine how best to satisfy these. Making the right marketing 1
L E Boone and D L Kurtz, Contemporary Marketing, 18th ed, Cengage, Boston, 2019, p 46.
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Marketing and the Law
decisions should ensure that an organisation achieves its objectives, although the conduct of other activities, such as production, engineering, and finance, will also be critical in this regard. The marketing concept thus places the customer at the centre of an organisation’s activities. The organisation itself is concerned with satisfying the customer’s needs, usually at a profit. Satisfying the needs of the customer involves several elements: getting the right product; determining the correct price; creating customer awareness through promotion and advertising; and ensuring that the product is physically available in terms of time and place. These elements make up the marketing mix. The major elements of the marketing mix are usually described as the ‘four Ps’: • product; • price; • promotion; and • place. Choosing the right mix of these four interrelated ingredients is a critical part of the marketing function. It is usually regarded as a choice that is within the control of the marketer. However, the marketer must be careful not to ignore factors outside the marketing mix, factors that can impact greatly upon any or all of the elements of the marketing mix.
The Law and the Marketing Mix
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1.3 The importance of factors external to the marketing mix has long been recognised by expert marketing personnel:2 The extent to which the notion of the four P’s encapsulates the key areas of marketing action has disguised many of the problems of mix management that have emerged in practice. It is easy to become pre-occupied with the challenges of making decisions on individual parts of the mix or creating blends which fit the internal requirements of the enterprise. Successful mix management is not built on this ... [There is a] common failure to appreciate the importance of placing mix decisions in their competitive and environmental context. The elements are designed to: 1. Create a combination meeting customer needs. 2. Achieve competitive advantage. 3. Satisfy legal requirements.
Stanton, Miller, and Layton go so far as to say:3 Legislation at all levels exercises more influence on the marketing activities of an organisation than on any other phase of its operations. 2 3
4
T Cannon, Basic Marketing: Principles and Practices, Cassell, London, 1992, p 281. W J Stanton, K E Miller and R A Layton, Fundamentals of Marketing, 4th ed, McGraw-Hill, Sydney, 2000, p 54.
Chapter 1: Introduction to the Law and Marketing FIGURE 1.1 THE MARKETING MANAGER’S FRAMEWORK4
MARKETING ENVIRONMENT VARIABLES LEGAL ENVIRONMENT MARKETING STRATEGY VARIABLES
POLITICAL ENVIRONMENT PRODUCT
CULTURAL & SOCIAL ENVIRONMENT PLACE
CUSTOMER PRICE
PROMOTION MARKETING MIX
ECONOMIC & TECHNOLOGIC ENVIRONMENT
RESOURCES & OBJECTIVES OF ORGANISATION
COMPETITIVE ENVIRONMENT
The variables outside the marketing mix are often regarded as ‘uncontrollable’. To a large extent this is true, in the sense that factors such as legal rules and obligations are imposed by external forces. Nevertheless, these ‘uncontrollable’ factors can and must be managed by business organisations. A knowledge of the legal environment must begin with an understanding of the nature of law and the Australian legal system.
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Law and the Australian Legal System What is law? 1.4 Humans, being social creatures, require rules to make society function properly. Rules are the sine qua non of social order, whether the society is complex or primitive. If you stop and consider it, rules are everywhere — social rules, family rules, religious rules, club rules, sporting rules. While these rules may impose moral obligations on those who live under them and undoubtedly influence how people behave and interact, they do not necessarily form part of the law. To be regarded as law, a rule must be enforceable by the state.
4
P G Quester, R L McGuiggan, E J McCarthy and W D Perreault, Basic Marketing: A Managerial Perspective, 5th Aust ed, McGraw-Hill, Sydney, 2006, p 52.
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Marketing and the Law
Therefore, for present purposes, it is sufficient to say that the law is any rule which a court of law will enforce. Here the state is represented by the courts of law. These legal rules change from society to society and across time. For example, there was a time in most European states when the law mandated a person’s religious practices. In modern secular Europe, such a law would be regarded with horror. If the key to any rule being law is whether it is enforceable by the state, the obvious question is how the state (the courts) recognises what rules to enforce. The answer lies in the history of the proposed rule. Where did it come from? How was it created? The courts apply or reject a suggested rule on the basis of its source. There are two sources which have the capacity to provide legally enforceable rules, namely parliament and the courts. FIGURE 1.2 SOURCES OF LAW
Sources of law
Parliament (legislation or statute law)
The courts (case or judge-made law)
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Parliamentary law 1.5 The historical development of parliament and parliamentary law in England and Australia is beyond the scope of an introductory guide such as this. Suffice to say, the various Australian colonies adopted a parliamentary system based on the English system of responsible government (that is, government is responsible to an elected parliament). This system was also adopted by the Commonwealth of Australia Constitution Act 1900 (UK) (referred to in this chapter as the Constitution), which set up the Commonwealth of Australia, including the Commonwealth parliament. At this stage, it may be useful to have some idea of the history of governance in Australia.
A. A short history of government in Australia 1.6 In 1788, the British sent a fleet of ships to colonise the area around what is now Sydney. The colony was called New South Wales. The country was largely
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Chapter 1: Introduction to the Law and Marketing
treated as if it was uninhabited (terra nullius) and, consequently, the law of Great Britain became the law of New South Wales. Over the next 50 years, colonies were also established in Tasmania, Queensland, Victoria, South Australia, and Western Australia. Each colony was administered ultimately from London and the law in each colony was British law. FIGURE 1.3 MAP OF AUSTRALIA
Australia Darwin
NORTHERN TERRITORY QUEENSLAND WESTERN AUSTRALIA SOUTH AUSTRALIA Perth
Adelaide
Brisbane NEW SOUTH WALES
Sydney Canberra VICTORIA Melbourne
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TASMANIA Hobart
In the 1850s, the various colonies formed their own parliaments. However, these parliaments were still subject to Britain and their powers were restricted. The executive (the government) was still appointed by the British government. Between 1850 and 1890, the colonies became more powerful economically, more complex politically, and more sophisticated socially. This led to the granting of more local powers in the form of responsible government (that is, the executive was directly responsible to parliament). At the same time, there was a strong move from within the colonies to unite, which made a lot of sense: the colonists were almost exclusively from Britain and therefore spoke the same language and enjoyed the same culture; the laws were almost the same in each colony; and the systems of government were the same. In 1899, the colonies agreed to form a single nation under a federal system of government. This was approved by the British Parliament in 1900, when it passed the Constitution. Each colony became a state with its own parliament which decided state law. Each colony handed over certain powers to a central parliament called the Commonwealth or Federal Parliament. These powers were either given exclusively to the Commonwealth or were shared with the Commonwealth.
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The Commonwealth parliament is now located in Canberra, which is Australia’s capital city. The following extract is the preamble of the Constitution, which commenced on 9 July 1900. COMMONWEALTH OF AUSTRALIA CONSTITUTION ACT (63 & 64 VICTORIA, CHAPTER 12)
[9th July 1900]
An Act to constitute the Commonwealth of Australia Whereas the people of New South Wales, Victoria, South Australia, Queensland, and Tasmania, humbly relying on the blessing of Almighty God, have agreed to unite in one indissoluble Federal Commonwealth under the Crown of the United Kingdom of Great Britain and Ireland, and under the Constitution hereby established:
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And whereas it is expedient to provide for the admission into the Commonwealth of other Australasian Colonies and possessions of the Queen: Be it therefore enacted by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows: 1. This Act may be cited as the Commonwealth of Australia Constitution Act. 2. The provisions of this Act referring to the Queen shall extend to Her Majesty’s heirs and successors in the sovereignty of the United Kingdom. 3. It shall be lawful for the Queen, with the advice of the Privy Council, to declare by proclamation that, on and after a day therein appointed, not being later than one year after the passing of this Act, the people of New South Wales, Victoria, South Australia, Queensland, and Tasmania, and also, if her Majesty is satisfied that the people of Western Australia have agreed thereto, of Western Australia, shall be united in a Federal Commonwealth under the name of the Commonwealth of Australia. But the Queen may, at any time after the proclamation, appoint a Governor-General for the Commonwealth.
Short title Act to extend to the Queen’s successors Proclamation of Commonwealth
B. Federalism — sharing power between parliaments 1.7 In Australia, legislative power (ie, the power to make binding laws) is divided between the Commonwealth parliament and the various state parliaments. Neither the Commonwealth parliament nor the various state parliaments have
8
Chapter 1: Introduction to the Law and Marketing
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unfettered power. The relationship between the Commonwealth and the various states of Australia is governed by the provisions of the Constitution.5 The relationship is called ‘federalism’. This means that the states retain all those powers that have not been specifically handed over to the Commonwealth parliament. To put the matter another way, the Commonwealth parliament may only make laws with respect to: • those matters set out in the Constitution, primarily s 51 of the Constitution; or • matters which are necessarily incidental to the matters set out in the Constitution; or • those matters which have been referred to the Commonwealth by the states. If the Commonwealth parliament attempts to pass a law that is beyond its power, such a law is unconstitutional and of no effect. Certain areas of power are reserved to the Commonwealth parliament exclusively and any law passed by a state parliament that impinges on that exclusive power is unconstitutional and of no effect. For example, the Commonwealth parliament has the exclusive rights to levy custom duties under s 90 of the Constitution. Other powers given exclusively to the Commonwealth include, for instance, the power to mint coins (s 115) and to regulate defence (ss 114 and 119). Powers not granted to the Commonwealth by the Constitution are called the residual powers and are vested in the states. Where a power is granted to the Commonwealth but not exclusively, that power is shared between the Commonwealth and the states. These are called concurrent powers. Section 51 of the Constitution sets out the concurrent powers of the Commonwealth. These powers range over a broad spectrum of activities, but by no means cover all possible activities. The Commonwealth and the states may each make laws with respect to matters covered by these concurrent powers. If there is an inconsistency between a federal law and a state law, the federal law shall prevail to the extent of that inconsistency: Constitution s 109. When does an inconsistency exist? Broadly speaking, there are three approaches to determining the existence of an inconsistency within the meaning of s 109: 1. The ‘simultaneous obedience’ test: Is it impossible to obey both laws? If it is not possible, there is an inconsistency. 2. The ‘conferred rights’ test: Does one law confer a right which the other purports to take away? If yes, then there is an inconsistency. 3. The ‘cover the field’ test: Does the federal law cover the field in question? If the federal law (properly interpreted) is intended to cover a particular field of activity, then any state law purporting to cover the same field will be inconsistent with the federal law. The ‘cover the field’ test means that, in certain 5
The Australian Constitution can be viewed on the Parliament of Australia website at . See also the Parliamentary Education Office (PEO) website which has a range of helpful resources on Australia’s parliamentary democracy. See, for example, ‘Australian Constitution’, at .
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Marketing and the Law
areas, the Commonwealth exercises de facto exclusive power in a practical (if not legal) sense. For example, once the Commonwealth enacted the Copyright Act 1905 (now the Copyright Act 1968), there was no scope for the states to produce their own copyright legislation. Any attempt to do so would probably fail under s 109 of the Constitution. TABLE 1.1 THE DIVISION OF POWERS BETWEEN THE COMMONWEALTH AND THE STATES EXCLUSIVE LEGISLATIVE POWERS OF THE COMMONWEALTH
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Making laws with respect to: • printing money; • levying custom and excise duties; • defence and external relations; and • removal or amendment of any existing Commonwealth law. The Commonwealth effectively has exclusive power (as a result of the exercise of its concurrent powers coupled with the operation of s 109 of the Constitution) to make laws with respect to: • copyright, patents, and designs; • communications; • bankruptcy and insolvency; and • immigration.
CONCURRENT LEGISLATIVE POWERS Making laws with respect to: • taxation, other than customs and excise duties; • marriage and divorce; • trade and commerce; and • the powers set out in s 51 of the Constitution.
RESIDUAL POWERS (EXCLUSIVE LEGISLATIVE POWERS OF THE STATES) Making laws with respect to: • state police, schools, and hospitals; • state roads and public transport (within the state); • utilities (electricity, water supply); • housing; • prisons and community services; • shop trading hours; and • removal or amendment of any existing state law.
C. Changing the division of power between parliaments 1.8 Because of Australia’s federal system, there is a good deal of overlapping jurisdiction, which has resulted in numerous overlapping statutes. Business has been particularly critical of this aspect of Australian governance and indeed there is much to be said for streamlining business regulation. However, removing these examples of overlapping jurisdiction is not easy; ultimately it is a matter of politics. Historically it has proved very difficult to amend the Constitution, which requires a referendum in which a majority of people in a majority of states and a majority of people across the nation as a whole vote ‘yes’ (called a double majority): Constitution s 128. As a result, most examples of streamlining regulation 10
Chapter 1: Introduction to the Law and Marketing
have come through a compromise between the Commonwealth and the states. A good example of this is the consumer protection provisions of the Competition and Consumer Act 2010 (Cth).
D. Referring to and finding parliamentary law 1.9 A law passed by a parliament, federal or state, is called an Act of Parliament. During the course of this book, we will deal with a number of Acts. Acts are also called statutes, and the body of law that comes from parliament is called statutory law or legislation. Since the evolution of the internet, it has become far easier to access up to date statutes. The Commonwealth and most states and territories maintain very good websites devoted to providing information about legislative activity. Useful websites with links to online copies of legislation and other law-related matters are: • Commonwealth parliament: ; • The Federal Register of Legislation: ; and • Australasian Legal Information Institute: . If an Act of Parliament is used as the source of a law, it should be referenced correctly as shown below. FIGURE 1.4 HOW TO REFERENCE AN ACT OF PARLIAMENT
Competition and Consumer Act 2010 (Cth) s 46(1)
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name of the statute date the statute was passed by parliament or last consolidated
subsection number section number
name of parliament — this Act was passed by the Commonwealth parliament
E. The structure of parliaments in Australia 1.10 In Australia, parliaments are either unicameral (one house) or bicameral (two houses).
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TABLE 1.2 THE STRUCTURE OF PARLIAMENTS IN THE COMMONWEALTH, THE STATES AND TERRITORIES LOWER HOUSE
UPPER HOUSE
Commonwealth parliament
House of Representatives
Senate
Parliaments in New South Wales, Victoria, South Australia, Western Australia, and Tasmania
Legislative Assembly
Legislative Council
Parliaments in Queensland, Australian Capital Territory, and the Northern Territory
Legislative Assembly
In all jurisdictions, the government is formed by the political party able to command a majority in the lower House — the House of Representatives in the case of the Commonwealth and the Legislative Assembly in the case of the states and territories.
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F. The process of creating parliamentary law 1.11 An Act of Parliament begins life as a Bill; that is, a draft of the proposed Act of Parliament. The Bill (normally drawn up by the office of the parliamentary counsel) is introduced to parliament and is generally accompanied by an explanatory memorandum, which briefly outlines the purpose and main provisions of the Bill. A Bill may be introduced by the government (Government Bill) or by a member of parliament (Private Members’ Bill). Bills may be introduced into either house of parliament, except for appropriation or money Bills (ie, Bills regarding government appropriation, expenditure, or taxation), which generally can only be initiated in the lower house (the House of Representatives in the case of the Commonwealth and the Legislative Assembly in the case of the states and territories). In practice, most Bills originate in the lower house and are Government Bills Bills go through a similar process in each of the bicameral parliaments. First, the Bill and the explanatory memorandum are introduced to parliament (the First Reading). The proposer or mover of the Bill (usually a minister in the government) explains the purpose and scope of the Bill and a date is fixed for discussion and debate. This is where the Bill is debated in full. Many Bills are referred to a parliamentary committee for further discussion. Following discussion, parliament votes on whether the Bill ‘be now read a second time’ (Second Reading). If this is agreed to, the House has agreed to the Bill in principle. The proposer then moves that the Bill be read a third time (Third Reading). Generally there is no debate at this point. The Bill is then sent to the other house for consideration, where the same process is followed.
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Chapter 1: Introduction to the Law and Marketing
Once agreed to by both houses, the Bill is sent for Royal Assent and is published in the Government Gazette. These are basically technical requirements that must be adhered to if the Bill is to become a valid law as an Act of Parliament. Amendments to an Act of Parliament must follow the same procedure.6
G. Parliamentary law and marketing 1.12 A number of parliamentary laws or statutes are important for marketing. Some are exclusively within Commonwealth power; for example, the Copyright Act 1968 (Cth), Patents Act 1990 (Cth), Trade Marks Act 1995 (Cth), and Designs Act 2003 (Cth). Some are a compromise between the Commonwealth and the states and territories; for example, the Competition and Consumer Act 2010 (Cth). Some remain wholly a state responsibility; for example, laws regulating games and competitions as part of a trade promotion. The history of the Competition and Consumer Act 2010 (Cth) and the Business Names Act 2011 (Cth) provide useful examples of how the Australian legislative system works.
i. Competition and Consumer Act (formerly the Trade Practices Act)
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1.13 In 1974, the Commonwealth parliament passed the Trade Practices Act 1974 (Cth), which has had a significant impact on how business is conducted in Australia. Some of the areas it critically affected included: • advertising and promotional activities; • the quality and safety of consumer products; • relationships between competitors; and • the pricing and distribution of goods. The Trade Practices Act highlighted some of the constitutional difficulties associated with enacting valid legislation. The Constitution does not give the Commonwealth parliament power to pass laws with respect to advertising, consumer protection, defective products, or competition. Therefore, parliament had to use a mix of powers to ensure the legislation was valid. The Commonwealth parliament has power to make laws with respect to trading, financial and foreign corporations, interstate and overseas trade, and postal, telegraphic, and telephonic services. All these powers were used to give the Trade Practices Act the widest possible application. However, the Trade Practices Act could not catch all commercial activity. For example, it could not catch false advertising by a sole trader unless the sole 6 See further ‘Infosheet 7 — Making laws’ on the Parliament of Australia website at . The Parliamentary Education Office also provides a range of helpful online resources about the law-making process of the Australian parliament (eg, ‘Making a law in the Australian Parliament’ at ) including a video which follows the path of a Bill from its introduction in the House of Representatives to its signing into law by the Governor-General: ‘Snapshots of Parliament: Passing a Bill’.
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Marketing and the Law
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trader used the radio or television or the internet as its advertising medium. Nor could it interfere with contracts between a sole trader and a consumer. Therefore, regulating the activities of a sole trader was a matter for the states and the territories. Unfortunately state and territory laws were not always consistent. This meant that consumer protection in Australia became a complex and confusing jumble of federal and state laws.7 In 2009, the Council of Australian Governments (COAG) agreed to implement a single Australian Consumer Law. This required extensive amendments to the Trade Practices Act as well as to state laws. As part of the amendment process the Trade Practices Act was repealed and renamed the Competition and Consumer Act 2010 (Cth), which came into force on 1 January 2011. The Australian Consumer Law is set out in Sch 2 to the Competition and Consumer Act 2010 and is a single, national law, which applies in the same way nationally and in each state and territory. It is the principal consumer protection law in Australia.8 An Intergovernmental Agreement (IGA) signed by COAG underpins the establishment of the Australian Consumer Law.9 ‘As part of a commitment to continuous improvement of Australia’s consumer protection regime, in June 2015 consumer affairs ministers, through the Legislative and Governance Forum on Consumer Affairs (CAF), asked Consumer Affairs Australia and New Zealand (CAANZ) to initiate a broad-reaching review of the Australian Consumer Law’.10 The intent of the review was to assess the effectiveness of the Australian Consumer Law, including its flexibility to respond to new and emerging issues and the extent to which it had met the objectives set by COAG when it established the IGA in 2009.11 CAANZ published the Australian Consumer Law Review Final Report on 19 April 2017,12 which found that:13 … on the whole, the introduction of a generic consumer law has benefited consumers and traders and that the law itself is generally “fit for purpose”. In particular, the introduction of the Australian Consumer Law has helped empower consumers, lower the incidence of consumer problems and ease the regulatory burden on traders.
It was also noted that the success of the Australian Consumer Law ‘is attributable to more than the law itself. The joint efforts of Commonwealth, state and territory
7 8
9 10 11 12 13
14
Productivity Commission, Review of Australia’s Consumer Policy Framework (2008), see ‘Consumer Policy Framework’, May 2008, available at . General guidance about the Australian Consumer Law and its provisions can also be found on the Australian Consumer Law website and on the Australian Competition and Consumer Commission website . See ‘Intergovernmental Agreement for the Australian Consumer Law’ at . Australian Consumer Law Review Final Report, March 2017, at [1.1], available at . Australian Consumer Law Review Final Report, above n 10, at [1.1]. Australian Consumer Law Review Final Report, above n 10. Australian Consumer Law Review Final Report, above n 10, at [1.3].
Chapter 1: Introduction to the Law and Marketing
consumer affairs agencies in administering and enforcing the Australian Consumer Law have been central to its success’.14 However, while the introduction of the Australian Consumer Law is regarded as an important microeconomic reform, the Final Report also identified further areas for reform in pursuit of best practice consumer law and policy.15 For example, from 1 September 2018 legislative amendments came into force to align the maximum penalties available under the Australian Consumer Law with the maximum penalties for contravention of the competition provisions in the Competition and Consumer Act.16 The amendments gave effect to the recommendations in the Final Report that ‘the maximum financial penalties available for a breach or attempted breach of the Australian Consumer Law … are insufficient to deter highly profitable non-compliant conduct and can be seen by some entities as “a cost of doing business”.’17 The Australian Consumer Law is discussed in detail in Chapters 9–11.
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ii. Business names registration 1.14 Often people carry on a business under a name that is different to the names of the business owners. This practice can make it difficult for customers to know who to pursue if something goes wrong with a transaction. The solution for this has been to require business owners to register the business name, and for the public to be able to search that register to identify the names and contact details of business owners. For a long time, this function was carried out at a state and territory level, but with many businesses operating in more than one Australian state or territory, the existence of so many different business names registers caused difficulties for government, business, and customers. The obvious solution was to have a single national business names register for the whole of Australia. However, the Constitution does not give sufficient powers to the Commonwealth parliament to make laws regarding the registration of business names. The Commonwealth parliament has power to regulate some businesses (those operated by a corporation), but not sole traders or partnerships. In 2011–2012, the states and territories agreed to refer their powers to regulate business names and their registration to the Commonwealth. In 2011, the Commonwealth parliament enacted the Business Names Registration Act 2011 (Cth).
H. Administering the law — the doctrine of the separation of powers 1.15 While the various parliaments are the ultimate source of parliamentary law, they do not administer that law nor do they act as adjudicator. The administration 14 15 16 17
Australian Consumer Law Review Final Report, above n 10, at p v. Australian Consumer Law Review Final Report, above n 10, Table 1. The Treasury Laws Amendment (2018 Measures No 3) Act 2018. Australian Consumer Law Review Final Report, above n 10, at [3.2].
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is in the hands of the executive (the government) and the courts adjudicate. This is called the doctrine of the separation of powers.18 FIGURE 1.5 SEPARATION OF POWERS
SEPARATION OF POWERS Government is responsible to parliament
LEGISLATIVE POWER Parliament makes the law
EXECUTIVE POWER Government administers the law
JUDICIAL POWER Courts interpret the law
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Government usually controls the lower house of parliament
Although responsibility for administration is in the hands of the executive, the executive is directly responsible to parliament. The members of the executive — the government — are members of parliament who are accountable to parliament. This is called responsible government and should be contrasted with the United States system where the only elected member of the executive is the President, who is neither a member of parliament nor accountable to it. Parliament does not have the time to debate and pass every rule that may affect our lives. It delegates much of the rule making to other authorities. Thus, local councils have been given the power to pass rules affecting their local communities. However, the power of the local councils (and other statutory authorities) comes from parliament and may be withdrawn by parliament. The power must be exercised for the purposes of, and in the manner set out in, the Act of Parliament that created the power. The power may not be exceeded. If the statutory authority exceeds its power, or acts for an improper purpose or in an unauthorised manner, the courts have jurisdiction to declare such proceedings void.
I. Interpreting a statute — the role of the courts 1.16 While it is the role of parliament to create legislation, it is the role of the courts to interpret it. 18 See further ‘Separation of powers: Parliament, Executive and Judiciary’ at .
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Chapter 1: Introduction to the Law and Marketing
i. Literal rule 1.17 The fundamental object of the court when interpreting legislation is to ascertain and give effect to the legislative intention of the parliament. The intention of parliament is to be found first and foremost in the words that parliament has used; that is, the words of the statute. Words are to be given their ordinary and natural meaning. Thus, the courts will initially give a literal interpretation to the statute’s words. This is called the literal rule. In most cases this will be all that is needed to interpret a statute.
ii. Golden rule 1.18 Where there is some ambiguity and using the normal meaning of the statute’s words would produce an absurd result, the courts may adopt an interpretation that avoids the absurdity and gives effect to the intention of parliament. This is called the golden rule and is used sparingly.
iii. Mischief rule 1.19 Where there are two equally possible interpretations, the courts must accept the interpretation which promotes the purpose or object of the Act. This is an old rule, but may in fact be part of the golden rule.
iv. Use of extrinsic materials in interpreting statutes
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1.20 To aid interpretation, the courts may resort to a number of extrinsic aids, such as any explanatory memorandum tabled in the parliament concerning the statute.19 For Commonwealth legislation, s 15AA of the Acts Interpretation Act 1901 (Cth) applies: In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object.
For state legislation, an interpretation which promotes the purpose(s) of the legislation is also preferred to other possible interpretations.20
19 Acts Interpretation Act 1901 (Cth); Interpretation Act 1987 (NSW); Interpretation of Legislation Act 1984 (Vic); Acts Interpretation Act 1954 (Qld); Interpretation Act 1984 (WA); Acts Interpretation Act 1915 (SA); Acts Interpretation Act 1931 (Tas); Interpretation Act 1978 (NT); Legislation Act 2001 (ACT). 20 Interpretation Act 1987 (NSW) s 33; Interpretation of Legislation Act 1984 (Vic) s 35; Acts Interpretation Act 1954 (Qld) s 14A; Interpretation Act 1984 (WA) s 18; Acts Interpretation Act 1915 (SA) s 22; Acts Interpretation Act 1931 (Tas) s 8A; Interpretation Act 1978 (NT) s 62A; Legislation Act 2001 (ACT) s 139.
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v. Rebuttable presumptions 1.21 A number of presumptions may also be applied by courts in interpreting legislation. These presumptions are rebuttable by clear evidence that the parliament intended otherwise. Some of the more commonly applied presumptions are: • Legislation does not override the common law or alter existing legal rights. • Parliament does not intend to interfere with the liberty of citizens. • Parliament does not intend to interfere with fundamental rights. • Parliament does not intend to take away property rights without compensation. • Legislation is not intended to be retrospective. • Legislation is not intended to have extra-territorial application (ie, application beyond the geographical jurisdiction of the relevant parliament). • Legislation is not intended to bind the Crown (ie, the government).
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vi. Other interpretive devices 1.22 There are a number of interpretive devices used by the courts to understand a statute.21 These are simply canons of statutory interpretation and must be used very carefully. Ultimately it is the intention of parliament as revealed in the statute that counts. The canons may amount to no more than the application of common sense. • Ejusdem generis (of the same kind or nature): Where specific items are referred to in a statute followed by general words, the general words are limited to the same kind as the specific items. For example, a statute which states that it applies to ‘cars, motorbikes and other vehicles’ would apply also to a motor scooter, but probably not to a motor powered boat or an airplane. Boats and planes are not of the same kind or nature as cars and motorbikes. • Expressio unius est exclusio alterius: Where there is an express reference to one thing, other things are excluded. For example, a statute which states that ‘no trucks or buses may use this road’ would not apply to cars, motorbikes, or bicycles. However, care must be taken where the reference to one thing is simply meant as an illustration and not an exclusion of other things. For example, the expressio unius rule could not be applied to the following statutory provision: ‘No vehicles may use this road. This includes motorbikes’ to exclude cars, trucks, buses, and so forth. • Noscitur a sociis (it is known by its associates): The meaning of a word or phrase may be gathered from the context in which it appears. This maxim, if it has any practical application at all, may mean no more than that a statutory provision must be understood within its overall context. Where the meaning is clear, there is no room for the application of noscitur a sociis. It is rarely relied upon.
21 The meaning of these Latin expressions may be found in law dictionaries. See, for example, LexisNexis Concise Australian Legal Dictionary, 5th ed, LexisNexis, Sydney, 2014.
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• Generalia specialibus non derogant (the general cannot detract from the specific): Where there is a conflict between general and specific provisions (usually within the same Act), the specific provision prevails.
Case law (common law) 1.23 The other area from which we derive our law is the courts of law. Although parliament is supreme, it has chosen not to be the sole repository of law making. It has left intact much of what is called the common law (also called case law or judge-made law). This should be contrasted with many European countries which have felt the need to assert parliament’s role as the sole authority (civil law). The common law may be defined as those legally enforceable rules that have been fashioned and adapted by the courts throughout the ages. Judges do not make rules ad hoc. If they did, England would long ago have deserted the common law. Rather, the process is one of slow adaptation and development. It is often possible to trace the growth of a rule through centuries.
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A. Distinction between common law systems and civil law systems 1.24 The common law operates in countries that were influenced in their development by England. Most other countries operate under a civil law system; this includes European countries such as France, Germany, and Italy. Civil law, which owes much to Roman law, relies on statutory rules. These rules often appear in the form of a code such as the Napoleonic Code. Judges merely interpret and apply the statutes and codes; judges do not create law. This is the key difference between civil law and common law. Why did England develop a common law system, while other European countries did not? Two interrelated factors were of critical importance. First, from the time of the Norman Conquest in 1066, England developed a strong central government. This did not occur in other European countries until much later. France remained very much a collection of semi-autonomous regions until at least the time of Napoleon. Germany only became a unified state in 1875. The unification of Italy also occurred in the 1870s, but was not finally completed until after the First World War. Second, the early English monarchs created King’s courts which dispensed a common law throughout the realm. These courts quickly grew in popularity and, in time, largely replaced the host of feudal courts that had previously existed. No such centralised system of law enforcement occurred in France or was possible in Germany or Italy. Consequently, when the political upheavals arrived — the French revolution and the unification movements in Germany and Italy — the newly formed political entities had no common law or common legal system to call upon. A civil law system was the only choice. 19
Marketing and the Law
B. Doctrine of precedent (stare decisis) 1.25 The principle that unifies the common law and makes it workable is the doctrine of precedent, also known as stare decisis. This simply means that a decision of a higher court binds a lower court in the same hierarchy of courts. The doctrine of stare decisis, therefore, means that a decision of a higher court must be applied by lower courts in the same hierarchy if the case being heard involves the same issue and similar facts as those in the case previously decided by the higher court. Therefore, it is necessary to have some understanding of the various hierarchies within Australia.
i. Hierarchy of courts in Australian states 1.26 Each state has its own hierarchy of courts. FIGURE 1.6 THE HIERARCHY OF COURTS IN AUSTRALIAN STATES High Court Supreme Court of Appeal Supreme Court District Court or County Court Local or Magistrates Court & other courts and tribunals
Each state has a roughly similar hierarchy of courts and the High Court is the highest judicial body in each.
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ii. Hierarchy of federal courts in Australia 1.27 The Federal Court, created in 1976, has assumed a leading role in the area of commercial and taxation law generally, and marketing law in particular. The Federal Court has an original jurisdiction (trials) and an appellate jurisdiction. The Family Court was established in 1975. FIGURE 1.7 THE HIERARCHY OF FEDERAL COURTS IN AUSTRALIA High Court Federal Court of Australia Court of Appeal
Family Court of Australia Court of Appeal
Federal Court of Australia
Family Court of Australia
Federal Circuit Court of Australia (formerly the Federal Magistrates Court)
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Chapter 1: Introduction to the Law and Marketing
iii. Courts in other jurisdictions 1.28 Even though a court is only bound to follow the decisions of a higher court within its own jurisdiction, the decisions of courts in other jurisdictions will have persuasive authority. Particularly important in this regard are the decisions of other Australian courts and the decisions of the superior courts in the English hierarchy. This is because the common law of Australia is derived from English common law. FIGURE 1.8 THE HIERARCHY OF COURTS IN ENGLAND Supreme Court of the United Kingdom Court of Appeal High Court of Justice (Queen’s Bench, Family and Chancery Divisions)
In some areas of law, US decisions are now attracting greater attention than they received in the past. For example, one of the areas of law discussed in this book is competition law. Competition law is very much a US invention which has been exported to many countries around the world — first to the developed economies of Europe, Canada, Australia, New Zealand, and Japan; and more recently to developing economies such as China, India, and Brazil. US decisions are not binding on Australian courts, but they often have persuasive force.
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C. Finding case law 1.29 The decisions of the courts are to be found in the various law reports. Not all cases are reported. The decisions of the County Court and the Magistrates’ Courts are not reported. In the superior courts, only those cases that are regarded as raising an interesting point of law are officially reported. Many more cases, however, are available to be read on the internet. Cases are referred to by their ‘citation’, which is a reference to the law report in which the case may be found. For example, the citation for the case Carlill v Carbolic Smoke Ball Co is [1893] 1 QB 256, showing that the report of the case can be found in volume 1 of the Queen’s Bench Reports of 1893 beginning at page 256; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, 76 ALR 513 can be found both in volume 164 of the Commonwealth Law Reports at page 387, and volume 76 of the Australian Law Reports beginning at page 513. Queensland Wire Industries v Broken Hill Pty Co Ltd was a decision of the High Court of Australia. The official citation appears in the box below. It has now become common to refer to cases by what is called a neutral citation: in this case, Queensland Wire Industries v Broken Hill Pty Co Ltd [1989] HCA 6. It is neutral because it does not refer to any specific law report, but rather to the court in which the decision was made. ‘HCA’ means the judgment came from the High Court of Australia. For the purpose of 21
Marketing and the Law
marketing law, the decisions of the Federal Court are very important. ‘FCA’ is used to designate a decision by a single judge (whether on trial or an interlocutory proceeding). ‘FCAFC’ is used to designate an appeal decision of the Full Court of the Federal Court. FIGURE 1.9 THE ELEMENTS OF A CASE CITATION
Queensland Wire Industries v Broken Hill Pty Co Ltd (1989) 167 CLR 177
appellant
respondent page number
year of law report
name of law report volume of report
D. Law reporting and the internet 1.30 Although the law reports remain the official source of what was said in a case, the internet is rapidly becoming a common medium for accessing cases. Australia has a number of websites devoted to law. A very useful site which reports most recent cases of consequence is the Australasian Legal Information Institute (Austlii) website.22 The Austlii website also contains copies of Commonwealth and state legislation, and has connections to useful sites around the world.
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E. Common law and equity 1.31 Case law (or judge-made law) is divided into two categories: one is called the common law; and the other equity. The expression ‘common law’ has a number of meanings, depending upon the context in which it is used. We have previously used it as a synonym for judge-made law, to distinguish it from statutory law. We are now using it to describe one of the categories of case or judge-made law, to distinguish it from equity. In this latter regard, the common law is that body of law that was applied historically by the common law courts. The common law courts only recognised certain complaints (called ‘causes of action’) and only granted certain remedies. If a person’s complaint did not fit within one of the recognised causes of action, the court would not hear the matter. The common law courts, by and large, restricted themselves to granting damages (monetary compensation) as a remedy. 22 .
22
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Chapter 1: Introduction to the Law and Marketing
The Court of Chancery (which developed in the 14th and 15th centuries out of the functions of the Lord Chancellor) stepped in and was prepared to provide relief in situations not recognised by the common law. The body of law applied by the Court of Chancery came to be called equity law. In time, equity became somewhat formalised, just as the common law had. Like the common law, equity adopted the practice of following previous decisions (precedents). This is probably necessary in a society that espouses the rule of law and eschews arbitrary proceedings.23 Equity developed around the common law, rather than as a discrete and competing set of principles in its own right. Equity recognised new relationships which the common law would not recognise. For example, the common law would not recognise the relationship between trustee and beneficiary. The law relating to trusts is therefore a matter of equity. Trusts have continued to grow in importance, particularly in commerce. Equity also recognised that some complaints, which had previously gone unrecognised by the common law (for example, equitable fraud), were worthy of a remedy. Finally, equity provided new remedies; for example, specific performance and injunctions. As a broad generalisation, we can say that, whereas the common law is concerned with rules, equity is concerned with behaviour. For many years, the common law courts and the equity courts were entirely separate. A person wishing to bring a complaint to court had to choose between the common law and equity. An incorrect decision could leave the complainant with no remedy. This situation was rectified in the 19th century when the administration of common law and equity was unified in 1873. A court is empowered to hear pleas based on either one or the other, or a combination. However, the two bodies of law remain otherwise separate. To give some idea of their relationship to one another, we will briefly consider contract law, which is one of the great areas of common law. The rules that govern contract law were created by the common law courts. The main remedy employed by the common law courts for breach of contract was, and is, damages (monetary compensation). Equity acted to soften some of the harder edges of the common law rules. For example, the only action for fraud recognised by the common law courts required evidence of a fraudulent state of mind.24 This meant that many plaintiffs, despite having been misled into a contract, were denied a remedy because they could not establish the defendant’s fraudulent state of mind. Equity regarded this as unfair and created the remedy of equitable rescission of the contract for innocent misrepresentation. The effect of rescission is to wipe out the contract.
23 For a very brief and readable history of the growth of English courts, see ‘History of the judiciary’ at . 24 The common law only recognised damages for negligent misrepresentation for the first time in 1964.
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F. The process of extracting the law from a case 1.32 We have seen that both common law and equity follow previous decisions. Courts in both jurisdictions are bound by the doctrine of precedent (stare decisis). However, if you look at any decision, you will find that it contains comments which form the basis for the court’s decision, as well as comments which are not strictly essential for that decision. The former comments are called the ratio decidendi (reasons for deciding) and the latter are called obiter dicta (things said by the way). It is only the ratio decidendi which is binding. Obiter dicta has persuasive force only. Often it is difficult to isolate the ratio of a decision. For example, the High Court regularly sits with five members. The ultimate decision might be split three to two. Amongst the three (in the majority), each judge might have a different reason for deciding as he or she did. This makes it difficult to extract the ratio. If the differences between the instant case and the precedent are material, the court in the instant case can distinguish the precedent case. This means that the ratio decidendi that was applied in the precedent case is inapplicable to the instant case because of the difference in facts. From time to time you will hear a court say that a previous case should be restricted to its facts. This generally means that the court is not particularly impressed with the earlier decision, but is unwilling or unable to overrule it.
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The primacy of parliamentary law over case law 1.33 Where there is a question of conflict between parliamentary law and judge-made law, parliamentary law is always superior (provided, of course, it is constitutionally valid). There was a time when parliament largely left judgemade law to develop in its own way — thus, the rules of contract and tort developed through a myriad of court judgments with parliament having little to say on the issues. This attitude changed after the Second World War. More and more, parliament took a crucial role in determining the course of law, even in those areas originally regarded as the almost exclusive domain of judge-made law. Three examples taken from laws discussed in this book demonstrate this changed attitude.
A. The law of negligence 1.34 In recent years, parliaments have involved themselves in the common law of negligence. During the 1990s, a debate arose over the costs of negligence. Negligence claims, so it was said, were becoming more common and the awards getting larger and larger. Insurance companies increased the price of insurance and, in some cases, refused to insure at all. Australia had, so it was said, an 24
Chapter 1: Introduction to the Law and Marketing
insurance crisis. The crisis affected all industries, but was particularly severe in industries such as health and leisure. Following an enquiry, all Australian parliaments decided to intervene and to enact negligence legislation. The legislation did not replace the common law as the source of an action in negligence, but it did codify some of the important elements or principles of negligence. The legislation also put caps on the amounts that could be claimed. Thus, in two important respects parliament replaced the courts as the source of negligence law. The courts no longer have any discretion to develop these two areas of negligence according to common law principles. Negligence is discussed at 9.3–9.12, in relation to product liability.
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B. Consumer protection law 1.35 Parliament has largely taken over the protection of consumers. As society entered an age of mass distribution, the power in negotiating consumer contracts clearly resided with commercial sellers, not consumers. Sellers used this power to prevent consumers from accessing many of the rights which might otherwise have flowed from having a contract. Thus, railway proprietors exempted themselves from liability for providing poor and unsafe services. Retailers could exempt themselves from the consequences of selling faulty products. The device used to limit liability was an exclusion or exemption term in the contract, usually contained in a ticket or a sign. Often the consumer knew nothing about the clause. Even if they did know, it would not matter — the consumer had no power to alter the terms. Some judges made valiant attempts to protect the consumer by interpreting the exclusion clauses favourably to the consumer. However, the ability to protect the consumer within the confines of judge-made law was ultimately quite restricted. Real protection could only come from parliament. With the rise of the consumer movement as a political force, parliaments moved to provide protection for consumers through legislation. The latest example in this process in Australia was the enactment of the Australian Consumer Law, which is the principal consumer protection law in Australia, as discussed at 1.13. The Australian Consumer Law is a single, national law, which applies in the same way nationally and in each state and territory.25 Various provisions of the Australian Consumer Law relevant to a marketing context are discussed in Chapters 9–11.
25 The full text of the Australian Consumer Law is set out in Sch 2 to the Competition and Consumer Act 2010 (Cth). General guidance about the Australian Consumer Law and its provisions can also be found on the Australian Consumer Law website (consumerlaw.gov.au) and on the Australian Competition and Consumer Commission website (accc.gov.au).
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Marketing and the Law
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C. Competition law 1.36 Since the 1960s, parliament has played a significant role in regulating how businesses compete with one another. The cornerstone of this regulation is competition law. Prior to the 1960s, price fixing and other anti-competitive arrangements were common among Australian businesses. These anti-competitive arrangements harmed consumers (and the economy) by raising prices above market levels and artificially restricting consumer choice. The common law had rules against agreements in restraint of trade, but the manner in which the courts had interpreted the law on restraints and the limitations imposed by the nature of the common law rule (viz, only parties to the contract were entitled to a remedy for an unlawful restraint of trade) meant that the common law rule against restraints of trade had very little practical operation as a regulatory tool to protect consumers and the economy. Tort law was also wholly inadequate as a regulatory mechanism. Because the common law failed to provide the necessary rules to operate a regulatory regime against anti-competitive conduct, it was up to parliament to intervene. This occurred with the introduction of trade practices (competition) legislation based on US and European law.26 The Competition and Consumer Act 2010 is the primary legislative tool regulating anti-competitive trading practices in Australia. On 4 December 2013 the government announced that it would undertake a comprehensive ‘root and branch’ review of Australia’s competition laws and policy, the first in more than 20 years.27 The expert review panel was led by Professor Ian Harper and was known as the Harper Review. The Harper Review released its Final Report on 31 March 201528 and made 56 recommendations for reform across three key themes: competition policy, laws and institutions. On 24 November 2015 the Treasurer released the government’s response to the Competition Policy Review.29 After much debate, in 2017 two important legislative amendments to Australian competition law passed parliament, which implemented many of the Harper Review’s recommendations: the Competition and Consumer Amendment (Competition Policy Review) Act 2017 and the Competition and Consumer Amendment (Misuse of Market Power) Act 2017. These significant amendments to the Competition and Consumer Act 2010 commenced on 6 November 2017. Competition law, including the relevant amendments from the Harper Review, is discussed in detail in Chapters 12–17.
26 Trade Practices Act 1974 (Cth) (now the Competition and Consumer Act 2010 (Cth)). Past attempts to introduce competition rules failed on constitutional grounds (Australian Industries Preservation Act 1906; Trade Practices Act 1965) or were inadequate (Restrictive Trade Practices Act 1971). 27 Hon Bruce Billson MP, ‘Review of Competition Policy’, media release, 4 December 2013, available at . 28 See the Competition Policy Review, Final Report, March 2015, available at . 29 See ‘Government response to the Competition Policy Review’, November 2015, available at .
26
Chapter 1: Introduction to the Law and Marketing
An age of regulation 1.37 There are many other examples of parliaments intervening to regulate social and economic life. In fact, the modern age is an age of regulation, reflecting the view that the state can improve the lives of its citizens by appropriate intervention in a wide range of social and economic activities. Regulatory intervention may take many forms (for example, industry assistance or export incentives), but, as we have just seen, one of the most important is through the use of legal rules. Additionally, even most non-legal forms of regulatory intervention require parliamentary approval through an Act of Parliament. This trend towards the ever-increasing involvement of parliaments at the expense of the common law is likely to continue. Most areas of law relevant to marketing are now dominated by statutory law.
Private law and public law 1.38 Broadly speaking, private law involves disputes between citizens, while public law involves disputes between citizens and the state. The distinction, however, is often hazy.
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TABLE 1.3 ALLOCATION OF AREAS OF LAW BETWEEN PRIVATE AND PUBLIC LAW PRIVATE LAW
PUBLIC LAW
Contract law Tort law Family law Property law Wills
Criminal law Administrative law Constitutional law Revenue law Industrial law
Civil cases and criminal cases 1.39 A more important distinction is that between civil cases and criminal cases. The critical difference between the two is the level of proof required to establish an infringement of the law. Whereas a breach in a civil law case requires proof of the infringement on the balance of probabilities, in criminal cases the standard of proof required is beyond reasonable doubt. The criminal burden of proof is thus considerably higher. Criminal cases are also subject to more rigorous procedural rules than civil cases and often require proof of a specified state of mind (usually intention or knowledge). This reflects the community’s view that a person should not be labelled a criminal and be exposed to criminal penalties unless that is well and truly established. Where a case is brought by the state (acting through the relevant administrative authority), the action may be civil or criminal. This depends on the relevant 27
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Marketing and the Law
statute. Where parliament elects to make infringement of a statutory provision a criminal offence, it will nominate the penalties that accompany such a breach — imprisonment and/or fines. Crimes such as murder, armed robbery, and fraud attract long prison sentences. However, in the area of marketing law, prison sentences are the exception rather than the rule. Monetary penalties (fines) are much more common. Thus, breaches of s 151 of the Australian Consumer Law dealing with false or misleading representations (a part of the Competition and Consumer Act) attract criminal penalties in the form of significant fines, but do not attract prison sentences. The fact that parliament empowers the courts to impose a fine for a breach does not necessarily mean that the case is a criminal case. Sometimes parliament will elect to impose what is called a civil penalty. This practice has become more and more popular in recent decades. A civil penalty may be a significant fine, but does not include imprisonment. Civil penalties are widely used in the Competition and Consumer Act. For example, s 29 of the Australian Consumer Law mirrors s 151 (discussed above) in all respects except that it makes liability civil not criminal. Thus, s 29 makes making false or misleading representations a civil offence with fines equal to those imposed in a criminal case for a breach of s 151.30 Another example is anti-competitive cartel activities which have attracted civil penalties since 1974, but now also attract not only the possibility of criminal fines but also (with respect to individuals who have aided, abetted, counselled, procured or induced a corporation to contravene the cartel provisions, conspired with others to do so or been knowingly concerned in a contravention) prison sentences.31 The upshot of having a dual system of penalties is that the Australian Competition and Consumer Commission (ACCC), which administers the Competition and Consumer Act (including the Australian Consumer Law), must decide whether to initiate civil proceedings or refer the matter to the Commonwealth Director of Public Prosecutions (CDPP) for possible criminal proceedings.32 Generally speaking, criminal cases are reserved for the more egregious breaches of the law where the evidence of breach is clear. Why have a dual system of penalties? The major reason for the introduction of civil penalties is to ensure better compliance with the law. Making an infringement criminal introduces elements that complicate the object of compliance — a higher standard of proof, special procedural rules, and the stigma of labelling someone ‘a criminal’.33 A dual system thus satisfies both the need for maximising compliance 30 See 10.67. 31 See Chapters 12 and 13. 32 In deciding whether to prosecute, the CDPP follows the Prosecution Policy of the Commonwealth; see . 33 A criminal conviction can have adverse consequences beyond the immediate penalty and the stigma attached to being labelled ‘a criminal’. For example, visa applications often require the applicant to reveal whether they have ever been convicted of a criminal offence. The consequence might be refusal of a visa.
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Chapter 1: Introduction to the Law and Marketing
(by imposing civil penalties) and the need to express the community’s displeasure at certain activities (by imposing criminal penalties). Where a case is between two private parties — that is, the state is not included — the matter is a civil case. The remedies that a court may order are quite numerous, including monetary compensation (damages) and injunctions, as well as a variety of other remedial orders. The majority of cases in the areas of copyright and designs, patents, and trade marks are private actions. Therefore, the civil standard of proof applies.
Dispute resolution 1.40 It is inevitable in any community that there will be disputes, which will often have a legal aspect. Such disputes may be resolved in a variety of ways. The most common method is for the parties to negotiate a settlement between themselves. Where negotiation fails, the parties will have to resort to either the courts (or a relevant tribunal) or to some alternative form of dispute resolution.
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A. Resolving disputes through the courts 1.41 When two parties fall into dispute (for example, two pharmaceutical companies disputing a patent), one option is to take the dispute to court. Most of the laws discussed in this book are federal and most of the cases are heard in the Federal Court. One party (called the applicant in the Federal Court) files an application with the court together with a statement setting out their claim. A copy is then served on the other party (the respondent). The respondent may then join issue. If the matter is not settled, it will go to trial before a single judge. The role of the trial is to determine the facts and then to apply the law to those facts to determine whether the applicant has made out his or her complaint. Both parties are entitled to examine or cross-examine witnesses. A party that considers that the trial court has made an error of law may appeal to the Full Court of the Federal Court. An appeal is not a rehearing of the dispute. The sole responsibility of the appeal court is to determine whether an error of law has been made. If a material error has occurred, the appeal court may (depending on the circumstances) make a new order or return the matter to the trial judge to be decided according to the proper law. In a limited number of situations, a party may be granted leave to appeal to the High Court against the decision of the Full Federal Court. There is no automatic right of appeal to the High Court.
B. Alternative dispute resolution 1.42 Where the parties to a dispute have failed to negotiate a settlement but they do not want to involve themselves in litigation, there are other options open to them. They may decide to utilise alternative processes like mediation, conciliation, 29
Marketing and the Law
and/or arbitration. These are collectively known as alternative dispute resolution methods, or ADR. Conciliation, mediation, and arbitration all make use of an impartial outsider — that is, a third party independent of the parties in dispute — to aid in the resolution of the matter. In conciliation and mediation, the third party endeavours to facilitate the parties reaching an agreement about the dispute. The difference between mediation and conciliation is that a conciliator is more likely to take an active role by providing suggestions for an agreement or even providing a draft agreement for parties to consider, whereas a mediator’s role is more passive. In arbitration, the third party — called the arbitrator — hears the arguments of both parties before reaching a decision about the dispute. The decision is called an arbitral award and is legally binding on all parties. Of these ADR processes, the closest to litigation is arbitration. However, arbitrators are not judges; for example, an arbitrator’s experience might be in technical areas relevant to the dispute in question. The parties jointly agree on which arbitrator or arbitrators will hear their dispute. Arbitration for commercial disputes is regulated by legislation, through a series of Commercial Arbitration Acts.34 It is quite common for commercial contracts to contain a compulsory arbitration clause. ADR is generally faster and cheaper than litigation, although the parties must pay for the venue and the costs of the mediator, conciliator, or arbitrators. ADR processes are held in private, meaning that the evidence and the agreements or awards are not available to the general public.
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The Law and Compliance 1.43 Legal compliance should be a top priority among business organisations, regardless of their size. It is an important aspect of good management and of being a good corporate citizen. A sound legal compliance program will reduce business risk and can also assist businesses to compete more effectively in the marketplace. In fact, organisations can no longer afford not to have a legal compliance program. One only has to look at the level of penalties imposed for a breach of the Competition and Consumer Act (including the Australian Consumer Law) to realise the accuracy of this observation. For corporations, the maximum penalties 34 International arbitration is governed by the International Arbitration Act 1974 (Cth); domestic arbitration is governed by uniform state legislation: Commercial Arbitration Act 2010 (NSW), Commercial Arbitration Act 2013 (Qld), Commercial Arbitration Act 2011 (SA), Commercial Arbitration Act 2011 (Tas), Commercial Arbitration Act 2011 (Vic), and Commercial Arbitration Act 2012 (WA).
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Chapter 1: Introduction to the Law and Marketing
for breaches of Pt IV of the Competition and Consumer Act for each act or omission will be the greater of $10 million, or three times the value of the benefit received, or where the benefit cannot be calculated, 10% of annual turnover in the preceding 12 months. The maximum financial penalty for individuals involved in the conduct is $500,000. In the case of serious cartel conduct, for individuals involved in a cartel there is also now the possibility of a jail term of up to 10 years and/or a fine of up to 2000 penalty units.35 As discussed at 1.13, from 1 September 2018 the maximum penalties under the Australian Consumer Law were increased to align with the maximum penalties under the competition provisions of the Competition and Consumer Act.36 The increase in the maximum available penalties reflects the seriousness with which violations of consumer law are now regarded. The ACCC has made clear that it will seek higher penalties for consumer law breaches37 and has been increasingly active in taking enforcement proceedings under the Australian Consumer Law. Accordingly, it is essential that businesses adopt a culture of compliance to minimise exposure to potentially costly enforcement actions. It is not just the risk of incurring monetary and criminal penalties that should motivate an organisation to adopt a legal compliance program. There is a positive side to adopting such a strategy — a good compliance program can actually assist businesses to compete more effectively in the marketplace.
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What is a legal compliance program? 1.44 Put simply, a legal compliance program is a system designed to reduce an organisation’s risk of breaking the law38. The relevant Australian Standard describes an effective organisation-wide compliance ‘system’ as one that ‘enables an organization to demonstrate its commitment to compliance with relevant laws, including legislative requirements, industry codes and organizational standards as well as standards of good corporate governance, best practices, ethics and community expectations.’39
35 See Chapter 13. 36 Following the royal assent of the Treasury Laws Amendment (2018 Measures No 3) Act 2018. 37 R Sims, Chair of ACCC, Address to the Law Council of Australia Annual General Meeting, 3 August 2018. 38 See A Fels, ‘Compliance Programs — the benefits for companies and their stakeholders’ (1999) 24 ACCC Journal 14–18 and L Sylvan, ACCC Deputy Chair, ‘Future proofing — working with the ACCC’, address to the Australian Compliance Institute, 1 September 2005. 39 Australian Standard ‘AS ISO 19600:2015 — Compliance management systems’, 22 June 2015, ‘Introduction’, p iv. This standard was prepared by the Standards Australia Committee QR-014, Compliance System, to supersede AS 3806–2006 — Compliance Programs. The new standard introduced new terminology. While AS 3806 covered a compliance ‘program’, AS ISO 19600 addresses a compliance ‘management system’. It emphasises compliance being ‘integrated with the organisation’s financial, risk, quality, environmental and health and safety management processes and its operational requirements and procedures’.
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Marketing and the Law
It is important that a compliance program is not regarded by business as something to keep regulators happy or as an education or training exercise. Nor should it be regarded as a burden on the organisation. Rather, it should be seen as: • an opportunity to prevent or provide early detection of failures to comply with the law; • an opportunity to improve business operations; • an incentive to make ‘positive’ business decisions (other than reactive risk management); and • a means of saving the business time, money, and trauma — all consequences of breaking the law. While compliance is an outcome of an organisation meeting its obligations, it is ‘made sustainable by embedding it in the culture of the organization and the behavior and attitude of the people working for it’.40 This will depend primarily on ‘leadership at all levels and clear values of an organization as well as an acknowledgement and implementation of measures to promote compliant behavior’.41A regular compliance audit to ensure that the law is not being breached is vital. As one commentator said:42 Given the potentially severe penalties, if you are a secretary or senior manager of a business, it is important to ask yourself some basic questions: Are you in a position to assure the Board [of directors] that the internal controls against violations of the [Competition and Consumer] Act are based on a considered review of the basic elements of liability control? Are you able to confirm that the controls imposed are monitored and enforced?
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Can you provide convincing and documented demonstration to the Board of the adequacy of your company’s compliance controls should they be examined in court or elsewhere?
Reasons to adopt a legal compliance program A. Benefits of compliance programs 1.45 Generating a business culture of compliance can improve an organisation’s performance in the marketplace. For instance, the need to improve the safety and quality of products may encourage a company to be more progressive and innovative, ultimately providing the company with a competitive edge.43 By way of illustration of how compliance can promote profitability, a business that changes its product packaging to comply with environmental laws may reduce the quantity of packaging it uses (which may, at the same time, lowers 40 41 42 43
32
AS ISO 19600:2015, ‘Introduction’, p iv. AS ISO 19600:2015, ‘Introduction’, p iv. C Buik, Australian Company Secretary, May 2000, p 202. Fels, above n 38, at p 16.
Chapter 1: Introduction to the Law and Marketing
its packaging costs). Further, if it changes to more sustainable packaging it may attract new customers interested in ethical purchasing. An effective compliance program can also foster customer goodwill. This is most likely to occur if an effective complaints handling system is established. This may help a business to improve its customer service standards and retain customers. Further, having such a system in place can also help the business identify patterns of complaints which may point to problems with business units, processes, or products, which can then be proactively remedied. Thus, a complaints handling system can ultimately result in more efficient business processes, which can positively impact performance of the business in the marketplace. A complaints handling system is an essential component of an effective compliance program.44 Another benefit that a compliance program can provide is that, having a sound knowledge of the law, particularly business and marketing law, may help identify breaches of the law by third parties, such as competitors and suppliers. A business may suffer harm because of another firm’s illegal conduct — the affected party has legal rights to prevent such harm and/or seek compensation.
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B. Avoiding the costs of breaching the law 1.46 Despite the ‘positives’, there is no doubt that the initial impetus encouraging most organisations to adopt a legal compliance program is the desire to avoid the penalties and costs associated with a breach of the law, notably the Competition and Consumer Act (including the Australian Consumer Law). These include: • substantial pecuniary penalties; • the liability for damages; • the cost of adverse publicity orders, such as corrective advertising; • the flow-on costs of an investigation or prosecution by a regulator, such as the ACCC; • the cost of legal advice; • the impact negative publicity can have on profits; • the cost of counteracting negative publicity; • the diversion of resources away from core business activities; and • the cost of losing and replacing personnel who may ‘leave’ the organisation following an investigation or prosecution. The courts have long recognised the importance of compliance programs. For example, in assessing an appropriate pecuniary penalty for a breach of the Trade Practices Act (now the Competition and Consumer Act), Emmett J observed that ‘the cost of failing to comply should be set at a level which is significantly greater than the cost of ensuring compliance’ via a compliance program.45 44 Fels, above n 38, at p 17. See also AS/NZS 10002:2014 Guidelines for complaint management in organizations (which superseded AS ISO 10002-2006). 45 ACCC v MNB Variety Imports Pty Ltd (1998) ATPR 41-617 at 40,758.
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Marketing and the Law
The existence of a compliance program, however, will not assist a corporation unless the program is one of substance. French J imposed a very large penalty on the respondent in TPC v CSR Ltd,46 despite the fact that CSR had a compliance program. The judge described the compliance program as ‘desultory and in need of reinforcement’ and concluded that there was ‘little convincing evidence of a corporate culture seriously committed to the need to comply with the requirements of the [Competition and Consumer] Act’.47 One of the ACCC’s main roles is to prosecute offenders under the Competition and Consumer Act. It is common for the ACCC and the offender to reach an agreement over penalties. The agreement is then submitted to the court for approval. In negotiating such penalties the ACCC takes into account the existence of a compliance program. As was said in one case:48 It is a most important factor in mitigation of the amount of a penalty that, in a particular case, there must be acceptable evidence of a corporate culture of compliance, and of concern to ensure that the contravention which has occurred will not be repeated.
C. Compliance program as part of the ACCC’s enforcement activities 1.47 Compliance programs are also used as part of the ACCC’s enforcement activities. Section 87B of the Competition and Consumer Act gives the ACCC the ability to accept formal written undertakings in the exercise of its powers under the Act. As part of these undertakings, the ACCC will often require a company to implement a compliance program designed to prevent breaches of the Act occurring in the future.49
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Designing an effective compliance program 1.48 The production of an effective legal compliance program requires a methodical approach taking into account the business and its context. Ideally, a compliance program should be tailored to meet the needs of the individual business because each organisation’s circumstances are different. The starting point should involve an audit of the various business units within an organisation with a view to assessing the legal risks. Depending on the size, risk profile and operations of the company, different components will need to be included in a compliance program. Some of the greatest risks facing businesses in Australia emanate from the Competition and Consumer Act and, in particular, the Australian Consumer Law. These laws cover: 46 47 48 49
34
(1991) ATPR 41-076. (1991) ATPR 41-076 at 52,155. TPC v TNT Australia Pty Ltd (1995) ATPR 41-375 at 40,168. See ACCC, ‘Implementing a compliance program’ and ‘Compliance and Enforcement Policy’, both available at .
Chapter 1: Introduction to the Law and Marketing
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• restrictive trade practices (anti-competitive conduct); • unfair practices (such as misleading advertising and promotions, deceptive packaging, and labelling); • unconscionable conduct; and • quality and safety of goods and services. To assist organisations that do not have the resources to develop a tailored compliance program, the ACCC has produced templates that businesses can use to develop their own programs. There are four different templates, each reflecting what the ACCC considers appropriate given the size of the company — Level 1 designed for micro-businesses and Level 4 designed for large corporate entities. The templates are available on the ACCC website.50 Having a sound knowledge of competition and consumer law and ensuring compliance with those laws, are essential ingredients to the design of an effective compliance program. This book is designed to familiarise participants with all major parts of the Competition and Consumer Act (which includes the Australian Consumer Law). Armed with a sound knowledge of the contents and workings of these laws, a person with a good understanding of the type of conduct carried on within a business organisation will be able to identify conduct likely to involve legal issues. This in turn will identify the staff members most likely to commit a breach of the competition and consumer laws, which usually occurs because of the power or authority given to those staff members. Under the Competition and Consumer Act, any conduct engaged in by an employee of a corporation acting within the scope of their actual or apparent authority, is deemed to be the conduct of the corporation.51 This means, for example, that a sales manager may put a company at risk by getting involved in price fixing, market sharing, resale price maintenance, or misleading sales conduct. The best way of achieving behavioural compliance with the law is through ongoing education, providing incentives for compliance, and by auditing the performance of individuals. Certain procedural matters also need to be addressed to ensure compliance in an organisation. A compliance system must address both ‘behavioural’ and ‘procedural’ forms of conduct. Appropriate checks and balances need to be put in place by the introduction of systems and procedures. For example, there is a need to systematically check business contracts, the content of product labels and packages, and advertising material for compliance with the law. In other words, it is not enough to simply alert or ‘educate’ staff as to their legal obligations. There must be procedural follow-ups and checks to ensure that compliance is occurring. An example will illustrate this point. The ACCC brought a case against George Weston Foods for a breach of competition law.52 After pleading guilty to a breach, 50 See ACCC, ‘Implementing a compliance program’ at . 51 Competition and Consumer Act s 84 and Australian Consumer Law s 139B. 52 ACCC v Australian Safeway Stores Pty Ltd (1997) 145 ALR 36; (1997) ATPR 41-562, see 16.18C.
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George Weston Foods argued that the level of penalty imposed should be reduced in the light of the fact that it ran a competition compliance program for its employees. However, this was largely disregarded by the court, given that the senior officers who had engaged in the prohibited conduct had done so consciously and willingly, even if under commercial pressure from a major customer. Very significant pecuniary penalties were imposed on George Weston Foods. If designing a legal compliance system looks costly, it should be remembered that any outlays may end up being relatively small when compared to the potential savings emanating from legal compliance.
The Law and Competitive Advantage 1.49 While some laws control and regulate competitive behaviour in the marketplace, one should not lose sight of the fact that many laws actually exist to benefit or assist the marketer. Laws often recognise or create rights, and give the owners of those rights the means to protect them. For example, the marketer who invents a new product, or gives an old product a new appearance, or thinks up a new brand name, will often be able to register the creation and be legally recognised as the owner, with all its attendant rights. The marketing executive who is familiar with these ‘beneficial’ laws can obtain a marketing edge by taking advantage of such laws. Whether the law regulates or benefits the marketing process, it is a fact that most marketing decisions will contain a legal element. This can be best observed by considering the impact the law can have upon the elements of the marketing mix.
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Product 1.50 In developing a product, there are numerous laws that grant benefits to, or impose restrictions upon, the business organisation. If a new product is created, the business will need to consider laws designed to protect proprietary (ownership) interests. It may be possible to apply for a patent to protect a new invention. This can be an expensive and time-consuming process, so the marketer must weigh up whether taking such a step is worthwhile. As an alternative, the marketer may elect to rely upon the ability to keep information secret or confidential. This may be the only alternative if an invention is not patentable, but sometimes the marketer will decide that registering a patent is too expensive or not worth the time involved. Keeping a new product development secret may be a deliberate choice, given that a secret will be protected by law as long as it can be kept confidential, as opposed to a patent which has a limited life (usually 20 years maximum). The marketer who elects not to patent, however, runs the risk of independent discovery by a competitor and the consequent loss of any legal protection. 36
Chapter 1: Introduction to the Law and Marketing
Another choice the business organisation will need to make if an original design has been created for a product is whether to register that design. Design registration gives a proprietor up to 10 years’ protection, but again involves some expense. A business might therefore elect not to register a design, and choose instead to try and build up a reputation in the design as quickly as possible, which means that a passing off action can be relied upon to prevent a competitor from confusing consumers by imitating the design. However, if the competitor sufficiently distinguishes its product by other means, design imitation cannot be prevented. The brand name given to a new product is usually extremely important. If certain criteria are met, a brand name can be registered as a trade mark and protected indefinitely. If a business chooses not to register a brand name, or is unable to do so, the passing off action can be relied upon, although a reputation will have to be built up under that brand name. Usually a new product will have to be packaged or labelled. A wide range of laws can affect the choice of package size or material used, and a range of laws prescribes the information which must be included on labels placed upon specified products. Quantity and packaging decisions are regulated by laws prescribing appropriate weights and measures to be used, and by standards designed to prevent deception in packaging and confusion in the mind of the consumer between varying shapes and sizes of packages. In developing a new product, the marketer must also be aware of the wide variety of laws designed to protect the quality and safety of goods.
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Price 1.51 An important step in marketing a new product is the pricing decision. Again, the decision is not unfettered. The selling price chosen by a business must usually be an independent decision, as there are provisions under the Competition and Consumer Act which prohibit price fixing between competitors. A supplier, by virtue of the same Act, usually cannot specify a price that must be adhered to by a distributor or retailer. Furthermore, engaging in practices such as predatory price cutting — selling goods below cost, the purpose or effect of which is to substantially lessen competition — will breach the law.
Promotion 1.52 Clearly a marketer needs to acquaint the community with the range of products it has available so that consumers can best satisfy their needs. In addition, new desires and wants for products can be stimulated by advertising and promotion. Conversely, producers already in the market have a legitimate interest in keeping the nature and qualities of their goods or services before the consumer. Although the legitimacy of most advertising is undisputed, some advertising methods are clearly questionable. The advertiser must be aware of laws prohibiting 37
Marketing and the Law
misleading or deceptive conduct. For example, an advertiser may make a claim which is incapable of proof or which promotes a product or business by falsely disparaging that of a competitor. The law attempts to find a balance between the need of the consumer to be acquainted with products and their benefits on the one hand, and the protection of consumers and competitors against over-enthusiastic, unscrupulous, or misleading advertising on the other. Sometimes advertisers will use promotional techniques to persuade customers to buy their product. Some of these techniques overstep the boundaries of fairness, such as bait advertising; that is, advertising the availability of goods or services that are not available in reasonable quantities. Other techniques, such as running market competitions and lotteries, are regulated because they have traditionally been regarded as a nuisance at law. Door-to-door selling, electronic messaging, and telemarketing are regulated because of the potential for abuse. It is therefore necessary for the marketer to examine the extent to which the existing law allows such methods of promotion.
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Place 1.53 Another way of matching the supply of products available and consumer needs is to find the most efficient channels of distribution. Selling direct online is increasing in popularity, which has required some regulatory laws to be introduced to protect online purchasers. The most efficient path to the market is not necessarily the most direct, as often it is inefficient for manufacturers of products to sell directly to consumers. Usually producers of goods utilise wholesalers and/ or retailers to achieve the most efficient channel of distribution. However, the very fact that distributors for a product are required can create legal problems. Those problems are likely to arise should the manufacturer wish to strictly define the ambit of operation of distributors as to: • the products they sell; • the customers they may deal with; or • the areas in which they may operate. In particular, a manufacturer may require a distributor to direct all its efforts to marketing the product exclusively. Such arrangements may have an adverse effect upon competition, in which case the exclusive dealing provisions of the Competition and Consumer Act come into play.
The competitive process 1.54 The Competition and Consumer Act is premised upon the fact that society’s needs are best served by free and fair competition. Anti-competitive behaviour of various forms, some of which have already been alluded to, is prohibited by these laws. Cooperating or colluding with competitors to entrench one’s position in the marketplace, or to increase market share, is likely to have legal repercussions. 38
Chapter 1: Introduction to the Law and Marketing
Arrangements between competitors that substantially lessen competition in the marketplace are unlawful. Certain types of arrangement are deemed anticompetitive and are prohibited outright, such as market sharing agreements and most forms of price fixing. The marketer needs to know in what circumstances cooperation with competitors will result in illegality. If a firm has a substantial degree of market power, it must not engage in conduct that has the purpose or effect of substantially lessening competition in a market. Such conduct is likely to be illegal. Furthermore, increasing one’s market share by merging or acquiring another firm may be unlawful if the result is a substantial lessening of competition in the marketplace.
Summary and Objectives of this Text 1.55 This book has been written to enable those in business and students to ascertain and understand the key legal principles that apply to the marketing of goods and services. It is structured in such a way that the marketer can readily determine how the law may affect one or more of the elements that go to make up the marketing mix. TABLE 1.4 SUMMARY OF THE CONTENTS OF THIS TEXT PRODUCT LAW
PURPOSE
TEXT REFERENCE
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INTELLECTUAL PROPERTY: Patents Act
Grants limited monopoly rights to registered owners of inventions and innovations.
Chapter 2
Breach of confidence
Protects confidential information.
Chapter 3
Copyright Act
Grants limited exclusive rights to creators of original works and specified material.
Chapter 4
Designs Act
Grants limited monopoly rights to new and distinctive designs for commercial products.
Chapter 5
Passing off
Protects the owners of distinctive trade designations, including brand names, business names, and the overall ‘get-up’ of a product.
Chapter 6
Trade Marks Act
Grants monopoly rights to registered proprietors of trade marks.
Chapter 7
Business names legislation
Requires persons not trading under their own Chapter 7 name to publicly register the business name.
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Marketing and the Law TABLE 1.4 SUMMARY OF THE CONTENTS OF THIS TEXT — cont’d PRODUCT CONT. LAW
PURPOSE
TEXT REFERENCE
PACKAGING AND LABELLING: Australian Consumer Law Protects consumers from misleading packaging and labelling practices, and prescribes product information and safety standards.
Chapter 8
Trade measurements legislation
Requires traders to provide accurate information concerning the mass (weight) and measure of goods.
Chapter 8
Poisons and dangerous goods legislation
Imposes controls upon the packaging and labelling of poisonous substances and dangerous goods.
Chapter 8
Food and health legislation
Requires traders to provide information on packages and/or labels of food and nonfood products.
Chapter 8
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PRODUCT LIABILITY: Australian Consumer Law Provides consumers with statutory guarantees designed to ensure that goods Pt 3-2 and services meet minimal standards or comply with their description.
Chapter 9
Negligence
Imposes liability upon traders to compensate persons likely to be injured by the trader’s carelessness in producing and marketing goods or services.
Chapter 9
Australian Consumer Law Imposes statutory obligations upon manufacturers to guarantee that goods Pts 3-2 and 5-4 meet minimal quality standards or comply with the description applied to them.
Chapter 9
Australian Consumer Law Imposes liability upon manufacturers to Chapter 9 Pt 3-5 compensate any person who is injured or suffers loss as a result of a defective product, without the need to prove negligence.
40
Chapter 1: Introduction to the Law and Marketing TABLE 1.4 SUMMARY OF THE CONTENTS OF THIS TEXT — cont’d PROMOTION LAW
PURPOSE
TEXT REFERENCE
ADVERTISING: Australian Consumer Law Prohibits all forms of misleading or deceptive conduct, including misleading advertising and selling practices.
Chapter 10
SALES PROMOTION: Lotteries and gaming legislation
Controls the conduct of lotteries and games designed to promote a business or product.
Chapter 11
Australian Consumer Law Pt 3-2 Div 2
Regulates unsolicited consumer transactions (such as sales made door-todoor or on the telephone) by providing a ‘cooling off’ period entitling the customer to avoid the transaction.
Chapter 11
Australian Consumer Law Pt 3-1
Prohibits a range of unfair promotional practices, including bait advertising, misleading sales talk, harassment and coercion, inertia selling, referral selling, and pyramid selling.
Chapter 11
Spam legislation
Regulates unsolicited email material.
Chapter 19
Telemarketing legislation
Regulates unsolicited phone marketing.
Chapter 19
Privacy legislation
Regulates the collection, storage, and use of personal information.
Chapter 19
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E-MARKETING:
PRICE LAW
PURPOSE
TEXT REFERENCE
Competition and Consumer Act Pt IV Div 1
Prohibits competitors from entering into agreements to regulate prices they adhere to in the marketplace.
Competition and Consumer Act s 45
Prohibits agreements that result in Chapter 13 different customers being charged different prices (price discrimination) if the purpose or effect is to lessen competition in the marketplace.
Chapter 13
41
Marketing and the Law TABLE 1.4 SUMMARY OF THE CONTENTS OF THIS TEXT — cont’d PRICE CONT. LAW
PURPOSE
TEXT REFERENCE
Competition and Consumer Act s 46
Prohibits a trader with a substantial degree of market power from engaging in conduct which has the purpose or effect of substantially lessening competition in a market. Such conduct includes refusals to deal and unfair pricing practices, such as predatory price cutting and price discrimination.
Chapter 14
Competition and Consumer Act s 48
Prohibits the practice of resale price maintenance, where a trader attempts to prevent a purchaser from reselling goods or services below a specified minimum price.
Chapter 16
PLACE
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LAW
PURPOSE
TEXT REFERENCE
Competition and Consumer Act ss 46 and 47
Prohibits various forms of restrictions Chapter 17 imposed upon distributors (including the right to buy from others, and customer and territorial restraints) if those restrictions have the purpose, effect or likely effect of substantially lessening competition in the marketplace.
Franchising Code of Conduct
Regulates the conduct of parties involved in Chapter 18 the franchising industry.
Restraint of trade doctrine
Prevents suppliers of goods from imposing unreasonable restraints upon the freedom of a distributor/franchisee to buy from or to supply other persons in the marketplace.
Chapter 18
THE COMPETITIVE ENVIRONMENT LAW Restrictive trade practices legislation: Competition and Consumer Act and State Competition Codes
42
PURPOSE Prohibits a range of anti-competitive practices, including collusive conduct (such as collective refusals to deal, market sharing, output restrictions, bid-rigging, and price fixing), misuse of market power, exclusive dealing, vertical price fixing (resale price maintenance), and mergers.
TEXT REFERENCE Chapters 12–17
Chapter 1: Introduction to the Law and Marketing
After reading this book, marketers should be able to: • illustrate a basic knowledge of the laws impacting upon decision making in the marketplace, in particular the Competition and Consumer Act (including the Australian Consumer Law) and laws regarding patents, copyright, designs, and trade marks; • assess whether an organisation is complying with the law; • understand the importance of an effective legal compliance program;53 • understand the costs and consequences of non-compliance with the law; • appreciate the competitive benefits of complying with the law; and • recognise the opportunities the law provides to protect commercially valuable creations and ideas produced by business organisations.
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The need for legal compliance is reinforced at the end of each chapter under the heading ‘Marketing Advice’. Where relevant, the competitive benefits provided by the law are also summarised. It is a very important part of the book.
53 The book does not, nor is it intended to, cover every law that might impact upon a business. A compliance program will always need to be tailored to meet the specific requirements of a particular organisation and, as such, will usually need to involve the organisation’s own legal counsel.
43
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Protecting Inventive Ideas
1 2
Intellectual Property and Marketing ............................................... 2.2 Introduction to Patents ..................................................................... 2.3 Two types of patent ....................................................................... 2.4 Patents in Practice .............................................................................. 2.5 Standard Patents ................................................................................ 2.6 Is the invention a manner of manufacture? ................................ 2.7 A. Business method patents ..................................................... 2.8 B. Product improvements ......................................................... 2.9 C. Methods for treating the human body ............................ 2.10 D. Genes ..................................................................................... 2.11 E. Non-patentable inventions ............................................... 2.12 Is the invention novel? ................................................................. 2.13 A. Disclosure in a prior patent application ........................... 2.14 B. Disclosure in a public document ........................................ 2.15 C. Disclosure by doing an act .................................................. 2.16 D. Exceptions to the strict rules of non-disclosure or use — grace periods ........................................................ 2.17 Does the invention contain an inventive step? ....................... 2.18 A. The non-inventive skilled person test ............................... 2.19 B. Describing the non-inventive skilled person ................... 2.20 C. Factors relevant to assessing inventiveness ..................... 2.21 Is the invention useful? ............................................................... 2.22 Has an invention been secretly used? ....................................... 2.23 Applying for a Standard Patent ...................................................... 2.24 The application .............................................................................. 2.24 Examination by the Patents Office ............................................ 2.25 Opposing a patent ........................................................................ 2.26 45
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Marketing and the Law
What are the claims? ................................................................... 2.27 Importance of the priority date .................................................. 2.28 Duration of a standard patent .................................................... 2.29 Patents of addition ....................................................................... 2.30 Innovation Patents............................................................................. 2.31 Purpose of the innovation patent ............................................... 2.31 What is an innovative step? ....................................................... 2.32 Innovation patent process .......................................................... 2.33 Duration of an innovation patent .............................................. 2.34 Review of the innovation patent system..................................... 2.35 Ownership of Patents ...................................................................... 2.36 Who is the inventor? .................................................................... 2.37 Employee inventions .................................................................... 2.38 A. Was the inventor an employee? ....................................... 2.39 B. Was the invention created in the course of employment? .................................................................. 2.40 Patent Rights .................................................................................... 2.41 Nature of patent rights ................................................................ 2.41 Assigning or licensing patent rights ........................................... 2.42 Abuse of patent rights ................................................................. 2.43 Compulsory licences .................................................................... 2.44 Purchasers of patented products ............................................... 2.45 Infringement of Patents .................................................................. 2.46 Rules relating to infringement ..................................................... 2.46 Determining the scope of the claims ........................................ 2.47 Determining whether the essential elements of the claims have been taken ................................................ 2.48 Determining whether any exceptions or defences to infringement apply.......................................................................2.49 Practical aspects of protecting patent rights ........................... 2.50 Contributory infringement ........................................................... 2.51 Prior user rights ............................................................................. 2.52 Remedies for Infringement ............................................................. 2.53 Damages or an account of profits .............................................. 2.54 Injunctions ..................................................................................... 2.55 A. Anton Piller order ................................................................ 2.56 B. Mareva injunction ............................................................... 2.57 Other orders .................................................................................. 2.58 Making Unjustified Threats ............................................................ 2.59 Revocation of Patents ...................................................................... 2.60 International Aspects of Patents .................................................... 2.61 Paris Convention ........................................................................... 2.62 TRIPS Agreement .......................................................................... 2.63 Patent Cooperation Treaty ......................................................... 2.64 European Patent Convention......................................................... 2.65 46
Chapter 2: Protecting Inventive Ideas
2.66 2.66 2.67 2.68 2.69 2.70
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Advantages and Disadvantages of a Patent.................................. Disadvantages of a patent ........................................................... Advantages of a patent ................................................................ Conclusion ..................................................................................... Plant Breeder’s Rights ..................................................................... Marketing Advice ..............................................................................
47
Marketing and the Law
2.1 The next five chapters deal with marketing aspects of intellectual property. Intellectual property is the expression used to describe the rights attaching to such things as inventions, trade marks, product designs, and copyright material.1 This chapter begins with a discussion of the importance of intellectual property to marketing. It then examines how inventions may be protected by the use of patents law.
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Intellectual Property and Marketing 2.2 In all areas of intellectual property there is trade-off between the creator’s right to commercially exploit his or her novel idea and the community’s right to benefit from these creations. For this reason, intellectual property rights are carefully defined and most are strictly limited in duration. Intellectual property rights are regarded as personal property and can be bought, sold, and licensed like other forms of property. The main reason for intellectual property laws is to cure what economists call a market failure. A lot of time, effort, and money goes into creating new commercial ideas. Some work, but many do not. If new ideas were not protected by law, the good ones would be copied. As they can easily be copied at little expense, no one would be prepared to pay for them. There would be no market for ideas. If no one was willing to pay, the incentives to invest in costly research and development would vanish. The community would suffer because the level of innovation would diminish. There are three reasons why intellectual property laws are important to marketers. First, knowledge of intellectual property law may help to avoid unnecessary costs. The task of the marketer is to identify market opportunities, to advise on the development of products to take advantage of those opportunities, and to place the products to the best effect. In assessing development strategies, it is important to know those areas which have already been staked out by others. For example, it is pointless spending valuable research and development dollars creating a product that infringes someone else’s patent rights. The effort would
1
48
Article 2(viii) of the 1967 Convention establishing the World Intellectual Property Organization (WIPO) defines ‘intellectual property’ to include the rights relating to: (1) literary, artistic and scientific works; (2) performances of performing artists, phonograms and broadcasts; (3) inventions in all fields of human endeavour; (4) scientific discoveries; (5) industrial designs; (6) trade marks, service marks, and commercial names and designations; (7) protection against unfair competition; and all other rights resulting from intellectual activity in the industrial, scientific, literary or artistic fields.
Chapter 2: Protecting Inventive Ideas
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have been better spent trying to obtain an assignment or a licence of the patent or even acquiring the business that owns the technology. Second, knowledge of intellectual property law may help in uncovering opportunities that would otherwise be missed. The rights created by the intellectual property laws are by no means unchallengeable. In some cases the rights may have been wrongly granted. For example, the Patent Office may have granted a patent for an invention that was not new. Such patents can be challenged and, if the challenge is successful, revoked. Third, knowledge of intellectual property law may help in protecting an investment. There is little commercial sense in spending big dollars to develop a new product only to have a competitor replicate the product (and take a large slice of the market) when such competition could have been avoided by, for example, lodging a patent application in time. Once the product has been launched, it is generally too late to seek patent or design registration.
49
50
4
2 3
10 years
Yes
The look or shape of a product (the visual appearance of a product)
DESIGNS ACT 2003 (CTH)
20 years4 (standard patent); 8 years (innovation patent)
Yes
New and inventive industrial products and processes; Innovations (innovation patents)
PATENTS ACT 1990 (CTH)
As long as information is secret and valuable
No
Commercial information that is secret and has value
CONFIDENTIAL INFORMATION
10 years + indefinitely
Yes
Distinctive marks
TRADE MARKS ACT 1995 (CTH)
As long as reputation in name or get-up remains distinctive
No
Reputation in a distinctive designation or get-up
PASSING OFF2
Section 18 of the Australian Consumer Law usually provides an alternative to common law passing off. Some forms of subject matter other than works have shorter periods of protection. For example, television or sound broadcasts are protected for 50 years after the broadcast: Copyright Act 1968 s 95; and copyright in published editions of works subsists for 25 years after publication: Copyright Act 1968 s 96. In some circumstances, an extension can be granted for patents relating to pharmaceutical substances: see Patents Act 1990 ss 70–79A.
For works, life of creator + 70 years or +70 years from when work first made public; For subject matter other than works, typically 70 years from making or when first made public3
How long does protection last?
No
Is registration required?
The manner in which ideas are expressed; Includes literary, artistic, dramatic and musical works, and other subject matter such as films, broadcasts, recordings
What is protected?
COPYRIGHT ACT 1968 (CTH)
TABLE 2.1 AN OVERVIEW OF AUSTRALIAN INTELLECTUAL PROPERTY LAWS
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Marketing and the Law
5
No
Registration; Policing infringement; Fighting revocation proceedings
The exclusive right to apply the design to the product in respect of which the design is registered
DESIGNS ACT 2003 (CTH)
No
Registration; Policing infringement; Fighting revocation proceedings
The right to stop others exploiting the invention or innovation (‘exploit’ includes to make, hire, sell, or otherwise dispose of the invention)
PATENTS ACT 1990 (CTH)
Yes
Protecting secrecy; Policing infringement;
The right to stop unauthorised disclosure or use of trade secrets (no power to stop independent discovery or reverse engineering)
CONFIDENTIAL INFORMATION
Yes
Registration; Policing infringement; Fighting revocation proceedings
The right to stop others using the mark or any other mark that is deceptively similar in relation to the exact or similar goods or services for which the mark is registered5
TRADE MARKS ACT 1995 (CTH)
No
Establishing reputation and misrepresentation; Defending reputation
The right to stop others using a similar designation or get-up in such a way as to indicate a false connection with the plaintiff
PASSING OFF
Or similar goods or closely-related services: Trade Marks Act 1995 s 120(2). In some cases this extends to unrelated goods or services: Trade Marks Act 1995 s 120(3).
No (exceptions exist for books, music CDs, computer programs, product labels, and packaging)
Are parallel imports allowed?
Establishing copyright; Policing infringement
Expense
The exclusive right to reproduce, publish, adapt, perform in public, and communicate to the public the copyright work (the rights vary according to the type of work)
What are the rights enjoyed by the owner?
COPYRIGHT ACT 1968 (CTH)
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Chapter 2: Protecting Inventive Ideas
51
Marketing and the Law
Introduction to Patents 2.3 The purpose of the law of patents is to protect inventive products or processes by giving the inventor exclusive rights over the invention for a period of time. In this way, inventors are given an economic incentive to use their creative talents, and investors are encouraged to risk their capital on new ideas. The protection, however, is limited in time and the inventor is required to publicly disclose the invention. Once the period of the patent has expired, the invention becomes public property and anyone can then utilise it without permission from the patentee. This should create an environment in which technological progress is stimulated. For instance, an invention once made public may suggest to other inventors further improvements or a better solution to a problem. To obtain protection under the Patents Act 1990 (Cth), inventions must be registered with the Patent Office at IP Australia, the Commonwealth government agency established to grant specialised intellectual property rights. Once registered, the patent owner obtains a monopoly to exploit the invention. From the marketer’s point of view, the essential feature to grasp from the law of patents is that the application for registration must be made at an early stage in the life of the invention. If the invention is used prior to lodging a patent application, the inventor may lose the right to register. In deciding whether to apply for a patent, the inventor must bear in mind that he or she is required to publicly disclose the invention. This is the trade-off required by the Patents Act. If the inventor chooses to bypass the patent process or fails to apply for registration in time, legal protection for the invention may still be possible if the inventor can keep the invention secret.
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Two types of patent 2.4 The Patents Act recognises two types of patents. TABLE 2.2 TYPES OF PATENT STANDARD PATENT
INNOVATION PATENT
20 year monopoly with no extensions (except for certain pharmaceutical inventions)
Eight year monopoly
Popular in industries where inventions are relatively cheap to imitate and maintaining secrecy is either impossible or difficult (eg, pharmaceuticals)
Useful for straightforward innovations that do not satisfy the more stringent test of inventiveness; also useful for inventions not expected to have a long commercial life
Obtaining a standard patent is often a complicated, expensive, and lengthy process due to the examination process
Obtaining an innovation patent is simpler, quicker, and cheaper because a full examination is not carried out before registration
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Chapter 2: Protecting Inventive Ideas
Patents in Practice 2.5 In 2018, almost 30,000 applications for standard patents were lodged at the Patent Office.6 More than 90% were lodged by overseas residents. Medical technology leads the area in which most patent applications were made in 2018 and applications in the fields of biotechnology and pharmaceuticals are also growing. As elsewhere in the world, applications in the field of civil engineering are decreasing. The protection provided by patents is more useful in some industries than in others. For example, chemical and pharmaceutical firms are large users of the patent system, partly because innovations within these industries tend to be relatively cheap to imitate. Firms within these industries see patent registration as an important part of maintaining competitive advantage. The innovation patent was introduced in 2001. Its predecessor, the petty patent system, was not extensively used. The government has accepted the recommendation of the Productivity Commission in its recent Inquiry into Intellectual Property Arrangements to abolish Australia’s innovation patent system on the basis that the majority of intended beneficiaries, small and medium enterprise businesses, do not obtain value from the system and that the costs of the innovation patent regime outweigh any benefits.7 At the time of writing there was a Bill before parliament8 containing provisions to achieve this.
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Standard Patents 2.6 Not all inventions can be patented. They must satisfy the test laid out in s 18(1) of the Patents Act for standard patents or s 18(1A) for innovation patents. Innovation patents are discussed at 2.31. This section discusses the standard patent. The Patents Act provides that an invention is a patentable invention if the invention, so far as claimed in any claim:9 (a) is a manner of manufacture within the meaning of section 6 of the Statute of Monopolies; and (b) when compared with the prior art base as it existed before the priority date of that claim: (i) is novel; and (ii) involves an inventive step; and 6 7 8 9
Australian Intellectual Property Report 2019, available at . Government response: Productivity Commission Inquiry into Intellectual Property Arrangements, August 2017, available at , p 10. Intellectual Property Laws Amendment (Productivity Commission Response Part 2 and Other Measures) Bill 2019. Patents Act 1990 s 18(1) (emphasis added).
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Marketing and the Law (c) is useful; and (d) was not secretly used in the patent area before the priority date of that claim by, or on behalf of, or with the authority of, the patentee or nominated person or the patentee’s or nominated person’s predecessor in title to the invention.
Is the invention a manner of manufacture? 2.7 Mathematical models, plans, or schemes are not patentable; nor are discoveries of pure knowledge. Uncovering the laws of nature is regarded as a discovery, rather than an invention. The first requirement of a patentable invention is that it be a ‘manner of manufacture within the meaning of section 6 of the Statute of Monopolies’. The Statute of Monopolies is a reference to the British Statute of Monopolies 1623, which referred to ‘any manner of new manufacture’. What kinds of invention can be said to be a manner of new manufacture? The phrase is to be given a fairly wide meaning and is by no means limited to what might commonly be understood as a manufacture. ‘A manner of manufacture’ includes any new product or any new process that achieves an economically useful result. National Research Development Corporation v Commissioner of Patents (1959) 102 CLR 252; 1A IPR 63; [1961] RPC 134
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2.7C
Facts: National Research Development Corporation (NRDC) invented a new procedure for applying known chemicals to the soil so as to kill weeds but not the crop. The chemicals, although known to science, were not known to be useful in the eradication of weeds. NRDC applied for a patent for the new process. The Commissioner of Patents objected that the NRDC invention was not a manner of manufacture because: • the invention was neither a new saleable product nor a new process for producing a saleable product; • the invention involved an agricultural process which could not be a manner of manufacture; and • the invention was merely a new use for an existing product. NRDC challenged the decision of the Commissioner. Decision: The High Court rejected the Commissioner’s arguments. Any new process which was capable of achieving an economically useful result in industry, including the agricultural industry, was a manner of manufacture for the purposes of the Patents Act. The NRDC achieved an economically useful result in that it artificially produced land that was free of weeds but with the crop undamaged. A process that achieved this kind of desirable commercial result was just as patentable as a process that produced some physical product. Although the chemicals were not new, the method of applying them to the soil to produce a commercially desirable result meant that there was a patentable process and not just a new use for an existing product.
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Chapter 2: Protecting Inventive Ideas
The National Research Development Corporation case is also the basis for holding that computer software is patentable.10 For example, in CCOM Pty Ltd v Jiejing Pty Ltd11 the Full Federal Court concluded that a method to assemble text in Chinese characters using word processing software was patentable.
A. Business method patents 2.8 To be a manner of manufacture (and therefore patentable), an invention must have a commercial or industrial application, as opposed to a purely artistic one. It must also be something more than a good commercial idea. There must be some connection with product or process development. For example, a bright new marketing idea would not normally be a ‘manner of manufacture’. However, a business system that utilises technology in a new way to achieve an economically desirable outcome may be patentable.12 Welcome Real-Time SA v Catuity Inc (2001) 51 IPR 327; [2001] FCA 445 Facts: Welcome Real-Time SA (Welcome) held a patent for a process or method of using smart cards as part of a customer loyalty program. The smart card enabled the card holder to access many different loyalty programs of different traders as well as different programs offered by the same trader. Each trader’s loyalty program(s) was added to the card the first time the customer used the point of sale terminal at that particular trader’s store. Data relating to the customer’s dealings with each trader was stored separately. The card was dynamic in that rewards (for example, discounts) earned with any particular trader were available immediately at the trader’s retail outlet.
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Catuity introduced a similar smart card system (CiT Transcard system) for use on buses and cabs and at retailers in Sydney. Welcome alleged infringement of its patent. Catuity denied infringement, and argued that the Welcome patent should be revoked, partly because it was not a manner of manufacture within the meaning of s 18 of the Patents Act. Decision: The Welcome patent was valid. In the opinion of Heerey J it produced an ‘artificial state of affairs’ and was ‘beneficial in a field of economic endeavour — namely retail trading — because it enables many traders (including small traders) to use loyalty programs and thereby compete more effectively for business. Such competition is in turn beneficial to consumers …’. This was a ‘physically observable effect’. The Catuity system infringed Welcome’s patent. The court granted an injunction and ordered an account of profits, but refused to make an order to deliver up the offending material because the material had other uses which were lawful.13
10 See International Business Machines Corp v Smith, Commissioner of Patents (1992) 105 ALR 388; 22 IPR 417. Original software is also protected by the provisions of the Copyright Act 1968: see Chapter 4. 11 (1994) 122 ALR 417; 28 IPR 48. 12 See Advisory Council on Intellectual Property, Report on a Review of the Patenting of Business Systems, Canberra, 2003. 13 (2001) AIPC 91-736; [2001] FCA 785 at 785.
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2.8C1
Marketing and the Law
The Patents Office rejected a patent application for a method for determining the pay-out figure for a ‘reverse mortgage’ where an aged person part-sells an interest in their home in return for a cash deposit. The Deputy Commissioner held that, to be a manner of manufacture, a new idea requires at least some material application of science or technology: Re Peter Szabo and Associates Pty Ltd.14 In Grant v Commissioner of Patents,15 Branson J held that a scheme for structuring a financial transaction (by use of a trust) so as to protect an individual’s assets (‘presumably against the lawful claims of the individual’s creditors’) was not a manner of manufacture. There needed to be an observable effect. The court said:16 It has long been accepted that ‘intellectual information’, a mathematical algorithm, mere working directions and a scheme without effect are not patentable. [Grant’s] claim is ‘intellectual information’, mere working directions and a scheme. It is necessary that there be some ‘useful product’, some physical phenomenon or effect resulting from the working of a method …
Research Affiliates LLC v Commissioner of Patents (2014) 316 ALR 135; 109 IPR 364; [2014] FCAFC 150 2.8C2
Facts: Research Affiliates was the owner of patent applications for a method for computerimplemented ‘passive and enhanced indexing categories of portfolio management’. The applications were rejected by the Commissioner of Patents on the grounds that the claims were not for a manner of manufacture. Research Affiliates appealed to the Federal Court. The primary judge dismissed the appeal. Research Affiliates was granted leave to appeal to the Full Federal Court.
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The issue was whether the invention was a manner of manufacture and therefore a patentable invention within the meaning of s 18 of the Patents Act. The question the Full Court had to determine was whether computer implementation of a business scheme (where the business scheme itself is unpatentable because it does not produce an artificial state of affairs) could give rise to a method patent as a result of that computer implementation. Decision: The inventions were not patentable. The specification described the index and the implementation of the scheme. It used a computer to implement that scheme. However, there was no claimed improvement in the computer technology itself. Kenny, Bennett, and Nicholas JJ said, ‘the claimed method in this case clearly involves what may well be an inventive idea but it is an abstract idea (which is therefore unpatentable). The specification makes it apparent that any inventive step arises in the creation of the index as information and as a scheme. There is no suggestion … that any part of the inventive step lies in the computer implementation’. Simply inputting code into a computer will not create an artificially created state of affairs. The appeal was dismissed.
14 (2005) 66 IPR 370; [2005] APO 24. 15 (2005) 67 IPR 1; [2005] FCA 1100. 16 A similar approach has now been taken in the US: see Bilski v Kappos 130 S Ct 3218 (2010), in which a method for hedging risks in commodities trading was rejected, but a majority agreed that in some circumstances business methods may be patentable.
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Chapter 2: Protecting Inventive Ideas
This case shows that mere computerisation of a business process will not make it a patentable invention. But as the Catuity case at 2.8C1 shows, this does not mean that a computer implemented business method is not patentable per se.
B. Product improvements 2.9 If the alleged invention is purely a new use for an existing product (for example, directions on how to use an existing product), it will not be patentable. This was made clear by the High Court in Commissioner of Patents v Microcell Ltd17 and more recently in NV Philips Gmb v Mirabella International.18 However, the invention of a new process which utilises existing products, as in National Research Development Corporation v Commissioner of Patents,19 is potentially patentable. This distinction can often be a fine one. The distinction has recently been an issue in what is colloquially called ‘evergreening’ of pharmaceutical patents. Evergreening occurs where the patent holder attempts to extend the life of a pharmaceutical patent by claiming a monopoly for new methods of administering the pharmaceutical. Thus, in Arrow Pharmaceuticals Ltd v Merck & Co Inc,20 the court ordered revocation of a pharmaceutical patent that amounted in reality to new directions for use, rather than a new invention. In contrast, in Bristol-Myers Squibb Co v F H Faulding & Co Ltd,21 the patent for administering a drug was revoked, but not because it was not a manner of manufacture.
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C. Methods for treating the human body 2.10 Human beings and the biological processes for their generation cannot be patented: Patents Act s 18(2). According to the Patent Office Manual, this includes foetuses and fertilised ova, methods of in vitro fertilisation, methods to clone human beings, and ‘processes beginning with fertilisation and ending with birth, which are wholly biological, and result in a human being’. However, methods of treating the human body are generally patentable, provided they satisfy the usual tests including ‘manner of manufacture’: Anaesthetic Supplies Pty Ltd v Rescare Ltd22 and Bristol-Myers Squibb Co v F H Faulding & Co Ltd.23 There was some doubt about this in Australia, particularly since some other jurisdictions have specifically excluded methods for the treatment of humans from patentability.24 The High Court had the opportunity to settle the matter in 2013. 17 18 19 20 21 22 23 24
(1959) 102 CLR 232; 1A IPR 52. (1995) 183 CLR 655; 132 ALR 117; 70 ALJR 13. (1959) 102 CLR 252; 1A IPR 63; [1961] RPC 134, see 2.7C. (2004) 213 ALR 182; 63 IPR 85; [2004] FCA 1282. (2000) 170 ALR 439; 46 IPR 553; [2000] FCA 316, see also 2.51C1. (1994) 122 ALR 141; 28 IPR 383, see 2.28C. (2000) 170 ALR 439; 46 IPR 553; [2000] FCA 316, see also 2.51C1. TRIPS Agreement art 27(3)(a). See, for example, Patents Act 1977 (UK) s 4(2).
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Marketing and the Law
Apotex Pty Ltd v Sanofi-Aventis Australia Pty Ltd (2013) 304 ALR 1; 103 IPR 217; [2013] HCA 50 2.10C
Facts: Sanofi-Aventis is the registered owner of an Australian patent for a ‘method of preventing or treating a skin disorder … psoriasis, which comprises administering … [the compound Leflunomide]’. The priority date of the patent was March 1993. Sanofi-Aventis supplied Leflunomide in Australia under the brands ‘Arava’ and ‘Arabloc’. Apotex commenced preparations to supply generic versions of Leflunomide in 2008 as a treatment for psoriatic arthritis and rheumatoid arthritis. Sanofi-Aventis initiated proceedings alleging that Apotex’s supply of Leflunomide for the treatment of psoriatic arthritis would infringe its patent. Apotex cross-claimed for revocation of the patent, alleging that the invention was not a manner of manufacture. The primary judge dismissed the cross-claim. Apotex appealed to the Full Federal Court, The appeal was dismissed. Apotex was granted special leave to appeal to the High Court on the single ground of patent validity. The question was asked: is a method of medical treatment of human beings patentable subject matter? Decision: The patent was valid. A method for medical treatment of the human body which is a novel and inventive contribution to a useful art having economic utility, can be a manner of manufacture and therefore a patentable invention as defined in s 18 of the Patents Act. The High Court noted that, unlike some other jurisdictions, the Australian parliament had not excluded methods of medical treatment from patentability. While there are public policy arguments on whether such an exclusion might be appropriate, this is a difficult issue and how to resolve the debate is ‘best left to the legislature’.25 The High Court was not prepared to imply such an exclusion.
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With respect to infringement, although exploitation of Leflunomide for the treatment of psoriatic arthritis did not fall within the claim of the patent, it was infringement to supply a product which the supplier had reason to believe would be used for psoriasis which was covered by the patent claim.26
While the generation of human life is expressly excluded by the Patents Act, or indirectly excluded as contrary to law,27 other life forms are not excluded. Consequently, inventions that involve biological products and processes, and living organisms (other than human beings) are patentable.28 The same rules apply as for all inventions. New plant varieties may be patented as well as obtain registration under the Plant Breeder’s Rights Act 1994.
25 Apotex Pty Ltd v Sanofi-Aventis Australia Pty Ltd [2013] HCA 50 at [50]. 26 See 2.51. 27 A patent application can be rejected if its use would be contrary to law: Patents Act 1990 s 50(a). See, for example, Re Hwang [2004] APO 24, where an application for producing a human embryo was contrary to s 20 of the Prohibition of Human Cloning Act 2002 (Cth). 28 See also the Gene Technology Act 2000, which provides a regulatory scheme for the use of genetically modified organisms.
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D. Genes 2.11 It is possible to patent synthetically produced human DNA and human genetic material (genes and gene sequences), provided it is given a definite commercial use.29 On the whole, Australia takes a more permissive approach to biotechnology patenting than the European Union. This is a controversial area30 and has been vigorously challenged in both the US and Australia. In 2013, the US Supreme Court declared a number of patents held by Myriad Genetics relating to breast cancer gene mutations invalid,31 because the genes described in the patents and developed in the laboratory were in exactly the same form or sequence as they appeared in nature. Therefore, the patent related to a discovery of a law of nature, not to an invention merely because the DNA segment was isolated. In Australia, the High Court decision based on the equivalent Australian patent reached the same conclusion that the patent was invalid. D’Arcy v Myriad Genetics Inc (2015) 258 CLR 334; 115 IPR 1; [2015] HCA 35
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Facts: Myriad Genetics is the owner of an Australian patent for methods and materials used to isolate a breast and ovarian cancer susceptibility gene (BRCA1) and its use of the gene in screening methods for detecting a predisposition to these types of cancer. Cancer Voices Australia is an independent volunteer organisation for Australians affected by cancer. Cancer Voices and D’Arcy, a Brisbane woman who was treated for breast cancer, commenced a Federal Court action seeking to declare the patent invalid on the grounds that it did not satisfy the requirement that an invention be a new manner of manufacture. It was alleged that the patent claims were not materially different to the nucleic acid that occurs in nature. Myriad Genetics argued that it was patentable subject matter because it was an artificial state of affairs, was new, useful, and of economic significance. At first instance, Nicholas J found that, while naturally occurring DNA is not patentable, isolated genetic material may be. D’Arcy appealed to the Full Court. The Full Court found the patent valid on the basis that the isolation of the nucleic acid resulted in an artificially created state of affairs. The claims went beyond mere isolation. The claims defined specific mutations and indicated a predisposition to breast and ovarian cancer. D’Arcy appealed to the High Court. Decision: The patent was invalid. It did not concern a manner of manufacture. The information contained in the isolated gene was that same as that occurring naturally in the human body. In that sense, the information is not ‘made’ or artificially created as is required for something to be a manner of manufacture.
Subsequent to the High Court decision in Myriad Genetics, the Federal Court held that claims defining practical applications of gene sequences, including methods
29 Kirin-Amgen Inc v Board of Regents of University of Washington (1995) 33 IPR 557; (1996) AIPC 91-231. 30 See, for example, Australian Law Reform Commission, Gene Patenting and Human Health, Discussion Paper, 2004; Senate Standing Committee on Community Affairs, Inquiry into Gene Patents, Canberra, 2010. 31 Association of Molecular Pathology v Myriad Genetics Inc 569 US 12-398 (2013).
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of genetic screening in cows, disclosed patentable subject matter.32 In so deciding, Beach J noted that unlike the claims at issue in the Myriad Genetics case which the High Court found to be directed to purely genetic information, the claims of patent before him ‘are directed to methods and other embodiments involving the practical application of the identification of SNPs from a nucleic acid sample of the bovine subject and their association with a trait of interest. So, the claims are directed to artificial subject matter being the result of human action, rather than something that exists in nature per se.’33
E. Non-patentable inventions 2.12 The courts have the power to reject a patent on the grounds that it would be generally inconvenient. This was used in Rolls-Royce Ltd’s Application34 to reject a patent for a new take-off procedure used by jet aircraft to reduce noise at ground level. If a patent had been granted, it would have placed an intolerable burden on airport landing procedures.
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Is the invention novel? 2.13 The second requirement for a patentable invention is that the invention is novel. All patent applications are assessed for novelty against ‘the prior art base as it existed before the priority date’: Patents Act s 18(1)(b). Broadly speaking, the prior art base includes all information that is in the public domain, whether in Australia or overseas. The priority date is the date upon which the document specifying the invention (called the ‘specification’) is lodged with the Patent Office. The effect of this is that, if each and every essential feature of the invention was known publicly or was accessible to the public prior to the priority date, the invention is said to have been anticipated (ie, lack novelty). In order to determine whether the essential feature or features of the invention are novel — that is, not available to the public prior to the priority date of the patent — the courts apply the ‘reverse infringement test’. This is done by asking whether the alleged anticipation would, if the patent were valid, constitute an infringement: Meyers Taylor Pty Ltd v Vicarr Industries Ltd.35 For example, take the situation where it is argued that a patent is not novel because it was anticipated by a product already on the market. In order to succeed with this argument, it must be shown that the product was on the market prior to the priority date and that it disclosed all the essential features of the patent. The reverse infringement test requires the courts to imagine that the patent pre-dated the product and to ask whether the product infringed the patent. If the answer is yes, then the patent is not novel. 32 33 34 35
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Meat & Livestock Australia Ltd v Cargill, Inc [2018] FCA 51; (2018) 354 ALR 95; 129 IPR 278. Meat & Livestock Australia Ltd v Cargill, Inc [2018] FCA 51; (2018) 354 ALR 95; 129 IPR 278 at 453. [1963] RPC 251. (1977) 137 CLR 228.
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An invention will not satisfy the requirement of novelty if, before the priority date, the invention had been disclosed: • in a prior patent application anywhere; or • in a document available to the public anywhere; or • by some act occurring anywhere.
A. Disclosure in a prior patent application 2.14 An earlier patent application will destroy novelty, even if that earlier application was made only minutes before the subject application. The reason for this is that all prior patent applications are part of the universal prior art base. It is irrelevant that the patent may be in another country or a foreign language: Dennison Manufacturing Co v Monarch Marketing Systems Inc.36
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B. Disclosure in a public document 2.15 An invention will lack novelty if, prior to the priority date, the invention has been published or revealed in a document (including electronic databases) anywhere in the world. It is irrelevant that the document was in a foreign language, understandable only to a few, in an obscure publication, or largely unread: Sunbeam Corp v Morphy-Richards (Aust) Pty Ltd.37 An invention has been published (and, therefore, lacks novelty) if it has been published in such a way and in such circumstances that a skilled person would at once understand and be capable of putting the invention into operation without further enquiry or experiment. Even publishing a photograph of the invention may destroy novelty if it is sufficiently detailed: see Windsurfing International Inc v Petit.38 A document published confidentially is not a public document: see Griffin v Isaacs.39 If the invention can only be understood by putting together a number of related documents, novelty will not be lost unless a person skilled in the area of expertise covered by the invention would treat the documents as a single source: Patents Act s 7(1)(b). For example, if two documents were cross-referenced, this may make them a single source.
C. Disclosure by doing an act 2.16 An invention will lack novelty if, prior to the priority date, the invention (that is, the essential features of the invention) has been made available to the public by some act or series of acts. In certain limited circumstances, however, the inventor is given extra time to register the patent: see 2.17. 36 37 38 39
(1983) 66 ALR 265; 1 IPR 431. (1961) 180 CLR 98; 1B IPR 625. [1984] 2 NSWLR 196, see 2.16C1. (1938) 12 ALJR 169; 1B IPR 619.
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Acts that will amount to public use and therefore destroy novelty include: • any sale or offer to sell the invention by anyone anywhere — thus, for example, even one sale or offer to sell by the inventor will destroy novelty unless the purchaser or prospective purchaser was under an obligation to keep the invention secret; • any use of the invention in public by anyone anywhere: see Windsurfing International Inc v Petit;40 Insta Image Pty Ltd v KD Kanopy Australasia Pty Ltd41 (use of a collapsible canopy at motocross meetings prior to the priority date destroyed novelty in a patent based on the collapsible canopy); • any explanation or demonstration of the invention to a public forum, such as a trade fair or an industry seminar; • an explanation or demonstration of the invention to even one person, unless that person was under an obligation to keep the invention secret: see Fomento Industrial SA & Biro Swan Ltd v Mentmore Manufacturing Co Ltd;42 and • making a gift of the invention, unless the person receiving the gift was under a duty not to disclose or publicly use the invention. Windsurfing International Inc v Petit [1984] 2 NSWLR 196
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2.16C1
Facts: Windsurfing International was the holder of an Australian patent for a ‘wind propelled apparatus’ (a sailboard or windsurfer), with a priority date of the patent of March 1968. The patent was a combination patent; that is, a combination of known integers being a surfboard, skeg, retractable fin, mast, triangular sail, wishbone boom, and universal-type joint. Petit imported sailboards and sold them in Australia. Windsurfer International alleged that its patent rights had been infringed. Petit denied any infringement and cross-claimed for revocation of the patent on a number of grounds including lack of novelty. Petit argued the claim for lack of novelty on two grounds: first, prior publication in a newspaper article (including a picture) in 1965 entitled ‘Sailboarding: Exciting New Water Sport’; and second, prior use by various persons including a person who had experimented with hand-held sails attached to canoes when he was a teenager in the 1940s. Decision: The patent was revoked for lack of novelty. The invention had been anticipated by the newspaper article. Although the sailboard described and pictured in the 1965 article was clearly inferior to the Windsurfer patent, it detailed the essential inventive step of the plaintiff’s patent, namely ‘the free-sail concept which is the essential difference between the patent and conventional vehicles propelled by sail which have a fixed rig’ (that is, yachts). All the improvements contained in the Windsurfer patent would have been obvious to any hypothetical skilled person reading the article. Therefore, the article amounted to prior publication. The invention had also been anticipated by the 1940s experiment with hand-held sails on a canoe. Although quite crude compared with the patented windsurfer, again it did incorporate the essential inventive step. The judge commented that allegations of prior public use must be strictly proved. 40 [1984] 2 NSWLR 196, see 2.16C1. 41 (2008) 78 IPR 20; [2008] FCAFC 139. 42 [1956] RPC 87, see 2.16C2.
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Fomento Industrial SA & Biro Swan Ltd v Mentmore Manufacturing Co Ltd [1956] RPC 87 Facts: Fomento was the holder of a patent for an improved ball-point pen. Mentmore copied the invention without permission and Fomento sued for infringement. In its defence, Mentmore claimed that the patent should be revoked because it lacked novelty. According to Mentmore, the invention lacked novelty because, prior to lodging an application for registration, Fomento had given one of the pens to a member of a government department without any requirement that the invention be kept confidential. Decision: The court held that the gift was sufficient to destroy novelty. If the invention is provided to a member of the public in such a way that he or she is free in law to do what they want with the invention, then the invention has been disclosed to the public and is no longer novel. The patent was revoked.
Thus, if the invention is to be disclosed or displayed to a person or group of persons, the inventor must insist on confidentiality. While the courts may imply a duty of confidentiality in appropriate circumstances, it is dangerous to rely on this. In fact, not only should the inventor get an express acknowledgement of confidentiality, it should be in writing, signed by the recipient, and kept so that it can be produced if challenged.
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D. Exceptions to the strict rules of non-disclosure or use — grace periods 2.17 The rule against public disclosure was considered to be a little extreme. Therefore, the Patents Act was amended to allow for certain exceptions: Patents Act s 24. Thus, novelty will not be lost where the invention (or other information made publicly available which might destroy novelty or inventive step) is made publicly available: • to the public without the consent of the patentee by a person who obtained the invention from the patentee; • in the circumstances prescribed in the Patent Regulations, in both of these cases the disclosure must be followed up with a patent application, within a set period, generally within 12 months of the disclosure; or • to certain public authorities. The circumstances set out in the Patent Regulations 1991 include:43 • publication or use of the invention within 12 months before the filing date of the complete application (this allows the applicant 12 months after disclosure to lodge an application); • showing or use at a recognised exhibition; • publication in a paper by a learned society; and
43 Regs 2.2–2.2D.
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• working the invention in public within the period of 12 months before the priority date of a claim for the invention: – for the purposes of reasonable trial; and – if, because of the nature of the invention, it is reasonably necessary for the working to be in public. ‘Reasonable trial’ means trial for the purposes of developing the product and not trial for the purposes of test marketing. What is reasonable will depend on the circumstances, including the nature of the invention. There are a number of reasons why a general grace period may not be as attractive as it appears. First, the grace period does not operate against independent invention by another person. Second, any person who makes use of information publicly disclosed before the priority date has a prior user defence under s 119 of the Patents Act. Third, the grace period does not apply to commercial usage. Fourth, grace periods are not universally available; for example, prior use could destroy any chance of having a patent accepted in Europe. The United States, Canada, and Japan, on the other hand, also allow for grace periods.
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Does the invention contain an inventive step? 2.18 The third requirement of a patentable invention is that it contains an inventive step. An invention which lacks an inventive step is said to be obvious. A patentable invention must expand the base of knowledge existing immediately prior to the time of the invention — ‘the prior art base’ — in a manner that goes beyond a mere technical innovation, workshop improvement, or obvious extension. Many innovative features will fail this test despite otherwise possessing commercial value. For this reason the innovation patent was introduced: see 2.31. Although a patentable product or process must contain an inventive step, it does not have to be an entirely original product or process. This would be completely impractical. Most inventions are built upon a base of knowledge which may itself have been the subject of a patent or patents. AstraZeneca AB v Apotex Pty Ltd (2015) 257 CLR 356; 114 IPR 445; [2015] HCA 30 2.18C
Facts: AstraZeneca owned patents for the use of rosuvastatin for the treatment of high cholesterol (marketed as ‘Crestor’). Apotex is a general pharmaceutical company wishing to sell rosuvastatin in Australia. AstraZeneca sought relief against infringement and Apotex sought revocation of the patents. The primary judge found that the patents were invalid. AstraZeneca appealed to the Full Court which dismissed the appeal on the basis that rosuvastatin was known in the prior art. The Full Court found that it would be obvious to treat high cholesterol with the dosage claimed in the patent and that the invention therefore did not involve an inventive step. AstraZeneca then appealed to the High Court. Decision: The appeal was dismissed. Inventiveness must be assessed in light of the common general knowledge of the hypothetical person skilled in the relevant art and imbued with the knowledge of the universal prior art base. The information contained in the specification
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Chapter 2: Protecting Inventive Ideas and the description of the problem in the specification is not necessarily part of the common general knowledge before the priority date. As a consequence, assessing inventive step by starting with the problem, where the problem is not part of the common general knowledge or prior art base, is not correct. On the facts of the case, the High Court agreed with the Full Court below that the claimed invention lacked inventive step in light of what was commonly known prior to the date of the patent, considered with either of two prior art documents. The High Court found that the skilled person would have been led directly as a matter of course to try rosuvastatin in the expectation that it might be a useful treatment for high cholesterol. This, combined with the fact that it would have been a routine step for a person skilled in the area of treating high cholesterol to test rosuvastatin in the dosage claimed in the patent, meant that the claimed invention did not involve an inventive step.
A. The non-inventive skilled person test
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2.19 If the claimed invention is obvious to the skilled person based on what is publicly available, it will not involve an inventive step and will not qualify for patent protection: see Pfizer Ltd’s Patent.44 Determining whether an invention contains an inventive step usually requires a great deal of expertise (normally in the form of expert evidence). The test applied by the courts is to ask whether a non-inventive person skilled in the relevant art would regard the invention as obvious: Minnesota Mining & Manufacturing Co v Beiersdorf (Australia) Ltd.45 If the hypothetical non-inventive, skilled person would have solved the problem that the invention supposedly solves by following the same course as the inventor as a matter of routine, then the invention is obvious.46 The test is often difficult to apply and will depend very heavily on the facts of each individual case. In applying this test, one must be careful not to fall into ‘the trap of hindsight’. Many inventive ideas look obvious once they have been revealed. Aktiebolaget Hassle v Alphapharm Pty Ltd (2002) 212 CLR 411; 194 ALR 485; [2002] HCA 59 Facts: Omeprazole is a drug useful in the treatment of gastric and duodenal ulcers. However, it has problems with storage and administration. After considerable trial and error, Aktiebolaget Hassle (Astra) discovered a method of combining two other ingredients with omeprazole in a capsule or tablet to make for a more effective product. Essentially, Astra coated the omeprazole with two other ingredients. The Astra capsule could then be stored for longer periods and was more effective in delivering the omeprazole to the required area of the intestine. Astra took
44 [2001] FSR 16. 45 (1980) 144 CLR 253; 29 ALR 29; 1A IPR 231, see 2.21C1. 46 The Patents Act 1990 s 7(2) states, ‘For the purposes of this Act, an invention is to be taken to involve an inventive step when compared with the prior art base unless the invention would have been obvious to a person skilled in the relevant art in the light of common general knowledge as it existed in the patent area before the priority date of the relevant claim whether that knowledge is considered separately or together with the information mentioned in subsection (3).’
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Marketing and the Law out a patent over the new product. This is a combination patent in that it combines known integers in a new way of producing a desired outcome. Alphapharm is a generic drug manufacturer. It threatened to import a drug similar to Astra’s patented drug. Astra sought an order for infringement. Alphapharm cross-claimed for revocation of Astra’s patent on the basis that it was obvious. The Federal Court agreed that the invention was obvious. Although it required trial and error to get the combination correct, ‘each of the integers was at least worthwhile trying; therefore the combination itself was “obvious”.’ Astra appealed to the High Court. Decision: The appeal was allowed. The High Court warned against ‘the seduction of hindsight’. The Federal Court approached the issue of obviousness in the wrong way. It was not appropriate to start with the end product and then to conclude that all integers which were ‘worthwhile trying’ in an attempt to achieve this end were obvious. The combination of integers was not obvious, although individually each may have been ‘worth a try’.
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B. Describing the non-inventive skilled person 2.20 What type of person is a non-inventive, skilled person? To begin with, he or she is skilled in the art or science to which the invention is relevant. He or she is aware of the state of common general knowledge in that particular field immediately prior to the invention. This standard was previously limited to knowledge in the field in Australia, but the common general knowledge is now assessed on a global basis.47 This position is consistent with other jurisdictions, such as the US and Europe. Common general knowledge is the background knowledge and experience which is known or used by those in the relevant trade. The non-inventive, skilled person is also aware of all relevant public documents and public acts, including dictionaries, manuals, and periodicals in the relevant field. An inventor may never look at any prior art, but he or she is to be treated as if he or she had done so. The prior art base for assessing the inventive step requirement for a standard patent has some overlap with that used for the purposes of novelty.48 Sources of prior art can also be combined, provided this would be obvious to the skilled person. Although the person is non-inventive, he or she is skilled and should be understood to make routine developments. Nor is he or she likely to be working alone. Increasingly under modern industrial conditions the inventor is part of a large knowledgeable team.
C. Factors relevant to assessing inventiveness 2.21 Because the concept of inventiveness is inherently elusive, the courts often look for pointers which might indicate that an inventive step has occurred. Factors 47 Intellectual Property Laws Amendment (Raising the Bar) Act 2012 which came into full effect on 15 April 2013. 48 Patents Act 1990 s 7.
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often considered relevant in determining whether the invention contains an inventive step are: • whether the invention has satisfied some ‘long felt want’, in that it provides a solution for an existing problem; • whether the problem has awaited solution for many years; • whether the invention was a commercial success: Elconnex Pty Ltd v Gerard Industries Pty Ltd;49 and • whether others have tried to copy the invention. If an invention satisfies these factors, it may be considered inventive. On the other hand, if it fails to satisfy the tests, it possibly lacks the necessary quality of inventiveness. However, it should be remembered that these factors are just guides to aid in the application of the general test. Minnesota Mining & Manufacturing Co v Beiersdorf (Australia) Ltd (1980) 144 CLR 253; 29 ALR 29; 1A IPR 231 Facts: Minnesota Mining & Manufacturing Co (MMM, the plaintiff) was the holder of a patent for a ‘breathable’ adhesive surgical tape. It was a combination patent, in that it was a new combination of known integers to produce a commercially desirable result. Beiersdorf produced a product that was similar to the plaintiff’s product in most respects. MMM sued for patent infringement. Beiersdorf countered by arguing that the plaintiff’s invention should not have been registered because it was obvious (ie, it lacked an inventive step).
2.21C1
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Decision: MMM’s patent was valid. The evidence showed that there had existed for some time a demand for ‘breathable’ adhesive surgical tape. The demand had not been satisfied by any product on the market. Medical journals and other publications had not suggested any solution. MMM’s product solved the problem and was eventually a commercial success. Although these factors do not in themselves prove inventiveness, they led inescapably in this case to the conclusion that MMM’s product was inventive. Beiersdorf’s product infringed MMM’s patent.
Lockwood Security Products Pty Ltd v Doric Products Pty Ltd (2007) 235 CLR 173; 235 ALR 202; 72 IPR 447; [2007] HCA 21 Facts: Existing deadlocks were a danger because of the need to use a key to unlock the door from the inside once the deadlock had been set. If the key was misplaced, the occupants could be trapped on the inside. Lockwood developed a new type of deadlock that overcame this problem and took out a patent. The patent was for a new combination of known integers: the existing Lockwood deadlock plus a release mechanism by which a key used on the outside lock deactivates the inside handle lock. This type of release mechanism had been used in certain storeroom locks before, but not in combination with a deadlock. Doric produced a lock based on a similar idea to the Lockwood patent. Lockwood claimed patent infringement. Doric cross-claimed to have the patent revoked on the basis of a variety
49 (1993) 25 IPR 173; [1992] FCA 556.
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Marketing and the Law of claims, including that the patent was not inventive (ie, it was obvious). The Federal Court agreed with Doric, and Lockwood appealed to the High Court. Decision: The High Court held that the patent was inventive. Care must be taken not to fall into the hindsight trap. The question is whether a skilled person would have regarded the idea at the time to be both technically possible and also practical. The court regarded the following factors as important in deciding that the invention was inventive: Lockwood’s invention solved a well-known and long-standing problem; others (including the other experts in the case) had tried and failed to solve the problem; the Lockwood invention was a commercial success; and Doric had sought to copy the invention.
By way of contrast, the invention of a sausage machine which combined the functions of mincing and filling (formerly these processes had been fulfilled by two separate machines), though useful, was held not to be sufficiently inventive, since it did not overcome any particular existing difficulty.50
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Is the invention useful? 2.22 The fourth requirement of a patentable invention is that it be useful: Patents Act s 18(1)(c). This means that an invention must do what its inventor claims it will do. When the specification is lodged, the applicant must also lodge a statement of claim or claims which define the invention. The invention is useful if the claim or claims made in the patent application can be achieved by following the instructions in the specification: see Windsurfing International Inc v Petit.51 For example, if an applicant obtains a patent for a new type of car and the car is incapable of selfpropulsion, the patent would be invalid on the grounds of inutility. An invention will not be considered useful unless it discloses a ‘specific, substantial and credible use’: Patents Act s 7A. While lack of utility can be raised as a ground of invalidity during examination, opposition, or revocation, it should be noted that it is not the responsibility of the Patent Office to test whether an invention works.
Has an invention been secretly used? 2.23 The final requirement for a patentable invention is that it was not secretly used before the application for the patent was lodged by or with the authority of the patentee. To permit secret use prior to the priority date would be contrary to the rationale of the Patents Act, in that the inventor would obtain a period of monopoly greater than 20 years. Secret use means a use that is unknown to the public and not discoverable by the public; for example, where the invention is a secret process used to produce products for sale. In such circumstances there is no reason why the 50 Williams v Nye (1890) 7 RPC 62. 51 [1984] 2 NSWLR 196, see 2.16C1.
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inventive element would become publicly known unless disclosed by the inventor. This distinguishes ‘secret use’ from anticipation (lack of novelty) which involves public use. Where the invention is revealed to a limited number of persons under the cloak of confidentiality, the issue will be one of potential secret use, not anticipation. Whether any activity amounts to ‘use’ depends on whether, in a practical sense, what occurred ‘amounted to a de facto extension of the patent term’: see Azuko Pty Ltd v Old Digger Pty Ltd.52 Thus, receiving orders and using the invention to manufacture products may or may not amount to ‘use’, depending on the circumstances. Contrast: Re Wheatley’s Patent Application (1984) 2 IPR 450 Facts: Wheatley developed a new kind of pull key to stop conveyor belts in coal pits. The invention was demonstrated to a member of the National Coal Board for the purpose of inducing orders. The National Coal Board member was required to acknowledge that the invention was secret. The National Coal Board was so impressed that it ordered 10 pull keys. Wheatley accepted the order and manufactured the keys. On the same day as the keys were delivered to the Coal Board, an application for patent registration was lodged at the Patent Office. The application was opposed on the grounds of prior use. The critical issue was the meaning of ‘use’.
2.23C1
Decision: The English Court of Appeal held that Wheatley, by soliciting sales orders and then manufacturing products to satisfy those orders before the patent application, had dealt commercially in the invention. This amounted to prior ‘use’. The patent was refused.
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Azuko Pty Ltd v Old Digger Pty Ltd (2001) 52 IPR 75; [2001] FCA 1079 Facts: Old Digger held the patent for a type of drill used in mining exploration. Some of Old Digger’s former employees set up a company called Azuko and commenced to manufacture a drill similar to Old Digger’s patented drill. Old Digger sued for infringement. Azuko denied infringement and cross-claimed for revocation of the patent on the basis of secret use. The secret use allegedly occurred in the following manner: of necessity, the drill was tested at a mine owned by a friend of the inventor; the mine owner, who was under an obligation of confidence, was impressed with the drill and told the inventor that he would be interested in purchasing a number of drills; subsequently, he placed an order with the inventor for six of the drills. The inventor did not solicit the order. Nor was the order filled until after the patent application was made. However, prior to the priority date, the inventor did make about 20 of the drills. Old Digger was successful at trial and Azuko appealed. Decision: Azuko had infringed Old Digger’s patent. By a majority, the claim for revocation was dismissed. Merely receiving a few unsolicited orders did not amount to ‘use’ for the purposes of s 18(1)(d). Nor in the circumstances did the manufacture of a few of the drills amount to such use because there was no attempt to extend the period of the patent.
52 (2001) 52 IPR 75; [2001] FCA 1079, see 2.23C2.
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Secret use is a ground for revocation of a patent and opposition to the granting of one, and can also be looked at during examination. Secret use for purposes of reasonable testing during the developmental stage is permitted: Patents Act s 9. See Grove Hill Pty Ltd v Great Western Corp Pty Ltd53 and Bradken Resources Pty Ltd v Lynx Engineering Consultants Pty Ltd.54 The grace period can also be used to prevent secret use from invalidating a patent within the 12-month period: Patents Act s 9.55
Applying for a Standard Patent56
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The application 2.24 Patent applications are very much a specialist area and therefore it is essential to get proper advice from a patent attorney. Only the applicant or a patent attorney may prepare the specification. An application for a patent is made to or filed with the Patent Office, which is part of IP Australia, by lodging a complete specification. The complete specification must include: • a full description of the invention such that a person skilled in the relevant area of technology with which the patent is concerned can make the invention; • a statement setting out the ‘best method’ known to the applicant of performing the invention; and • the claim or claims defining the invention: Patents Act s 40(2). The claims must be clear (not ambiguous) and ‘must be supported by matter disclosed in the specification’: Patents Act s 40(3). In other words, the claims must have sufficient unity with what appears in the description of the invention as set out in the specification. The claims are discussed at 2.27. The specification (including the claims) is of extreme importance. It is a public document that ultimately determines the monopoly rights granted to the inventor: see KimberlyClark Australia Pty Ltd v Arico Trading International Pty Ltd.57 Prior to lodging the complete specification, the applicant may lodge a provisional specification, but this is optional. The provisional specification need only describe the invention and is used where an early priority date is required. An early priority date may be required, for example, so that test marketing can be conducted.
53 54 55 56 57
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(2002) 55 IPR 257; [2002] FCAFC 183, see 2.50C. (2012) 97 IPR 424; [2012] FCA 944. Intellectual Property Laws Amendment (Raising the Bar) Act 2012 Sch 6 item 29. The process for an innovation patent is discussed at 2.33. (2001) 207 CLR 1; 177 ALR 460; 50 IPR 513; [2001] HCA 8.
Chapter 2: Protecting Inventive Ideas
The complete specification must be lodged within 12 months of the provisional application. For the provisional priority date to apply to the complete specification, the provisional specification must adequately disclose the invention claimed in the complete specification.
Examination by the Patents Office 2.25 Within 18 months of the application being made, details of the application are published in the Australian Official Journal of Patents. At this point the invention enters the public domain. Competitors are now able to examine the invention for possible weaknesses or ideas. After publication, the specification is examined by a Patent Office examiner, whose task it is to decide such matters as whether the specification fully describes the invention, whether the claims are clear and succinct, and whether the invention is a new and inventive manner of manufacture. Therefore, among other things, the examiner must investigate publicly available information in the relevant field so as to determine novelty and inventiveness. Formerly, the Patent Office gave the benefit of any doubt on the question of inventiveness and novelty to the applicant. This meant that a high percentage of patents were revoked when challenged. This has now been changed. The applicant must now satisfy the Patent Office that the patent is novel and inventive on the balance of probabilities. If the application is not approved, the applicant is given the opportunity for a hearing before the application is rejected. The applicant can choose to challenge the decision in the Federal Court. If the application is accepted, with or without amendments, the acceptance is notified in the Australian Official Journal of Patents.
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Opposing a patent 2.26 After its acceptance has been published, anyone may object to a patent being granted: Patents Act s 59. Third parties have three months58 in which to commence opposition proceedings, which must be based on one or more of the following grounds: • the invention is not a patentable invention (ie, it is not a manner of new manufacture which is both novel and inventive, it is not useful or it has been secretly used); • the applicant is not the inventor; or • the specification does not comply with the statutory requirements. If there are no objections or the Registrar decides any objections in favour of the applicant, the patent will be entered upon the Register of Patents. A certificate of grant (formerly described as letters patent) is then sent to the patentee.
58 Patents Regulations 1991 (Cth) reg 5.4(1).
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Marketing and the Law FIGURE 2.1 THE PATENT PROCEDURE
Application Complete specification
Priority date obtained
Publication in Official Journal
Examination by Patent Office
Patent accepted (with or without amendments)
Acceptance published in Official Journal
No opposition
Patent rejected Decision may be appealed Appeal successful Appeal unsuccessful Opposition proceedings
Patent sealed
Patent rejected
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What are the claims? 2.27 Ultimately it is the claims that determine the width of the monopoly granted to the inventor. If the claims are too wide, they will fail. If they are drafted too narrowly, the inventor’s monopoly will be unnecessarily restricted. The claims must be clear and succinct, supported by what is described in the specification: Patents Act s 40(3). Therefore, great care must be taken in drafting the claims.59
Importance of the priority date 2.28 The ‘priority date’ is important in that the novelty of the invention is judged from that date. Any publication of the invention after that date will be irrelevant for the purposes of the application. The priority date of an application is the date upon which the specification is filed. Thus, it will be the date of filing the complete specification or, if a provisional specification was filed, the date of filing the provisional specification, provided the provisional specification adequately discloses the invention claimed in the complete specification. 59 The rules for interpreting claims were set out in Decor Corporation Pty Ltd v Dart Industries Inc (1988) 13 IPR 385.
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Anaesthetic Supplies Pty Ltd v Rescare Ltd (1994) 122 ALR 141; 28 IPR 383 Facts: In April 1981, Rescare Ltd lodged a provisional specification for an invention said to cure snoring sickness (OSA). In April 1982, Rescare Ltd lodged the complete specification which contained some differences to the provisional specification. Between lodging the provisional specification and the complete specification, an article was published by the inventor in a British medical journal called The Lancet. The article explained the invention and how it worked. The patent was registered but, some years later, Anaesthetic Supplies released a product similar to the Rescare invention in the market. Rescare sued for patent infringement. Anaesthetic Supplies denied any infringement and sought revocation of the Rescare patent on the grounds that: • the Rescare patent was not a manner of manufacture as it involved a method of treating the human body; and • the Rescare patent had been anticipated by The Lancet article. Anaesthetic Supplies argued that Rescare could not rely on the provisional specification as the priority date because the provisional specification did not adequately describe the invention subsequently claimed in the complete specification. Decision: Although it was not necessary to decide the matter, the majority was of the opinion that medical treatments, including this one, were generally patentable.
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The date of lodging the provisional specification will only become the priority date if the provisional specification fairly and adequately discloses the invention claimed in the complete specification. This had not occurred in this case. Therefore, the provisional specification could not be relied upon. The priority date became the date of lodging the complete specification. However, this meant that the invention was not novel by virtue of the inventor’s own revelations in The Lancet. The court ordered that the patent be revoked.
The priority date for a later overseas application will be the earlier Australian date where an Australian applicant lodges the overseas application within 12 months of lodging the Australian application and the overseas country is a signatory of the Paris Convention. The same benefit applies to overseas applicants filing a later Australian application within 12 months of lodging an application in their home jurisdiction.60 The ‘priority date’ is also important because, once the patent is granted, the protection dates back to the priority date. Once the patent is granted, the patentee can bring an action for any infringements that have occurred since the priority date.
Duration of a standard patent 2.29 A standard patent will last for 20 years from the date of the patent (the priority date): Patents Act s 67. Pharmaceutical patents may be extended in certain circumstances. If the patentee fails to pay the required renewal fees, the patent will lapse. 60 See 2.62.
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Patents of addition 2.30 The proprietor of a standard patent may apply for a patent of addition where there have been improvements in, or modifications to, the main invention. The patent of addition lasts only as long as the main patent. Patents of addition do not apply to innovation patents.
Innovation Patents Purpose of the innovation patent 2.31 In 2001 Australia introduced the innovation patent to protect inventions that do not meet the inventive threshold required for standard patents. The innovation patent was designed to protect small or incremental advances to existing devices, substances, methods, or processes. The requirements for an innovation patent are the same as for a standard patent, except that innovation patents do not require an inventive step: Patents Act s 18(1A). Instead, an innovation patent must involve an innovative step when compared with the prior art base: Patents Act s 18(1A)(b)(ii). Otherwise the innovation patent must be a manner of manufacture, new, useful, and not secretly used. Plants and animals, and the biological processes for their generation (other than a microbiological process) are not patentable under the innovation patent system.
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What is an innovative step? 2.32 An invention is taken to involve an innovative step unless the invention varies from the prior art base in ways that make no substantial contribution to the working of the invention: Patents Act s 7(4). This is judged by the standard of a person skilled in the relevant art, in the light of common general knowledge and the prior art base immediately before the priority date. The onus of proving lack of an innovative step rests on the person challenging the patent. Thus, an invention involves an innovative step unless a person skilled in the relevant art would conclude: • that there is no difference between the so-called invention and existing technology; or • even if the invention does differ in some way from existing technology, the differences do not make any real contribution to the working of the invention.
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Dura-Post (Aust) Pty Ltd v Delnorth Pty Ltd (2009) 81 IPR 480; [2009] FCAFC 81 Facts: Delnorth had an innovation patent for roadside posts made of sheet spring steel. The posts, which were to be used on the edge or shoulder of roadways to delineate lanes and direct traffic, were designed to bend under pressure and then return to their starting point. The patent claims referred to a number of other features of the invention, such as a marker hole (to indicate how far to drive the post into the ground), a barb (to hold it firm), and a tapered end (to make it easier to drive the post into the ground to the correct depth). Delnorth sued DuraPost for infringement. Dura-Post counterclaimed that the Delnorth patent was invalid on the basis of two prior US patents. Delnorth’s patent claims differed from the US patents in respect of the other features described above.
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Decision: The court said that the test for innovativeness ‘requires a narrow comparison between the invention as claimed and the relevant prior disclosure, having regard to the fact that the threshold for an innovation patent is intended to be lower than for a standard patent’. There were a number of features of the Delnorth patent which made it different to the US patents. These differences contributed in a real way to the working of the Delnorth patent. Therefore, the Delnorth patent was innovative.61
In Product Management Group Pty Ltd v Blue Gentian LLC,62 Product Management Group (PMG) was sued for allegedly infringing two innovation patents which claimed an expandable garden hose which expanded in length when the tap to which it was affixed was turned on. The kink free hose claimed in the patents had an elastic inner tube that expanded with the pressure of water from a tap until the expansion reached the length and diameter limits of the outer inelastic tube. PMG in response argued that the Blue Gentian garden hose patents were invalid, including because they did not involve an innovative step. Blue Gentian won the case and PMG appealed to the Full Court which stated that ‘[t]he perceived advantages of garden hoses made in accordance with the Patents are that they have the ability to expand their length when in use without bursting, they are lightweight and easy and convenient to pack, transport and store, and do not kink in use’.63 The Full Federal Court affirmed the decision of the trial judge that the patents were valid and had been infringed by PMG.64
Innovation patent process 2.33 The procedure for obtaining registration of an innovation patent is different to the standard patent. An innovation patent is granted after a formality examination. 61 Special leave to appeal to the High Court in the Delnorth case was denied: Dura-Post (Aust) Pty Ltd v Delnorth Pty Ltd [2009] HCATrans 328. This decision was confirmed in SNF (Australia) Pty Ltd v Ciba Speciality Chemicals Water Treatments Ltd (2012) 96 IPR 365. Special leave to appeal was denied: SNF (Australia) Pty Ltd v Ciba Speciality Chemicals Water Treatment Ltd [2013] HCATrans 54. 62 (2105) 116 IPR 54; 240 FCR 85; [2015] FCAFC 179. 63 (2015) 116 IPR 54; 240 FCR 85 at [15]; [2015] FCAFC 179. 64 Special leave to appeal to the High Court was denied: Product Management Group Pty Ltd v Blue Gentian LLC [2016] HCASL 96.
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This means that there is no examination of substantive matters such as novelty. Consequently, the patent is quick and cheap to obtain. However, the patentee cannot commence infringement proceedings until a substantive examination has been conducted and the patent is certified by the Commissioner: Patents Act s 120(1A). Owners of innovation patents must therefore be careful not to overvalue their innovation patent. The fact that it is registered, does not mean that it will survive examination. To prove the point, one patent attorney (with a sense of humour) registered an innovation patent for a ‘circular transportation facilitation device’ (ie, a wheel). The inventor is limited to no more than five claims for an innovation patent. In contrast, the standard patent may contain as many claims as the invention will support.
Duration of an innovation patent 2.34 The monopoly created for an innovation patent lasts for eight years.
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Review of the innovation patent system 2.35 In 2011 the Advisory Council on Intellectual Property (ACIP) was asked to investigate the effectiveness of the innovation patent system in stimulating innovation by Australian small to medium enterprises. ACIP’s final report was released in 2014 and the government is currently considering its response. The key findings include raising the standard of the innovative step requirement, requiring examination after a certain period of time and reducing the scope of patentable subject matter for innovation patents to exclude methods, processes, and systems. Although it recommended making such changes, as to the central question itself, ACIP was ‘unable to obtain adequate empirical evidence as to whether the system does or does not stimulate innovation in Australian SMEs’.65 In 2016 the Productivity Commission finalised its enquiry into Australia’s intellectual property arrangements, finding that the majority of intended beneficiaries of the innovation patent, small and medium size enterprises, do not obtain value from the system and that the costs of the innovation patent regime outweigh any benefits.66 The government has accepted the recommendation of the Productivity Commission to abolish Australia’s innovation patent system. At the time of writing there was a Bill before parliament,67 containing provisions to achieve this.
65 Advisory Council on Intellectual Property, Review of the Innovation Patent System, Canberra, 2014, p 3. 66 Government response: Productivity Commission Inquiry into Intellectual Property Arrangements, above n 7, p 10. 67 Intellectual Property Laws Amendment (Productivity Commission Response Part 2 and Other Measures) Bill 2019.
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Ownership of Patents 2.36 In terms of s 15 of the Patents Act, a patent may be granted to: • the inventor; • a person who is entitled to have the patent assigned to him or her, should a successful application be made; • a person who derives title to the invention from either the inventor or the person entitled to the patent; or • the legal representative of a deceased inventor or assignee. There is no requirement for the applicant to be an Australian citizen. Over 90% of patents are granted to non-residents. Patents may be jointly owned, in which case each owner, subject to any agreement to the contrary, may exploit the invention without accounting to the other owners.
Who is the inventor? 2.37 A person has an entitlement to an invention (as the inventor or one of the inventors) if that person’s contribution, either solely or jointly with others, had a material effect on the invention (ie, the essential features of the invention): Row Weeder Pty Ltd v Nielsen.68 In Neobev Pty Ltd v Bacchus Distillery Pty Ltd (admins apptd) (No 3),69 Besanko J in the Federal Court held that to:70
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… claim inventorship is to claim at least some role in the final conception of that which is sought to be patented. Perhaps one need not be able to point to a specific component as one’s sole idea, but one must be able to say that without his contribution to the final conception, it would have been less — less efficient, less simple, less economical, less something of benefit.
Where there are joint inventors, the patent can be granted to all of them. An employee is not normally regarded as a joint inventor. A contractor engaged to carry out the inventor’s instructions is not normally regarded as one of the inventors. This is true even if the contractor suggests ways to aid in the invention’s design or operation. However, if the contractor’s suggestions give a result or advantage not contemplated by the original concept, the contractor may qualify as a joint inventor of the improved invention. Polwood Pty Ltd v Foxworth Pty Ltd (2008) 244 ALR 626; 75 IPR 1; [2008] FCAFC 9 Facts: Polwood developed a new process for producing an improved potting mix for growing plants from sawmill waste. Polwood explained the process to Foxworth in confidence. Foxworth
68 (1997) 39 IPR 400. 69 (2014) 104 IPR 249; [2014] FCA 4. 70 (2014) 104 IPR 249; [2014] FCA 4 at [106].
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Marketing and the Law then designed an apparatus (PSU/Mark II) that put the idea into practice. In designing and building the apparatus, Foxworth used inventive skill. Polwood applied for a patent in its own name. The patent claims covered both the process and the apparatus. Foxworth objected on the basis that it had designed the apparatus used to operate the process. Thus, Foxworth claimed to be a joint inventor. Polwood denied this and claimed that the invention was the whole concept and that it could not be broken into two parts; that is, the method and the apparatus for operating the method. Decision: The patent specified both a process and an apparatus for employing the process. The apparatus contained inventive elements that were due to the efforts of Foxworth. Therefore, the inventive concept or heart of the patent was not just the process — it was the process and the apparatus. Polwood and Foxworth were joint inventors and jointly entitled to the patent.
Employee inventions 2.38 Most ownership difficulties arise where the inventor created the invention while in the service of another person. Who owns the invention? The answer to this depends on two questions: 1. Was the inventor an employee or a consultant/contractor? 2. If the inventor was an employee, was the invention created in the course of the employment? Unlike the UK and some other countries, there is as yet no provision under the Australian Patents Act for employers and employees to share ownership or benefits (except by agreement). The patent is either owned by the employer or by the employee.
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A. Was the inventor an employee? 2.39 It is more likely that an invention will belong to the employer where the inventor is an employee rather than a consultant or contractor. The distinction between an employment relationship (contract of service) and a consultancy relationship (contract for services) is difficult to define and even more difficult to apply. Originally the courts applied a test based on control. Thus, if the employer was able to direct not only what was to be done, but also how it was to be done, then the relationship was one of employer/employee and the contract was a contract of service. If the employer had no control over how work was to be performed, the relationship was said to be a contract for services. However, this test proved inadequate. For example, resident doctors at hospitals are clearly employed by the hospital. Nevertheless, hospital administrators generally have no power to tell the employee doctors how to treat the patients. A similar situation prevails with scientists employed at sophisticated research laboratories, such as the CSIRO. The 78
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more complex and skilled the work performed by the worker, the less likely the employer has any real power to direct how that work is to be carried out. Therefore, in determining whether a person is an employee or a consultant, all the circumstances must be looked at. Control, insofar as scope for it exists, is certainly one of the factors to be taken into account. Other factors include: • the circumstances surrounding appointment; • the scope of the employer’s power of dismissal; • whether tax is deducted by the employer; • holiday entitlements; • hours of work; • the place where the work was conducted; and • whether equipment was supplied by the employer or the worker.71
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B. Was the invention created in the course of employment? 2.40 Having determined that the inventor is an employee, it is necessary to examine the circumstances surrounding the invention in order to determine whether the invention came about in the course of the inventor’s employment duties and, therefore, belongs to the employer, or whether it came about outside the scope of the employment duties and belongs to the employee. The critical question is: what was the employee paid to do? Once again, all the relevant factors must be looked at, including the following: • whether the employee was hired or directed to create the invention which is the subject of the patent — if the employee was hired to solve a problem and the solution involves the creation of a patentable invention, it would be very difficult for an employee to argue that the invention does not belong to the employer; • whether the employee used the employer’s materials and time in developing the invention — where the employer’s time and materials have been used in developing the invention the court will be more disposed to regard the invention as belonging to the employer; • whether the invention is related to the employer’s business — an employee who creates an invention that is unrelated to the employer’s business is likely to be regarded as the owner of that invention; • the position or status of the employee; and • the express terms of the contract. Employment contracts often contain an express provision that ownership of any inventions created by the employee belong to the employer. Such provisions, however, must be treated with some care. They are not always enforceable. If the provision is unreasonably wide in favour of the employer, it will be declared void as an unreasonable restraint of
71 Hollis v Vabu Pty Ltd (2001) 207 CLR 1; 181 ALR 263; [2001] HCA 44.
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trade. Courts will be hesitant about implying any term giving ownership to the employer: see University of Western Australia (UWA) v Gray (No 20).72 Spencer Industries Pty Ltd v Collins (2003) 58 IPR 425; [2003] FCA 542 2.40C1
Facts: Spencer Industries was a family business manufacturing equipment used in the tyre retreading business, particularly rasp blades, hubs and spacers, and pins for hubs. The driving force in the family business was Mr Pincott. In 1991 Collins was hired as sales manager working at the direction of Pincott. Collins was the only sales staff. At no stage was Collins instructed that it was part of his job to improve existing products or design new ones. There was no express agreement by which Collins agreed that all inventions and innovations belonged to Spencer Industries. Collins, in his own time, conceived and designed a more efficient and effective tooth for a rasp blade. The drawings were done by Collins in his own time using his own materials. He showed the drawings to Pincott and eventually Spencer Industries applied for a patent. Collins objected on the basis that Spencer Industries was not entitled to have the patent granted to it. The Patent Office decided that Collins had created the invention outside the course of his employment. Therefore, Spencer Industries was not entitled to a patent. Spencer Industries appealed.
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Decision: The issue was whether Collins had created the invention in the course and scope of his employment. This involved considering the nature and seniority of his position with the firm, the nature of his duties as sales manager and whether he received a specific directive relating to the invention. The invention was wholly created in his own time and fell outside the duties he was required to perform as sales staff. Although Collins clearly envisaged that the invention would be exploited by Spencer Industries, this did not mean that the invention was created within the scope of Collins’s employment. Collins expected to be adequately rewarded. The right to the patent belonged to Collins.
As a matter of prudent business, there is value in requiring staff to acknowledge that inventions created in the course of the employee carrying out his or her employment belong to the employer. However, such acknowledgements are of no effect if the invention was not created in the course of employment. Electrolux Ltd v Hudson [1977] FSR 312 2.40C2
Facts: Electrolux manufactured vacuum cleaners. Hudson was employed as a storekeeper. The job did not involve any responsibility for research and development. Hudson and his wife developed an adaptor to fit a bag to a vacuum cleaner. The work to develop the adaptor was done at the Hudsons’ house outside work hours and using their own materials. Electrolux claimed the invention on the basis of a term in Hudson’s employment contract which gave Electrolux ownership of any process, invention, or improvement relating to a wide variety of things including things which had no connection with Electrolux. Alternatively, Electrolux claimed ownership of the invention on the basis that Hudson had developed the invention in the course of his employment. 72 (2008) 246 ALR 603; 76 IPR 222; [2008] FCA 49.
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Chapter 2: Protecting Inventive Ideas Decision: The court rejected both arguments. The express term in the employment contract was too wide to protect Electrolux’s legitimate interests and was, therefore, void as an unreasonable restraint of trade. Although there was an implied term that inventions developed in the course of Hudson’s employment belonged to Electrolux, Hudson had not developed the adaptor in the course of his employment.
Even where an invention is not created in the course of the employment, the employer may still have beneficial rights if the employee acted in breach of a duty owed to the employer. Victoria University of Technology v Wilson (2004) 60 IPR 392; [2004] VSC 33 Facts: Wilson was head of department in Applied Economics at Victoria University and Feaver was a senior lecturer. They specialised in the area of international trade. As part of their employment they were required to do research. Astill, a former student, approached Wilson and Feaver with an idea for an online teaching program about the World Trade Organization. At the direction of Wilson as head of department, Feaver worked on the idea together with Astill. The commercial possibilities for the program were soon recognised. Wilson, Feaver, and Astill decided that they would develop the idea privately.
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They agreed on a split of 40% for each of Wilson and Feaver and 20% for Astill. Wilson and Feaver stopped working on the invention during Victoria University time and henceforth the work was done outside working hours. Wilson and Feaver transferred their interests to a company, IP3 Systems. IP3 Systems applied to patent the invention. Victoria University objected that the invention belonged to it. Who had the patent rights to the invention? Decision: Wilson and Feaver used Victoria University materials, but this does not mean that the invention belonged to Victoria University. In using the materials Wilson and Feaver may merely have been in breach of their contract. A part of Wilson and Feaver’s employment required them to do research. However, that did not automatically mean that all their research belonged to Victoria University. It depends on the scope of their employment from time to time. Each case will depend on its own circumstances. In this case, the research which was to lead to the invention arose in the course of employment because Wilson, who was head of department, had specifically directed Feaver to work on the invention. But, when Wilson directed Feaver not to work on the invention in Victoria University time, the research moved outside the course of employment. The final invention, upon which the patent application was based, was not created in the course of employment with Victoria University. Therefore, IP3 Systems, and not Victoria University, was entitled to the patent. Wilson and Feaver, however, owed fiduciary duties to Victoria University. All employees owe fiduciary duties to their employer not to profit from their position at the expense of their employer and to avoid conflicts of interest and duty. By moving the invention from Victoria University to the private concern in which they were partners (without disclosing the matter fully to Victoria University), Wilson and Feaver had acted in breach of their fiduciary duties. The court ordered that Victoria University was entitled to the shares owned by Wilson and Feaver in IP3 Systems.
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Patent Rights Nature of patent rights 2.41 The patentee acquires a monopoly in the invention the subject of the patent. This means that the patentee has the exclusive right to exploit the invention. ‘Exploit’ means to make, use, hire, sell, or otherwise dispose of the invention, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things; or where the invention is a method or process — use the method or process or do any aforementioned act in respect of a product resulting from such use: Patents Act Sch 1. The patentee also has the exclusive right to authorise others to exploit the invention. Where the patent is jointly owned, each owner, subject to any agreement to the contrary, may exploit the invention without accounting to the other owners, although no owner may license or assign the invention without the approval of all owners. As this is a monopoly, the patentee is protected not only against copying, but also against independent creation.
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Assigning or licensing patent rights 2.42 Patent rights may be sold (assigned), licensed, mortgaged, given away, or left in a will. An assignment must be in writing and signed by the assignor and assignee: Patents Act s 14. A licence is a contract, either express or implied, in which the patent-holder (licensor) permits another person (licensee) to make use of the invention subject to conditions. The licence does not have to be in writing or signed. The licence conditions can take many forms and will depend on the circumstances of the case. Great care must be taken in drafting the terms of the licence so that both parties are protected. A licensee could register this as a security interest on the national Personal Property Securities Register.73 A licence may be exclusive or non-exclusive. An exclusive licence gives the licensee the sole right to exploit the invention the subject of the patent. A licence may be limited geographically. For example, one licensee may be given the right to exploit the invention in Victoria and another the right in New South Wales. The fee paid for the use of a licence is called a royalty payment. Where a patent is jointly owned, each owner may exploit the patent, but no owner may assign or license the patent rights without the consent of all owners. The following matters would normally appear in a patent licence: • identity of the patent; • territory of the licence; 73 Personal Property Securities Act 2009 (Cth) commenced on 30 January 2012.
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• restrictions on the licence; • duration; • fee; • termination of licence and reversionary rights; • licensor and licensee obligations to protect and maintain patent; • reporting and record keeping (and licensor’s right of audit); • confidentiality; and • indemnities. In order to protect and fully exploit the commercial value of a licence, the patentholder may also include a number of restrictive covenants in the licence. Many of these conditions are perfectly legitimate. Some, however, are regarded as unjustifiable exploitation and are prohibited either by the Patents Act (‘Abuse of patent rights’, see 2.43), or by the law on covenants in restraint of trade,74 or by Pt IV of the Competition and Consumer Act 2010 (Cth).75
Abuse of patent rights 2.43 The patentee must not abuse the monopoly rights given by the patent. A patentee may be tempted to exploit the leverage created by the patent to force buyers of the patented product or licensees of the patent to acquire goods or services other than the patented goods. This may amount to an unjustified extension of the monopoly. A term in an assignment or a licence that imposes such exclusive dealing conditions upon the assignee or licensee may be void.
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Compulsory licences 2.44 Three years after a patent is granted an interested person may apply to the court for an order that the patentee grant a compulsory licence on such terms as the court thinks just: Patents Act s 133. The grounds for such an application are that the person applying for a compulsory licence has unsuccessfully tried for a reasonable period to obtain from the patentee permission to use the invention on reasonable terms and conditions; reasonable requirements of the public with respect to the patented invention have not been satisfied and the patentee is unable to give a satisfactory explanation: Patents Act s 133(2)(a); or that the patentee is engaging in anti-competitive conduct in contravention of Pt IV of the Competition and Consumer Act 2010 (Cth): s 133(2)(b). Section 135 of the Patents Act sets out certain circumstances in which the reasonable requirements of the public are not being met. The compulsory licensing system has not been widely used in Australia.
74 For a discussion on the law governing covenants in restraint of trade, see 3.31–3.38. 75 Part IV of the Competition and Consumer Act 2010 prohibits certain anti-competitive activities. These are discussed in Chapters 14 and 17.
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Purchasers of patented products 2.45 A person who purchases a product that is the subject of a patent is not permitted to make copies of the product, but is permitted to use the product freely including: • selling or hiring the product: National Phonograph Company of Australia Ltd v Menck;76 and • repairing the product or having it repaired by a third person: Solar Thompson Engineering Co Ltd v Barton.77
Infringement of Patents
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Rules relating to infringement 2.46 Infringement is not actually defined in the Patents Act. It occurs when a patent is exploited, without authority, in the patent area (Australia), as disclosed in the claims. Schedule 1 to the Patents Act provides that the exclusive right to ‘exploit’ the invention includes the right to: (a) where the invention is a product — make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things; or (b) where the invention is a method or process — use the method or process or do any act mentioned in paragraph (a) in respect of a product resulting from such use. In determining whether a patent right has been infringed, it is therefore necessary to determine: • whether the alleged infringer is doing something within the exclusive rights of the patentee; • the scope of the claims; • whether the essential elements of the claims have been taken; and • whether any exceptions or defences to infringement apply.
Determining the scope of the claims 2.47 Determining the scope of the claims is not an easy matter. The rules for interpreting claims are set out in Decor Corporation Pty Ltd v Dart Industries Inc.78 Basically, the courts look for the essential elements of each claim as might be
76 (1911) 12 CLR 15; [1911] AC 336; 28 RPC 229. 77 [1977] RPC 537. 78 (1988) 13 IPR 385.
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determined by a person skilled in the relevant art.79 In determining the essential elements, the courts adopt a purposive interpretation of the claims, rather than a literal one: Populin v HB Nominees Pty Ltd; Populin v Binder;80 Decor Corporation v Dart Industries Inc.81 Thus, in Catnic Components Ltd v Hill & Smith Ltd,82 the patent claim referred to a ‘vertical’ back plate in respect of a novel lintel for use above doors and windows. The defendant’s product used a back plate that was slightly inclined to the vertical. The House of Lords held that the patent could not be read too literally. The defendant had taken the essential elements of the patent.
Determining whether the essential elements of the claims have been taken 2.48 Once the essential elements of a claim have been determined, it is necessary to examine whether the defendant has taken (ie, adopted or used) each and every one of those essential elements: Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd;83 Welcome Real-Time SA v Catuity Inc.84 If all the essential integers are taken, there is an infringement. In such cases it does not affect the infringement that the defendant has replaced one or more of the inessential elements with some functional or mechanical equivalent: Populin v HB Nominees Pty Ltd; Populin v Binder.85 Kimberly-Clark Australia Pty Ltd v Multigate Medical Products Pty Ltd (2011) 92 IPR 21; [2011] FCAFC 86
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Facts: Kimberly-Clark is a multinational company with consumer brands such as ‘Kleenex’ and ‘Huggies’. It owns patents for a ‘single step sterilisation wrap system’. The claims comprised use of a sterilisation wrap made up of an ‘inner wrap sheet’ and an ‘outer wrap sheet’. Images of two separate sheets accompanied the description. Multigate proposed to promote and sell a sterile wrap product in Australia. Kimberly-Clark commenced infringement proceedings. Multigate denied infringement and cross-claimed that the patents were invalid. The primary judge held that Multigate did not infringe the patents. Kimberly-Clark appealed to the Full Court. Decision: The patents were valid, but they were not infringed by Multigate. Multigate’s product was made by folding one single sheet over rather than using two separate sheets. If the defendant has not taken all of the essential features there will be no finding of infringement. Since Multigate’s product did not use two separate sheets it did not take all of the essential features of the Kimberly-Clark patents.
79 Minnesota Mining & Manufacturing Co v Beiersdorf (Australia) Ltd (1980) 144 CLR 253; 29 ALR 29; 1A IPR 231, see 2.21C1. 80 (1982) 41 ALR 471. 81 (1988) 13 IPR 385. 82 [1981] FSR 60. 83 (1986) 12 FCR 477; 68 ALR 77. 84 (2001) 51 IPR 327; [2001] FCA 445, see 2.8C1. 85 [1981] FSR 60.
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Determining whether any exceptions or defences to infringement apply 2.49 The Patents Act includes some exceptions to infringement of a patent. These include use by the Crown, use in or on foreign vessels, aircraft, or vehicles temporarily in the patent area, experimental use, prior use (see 2.52), and ‘springboarding’ (acts required to obtain regulatory approval from a state or Commonwealth government or law of another country): Patents Act ss 118–119C.
Practical aspects of protecting patent rights
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2.50 The costs (in both money and time) of proving infringement can be extremely high. Patent litigation is very complex and requires experts and other specialists. This creates real problems, particularly for small and medium-sized enterprises (SMEs). Defendants often challenge the validity of the patent as a defence strategy. Thus, the patentee is forced to defend the patent’s right to remain on the register. This could mean a fight on the grounds of novelty, inventiveness, utility, secret use, etc. Indeed, large organisations can use the high cost of litigation as a strategy to deter SMEs from protecting their patent rights. For this reason, the Productivity Commission recommended that the Federal Circuit Court introduce a specialist intellectual property section with strict case management rules to fast track cases and minimise legal costs so as to improve access to the courts and enforcement of IP rights, particularly for smaller businesses.86 The Federal Circuit Court’s IP section was established following this recommendation, however it does not currently apply to patent cases. At the time of writing, expansion of the court’s jurisdiction to include patent proceedings was on hold. It is to be hoped this lower cost, faster court option will be available to patent litigants in the future.
2.50C
Grove Hill Pty Ltd v Great Western Corp Pty Ltd (2002) 55 IPR 257; [2002] FCAFC 183 Facts: Mansur invented a row cultivator for use in farming. Prior to applying for a patent, he trialled various combinations of the integers (blades etc) that made up the cultivator over a period of 14 months, which covered two growing seasons. Eventually a patent was granted for the cultivator. The first group of claims made in the patent referred to ‘a pair of plates’ to which cutting blades were attached. The patent holder was Great Western Corporation (GW), which acquired the rights from Mansur. Grove Hill supplies agricultural equipment. GW alleged that products supplied by Grove Hill infringed GW’s patent rights. The alleged infringing products used two pairs of plates to which cutting blades were attached. Grove Hill denied infringement and counter-claimed
86 Productivity Commission, Inquiry Report, Intellectual Property Arrangements, No 78, 23 September 2016, available at .
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Chapter 2: Protecting Inventive Ideas for revocation of the GW patent on a variety of grounds including lack of novelty, lack of inventiveness, and prior secret use. At trial GW succeeded and Grove Hill appealed. Decision: First, the court examined Grove Hill’s argument that the patent should be revoked. In the court’s opinion, the invention as claimed was both inventive and novel. This left the question whether Mansur’s prior use invalidated the patent, which in turn depended on whether the prior use was for the purposes of reasonable trial or experiment (s 9). Dowsett J said: In assessing what might be reasonable for present purposes, it is necessary to keep in mind the nature of the equipment in question, the tasks for which it was designed, and the conditions under which it is to be used. Clearly, a row cultivator or a tool for a row cultivator will have to be very robust to enable it to resist the rough nature of its likely employment. It will be expected to perform in a wide variety of conditions, both of weather and terrain. It is easy to accept that such a piece of equipment could not be subjected to reasonable trials in anything less than a year, particularly given the seasonal nature of its employment. Therefore, the use was reasonable and there had been no secret use. The patent was valid. However, there had been no infringement. The patent claims referred to ‘a pair of plates’. This could not be reinterpreted to include ‘two pairs of plates’ simply because that was a possible construction of the invention as described in the specification. Gyles J said: A patentee cannot eat the cake and have it too by persuading a court to construe a claim more widely than the patentee was prepared to risk when framing the claims under the guise of purposive construction. If an essential integer of the claimed monopoly is not present, it is not to the point that the absence of it can be explained as a conscious attempt to engineer around the claim. There is no doctrine of functional or mechanical equivalence applicable in such a case.
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Contributory infringement 2.51 The Patents Act provides that if the use of a product by a person would infringe a patent, the supply of that product by one person to another is an infringement of the patent by the supplier: Patents Act s 117. For example, if X supplies a product knowing that B will use it in infringement of C’s patent, the supply by X is itself a contributory infringement. This includes supplying a product to B with instructions for use, which was considered by the court in the following case. AstraZeneca AB v Apotex Pty Ltd (2014) 312 ALR 1; 107 IPR 177; [2014] FCAFC 99 Facts: The pharmaceutical patent concerned a low dosage of the active ingredient, rosuvastatin. AstraZeneca argued that the supply of 5 mg, 10 mg, 20 mg and 40 mg dosages of rosuvastatin together with information about the fact that they could be split to provide two doses (eg, breaking a 20 mg tablet in half to provide two lots of 10 mg doses) constituted patent infringement under s 117(2)(c). Decision: The Full Court decided that the terms of infringement under s 117(2)(c) were met. The product information statement provided by the supplier Watson to customers along with
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Marketing and the Law the 20 mg tablet dosage gave a clear inducement to the customers to cut the tablets in two so as to result in two lower doses of rosuvastatin that would, if the patent had been found valid, have infringed the claims of the patent under s 117(1) and s 117(2)(c). Further, the court found that the suppliers had reason to believe that consumers would use the supplier product information to engage in infringing use by cutting the tablets in half to get multiples of a smaller dosage.
Danisco A/S v Novozymes A/S (No 2) (2011) 91 IPR 209; [2011] FCA 282 2.51C2
Facts: Danisco owned a patent for preparing food by including the use of an enzyme. Novozymes supplied an enzyme for use in the production of baked goods. Danisco sued for contributory infringement under s 117. Decision: There was contributory infringement. The enzyme was used by the customer in baked goods, which infringed the patent. The only reasonable use of the enzyme was in baking. Novozymes promoted the use of the enzyme in baking in its advertisements and instruction sheets and had a reason to believe it would be used for baking. Section 117 applied and the supply by Novozymes amounted to contributory infringement.
The circumstances leading to contributory infringement may also amount to misleading or deceptive conduct under s 18 of the Australian Consumer Law.87 Promoting supply of a product for a purpose that is likely to infringe a patent without warning customers of this possibility has been held to be misleading conduct: Advanced Building Systems Pty Ltd v Ramset Fasteners (Aust) Pty Ltd.88
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Prior user rights 2.52 The Patents Act protects those who were using the invention prior to and at the priority date: Patents Act s 119. The use will be secret use because, if the use was public, the invention would not be novel or inventive. Therefore, s 119 only applies where the invention is being secretly used by another person prior to the priority date. The person cannot have obtained the invention from the inventor.
Remedies for Infringement 2.53 If the patentee is able to prove that the defendant has, without authority, used the ‘essential elements’ contained in the claims, then the patentee may seek a variety of remedies.
87 The Australian Consumer Law is included as Sch 2 to the Competition and Consumer Act 2010. 88 [1999] FCA 898.
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Damages or an account of profits 2.54 The patentee is entitled to claim such damages by way of compensation as would be necessary to put the patentee in the position he or she would have been in if the patent had not been infringed: Patents Act s 122(1). The method of calculating the damages will depend on a number of factors including whether the patentee was exploiting or planning to exploit the patent himself or whether he was more likely to license others to exploit it. Damages may be based on lost manufacturing profits, or lost licensing royalties, or such other basis as is appropriate in the circumstances. The court also has a discretion to award additional damages under s 122(1A), which are designed to be punitive in nature and to deter flagrant and knowing patent infringement. Damages may not be awarded in so-called innocent infringement cases; that is, where the defendant neither knew nor had reason to believe that a patent existed: Patents Act s 123(1). The vital question in such a case will be whether it was reasonable for the defendant not to conduct a patent search that disclosed the patent. As an alternative remedy to damages, the plaintiff may seek an account of profits: Patents Act s 122(1). Although cogent reasons may exist for seeking an account of profits, damages are normally the remedy of choice because of the difficulty and unpredictability of calculating the profits made by the defendant.
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Injunctions 2.55 The plaintiff may apply for an interim as well as a permanent injunction: Patents Act s 122(1). An interim injunction may be granted at the court’s discretion if the plaintiff is able to establish a prima facie case and the balance of convenience favours the granting of the injunction. An interim injunction will not be granted if there is significant doubt as to the validity of the patent. In determining the balance of convenience, the court will take into account matters such as whether damages would be an adequate remedy, whether the patentee has delayed in bringing the action, and whether the defendant was aware of the patentee’s rights and deliberately took the risk.89 Interim orders, such as an Anton Piller order and a Mareva injunction, may be awarded in appropriate circumstances.
A. Anton Piller order 2.56 An Anton Piller order is somewhat like a search and seize order. It enables the plaintiff to enter the defendant’s property and to seize relevant evidence, such as pirated recordings, which might otherwise be destroyed. Application for an Anton Piller order is made ex parte; that is, without notification to the defendant. An Anton Piller order will even be granted where the name of the defendant is 89 See Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; [1968] RPC 301.
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not yet known. This entitles the plaintiff to search for and seize goods (evidence) from transient traders, such as street and flea market vendors. This kind of order is commonly referred to as a ‘John or Jane Doe Order’.90
B. Mareva injunction 2.57 A Mareva injunction is an interlocutory order preventing the defendant from removing assets from the jurisdiction pending the hearing of a case.91 An alleged infringer may wish to remove assets from Australia so as to defeat any court order, for example, damages, made against it were the matter to come to trial. As with the Anton Piller order, the Mareva injunction is made ex parte. Because of the potential for injustice, the courts are wary about granting Anton Piller orders and Mareva injunctions.
Other orders 2.58 In appropriate circumstances, the court has the power to order the delivery up for destruction of products. The basis of delivery up is to remove a source of temptation from the infringer. Delivery up will not be ordered if the infringing items have a legitimate use.
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Making Unjustified Threats 2.59 Care must be taken when threatening another with an action for infringement of a patent. If the threats are not justified, the person threatened may claim compensatory damages and, at the discretion of the court, also additional punitive damages: Patents Act s 128. This provides a deterrent against unjustifiable intimidation which might have the effect of preventing competition or discouraging the use of skills. Unfortunately, the provision appears also to have some unintended consequences. There is evidence that the provisions relating to unjustified threats deter some small enterprises from taking even basic steps to protect their patents for fear of provoking a costly and uncontrollable legal action. However, the mere notification of the existence of a patent or patent application is not to be construed as an unjustified threat: Patents Act s 131.
90 See Fila Canada Inc v Jane Doe & John Doe (1966) 35 IPR 104. 91 Mareva Compania Naviera SA v International Bulkcarriers SA (The Mareva) [1980] 1 All ER 213.
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Revocation of Patents 2.60 Even though a patent has been granted, this is no guarantee of the validity of the patent: Patents Act s 20. A granted patent may be revoked by order of the Commissioner of Patents: Patents Act s 101; or a court: Patents Act s 138. For example, in the US, Amazon was initially successful in patenting its one click online ordering process. The one click online process enables shoppers to call up their personal details (credit card and shipping information) with a single mouse click when making purchases. The patent was widely criticised. Amazon used the patent to successfully sue Barnes and Noble, another online book retailer. In 2005, upon application by a New Zealander, the US Patents Office announced that it would re-examine the patent. Eventually the patent was allowed to remain on the register, but only after Amazon had made some amendments. The patent remained controversial and has since expired. Revocation is necessary where the court finds that the patent has been invalidly registered. That this occurs is not surprising, given that a document published earlier anywhere in the world can destroy the novelty of an invention and given the small likelihood that every possible document will come to the attention of the Patent Office during examination. Revocation proceedings are typically commenced when a person is sued for infringement of a patent and then crossclaims for rectification of the register on the basis that the patent ought not to have been granted in the first place: see Bristol-Myers Squibb Co v F H Faulding & Co Ltd.92 The grounds upon which a patent may be revoked include the following: • the invention is not a manner of manufacture; • the invention is not novel; • the invention is obvious (not inventive) or, in the case of an innovation patent, not innovative; • the invention is not useful; • the invention was secretly used prior to the priority date; • the patentee is not entitled to the patent; • the patent or any amendment thereto was obtained by fraud, false suggestion, or misrepresentation; and • the requirements of s 40(2) and (3) of the Patents Act have not been satisfied. Even if one of these grounds is made out, the court must not revoke the patent unless it is ‘satisfied that in all the circumstances, it is just and equitable to do so’: Patents Act s 138(4). The court may decide to revoke some of the claims or the whole patent. The register may also have to be rectified where the patent is registered in the wrong name. For example, where an employee takes out a patent which really 92 (2000) 170 ALR 439; 46 IPR 553; [2000] FCA 316.
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belongs to the employer, the court will declare that the employee holds the patent in trust for the employer and order that the register be altered to show that the employer is the patentee.
International Aspects of Patents 2.61 There is no international patent. It is up to each country to decide whether to grant a patent in any given circumstance. An inventor desiring international protection must be prepared to seek registration in all countries in which protection is required. While there is no international patent, there are a number of international treaties and conventions which help the inventor seeking to protect her invention in more than one jurisdiction.
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Paris Convention 2.62 Over 170 countries are signatories to the Paris Convention for the Protection of Industrial Property. The Convention was formed in 1883 and Australia — formerly the various colonies — has been covered by the Convention ever since. The Convention requires a member state to grant the same industrial property rights to nationals of other Convention states as it grants to its own nationals. This means that member states must not discriminate against inventors on the basis that they are foreign nationals provided the inventor is from a Convention country. Convention countries also agree to give priority to patent applications from other Convention states. This means that, if a patent specification is given a certain priority date in Australia, the inventor has the right to the same priority date in any Convention country provided the application in that Convention country is made within 12 months of the date of first filing in Australia. The Paris Convention does not otherwise impose many requirements on the member countries. For example, there is no requirement that member states apply the same definition to the meaning of an invention.
TRIPS Agreement 2.63 Australia is a signatory to the GATT-WTO Agreements. One of the GATTWTO Agreements is the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). TRIPS covers the full range of intellectual property matters and, as far as patents are concerned, requires signatory countries to provide protection for industrial products and processes which are new and involve an inventive step. Protection is to be for 20 years. TRIPS does not try to harmonise the
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patent systems in the various member countries; it merely sets down a minimum standard of protection.
Patent Cooperation Treaty 2.64 The Patent Cooperation Treaty provides for cooperation among countries with respect to lodging patent applications. Thus, the Australian Patent Office acts as a recipient for applications for other members of the treaty. This can significantly reduce the expense of making multi-country applications. It also means that it is only necessary to prepare an application in English. Over 150 countries are signatories to the Patent Cooperation Treaty. Due to the complexities of the patent system of each country and the existence of various filing options, it is advisable for an intending applicant to consult a registered patent attorney before attempting to file an application in (or with effect in) any foreign country.
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European Patent Convention 2.65 The European Patent Convention allows inventors to make a central patent application to the European Patent Office (EPO) and thereby seek patent protection in 44 member countries. There is a central uniform examination undertaken by the EPO and then granted European patents must be validated and maintained individually in each member country where the patent grant takes effect. This means for example, paying renewal fees to each individual country where the patent is granted and complying with the patent laws of each member country. The EPO is at the time of writing also introducing what is called a unitary patent, which as the name suggests, will grant uniform patent protection in up to 26 EU member states. This has the advantage over a European patent in that not only is all filing and examination done centrally by the EPO, but also all maintenance functions. This will do away with the need for patentees to subsequently deal with individual country patent offices, for example, when paying renewal fees.93 Perhaps more importantly, however, the unitary patent will confer truly uniform patent protection. The Agreement on the Unified Patent Court means that patent rights and remedies have been harmonised across the member states. Needless to say, this should result in considerable cost savings for patentees and make unitary patents easier and more cost effective to administer, maintain and defend in any infringement actions.
93 See further ‘Unitary Patent’ at .
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Advantages and Disadvantages of a Patent Disadvantages of a patent 2.66 There is no law that compels an inventor to apply for a patent. In fact, there may be cogent reasons why it would be better to keep an invention secret, including the following. 1) A patent monopoly only lasts for 20 years. After 20 years the patent holder must expect his or her competitors to be in a position to utilise the invention. 2) The nature of the patent invention must be made public. Anyone may inspect the register of patents. In fact, the register of patents is a rich source of information for firms. Therefore, even prior to the termination of the monopoly, the patent owner can expect competitors to have fully analysed the nature of the invention and to have sought improvements. 3) Patent application and maintenance is expensive. The initial costs may be beyond small inventors. This is particularly so where international protection is required. The costs of fighting off potential infringers may be prohibitive for all but those with the deepest pockets. 4) Inventors ought to be aware of how patents tend to fare when subjected to court scrutiny. A study has shown that in 38% of patent infringement actions where there was a cross claim for revocation, the court found the patent valid and subsequently that infringement had been made out.94
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Advantages of a patent 2.67 The advantages of patenting and the disadvantages of alternative forms of protection must be weighed against the disadvantages of patenting. For a new and creative industrial product or process the only real alternatives to a patent are secrecy and better marketing. • Patent registration creates a monopoly in that the patentee is protected against reverse engineering and even independent creation of the same invention. While the law will protect trade secrets in certain circumstances, the trade secrets protection will not stop another inventor from reverse engineering, or independently developing, the same invention, or from accidental disclosure of the invention. • As a patent becomes part of public information, there are no costs associated with maintaining secrecy. The essence of an injunction or other remedy under the law of trade secrets is that the invention be a secret and that adequate steps 94 Kimberlee G Weatherall and Paul H Jensen, ‘An Empirical Investigation into Patent Enforcement in Australian Courts’ [2005] FedLawRw 9; (2005) 33(2) Federal Law Review 239.
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have been taken to keep it that way. This can be a very expensive exercise. As one would expect, smaller firms are more likely to rely on trade secrets than larger firms. This is not just a matter of the cost of the patent, but also a reflection of the fact that a small firm probably has more chance of retaining a secret than a large firm does. • A major factor in favour of the patent process is the importance that it can play in initiating and simplifying technology financing and transfer. A patent is a property right. The law of trade secrets creates no such right. Consequently, the firm seeking to license the use of an invention or to raise operating funds to work the invention has a more attractive commodity if it has a patent. Subject to the validity of the patent, the rights attaching to a patent are clear. The same can never be said about a trade secret until it is tested in court. For those involved in licensing technology abroad, a patent is probably the best protection that can be had other than developing a good relationship with the licensee.
Conclusion
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2.68 Whether to take out a patent or rely on secrecy is not an easy issue. There are so many factors to be taken into account that a general conclusion is impossible. Perhaps the most important thing to remember is that the decision has to be taken at an early stage in the life of the product or process. Once the invention loses novelty there is no longer any choice. Of course, patents and trade secrets should not necessarily be seen as alternatives. A proper intellectual property strategy may require use of both the patent system and the law of trade secrets. Thus, for instance, an invention may have information associated with it that is not capable of being protected under the Patents Act but does fall into the category of confidential information.
Plant Breeder’s Rights 2.69 The Plant Breeder’s Rights Act 1994 (Cth) is a system for conferring exclusive rights on the breeder of a new variety of plant. Protection is obtained through registration. Before registration, the new variety must undergo an examination process. On registration, the breeder obtains the exclusive commercial rights to market the new variety or its reproductive material. This includes the right to direct the production, sale, and distribution (including imports and exports) of the new variety, receive royalties from the sale of plants, or sell the rights. Protection lasts for up to 25 years for trees or vines and 20 years for other species. To be eligible for protection the plant breeder must demonstrate: 95
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• that the claimed new variety is distinct, as well as being uniform and stable; and • by means of a comparative trial, that the variety is clearly distinguishable from any other variety, the existence of which is a matter of common knowledge. There is an exemption for farmers saving seeds.
Marketing Advice
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2.70 Remember that, if an idea is good, it will be copied. So if it is your idea, you should at least consider protecting it. Legal protection is not automatic. • You should be prepared to consult the necessary experts, such as a patent attorney, at an early stage. This will involve a cost-benefit analysis to determine whether patenting is likely to be worthwhile. It may be better to rely on your ability to keep the information secret, or superior marketing skills and the first to market advantage. • Until you have made the decision whether to patent or not, you should not publish details of the idea or use or discuss the idea in public. • Remember that a patent is never a substitute for good marketing.
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Protecting Commercial Secrets
13
Introduction to Breach of Confidence............................................. 3.2 Elements of Breach of Confidence................................................... 3.3 Step 1: Is the information of a confidential nature?.................. 3.4 A. Has the information become part of public property or knowledge?........................................................................ 3.5 B. Does the information have commercial value?................. 3.6 C. Has the information been treated as confidential?........... 3.7 D. Does the information go beyond employee know-how?............................................................................. 3.8 E. Common examples of trade secrets................................... 3.9 i. Research and development material............................ 3.10 ii. Industrial products and processes.................................. 3.11 iii. New product ideas.......................................................... 3.12 iv. Marketing information.................................................... 3.13 v. Customer lists.................................................................. 3.14 F. Privacy and breach of confidence....................................... 3.15 Step 2: Was there an obligation of confidence?....................... 3.16 A. Consultants and advisors..................................................... 3.17 B. Employees............................................................................. 3.18 C. Ex-employees........................................................................ 3.19 D. Company directors............................................................... 3.20 E. Joint venturers....................................................................... 3.21 F. Licensees................................................................................ 3.22 G. Assignors............................................................................... 3.23 H. Potential licensees and assignees...................................... 3.24 I. Industrial fraud or theft...................................................... 3.25 97
Marketing and the Law
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Step 3: Has there been unauthorised use of the information?........................................................................ Defence of Public Interest............................................................... Remedies for Breach of Confidence............................................... Trade Secrets and Third Parties...................................................... Comparing Patents and Trade Secrets........................................... Restraint of Trade Clauses............................................................... When is a restraint clause valid?................................................. Contracts where restraint clauses are found............................. A. Sale of business agreements.............................................. B. Employment agreements.................................................... Consequences of an invalid restraint clause............................. Use of multiple descending restraint clauses........................... Summary of common law restraint of trade............................ Employees’ Duties During and After Employment...................... Marketing Advice...............................................................................
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3.26 3.27 3.28 3.29 3.30 3.31 3.32 3.33 3.34 3.35 3.36 3.37 3.38 3.39 3.40
Chapter 3: Protecting Commercial Secrets
3.1 This chapter examines the following two ways of protecting valuable commercial information: 1. the action for breach of confidence; and 2. the use of restraint of trade clauses, particularly in employment situations. Restraint of trade clauses are also used to provide some protection from competition by former business owners, former partners and, importantly, ex-employees.
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Introduction to Breach of Confidence 3.2 Chapter 2 examined how inventions, as the application of new commercial ideas and information, may be protected using the patent system. However, not all commercially valuable ideas are patentable. For example, the idea may not be a ‘manner of manufacture’, or it may not be novel, or it may not be sufficiently inventive (standard patent) or innovative (innovation patent). Even where an idea is patentable, the firm may choose to rely on secrecy rather than the patent system. There may be a number of reasons for this: 1. Some ideas lend themselves to secrecy. In fact, secrecy may add greater value to the idea than a patent would because the protection offered by a patent is limited in time, while a secret lasts as long as it is kept. For example, a product or process which cannot be discovered by reverse engineering or by chemical analysis, such as the Coca-Cola recipe, may have a commercial lifespan exceeding the 20 years provided by the Patents Act 1990 (Cth). 2. A product or process which cannot be discovered by reverse engineering or by chemical analysis may, if made the subject of a patent registration, suggest improvements and innovations to competitors which are beyond the patent monopoly. If secrecy had been maintained, rather than the essential elements being publicly disclosed in a patent application, perhaps competitors would not have been in a position to make those improvements or innovations. 3. The cost factor. Applying for a patent is not cheap. The costs of performing a worldwide search to establish novelty are very high. For many small firms without deep pockets secrecy is an attractive alternative to the patent process. Of course, maintaining a secret is also not free of cost. At the very least, extra vigilance is required. 4. The great majority of patents do not become commercially viable. The difficulty with secrets is keeping them secret. The potential for leakage of commercial secrets is great. In the course of the life of an average trade secret, it may have to be disclosed to employees, agents, licensees, franchisees, assignees, buyers, suppliers, and joint venturers. The vital question is whether the law can help the firm to keep its secrets. The answer is a qualified yes. Copyright 99
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and registered designs law are probably not suitable because they do not protect ideas or information per se, only the form in which they are expressed. However, in certain circumstances, the law will impose a duty upon persons not to disclose secrets without authorisation. This area of the law is called the law relating to confidential information. The law of confidential information covers both private and business secrets. This chapter is only concerned with business or trade secrets.
Elements of Breach of Confidence 3.3 The initial step in an action for breach of confidence is to establish the information in question with some degree of specificity. It is not sufficient simply to claim that some unspecified information is confidential: Smith Kline & French Laboratories (Australia) Ltd v Secretary, Department of Community Services and Health.1 Once the information has been specified, there are three elements that must be proved in order to succeed in an action for breach of confidence: see Coco v A N Clark (Engineers) Ltd.2 1. Is the information of a confidential nature? 2. Was the recipient under an obligation not to disclose or use the information? 3. Has the recipient used or disclosed the information without permission or is there a real likelihood of that occurring?
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Step 1: Is the information of a confidential nature? 3.4 The first requirement set out in Coco v A N Clark (Engineers) Ltd3 is that the information must be of a confidential or secret nature. This means that: • the information must be secret in the sense of not being ‘public property or public knowledge’; • the information must have some commercial importance or value; • the plaintiff must have treated the information as confidential; and • the information must go beyond what the law regards as employee know-how. Provided these elements are satisfied, it is not necessary that the information relate to any particular matter, or be fully developed, or take any particular form.4 The information may be in written form or it may be merely oral: see Fraser v Thames Television Ltd.5 Unlike patents, which apply only to certain inventions, all secrets
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[1989] FCA 384. (1968) 1A IPR 587; [1969] RPC 41, see 3.28C. (1968) 1A IPR 587; [1969] RPC 41, see 3.28C. Talbot v General Television Corporation Pty Ltd [1980] VR 224; [1981] RPC 1. [1984] QB 44; [1983] 2 All ER 101, see 3.12C.
Chapter 3: Protecting Commercial Secrets
with a commercial value, including discoveries of pure knowledge, may be protected as confidential information.
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A. Has the information become part of public property or knowledge? 3.5 The test for whether information is public property or public knowledge is not as stringent as the test for novelty under patent law. The mere fact that information has appeared in some publication somewhere in the world will not necessarily destroy confidentiality, although it will destroy novelty for a patent. The key question is whether the information is known within the relevant trade or industry. The relevant trade or industry includes all those persons from whom the plaintiff is most likely to wish to withhold access to the information. If the information is known to the relevant trade or industry, then it is publicly known, even if the public at large remains in ignorance. Normally information contained in a patent application is not confidential: Maggbury Pty Ltd v Hafele Australia Pty Ltd. 6 Conversely, if the information is not known within the relevant trade or industry, then it may be confidential even though it is known to other persons within the wider community. In Australian Football League v The Age Co Ltd7 the names of AFL players who had tested positive for illicit drugs were held to be confidential even though the players’ names had been published on the internet. In appropriate circumstances the law may protect information based on publicly available data, provided the plaintiff has spent time, money, and effort in collecting, collating, and packaging the data. The confidentiality lies not in the raw data, but in the selection and compilation of information. This means that information may still be confidential even though the information is available from public sources, provided that a person wishing to duplicate the information would have to expend considerable time and expense in locating, selecting, and collating the raw data: see Saltman Engineering Co Ltd v Campbell Engineering Co Ltd.8
B. Does the information have commercial value? 3.6 The information must have some commercial value. The courts will not grant an injunction to protect trivial matters. However, the value does not have to be great. Many innovations which lack the necessary level of ingenuity and creativity to qualify as patentable inventions are sufficiently original to sustain an action for a breach of trade secrets. It has been intimated that a breach of confidence action could lie in the publication of unauthorised photographs of a celebrity.9 A trade 6 7 8 9
(2001) 210 CLR 181; 185 ALR 152; 53 IPR 1; [2001] HCA 70. See also O’Mustad & Son v S Allcock & Co Ltd [1963] 3 All ER 416; [1963] RPC 41. (2007) 15 VR 419. [1963] 3 All ER 413, see 3.11C. Candy v Bauer Media Ltd [2013] NSWSC 979.
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secret may lie in merely a ‘significant twist or slant to a well-known concept’.10 However, a mere flight of fantasy or a matter of trivia will not be sufficient.
C. Has the information been treated as confidential? 3.7 The plaintiff must be able to demonstrate that the confidentiality of the information was important to them: Thomas Marshall (Exports) Ltd v Guinle.11 This is done by establishing that procedures were in place to protect the secrecy of the information. If a plaintiff fails to take steps to protect information, a court may conclude that the information was not confidential because the plaintiff did not appear to treat it as important or confidential: see Faccenda Chicken Ltd v Fowler12 and Fractionated Cane Technology Ltd v Ruiz-Avila.13 A plaintiff will be more likely to convince a court that the information is of a confidential nature if: • the information is marked ‘confidential’; • access to the information is restricted and those made privy to the information are put under an express obligation of confidence; and • individuals dealing with the information have been warned that the information must be kept secret.
D. Does the information go beyond employee know-how?
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3.8 It is necessary to distinguish between information which forms part of the employee’s stock of general information, skill, and experience (known as ‘subjective knowledge’) and information which an employee of ordinary honesty and intelligence would regard as the property of the employer (‘objective knowledge’). Employee know-how (subjective knowledge) will not be protected as confidential information by the courts. That is, the ex-employee can use subjective knowledge, but objective knowledge remains the ‘property’ of the employer. The distinction between a trade secret and know-how is further discussed in 3.20. Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VLR 37 3.8C1
Facts: Ansell produced rubber gloves using technology which had been partly revealed in a patent specification and partly kept secret. The information kept secret was based on known engineering principles. Ansell ensured that its employees were aware of the confidentiality of the machinery. It also restricted access to its factory to authorised personnel only. Two employees — an engineer and a fitter — left Ansell and set up in competition using machinery built by themselves from their own skills, but also utilising the technology they had learnt while in the employ of the plaintiff. Ansell sought an injunction for breach of confidential information.
10 11 12 13
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Talbot v General Television Corporation Pty Ltd [1980] VR 224; [1981] RPC 1. [1979] Ch 227; [1978] 3 All ER 193, see 3.13C1. [1987] Ch 117; (1985) 6 IPR 155; [1986] 1 All ER 617, see 3.19C2. [1988] 2 Qd R 610; (1988) 13 IPR 609.
Chapter 3: Protecting Commercial Secrets Decision: It is necessary to distinguish between the employee’s subjective knowledge and objective knowledge which remains the property of the employer. Objective knowledge may be anything that is not publicly known or, at least, not known fully. Gowans J listed the following factors (not being an exhaustive list) as being important in determining whether information has the necessary quality of confidence: • the extent to which information is known outside of the employer’s business; • the extent to which it is known by employees and others involved in the business; • the extent of measures taken by the employer to guard the secrecy of the information; • the value of the information to the employer and to competitors; • the amount of effort or money expended by the employer in developing the information; and • the ease or difficulty with which the information could be properly acquired or duplicated by others. The design, construction and operation of Ansell’s machinery were not known in full. That secrecy gave the plaintiff a commercial advantage. The secret information went beyond the employee’s subjective knowledge and, therefore, the court awarded an injunction.
Leica Geosystems Pty Ltd v Koudstaal (No 3) (2014) 109 IPR 1; [2014] FCA 1129 Facts: Leica sells software products and services to the mining industry. Koudstaal was employed by Leica as a software engineer until 3 November 2011. On 7 November 2011 he commenced employment with a competitor company. Shortly before he left Leica, Koudstaal copied material, including software source code and lists of which version of software each customer was using for each Leica product, to an external hard drive. Leica sued for copyright infringement and breach of confidence.
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Decision: The material was of a confidential nature and Koudstaal was subject to a duty of confidence with respect to his access of it. The volume and complexity of the material taken negated a finding that it was employee knowhow or part of his general knowledge. This was supported by the fact that it was downloaded during Koudstaal’s final days of employment. The court granted an injunction requiring Koudstaal to deliver up the confidential material in his possession.
E. Common examples of trade secrets 3.9 As a trade secret may relate to anything of commercial value, it is not possible to draw up an exhaustive list. Nevertheless, some of the more common materials that have been held to be trade secrets include: • research and development material; • industrial products and processes; • new product ideas; • marketing information; and • customer lists. 103
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i. Research and development material 3.10 By its very nature, research and development will generate new ideas, new solutions, and new ways of utilising data. Some of these ideas may crystallise into patentable inventions, but much of the information generated by research and development remains part of the background mosaic upon which new products and processes are built. This information is valuable and the courts will protect its secrecy, provided it goes beyond an employee’s subjective knowledge.
ii. Industrial products and processes 3.11 There are many cases where the courts have protected the design of a product, provided the product was not available to the public. Tools, dies, and machines designed to produce other products are obvious examples of potentially confidential information: see also Mense & Ampere Electrical Manufacturing Co Pty Ltd v Milenkovic.14 Saltman Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All ER 413
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3.11C
Facts: Saltman was the owner of certain drawings of tools for the manufacture of leather punches. Campbell was a manufacturing company. During negotiations between the parties, the drawings were delivered to Campbell. Although no contract eventuated, Campbell retained the drawings and used them to make tools for the manufacture of punches. Saltman sued for a breach of confidence. Decision: The court decided that this was a case where an obligation of confidence arose and should be enforced. It was true that the defendant could perhaps have developed the tools by having an engineer look at the punches. This, however, did not justify the defendant dispensing with the need to spend the necessary time, money, and effort required for such independent development by copying the plaintiff’s drawings. Campbell ‘knew that those drawings had been placed in their possession for a limited purpose, namely, the purpose only of making certain tools in accordance with them, the tools being tools required for the purpose of manufacturing leather punches’. The court granted an injunction.
Industrial processes have also been the subject of many successful applications. In Cranleigh Precision Engineering Ltd v Bryant,15 an injunction was granted to prevent the plaintiff’s former managing director utilising the plaintiff’s process for erecting above-ground swimming pools. Recipes and formulae have also been protected.16 However, if a local patent application has been made in respect of the new product or process, the idea is generally no longer confidential, as details of the
14 [1973] VR 784, see 3.17C2. 15 [1964] 3 All ER 289; [1965] 1 WLR 1293; [1966] RPC 81, see 3.19C3. 16 Weston v Hemmons (1876) 2 VLR (E) 121; Crowder v Hilton [1902] SALR 82.
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product or process are publicly disclosed in the patent application: Maggbury Pty Ltd v Hafele Australia Pty Ltd.17
iii. New product ideas 3.12 Until a new product actually appears in the market, there is value in keeping it a secret. This applies from the time the new product is first thought of, to the time that it is ready for release. In appropriate circumstances, the courts will protect new product ideas even though the idea is still at an evolutionary stage: see Krueger Transport Equipment Pty Ltd v Glen Cameron Storage & Distribution Pty Ltd.18 Any injunction granted will probably be limited to the period prior to release. Fraser v Thames Television Ltd [1984] QB 44; [1983] 2 All ER 10119 Facts: In 1973 three female actors formed a rock group. Fraser was their manager and song writer. Together they conceived the idea for a TV show based partly on fact and partly on fiction. They took the idea to Thames Television and eventually signed a contract. The idea for the TV show was never written down and at all relevant times remained purely oral. Thames utilised a term in the contract to exclude Fraser and the other three plaintiffs, and hired four new actors to play the parts in the TV show which was called The Rock Follies. The show was reasonably successful. Fraser and the others sued for breach of contract and breach of confidence. Decision: An oral idea may qualify as a trade secret, provided the plaintiff can establish that the occasion of communication was confidential and the content of the idea was clearly identifiable, original, of potential commercial attractiveness, and capable of being realised in actuality. Thames Television was held to be in breach of confidence.
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iv. Marketing information 3.13 A new advertising concept could amount to a trade secret, although the secret would be lost once the idea was put into practice.20 The results of a questionnaire or survey could amount to a trade secret.21 Information concerning new product releases, product prices, product performance, details of contractual negotiations, and even details of suppliers, is capable of amounting to confidential information in appropriate circumstances.
17 18 19 20
(2001) 210 CLR 181; 185 ALR 152; 53 IPR 1; [2001] HCA 70. (2008) 78 IPR 262; [2008] FCA 803, see 4.18C1. See also Talbot v General Television Corporation Pty Ltd [1980] VR 224; [1981] RPC 1. Wheatley v Bell [1982] 2 NSWLR 544; (1982) 1A IPR 613 (a case involving a teledex which listed local tradespeople). 21 Interfirm Comparison (Australia) Pty Ltd v Law Society of NSW [1975] 2 NSWLR 104; (1975) 5 ALR 527; [1977] RPC 137.
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Thomas Marshall (Exports) Ltd v Guinle [1979] Ch 227; [1978] 3 All ER 193 3.13C1
Facts: Thomas Marshall (Exports) Ltd imported goods from communist Eastern Europe and from South East Asia. Guinle used contacts in Eastern Europe and Asia, which he had acquired as managing director of Thomas Marshall, to build up his own business. Thomas Marshall complained that Guinle had utilised its trade secrets and sought an injunction. Decision: Megarry VC said: Even in the Eastern European countries with state monopolies, a knowledge of the particular officials with whom business can most satisfactorily be done may be an important and confidential matter; and in the Far East, with many rival sources of supply, a detailed knowledge of the cheapest, most reliable and most efficient sources must be something that a skilled buyer would firmly keep to himself as a valuable asset. The court granted an interim injunction.
Contrast: Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414; 56 ALR 193; 3 IPR 545
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3.13C2
Facts: Philip Morris (PM) held the Australian licence to produce Kent cigarettes. It also held the licence to produce one of Kent’s competitors, Marlboro cigarettes. The licensor discussed with PM the introduction of a new mild cigarette to be called Kent Golden Lights, which were already on the market in the US. In 1977, PM’s licence came to an end and was not renewed because the licensor was about to sell its tobacco business to Moorgate, which was a competitor of PM. Moorgate wished to market the Kent brand in Australia itself. PM already marketed another cigarette in Australia called Marlboro Lights. There were a number of tobacco products using the name ‘Golden’. PM registered the name ‘Golden Lights’ under the Trade Marks Act and commenced to use it for Marlboro cigarettes. Moorgate claimed that it owned the Australian rights to the name ‘Kent Golden Lights’ and, therefore, had a right to stop PM using the name ‘Golden Lights’. Moorgate claimed an injunction against PM on a number of grounds, including breach of confidence. Decision: The High Court refused to grant an injunction. According to the court ‘there was nothing in the evidence nor in the nature of that information that established that it was regarded by [the licensor] as confidential or that it was, in fact, confidential’. It was the type of general information that a licensor would make known to a potential licensee, even where, as in this case, the licensee produced a competing product.
In Faccenda Chicken Ltd v Fowler,22 the court refused to stop the plaintiff’s former manager from utilising the plaintiff’s successful marketing strategy for selling fresh chickens or from approaching the plaintiff’s customers.
v. Customer lists 3.14 One of the most commonly litigated types of confidential information deals with customer lists and business connections. Generally speaking, customer lists 22 [1987] Ch 117; (1985) 6 IPR 155; [1986] 1 All ER 617, see 3.19C2.
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will fall into the category of employee know-how and can only be protected by a valid restraint of trade clause: see 3.31–3.38; Metrans Pty Ltd v Courtney-Smith.23 However, if the customer list lies at the heart of the business and was difficult to acquire, or the list of potential customers is very small, it may amount to a trade secret. For this to be the case, the list has to be more than just a list of names and addresses. It must contain some special element that a reasonable person would recognise as belonging to the employer. Information that has been ‘constructed solely from materials in the public domain’, to which ‘the skill and ingenuity of the human brain’ has been applied can be treated as confidential.24
F. Privacy and breach of confidence 3.15 There is a strong connection between the action for breach of confidence and notions of privacy. Because Australian law has generally been reluctant to recognise a tort of privacy, the action for breach of confidence is often a plaintiff’s best option. However, breach of confidence and breach of privacy are not exactly the same. A matter may be public knowledge, even though its publication amounts to what most people would regard as an invasion of privacy. For example, in the UK the actor Gordon Kaye, who had been seriously injured and disfigured in a car accident, was not able to stop the unscrupulous publication of photographs taken of him in his hospital bed.25 The High Court considered the issue of information privacy in the following case.
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Australian Broadcasting Corp v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; 185 ALR 1; [2001] HCA 63 Facts: Lenah Game Meats (Lenah) operated an abattoir in Tasmania. Lenah had a licence from the Tasmanian Government to kill and skin possums for export. An animal rights group infiltrated the abattoir and filmed the operation. The film was then provided anonymously to the ABC. The ABC was not connected with the unlawful entry to Lenah’s property, although it was clear in the circumstances that the film had probably been illegally taken. The ABC intended to use the film as part of its current affairs program. Lenah objected and sought an injunction to prevent the ABC using the film. The problem for Lenah was on what grounds could it be entitled to an injunction? Amongst other arguments, including confidential information, Lenah claimed that, by showing the film, the ABC would be breaching Lenah’s right to privacy. The matter was heard by the High Court. Decision: The High Court considered whether there exists a tort of invasion of privacy under Australian law, but ultimately rejected the arguments made by Lenah. There was no cause of action and if Australia did have a tort of privacy this was not an example. The information, though shocking in visual form, was hardly a trade secret. The fact that Lenah was killing possums was public knowledge.
23 (1983) 1 IPR 185. 24 Del Casale v Artedomus (Aust) Pty Ltd (2007) 73 IPR 326 at 346. 25 Kaye v Robertson [1991] FSR 62.
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Step 2: Was there an obligation of confidence? 3.16 In order to satisfy the second element of the test laid down in Coco v A N Clark (Engineers) Ltd,26 the information must be revealed or learnt in circumstances which impose a duty upon the recipient not to disclose or otherwise use the information. This means that the information must have been disclosed or acquired in confidence or good faith. The duty may have been expressly created or implied from the circumstances of the case. According to the court in Coco v A N Clark (Engineers) Ltd, if a reasonable person standing in the shoes of the recipient would have realised that the information was being given in confidence, then the recipient is under a duty not to disclose or use that information without permission. A reasonable person is a person of ordinary intelligence and honesty: see Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd.27 Some understanding of the creation of the duty not to disclose or use confidential information can be gleaned by looking at examples of typical situations in which the duty is created. The following persons are often under a duty of confidence: • consultants and professional advisers; • employees and agents; • ex-employees; • directors; • joint venturers, including partners; • licensees; and • assignors. An obligation of confidence also arises where the information is acquired through industrial espionage.
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A. Consultants and advisors 3.17 The distinction between an employee and a consultant was discussed in the context of patents: see 2.39. The same principles apply here. As with patentable inventions, the initial question to decide is whether the right to control dissemination of the information lies with the employer or the consultant — who ‘owns’ the information?28 Where the idea or information clearly emanates from the employer, the employer is undoubtedly the ‘owner’. But what happens when the idea comes from the consultant in the course of discharging his or her duties under the consultancy agreement?
26 (1968) 1A IPR 587; [1969] RPC 41, see 3.28C. 27 [1979] VR 167, see 3.17C1. 28 It is not strictly correct to talk about owning information. No one can own information, except in the limited sense of the Patents Act. The law of confidential information does not protect information per se, but rather the plaintiff’s right to keep it secret.
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Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 Facts: Deta Nominees Pty Ltd (Deta) designed, manufactured, and sold furniture. It had put considerable research into developing a strong but cheap plastic drawer for use in massproduced furniture. Viscount was a professional tool designer. Deta hired Viscount to make a tool (a pair of dies) for the production of drawers. As Deta’s idea was new, no such tool existed. Comprehensive discussions took place between the parties. Viscount contributed some novel suggestions which were incorporated into the ultimate design. Viscount then produced the necessary dies. The consultancy contract stipulated that Viscount was not to design or build a similar tool for anyone else within certain tolerances. A dispute arose and the question to be answered by the court was whether Deta or Viscount owned the concept. Without advising Deta, Viscount had taken out a patent over the tool.
3.17C1
Decision: The court decided in favour of Deta. Viscount was in the business of designing tools under contract and had been specifically hired to produce the tool in question. Although the contribution made by Viscount contained an ingenious or inventive step, Viscount had been adequately remunerated under the agreement. The idea belonged to Deta. The court decided that Viscount held the patent in trust for Deta.
Once it is clear that the information is of a confidential nature and ‘belongs’ to the employer, the consultant or contractor is under an obligation not to disclose that information without authority. The courts are quite prepared to imply the obligation if the agreement is silent on the point. Mense & Ampere Electrical Manufacturing Co Pty Ltd v Milenkovic [1973] VR 784
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Facts: The defendant, Milenkovic, was hired to produce a die for making the plaintiff’s nylon electrical plugs. The plaintiff already had a die it had designed itself, but it was unsatisfactory in that it did not automatically eject the finished plugs. In the course of producing the new die, the defendant was shown the design of the original die and had the process of manufacturing the plugs fully explained to him, including the type of nylon used. Without permission, the defendant took this information and started producing plugs in competition with the plaintiff. Decision: The court granted an injunction. The information had the necessary level of confidentiality about it, although it would not be sufficient for a patent. There was an implied term in the contract between the parties that Milenkovic would not use the plaintiff’s trade secrets for his own advantage.
The wise manager should require all consultants and contractors who are likely to receive confidential information to sign a document acknowledging that the information is confidential and not to be disclosed without authority. Professional advisers, such as lawyers, accountants, bankers, and stockbrokers, also owe a duty of confidence.
B. Employees 3.18 The majority of cases involving trade secrets have involved leakage or use by employees or ex-employees. It is inevitable that some employees will become 109
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privy to their employer’s secrets. The employee may even have been instrumental in the creation of the secret information. While still in employment, employees owe a duty of good faith to their employer. The duty is fairly strict. The employee is not permitted to act to the detriment of the employer’s interests, unless it is in the public interest. This means that employees are not permitted to solicit the employer’s customers or to deliberately disclose, copy, use, or memorise for later use the employer’s secrets, whether or not the secrets would be regarded as trade secrets for the purpose of the law of confidential information. Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169; [1946] 1 All ER 350 3.18C1
Facts: Hivac manufactured valves for hearing aids. The defendant, Park Royal, secretly set up in competition with Hivac, using the skills and knowledge of some of Hivac’s employees who worked for Park Royal in their spare time. Hivac sought an injunction against the employees and Park Royal to stop the employees working for Park Royal. Decision: The court granted an interim injunction. Although the employees had not used Hivac’s confidential information and although they were acting in their spare time, they had breached their duty of good faith because they knew or ought to have known that their activities were likely to damage Hivac’s business. (The normal remedy in a case such as this would be dismissal of the employee and damages. However, the matter occurred during wartime and dismissal was not an option.)
Robb v Green [1895] 2 QB 315
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3.18C2
Facts: Green was employed as the manager of Robb’s business. During the course of his employment, he surreptitiously copied a list of Robb’s customers for the purpose of using the information after he left Robb’s employment. Robb sought damages and an injunction to prevent Green from using the list. Decision: Green’s actions were a breach of his contractual duty of good faith. The court ordered damages, delivery up of the infringing list, and an injunction to prevent Green from making use of the information on the list.
As subsequent cases have shown, Green could probably have successfully defended an application for an injunction if he had waited until after the termination of his employment and then made the list from memory.29 If an employee has breached the obligation of good faith, the law is quite severe in its remedies. Any employee who makes a personal profit by taking advantage of information properly belonging 29 This point was made by Maugham LJ in Wessex Dairies Ltd v Smith [1935] 2 KB 80. There are, however, exceptions for highly specialised technical information: see, for example, Nexus Adhesives Pty Ltd v RLA Polymers Pty Ltd (2012) 97 IPR 160; [2012] FCAFC 135.
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to the employer can be ordered to pay those profits to the employer, even if the employer has not lost anything by the employee’s actions.30 This remedy is known as an account of profits and can also be sought where there has been infringement under intellectual property statute.31 The Corporations Act 2001 (Cth) imposes similar obligations on employees of corporations. They must not improperly use any information acquired in their capacity as an employee to gain a personal advantage or cause detriment to the corporation: see ss 182 and 183.
C. Ex-employees 3.19 Once the employment has terminated, the ex-employee is not under the same strict duty of good faith. However, even after the termination of employment, the ex-employee is not permitted to: • divulge or utilise the employer’s confidential information (trade secrets); or • exploit know-how which is protected by a valid restraint of trade clause: see 3.37. The employer’s confidential information — objective knowledge (see 3.8) — cannot be used by the ex-employee without permission. Know-how — subjective knowledge — can be used by the ex-employee unless it is the subject of a valid restraint of trade clause (see 3.31–3.39). How do the employer and the employee distinguish between objective and subjective knowledge?
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Printers & Finishers Ltd v Holloway (No 2) [1964] 3 All ER 731; [1965] RPC 239 Facts: Holloway was the manager of the plaintiff’s printing factory. By virtue of his position in the company, Holloway was necessarily privy to certain secret processes that the company used in its business. Before leaving his employment to take up work with a competitor of the plaintiff, Holloway made copies of certain secret information for later use in the competitor’s business. The plaintiff sought an injunction to prevent Holloway disclosing or using the information. Decision: During his employment Holloway had clearly breached his employment contract by acting contrary to the plaintiff’s interests. Although Holloway no longer worked for the plaintiff, the court was prepared to grant an injunction to prevent him disclosing his exemployer’s secret processes because those secret processes went beyond what an employee could treat as know-how. If the information in question can be fairly regarded as a separate part of the employee’s stock of knowledge, which a man of ordinary honesty and intelligence would regard to be the property of his old employer and not his own to do with as he likes, then the court, if it thinks that there is a danger of the information being used or disclosed by the ex-employee to the detriment of the previous employer, will do what it can to prevent that result by granting an injunction.
30 Green & Clara Pty Ltd v Bestobell Industries (1982) 1 ACLC 1. 31 Copyright Act 1968 s 115(2), see 4.69; Designs Act 2003 s 75, see 5.26; Patents Act 1990 s 122(1), see 2.54.
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Contrast: Faccenda Chicken Ltd v Fowler [1987] Ch 117; (1985) 6 IPR 155; [1986] 1 All ER 617 3.19C2
Facts: Faccenda operated a business selling fresh chickens. Fowler, the sales manager of Faccenda, implemented a successful marketing scheme whereby the chickens were sold from refrigerated vans, each travelling a defined route and servicing particular customers. As a result, each driver acquired extensive knowledge of his customers, including the amount and quality of the chickens purchased and the prices paid. Fowler quit Faccenda and went into operation for himself. He used the same scheme as he had developed at Faccenda, including the same areas, customers, and so on. He also hired eight former employees of Faccenda, including five drivers. Fowler had not signed any restraint of trade covenant. The evidence suggested that Faccenda had not taken any great steps to keep the information confidential. Faccenda sued for breach of contract.
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Decision: The court found in favour of the defendant, Fowler. Fowler was free to compete with Faccenda Chicken Ltd and to solicit its customers. In doing so, he was permitted to use his ‘own knowledge of the whereabouts and requirements of those customers, the prices they have been paying, and the routes by which they are conveniently visited’. In the circumstances, this information fell into the category of know-how, rather than confidential information.
A former employee can be prevented from soliciting the ex-employer’s customers by requiring the employee, at the time of hiring, to sign a non-solicitation agreement.32 It is often difficult to distinguish between know-how and trade secrets. In deciding any given case, the court will look at all relevant evidence, including: • the nature of the information — the courts have shown a willingness to protect certain types of information imparted to employees, such as details of inventions: see Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd33 and Cranleigh Precision Engineering Ltd v Bryant;34 and a reluctance to protect other types of information imparted to employees, such as customer lists: see Faccenda Chicken Ltd v Fowler;35 • the commercial importance of the information; and • the extent to which the employer seeks to keep the information secret by, for example, restricting access to files,36 marking files ‘confidential’, restricting access to machinery (Ansell Rubber Co Pty Ltd v Alllied Rubber Industries Pty Ltd),37 and requiring employees to sign ‘acknowledgments of confidentiality’. If the information is a trade secret, an employee is not relieved of the obligation of confidence merely because the employee created the secret. 32 33 34 35 36 37
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Barrett v Ecco Personnel Pty Ltd [1998] NSWCA 30. [1967] VLR 37, see 3.8C1. [1964] 3 All ER 289; [1965] 1 WLR 1293; [1966] RPC 81, see 3.19C3. [1987] Ch 117; (1985) 6 IPR 155; [1986] 1 All ER 617, see 3.19C2. Warman International Ltd v Envirotech Australia Pty Ltd (1986) 67 ALR 253; 6 IPR 578; (1986) ATPR 40-714. [1967] VLR 37, see 3.8C1.
Chapter 3: Protecting Commercial Secrets
Cranleigh Precision Engineering Ltd v Bryant [1964] 3 All ER 289; [1965] 1 WLR 1293; [1966] RPC 81 Facts: While acting as managing director of Cranleigh Precision Engineering Ltd (Cranleigh), Bryant learnt about a Belgian patent for constructing swimming pools. He also developed two innovations which greatly improved the Belgian invention. Following a dispute, Bryant left Cranleigh and set up his own business. He acquired the British rights to the Belgian patent and commenced marketing the Belgian product, incorporating his own innovations. Cranleigh sought an injunction on the basis of a breach of confidence. Decision: The court held that both the information concerning the Belgian patent and the two innovations created by Bryant were trade secrets of Cranleigh. Bryant was under a duty not to use or disclose this information. The court granted a number of injunctions restraining Bryant from using or disclosing the confidential information.
D. Company directors 3.20 A non-executive director of a company is not an employee of the company, but nevertheless owes a duty of good faith to the company as a result of the fiduciary relationship between the director and the company. A director, therefore, owes a duty not to use the company’s trade secrets for his or her own profit.38 The duty is quite strict. This duty is also imposed by the Corporations Act 2001 (Cth).39 A director who makes a personal profit by taking advantage of information properly belonging to the company can be ordered to pay those profits to the company, even if the company has not lost anything by the director’s actions.40
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E. Joint venturers 3.21 A joint venture is a contractual arrangement, whether a partnership or not, by which two parties agree to perform some commercial undertaking together. Obviously such an arrangement depends on the respective parties exhibiting a high level of good faith and fairness. Joint venturers owe a duty of good faith to one another. Therefore, where a trade secret is learnt within the confines of a joint venture relationship, the courts will readily imply a duty on the recipient not to disclose or use the information without permission: see Coco v A N Clark (Engineers) Ltd.41
F. Licensees 3.22 The ‘owner’ of confidential information may license others to use it. Once the licence is granted, the licensor still has a vested interest in ensuring that the 38 Cook v Deeks [1916] 1 AC 554; [1916–17] All ER Rep 285; Thomas Marshall (Exports) Ltd v Guinle [1979] Ch 227; [1978] 3 All ER 193, see 3.13C1; Boston Deep Sea Fishing & Ice Co v Ansell (1888) 39 Ch D 339; [1886–90] All ER Rep 65. 39 Corporations Act 2001 s 183. 40 Green v Bestobell Industries Pty Ltd (1982) 1 ACLC 1. 41 (1968) 1A IPR 587; [1969] RPC 41, see 3.28C.
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licensee treats the confidential information strictly according to the terms of the licence. The licence must be carefully drawn to protect the licensor’s interests.
G. Assignors 3.23 An assignment presents slightly different problems to a licence. Once the information has been assigned, it is the assignee that has an interest in ensuring that the assignor does not reveal or use the confidential information to the detriment of the assignee. Many a sale of business will involve a transfer of confidential information as part of the transfer of goodwill. The value in the information will be lost if the assignor is permitted to make unauthorised use of it. Therefore, as a matter of good practice, every assignment ought to include a clause restraining the assignor from using or disclosing the trade secrets without authority. Even if the assignment does not contain an express duty of confidence, the courts will probably imply one as a matter of business efficacy. If the assignor breaches this express or implied duty, the assignee will be entitled to damages, and an injunction to prevent further disclosure, and also an injunction preventing any third party deriving the information from the assignor from using such information.
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H. Potential licensees and assignees 3.24 It is obvious that a potential assignee or licensee of a trade secret will want to know the nature and content of the secret prior to concluding any agreement. The ‘owner’ of the trade secret thus runs the risk that the potential assignee or licensee will misuse the information. Assignors and licensors must be careful to ensure that the recipients of confidential information are aware that they are receiving matter of a confidential nature and that use and dissemination of the information is strictly controlled. The best way to achieve this result is to require the recipients to sign an ‘acknowledgment of confidentiality’ before receiving the information. Although the acknowledgment may not have any contractual force, it will aid the plaintiff in convincing a court that the recipient was under a duty not to disclose. Even if the potential assignee or licensee does not sign anything, a duty of confidence may arise in any event by way of implication. Ultimately the question is whether a person of reasonable honesty and intelligence would have recognised the subject matter as being confidential information belonging to the plaintiff. This does not mean that the recipient must deliberately ‘steal’ the information — the copying could be accidental or subconscious.42
42 Talbot v General Television Corporation Pty Ltd [1980] VR 224; [1981] RPC 1.
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Seager v Copydex Ltd [1967] 2 All ER 415; [1967] 1 WLR 923; [1967] RPC 349 Facts: Seager was an inventor who invented and patented a carpet grip called ‘Klent’. He also invented, but did not patent, an alternative carpet grip called ‘Invisigrip’. The defendant company wished to market the ‘Klent’ grip. During negotiations between the plaintiff and two officers of the defendant corporation, the plaintiff explained the ‘Invisigrip’. When negotiations broke down, the defendant produced a carpet grip which was remarkably similar to the plaintiff’s unpatented grip. The defendant called the grip ‘Invisigrip’. The defendant claimed that its grip was the result of its own ideas and was not derived from any information given to it by Seager. Seager sought an injunction and other remedies.
3.24C
Decision: At first instance the judge dismissed the plaintiff’s application. On appeal the English Court of Appeal accepted that the defendant believed the idea was its own, but held that it must have subconsciously copied from Seager — the coincidences were too great to permit of any other explanation. Judgment was granted in favour of the plaintiff. However, the court refused to grant an injunction or an account of profits. Instead damages were awarded as the appropriate remedy. The damages were to be assessed on the basis of reasonable compensation for the use of the confidential information that was given to the defendant.
Saltman Engineering Co Ltd v Campbell Engineering Co Ltd43 highlights the dangers faced by those forced to rely, at least partially, on others to exploit their unpatented inventions and innovations.
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I. Industrial fraud or theft 3.25 There is still some lingering doubt as to whether a person who obtains confidential information by fraud or theft is subject to the law of confidential information. The reason for this doubt is that the information was never disclosed in a situation of confidence. However, it would be absurd for the law to refuse a remedy in such circumstances. Consequently, it would appear that the owner of confidential information that is the subject of industrial espionage may obtain an injunction to prevent the use or disclosure of that information. Franklin v Giddins [1978] Qd R 72; (1978) 1B IPR 807 Facts: The plaintiff developed a new type of nectarine. The defendant entered the plaintiff’s orchard surreptitiously and took cuttings from the plaintiff’s trees. The cuttings were used by the defendant to produce the new variety that he then commenced to sell. When the plaintiff realised what had happened, he sought an injunction against the defendant on the grounds of a breach of confidential information. Decision: Dunn J granted the injunction, stating that: I find myself quite unable to accept that a thief who steals a trade secret, knowing it to be a trade secret, with the intention of using it in commercial competition with its owner, to 43 [1963] 3 All ER 413, see 3.11C.
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Marketing and the Law the detriment of the latter, and so uses it, is less unconscionable than a traitorous servant. The thief is unconscionable because he plans to use and does use his own wrong conduct to better his position in competition with the owner, and to place himself in a better position than that of a person who deals consensually with the owner.
Step 3: Has there been unauthorised use of the information? 3.26 To satisfy the third element of the test laid down in Coco v A N Clark (Engineers) Ltd,44 there must be an unauthorised disclosure or use of the information to the detriment of the ‘owner’. It is irrelevant that the particular person disclosing or using the information was not aware that he or she was not permitted to use the information: Seager v Copydex Ltd.45 A person obtaining confidential information is not allowed to use it as a springboard or head-start for activities detrimental to the owner of such information. For instance, a person will not be permitted to make use of a former employer’s trade secrets to get an unfair advantage in setting up a business in competition with the ex-employer.46 For an example of the defendant subconsciously copying the plaintiff’s secrets and thus obtaining a ‘springboard’, see Seager v Copydex Ltd,47 in which Lord Denning MR explained that it was not permissible to take information given in confidence and use it as a springboard to get a start over others in the market.
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Defence of Public Interest 3.27 It is a recognised defence to an accusation of breach of confidential information that disclosure of the information was in the public interest. As it is a defence, the onus of establishing it is upon the defendant. It should be noted that there is a difference between a matter of public interest and a matter interesting to the public. The latter is not a defence. Only serious matters such as fraud,48 medical safety, breaches of national security, and breaches of the law49 are covered by the defence. It is not sufficient to argue that the public has an interest in the truth being told.50
44 (1968) 1A IPR 587; [1969] RPC 41, see 3.28C. 45 [1967] 2 All ER 415; [1967] 1 WLR 923; [1967] RPC 349, see 3.24C. 46 Terrapin Ltd v Builders’ Supply Company (Hayes) Ltd (1959) 1B IPR 777; [1960] RPC 128. See also Cranleigh Precision Engineering Ltd v Bryant [1964] 3 All ER 289; [1965] 1 WLR 1293; [1966] RPC 81, see 3.19C3. 47 [1967] 2 All ER 415; [1967] 1 WLR 923; [1967] RPC 349, see 3.24C. 48 Gartside v Outram (1856) 26 LJ Ch 113; 5 WR 35. 49 Initial Services Ltd v Putterill [1968] 1 QB 396; [1967] 3 All ER 145, in which a former employee was justified in disclosing breaches of the Restrictive Trade Practices Act 1956 (UK). 50 Castrol Australia Pty Ltd v Emtech Associates Pty Ltd (1980) 33 ALR 31; (1980) ATPR 40-183.
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Lion Laboratories Ltd v Evans [1985] QB 526; (1984) 3 IPR 276; [1984] 2 All ER 417 Facts: The plaintiff, Lion Laboratories, manufactured breathalysers under licence from the British Home Office. A newspaper planned to print unauthorised copies of the plaintiff’s internal correspondence, which the newspaper had acquired from two ex-employees of the plaintiff. The correspondence was of a sensitive nature because it cast doubts on the reliability and accuracy of the breathalysers. The plaintiff sought an injunction to prevent publication of the correspondence. Decision: The Court of Appeal refused to grant an injunction. The Court considered that even though the information was confidential, it came within the defence of public interest. It was in the public interest that the confidential correspondence be released because the consequences were so serious if the breathalysers were inaccurate — citizens could be fined or imprisoned on the evidence of faulty breathalysers.
Remedies for Breach of Confidence
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3.28 In the majority of cases where disclosure of a trade secret is threatened, the plaintiff must move quickly to seek an injunction. This is the main remedy for breach of confidence, unless the information has become public knowledge. Where the defendant has used confidential information to obtain a ‘head-start’ and the information has subsequently become public knowledge, the courts are prepared to grant a limited injunction: Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd.51 Other orders include: • damages, or an account of profits;52 • delivery up or destruction of documents (where appropriate); and • destruction of products (although this would be an extreme case).53 Damages or an account of profits awarded where a defendant used confidential information to develop a competing product will be based on the estimated time of the ‘head-start’: Nexus Adhesives Pty Ltd v RLA Polymers Pty Ltd.54 Where the plaintiff is not really in a position to exploit the secret and would probably have licensed it anyway, the court will normally refuse an injunction: see Coco v A N Clark (Engineers) Ltd55 and Seager v Copydex Ltd.56
51 [1979] VR 167, see 3.17C1. 52 Optus Networks Pty Ltd v Telstra Corporation Ltd (2010) 265 ALR 281; [2010] FCAFC 21. 53 Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VLR 37, see 3.8C1; Ormonoid Roofing & Asphalts v Bitumenoids Ltd (1930) 31 SR (NSW) 347; 48 WN (NSW) 66. 54 (2012) 97 IPR 160; [2012] FCAFC 135. 55 (1968) 1A IPR 587; [1969] RPC 41, see 3.28C. 56 [1967] 2 All ER 415; [1967] 1 WLR 923; [1967] RPC 349, see 3.24C.
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Coco v A N Clark (Engineers) Ltd (1968) 1A IPR 587; [1969] RPC 41 3.28C
Facts: This was a hearing for an interim injunction. Coco designed a moped, which is a type of motor scooter. He then entered into negotiations for the production of the moped with an engineering company called A N Clark (Engineers). During negotiations Coco revealed the design to A N Clark. When negotiations broke down, A N Clark produced a moped which incorporated some of Coco’s ideas, although it also included some of its own developments. Coco claimed breach of confidential information and sought an interim and permanent injunction. Decision: Having set out the three elements for the action of breach of confidence, Megarry J decided that, while Coco had an arguable case for breach of confidence, an interim injunction should be refused because either damages or an account of profits would be sufficient compensation. A N Clark gave an undertaking to the court to pay a royalty per machine into a joint bank account pending the hearing of the case.
The courts will not grant an injunction if no useful purpose would be served by such an order. For example, no useful purpose would be served by granting an injunction where the trade secret has become public knowledge subsequent to the breach of confidence. However, the court may grant a temporary injunction, even where information has become, or is about to become, public knowledge, if the recipient would derive an unfair advantage, such as obviating the need to test a prototype.
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Trade Secrets and Third Parties 3.29 If some third person who is not a party to the confidential relationship receives confidential information, then that person may also be restrained by injunction from using the information or from disclosing it to another.57 Whether an injunction will be granted will depend on a variety of factors, including the extent to which the third party knew, or should have known, about the interest of the plaintiff, and whether the third party has provided any consideration for the information: Retractable Technologies Inc v Occupational and Medical Innovations Ltd.58 It is unlikely that damages will be awarded without notice against a bona fide purchaser for value. For example, where a third party obtains the confidential information without realising that the information belongs to another, the courts are highly unlikely to award damages against the third party. Although the court will probably not award damages, it may grant an injunction if appropriate.
57 Talbot v General Television Corporation Pty Ltd [1980] VR 224; [1981] RPC 1; Streetscape Projects (Australia) Pty Ltd v City of Sydney (2013) 295 ALR 760; 92 ACSR 417; [2013] NSWCA 2. 58 (2007) 72 IPR 58; [2007] FCA 545.
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In situations where an individual takes confidential information from a former employer and provides this to a subsequent employer who makes use of it, the new employer can also be liable for the breach of confidence.59
Comparing Patents and Trade Secrets 3.30 There are three principal differences between inventions that are the subject of a patent and those that are the subject of a trade secret: 1. Novelty, inventiveness or innovativeness, and lack of secret use are not necessary for trade secrets, as they are for a patent. 2. Trade secrets are protected not because of any public policy in encouraging inventions and innovations, but because of the desirability of preventing competitors from obtaining and using another’s secret information in circumstances where those secrets were disclosed in confidence. 3. Unlike patents, the law of trade secrets does not create a monopoly. Trade secrets cannot be used to prevent independent creation or reverse engineering. There has been a growing use of secrecy as an alternative to the patent system, mainly by firms involved in process innovation, rather than product innovation. This has been driven by the high costs of patenting (particularly the cost of conducting worldwide novelty searches) and by the need under patent law to make public disclosure. If the firm is reasonably confident that secrecy can be maintained, then ignoring the patent system makes sense. However, the firm should remember that if the matter comes before the courts, fighting a trade secrets case is still an expensive exercise.
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TABLE 3.1 COMPARISON BETWEEN PATENTS AND TRADE SECRETS60 PATENT
TRADE SECRET
Subject matter
Specific and limited by statute (includes machines, articles of manufacture, processes, and composition of matter)
Applies to a broad range of ideas and information
Requirements
Manner of manufacture Novel and inventive or innovative Useful Not secretly used
Must have some value Must not be generally known Must go beyond ‘know-how’
Public disclosure
Required
Any disclosure must be limited and controlled
59 Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd [2017] FCAFC 74. 60 Adapted from J Pooley, Trade Secrets, Osborne/McGraw Hill, US, 1987, p 24.
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TRADE SECRET
Protection
Statutory monopoly Monopoly depends on ambit of claims made Can prohibit use by anyone else (including reverse engineering and parallel imports)
Varies depending on situation No protection against those who reverse-engineer or independently discover the secret Does not protect against parallel imports
Duration
Twenty years (standard patent) Eight years (innovation patent)
Unlimited — governed by ability to retain secrecy
Expense
Procuring registration Policing infringement
Protecting from unauthorised disclosure or use
Risk
Invalidity of patent May suggest ideas to competitors
Independent discovery or inadvertent disclosure
Marketability
Licensing relatively simple
Licensing more difficult and requires policing of licensee
Patents and trade secrets should not always be seen as alternatives — in many cases they have a complementary role to play. For example, patentable inventions often evolve out of a stratum of research which is best protected by secrecy, at least until the innovative ideas reach patentable form. Even where the research crystallises into a patentable invention, it will not be necessary to disclose all the research in the patent application.
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Restraint of Trade Clauses 3.31 A restraint of trade clause is a term in a contract by which a person agrees to refrain from some activity which he or she would otherwise be free to engage in: for examples see Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd61 and Rentokil Pty Ltd v Lee.62 Such clauses are particularly common in many employment contracts.
When is a restraint clause valid? 3.32 In Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd,63 the House of Lords held that a restraint of trade clause was only lawful if it was reasonable in all the circumstances. This is quite different to other contractual terms, which do not have to be reasonable to be enforceable. For example, there is no rule that a buyer has to pay a reasonable price for a product.
61 [1894] AC 535; [1891–4] All ER Rep 1, see 3.34C. 62 (1996) ATPR 41-451, see 3.35C1. 63 [1894] AC 535; [1891–4] All ER Rep 1, see 3.34C.
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Effectively the courts have only been prepared to accept restraint of trade clauses provided that the restraint is, in all the circumstances of the case, no more than is reasonably necessary to protect a legitimate interest of the person benefiting from the restraint. Normally this means that a restraint of trade clause must be strictly limited in aspects such as time, geographical area, and the range of activities restrained.
Contracts where restraint clauses are found 3.33 Restraint of trade clauses appear in all sorts of contracts, including: • sale of business agreements; • employment contracts; • consultancy agreements; • joint venture contracts; • licensing agreements; • contracts for the supply of goods and services; • leases; and • partnership agreements.
A. Sale of business agreements
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3.34 When a business is sold, the purchaser must take care to ensure that the vendor does not undermine the value of the goodwill sold by setting up a new business in competition. Therefore, it is quite common to find restraint clauses in a sale of business agreement. The clauses must be no wider than is reasonably necessary to protect the goodwill sold. Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535; [1891–4] All ER Rep 1 Facts: Nordenfelt owned a business which manufactured guns, ammunition, and similar products. The business operated worldwide. Nordenfelt sold the business to the Maxim Nordenfelt Guns & Ammunition Co. The sale of business agreement contained the following clause: The said Thorsten Nordenfelt shall not during the term of twenty five years … . engage, except on behalf of the company, either directly or indirectly in the trade or business of a manufacturer of guns, gun mountings or carriages, gunpowder, explosives or ammunition, or in any business competing or liable to compete in any way with that for the time being carried on by the company, provided that such restriction shall not apply to explosives other than gunpowder … . Provided also that the said Thorsten Nordenfelt shall not be released from this restriction by the company ceasing to carry on business merely for the purpose of reconstitution or with a view to the transfer of the business thereof to another company so long as such other company taking a transfer thereof shall continue to carry on the same.
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Marketing and the Law Within the period of restraint Nordenfelt commenced a business of the same nature as the business sold. The covenantor brought an action for breach of contract. The case revolved around the issue of whether the restraint clause was valid. Decision: Covenants in restraint of trade are prima facie unenforceable. This is because the public has an interest in every person carrying on his or her trade freely. A covenant in restraint of trade would only be enforceable if it were reasonable as between the parties (that is, no wider than is reasonably necessary to protect the legitimate interests of the covenantee), and in the interests of the public. On the facts of this case, the restraint was valid, as it was reasonably necessary to protect the business the purchaser had acquired from Nordenfelt for an extremely large sum of money.
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B. Employment agreements 3.35 Employers must be careful not to make the restraint any wider than is strictly necessary to protect the employer’s legitimate interests. The employer has no legitimate interest per se in preventing an employee from competing with the employer. The employer, however, does have a legitimate interest in protecting trade secrets. Therefore, a clause that prevents the employee from using or disclosing the employer’s trade secrets is normally valid. An employer is also said to have a legitimate interest in protecting its goodwill, in the sense of its trade connections: Rentokil Pty Ltd v Lee.64 As with the action for breach of confidence, the difficulty is in distinguishing between employee know-how and the employer’s trade secrets. Know-how by itself cannot be protected by a restraint of trade clause. Therefore, an ex-employee would in most cases be entitled to use information regarding his or her ex-employer’s customers because that sort of information is normally regarded as know-how: see Digital Pulse Pty Ltd v Harris65 and Twenty-First Australia Inc v Shade.66 An employer cannot change know-how information into a trade secret merely by getting the employee to agree that it is a trade secret: IF Asia Pacific Pty Ltd v Galbally.67 Because it is difficult to distinguish between know-how and trade secrets, and because the employer should have some opportunity to protect itself against irreparable harm that could be done by a former employee, the courts generally permit limited ‘non-compete’ clauses; that is, restraint clauses where the employee agrees not to work in a similar capacity for a competitor of the employer after termination of his or her employment for a limited period of time within a limited geographical area. The courts also permit reasonable non-solicitation clauses. These rules are based on the proposition that employers may legitimately seek 64 65 66 67
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Chapter 3: Protecting Commercial Secrets
protection ‘for their business connection against the possibility of its being affected by the personal knowledge of, and influence over, the customers which the [employees] might acquire in their employment’.68 Rentokil Pty Ltd v Lee (1996) ATPR 41-451 Facts: Lee was employed by Rentokil in a marketing capacity. Her job involved contacting Rentokil’s existing sanitary hygiene and healthcare customers within a designated area and in establishing new customers. At all times Rentokil treated its customer information as highly confidential. Lee signed a ‘Non-competition Deed’ in which she agreed that upon termination of her employment she would not ‘carry on, be associated with or engaged or interested in’ any sanitary hygiene or healthcare business for a period of 12 months in South Australia (where she worked for Rentokil). She also agreed that she would not solicit any of Rentokil’s customers. Lee quit her employment with Rentokil and went to work with one of Rentokil’s main rivals, where she solicited Rentokil’s customers. Rentokil sought an injunction for breach of the Deed.
3.35C1
Decision: The restraint not to solicit Rentokil’s customers was unlimited as to time and, therefore, void. However, the restraint not to be involved in a competing business for 12 months in South Australia was valid. The 12-month period was valid because most of Rentokil’s customers were on two-year contracts and it took Lee about 12 months to visit each of Rentokil’s customers in her area. In all the circumstances, therefore, the restraint was reasonable.
Contrast:
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Transpacific Industries Pty Ltd v Whelan [2008] VSC 403 Facts: Whelan was employed by Transpacific Industries (TPI) as a landfill manager in its waste management business in Melbourne. TPI was also involved in waste management in other states of Australia, as well as in a wide range of other businesses, including importation and distribution of trucks and bus chassis, industrial cleaning, and facilities management. It also had energy and manufacturing divisions, which Whelan had never been involved in. Following a dispute, TPI and Whelan agreed that Whelan would leave TPI on agreed terms. One of the terms was that Whelan would agree to a restraint clause, in terms of which Whelan agreed, among other things, not to ‘undertake, carry on or be engaged in or concerned with or interested in any business which is directly or indirectly competitive with the Current Employer’s (and its Related Body Corporates’) businesses’ within Australia for a period of six months after termination. There were non-solicit and procuring clauses to similar effect. Whelan went to work for the Hi-Quality Group, which operates waste management businesses in various Australian states. TPI sought to enforce the restraint clause. Failing which, TPI sought an injunction against Whelan on the basis that there was a real threat or danger that he would misuse or reveal TPI’s confidential information. Decision: The clause was unreasonable. The restraint was too wide in that it ‘exceed[s] what is necessary to protect the legitimate business interests of TPI because it purports to protect
68 IF Asia Pacific Pty Ltd v Galbally [2003] VSC 192 at [101].
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Marketing and the Law businesses with which Mr Whelan has had no relevant connection’. There was no need to consider the duration or geographic width of the clause. As Whelan admitted to having disclosed certain confidential information, the court considered that it was appropriate to grant a permanent injunction restraining Whelan from disclosing or using confidential information in relation to TPI’s plans and strategies concerning the HiQuality Group.
Normally a non-solicitation clause would only be valid if the employee was one of those persons whom the customers regarded as the face of the employer’s business. Therefore, a non-solicitation clause is more likely to be reasonable if the employee has frequent face to face contact with the customers, or the employee alone knows the customers and their requirements and particularly where contact with the customers takes place away from the employers’ premises: see Rentokil Pty Ltd v Lee69 and Twenty-First Australia Inc v Shade.70
Consequences of an invalid restraint clause
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3.36 If a restraint of trade clause is invalid it will be severed from the agreement. If the restraint clause is invalid in part only, the court will sever the invalid part and, if the remainder is reasonable, the court will enforce it. The court has no power to write a new clause.71 The position in New South Wales is somewhat different because of the Restraints of Trade Act 1976 (NSW). Section 4(1) of the Act provides that a clause in restraint of trade is valid to the extent to which it is not contrary to public policy whether it is expressed in severable terms or not. This seems to mean that the court has limited power to write down the restraint clause.
Use of multiple descending restraint clauses 3.37 Because the court has no power (or in New South Wales72 limited power) to rewrite a restraint clause, a party seeking to rely on the restraint clause must ensure that the contract contains at least some valid promises, otherwise there will be very little protection. The method used to secure as wide a restraint as possible while ensuring some protection is the waterfall (or cascading) clause. The waterfall clause starts out by claiming a very wide restraint; if that restraint should happen to be invalid, a slightly narrower restraint is claimed; if that should also be invalid,
69 (1996) ATPR 41-451, see 3.35C1. 70 [1998] NSWSC 325. 71 See Attwood v Lamont [1920] All ER Rep 55; Butt v Long (1953) 88 CLR 476; 27 ALJR 576; Peters Ice Cream (Vic) Ltd v Todd [1961] VR 485. 72 Contracts Review Act 1980 (NSW).
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a still narrower restraint is claimed. The restraint continues to get narrower and narrower until eventually one of the clauses is valid.
Summary of common law restraint of trade 3.38 If a firm wishes to enforce a restraint of trade clause, it should apply the following questions to see whether the restraint is unlawful at common law: • What legitimate interest does the restraint seek to protect? • Is the restraint no wider than is reasonably necessary to protect that interest? • If the restraint is unreasonable, can the unreasonable parts be severed? • If severance is possible, is the restraint after severance reasonable? • If it is reasonable, has the covenantor breached the restraint clause? When formulating a restraint clause, the same process should be applied.
Employees’ Duties During and After Employment 3.39 In Digital Pulse Pty Ltd v Harris,73 Palmer J74 provided a useful summary of the duties owed by the employee under the general law. These duties now sit alongside the duties owed under the Corporations Act.
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An employee has a duty to act in the interests of the employer with good faith and fidelity. That duty is implied in every contract of employment if it is not otherwise imposed by an express term. In addition, the duty is imposed upon every employee by the law of fiduciaries, the relationship of employer and employee being recognised as a paradigmatic fiduciary relationship. The obligations imposed by the duty are not coterminous with the employee’s normal working hours: they govern all the activities of the employee, whenever undertaken, which are within the sphere of the employer’s business operations and which could materially affect the employer’s business interests. Whether a particular activity could materially affect the employer’s business interests is a question of fact and degree. The duty of loyalty requires that an employee not place himself or herself in a position in which the employee’s own interest in a transaction within the sphere of the employer’s business operations conflicts with the employee’s duty to act solely in the employer’s interest in relation to that transaction. A fortiori, an employee may not take for himself or herself an opportunity within the sphere of the employee’s business operations without the employer’s fully informed consent.
73 (2002) 40 ACSR 487; [2002] NSWSC 33. 74 At [20]–[25].
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Marketing and the Law When the employment ceases, the employee is free to compete with the employer unless subject to a valid contractual restraint on competition. The employee may take away and utilise the benefit of personal relationships built up with particular customers of the former employer and may solicit any customer whom the employee can recall without the aid of a list taken from the former employer and without deliberate memorisation of a customer list. The employee may not, however, use for his or her own benefit confidential information of the former employer, whether to solicit business from the former employer’s customers or to carry out work for such customers even if unsolicited. The remedy for breach of the contractual duty of loyalty is damages. The remedy for breach of the fiduciary duty of loyalty is either an account of the profits derived by the employee from the breach or equitable compensation. The employer need not elect between these remedies until the time at which judgment is to be entered. Where the employee who is in breach of the fiduciary duty of loyalty incorporates a company in order to take the benefits of the breach, then the company itself will be held to have participated in the breach so that it will be liable to the employer to the same extent as the employee.
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Marketing Advice 3.40 The following is a useful guide to protecting trade secrets: • Identify the information (or idea) that is confidential. • Mark such information as confidential. • Do not mark as confidential information that is not confidential or that is clearly no longer secret. • Identify those to whom the information must be disclosed and restrict disclosure to these persons. • Ensure that these persons are aware the information is to be treated as confidential. This can be done by a combination of: – marking documents ‘confidential’; – requiring recipients to acknowledge confidentiality of documents; – making employees aware of the types of information that they cannot disclose to others; and – reaching agreement with potential licensees, assignees, and joint venturers on a procedure for dealing with confidential matters prior to disclosing those matters, including entering into a confidentiality agreement. • Remain alert to the possibility that someone may use the confidential information. • Seek legal advice immediately after you become aware of the threat of disclosure — delays may result in the court refusing to grant an injunction. 126
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Protecting Copyright Material
4
Introduction to Copyright ................................................................ 4.2 Works — Basic Concepts ................................................................... 4.3 Qualified person ............................................................................. 4.4 Copyright protects the expression, not the idea ...................... 4.5 Distinguishing between physical property in a good and the intellectual property .................................................... 4.6 Material form .................................................................................. 4.7 Originality ........................................................................................ 4.8 Original Literary Works ..................................................................... 4.9 Compilations of data ................................................................... 4.10 Advertising material and trade names ....................................... 4.11 Computer software ...................................................................... 4.12 Original Dramatic Works ................................................................ 4.13 Original Musical Works ................................................................... 4.14 Original Artistic Works .................................................................... 4.15 Copyright in photographs ........................................................... 4.16 Copyright in logos and simple marketing designs ................... 4.17 Copyright in product designs, production moulds, and prototypes .......................................................................... 4.18 Copyright in buildings and models for buildings ..................... 4.19 Works of artistic craftsmanship ................................................. 4.20 Subject Matter other than Works — Pt IV Material ................... 4.21 The Rights .......................................................................................... 4.22 Works ............................................................................................. 4.23 Subject matter other than works ............................................... 4.24 Moral Rights ...................................................................................... 4.25 Author’s right of integrity ........................................................... 4.26 127
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Marketing and the Law
Defences to an action for infringement of moral rights ............................................................................... 4.27 Determining Ownership of Copyright .......................................... 4.28 Works ...............................................................................................4.28 Employees ...................................................................................... 4.29 Journalists ...................................................................................... 4.30 Photographs, portraits, and engravings .................................... 4.31 Equitable (beneficial) ownership of copyright ......................... 4.32 Joint authorship of works............................................................. 4.33 Subject Matter other than Works/Pt IV material .................... 4.34 Assignment of Copyright ................................................................ 4.35 Licences .............................................................................................. 4.36 How Long Does Copyright Last? ................................................... 4.37 Direct Infringement of Copyright — Original Works ................. 4.38 What is a ‘substantial part of the work’? .................................. 4.39 Unlawful reproduction of a copyright work ............................. 4.40 A. Unlawful reproduction of databases ................................ 4.41 B. Unlawful reproduction of themes, characters, and settings .......................................................................... 4.42 C. Unlawful reproduction of computer programs .............. 4.43 D. Unlawful reproduction of artistic works .......................... 4.44 E. Unlawful reproduction of musical works ........................ 4.45 Unlawful performance of a work in public ............................... 4.46 Unlawful communication of a work to the public .................. 4.47 Direct Infringement of Copyright — Pt IV SMOTW ................... 4.48 Defences ............................................................................................ 4.49 Fair dealing .................................................................................... 4.50 Dealing with computer programs .............................................. 4.51 Making copies for personal use .................................................. 4.52 Copying industrial products ....................................................... 4.53 A. Where a corresponding design is registered under the Designs Act ........................................................ 4.54 B. Where a corresponding design is not registered under the Designs Act and the design has been applied industrially ............................................................. 4.55 C. Where a corresponding design is not registered under the Designs Act and the design appears in a patent specification or a design application ............ 4.56 Indirect Infringement of Copyright — Authorising Infringement .................................................................................. 4.57 Libraries .......................................................................................... 4.58 Clubs and other live music venues ............................................. 4.59 Hardware and modern software technology ........................... 4.60 Software ......................................................................................... 4.61 Website linking .............................................................................. 4.62 128
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ISPs .................................................................................................. 4.63 Safe Harbour Defences for Online Intermediaries....................... 4.64 Indirect Infringement — Importing and Dealing ......................... 4.65 Parallel importing of copyright material .................................. 4.66 Parallel importing — accessories to imported articles ............ 4.67 Remedies, Orders and Other Matters ........................................... 4.68 Damages or an account of profits .............................................. 4.69 Other remedial powers, including interlocutory orders ......... 4.70 Injunctions against online sites providing access to overseas online copyright infringing locations...................... 4.71 Criminal penalties and seizure powers ...................................... 4.72 Making unjustified threats .......................................................... 4.73 Circumvention devices ................................................................ 4.74 International Aspects of Copyright ............................................... 4.75 Marketing Advice .............................................................................. 4.76
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4.1 Whereas patents and confidential information protect ideas, the purpose of copyright is to protect the way in which ideas are presented. In other words, copyright is said to protect the expression of an idea, not the idea itself.
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Introduction to Copyright 4.2 Australian copyright law is to be found in the Copyright Act 1968 (Cth). Contrary to popular belief, there is no system of registration for copyright in Australia.1 In fact, there are no administrative requirements for the creation of copyright.2 Copyright either subsists or it does not. The symbol © and expressions such as ‘all rights reserved’ have limited relevance in Australia in determining the existence of copyright,3 although they have other useful purposes, primarily as a simple indicator that the person using the symbol or expression is claiming copyright. The symbol © is admissible as prima facie evidence that the user is the owner of the copyright. The Copyright Act provides that copyright will subsist in any original literary, dramatic, musical or artistic work, and in such subject matter as cinematographic films, sound recordings, television and radio broadcasts, and published editions of works. The copyright owner has the exclusive right to do certain acts in respect of the copyright material. For example, only the copyright owner can copy, adapt or publicly perform the copyright work. The duration of copyright is quite long — generally 70 years in the case of films and sound recordings, and even longer for such things as books, music, and art works. The Copyright Act provides that copyright subsists in two categories of subject matter: • Works: – original literary works; – original dramatic works; – original musical works; and – original artistic works. • Subject matter other than works: – sound recordings;
1 2
3
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Some countries have registration systems. For example, in the United States registration is not necessary to establish copyright, but is required if you wish to seek damages for infringement. This applies to all countries which are signatories to the Berne Convention for the Protection of Literary and Artistic Works. The Berne Convention is an international agreement to provide reciprocal copyright protection. Most of the industrialised countries are now signatories. Until relatively recently it was necessary, in order to attract copyright protection in the United States, to attach to all copies of the copyright work the word ‘Copyright’ or the symbol © followed by the name of the copyright owner and the year of publication. This was allowed under the provisions of the Universal Copyright Convention. Since the United States joined the Berne Convention this is no longer necessary.
Chapter 4: Protecting Copyright Material
– films; – television and sound broadcasts; and – published editions of works.
Works — Basic Concepts 4.3 The Copyright Act provides that copyright subsists in an original literary, dramatic, musical, or artistic work where the creator is a qualified person: Copyright Act s 32. Before examining each of these works, there are a number of critical concepts that underpin copyright law.
Qualified person
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4.4 The Copyright Act requires a connection between the work or other subject matter and Australia. This applies for both ‘works’ and ‘subject matter other than works’. For example, in the case of works, the work must have some connection with Australia: Copyright Act s 32. In many cases, the connecting factor with Australia is that the author is a qualified person: Copyright Act s 32(4). A qualified person means an Australian citizen, or a person resident in Australia. By virtue of the Copyright (International Protection) Regulations 1969 (Cth) as amended, the Copyright Act applies to most foreigners in the same way as it applies to qualified persons. This is to ensure Australia complies with its obligations under various international conventions, including the Berne Convention, the Rome Convention, the Universal Copyright Convention, and the Agreement establishing the World Trade Organization.
Copyright protects the expression, not the idea 4.5 Fundamental to the law of copyright is the notion that copyright is not designed to protect ideas, but rather the way in which those ideas are expressed in some material form. This concept must be grasped if copyright law is to be understood. Ideas per se, whilst not protected by copyright law, can potentially be protected under the law relating to confidential information and, to a lesser extent, under patents law. Donoghue v Allied Newspapers Ltd [1938] Ch 106; [1937] 3 All ER 503 Facts: Steve Donoghue was a famous English jockey. In 1931 an English newspaper printed a series of articles based on the recollections of Donoghue as told to a journalist by the name of Felstead. The articles were not dictated by Donoghue, but rather created by Felstead from the notes he made of his conversations with the jockey. Donoghue was paid £2000 for his contribution. In 1936 Felstead convinced the defendant to publish a story based on the same
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Marketing and the Law material as the earlier article. Donoghue refused to give permission and, when the story appeared, he sued for copyright infringement. Decision: Farwell J rejected Donoghue’s claim. Copyright belongs to the creator. Donoghue was not the creator. His Honour said: [T]here is no copyright in an idea, or in ideas … [Copyright] exists in the particular form of language by which is conveyed the information which is to be conveyed. If the idea, however brilliant and however clever it may be, is nothing more than an idea, and is not put into any form of words, or any form of expression such as a picture or a play, then there is no such thing as copyright at all. It is not until it is (if I may put it in that way) reduced into writing, or into some tangible form, that you get any right to copyright at all, and the copyright exists in the particular form of language in which, or, in the case of a picture, in the particular form of the picture by which, the information or the idea is conveyed to those who are intended to read it or to look at it.
If, therefore, the important thing is the idea and not the way it is recorded, then reliance should not be placed on copyright for legal protection. Many creative ideas cannot be protected by law, for example, a style of painting: see Cummins v Vella.4 If the idea is secret and of a type that the law recognises as a trade secret, then an injunction may be issued irrespective of the form in which the secret is clothed. If the idea is a patentable invention, then registration under the Patents Act 1990 (Cth)5 should be sought. If the idea involves a product design, then registration under the Designs Act 2003 (Cth) is usually the appropriate course.6
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Distinguishing between physical property in a good and the intellectual property 4.6 Copyright is a property right, but it must be distinguished from other forms of property that may exist in an object. For example, when you buy a book, what rights do you acquire? It is certainly legitimate for a buyer to say ‘I own this book’. But what the buyer means is that he or she owns the physical property in the book. Merely buying a book does not mean that the buyer acquires the copyright. The buyer cannot make copies of the book and sell those copies. This would be an infringement of copyright. On the other hand, the buyer is certainly entitled to sell or otherwise dispose of his or her copy of the book itself.
Material form 4.7 For copyright to subsist in a literary, dramatic, musical, or artistic work, the work must be in a material form. Material form in relation to a work or an adaptation of a work includes any form (whether visible or not) of storage of the 4 5 6
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[2002] FCAFC 218, see 4.40C. The Patents Act 1990 is discussed in Chapter 2. The Designs Act 2003 is discussed in Chapter 5.
Chapter 4: Protecting Copyright Material
work or adaptation, or a substantial part of the work or adaptation (whether or not the work or adaptation, or a substantial part of the work or adaptation, can be reproduced): Copyright Act s 10. As a consequence, copyright will not attach to a speech unless it is put in writing or recorded in some way. Until this occurs, there is no copyright. Facial makeup applied by the rock singer Adam Ant before each concert did not attract copyright as an artistic work (a painting) because it was not in a material form: Merchandising Corp of America Inc v Harpbond Ltd.7 The makeup had not been reduced to any permanent or fixed surface, which is the essence of a painting. Although a photograph of the same performer wearing the makeup would have copyright (because a photograph is an artistic work), this would not protect the way in which the makeup was applied.
Originality
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4.8 Copyright only subsists in original works. Originality means that the work must originate from the author and not be copied. It does not mean that the work has to be meritorious or contain a new or inventive idea. Except for works of artistic craftsmanship, it is not necessary that a work exhibit any artistic, literary, dramatic, or musical merit. Copyright subsists in a terrible book as much as in a first-rate book, in a poor painting as well as in a masterpiece. Copyright protects the skill, judgment and independent intellectual effort involved in the production of the work rather than any intrinsic creative merit.8 In University of London Press Ltd v University Tutorial Press Ltd,9 a case dealing with copyright in university examination papers, Petersen J said: The word ‘original’ does not in this connection mean that the work must be the expression of original or inventive thought. Copyright Acts are not concerned with the originality of ideas, but with the expression of thought and, in the case of ‘literary works’ with the expression of thought in print or writing. The originality which is required relates to the expression of the thought. But the Act does not require that the expression must be in an original or novel form, but that the work must not be copied from another work — that it should originate from the author.
Authorship is thus important for the notion of originality. As the High Court indicated in IceTV Pty Ltd v Nine Network Australia Pty Ltd,10 for copyright to subsist in a work, the work must originate with the author in the sense of involving some ‘independent intellectual effort’, although literary merit (or novelty or inventiveness as required for patents) is not required. 7 8
[1983] FSR 32. IceTV Pty Ltd v Nine Network Australia Pty Ltd (2009) 239 CLR 458; 254 ALR 386; 80 IPR 451; [2009] HCA 14, see 4.41C. 9 [1916] 2 Ch 601; (1916) 1B IPR 186. 10 (2009) 239 CLR 458; 254 ALR 386; 80 IPR 451; [2009] HCA 14, see 4.41C.
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It is also important for the work to originate from a human author (or authors)11 and not from a computerised process: Telstra Corporation Ltd v Phone Directories Company Pty Ltd.12 This can have application outside the context of technology. In 2011 a photographer left his camera unattended while in a national park in Indonesia. A monkey used the camera to take some photographs, including a self-portrait or ‘selfie’. The picture was eventually posted on Wikipedia and the photographer demanded it be taken down. Wikipedia refused to do so on the grounds that the photographer was not the author of the photograph.13 This would be consistent with the legal position in Australia. Without a human author, no copyright would subsist in the photograph.
Original Literary Works 4.9 The lack of any requirement as to creative merit means that the law of copyright has an application well beyond the ambit of the fine arts. Thus, business letters, manuals of instructions, business and financial reports, advertising brochures or circulars, catalogues, the lyrics of advertising jingles, and product labels may all be literary works in appropriate circumstances: see Budget Eyewear Australia Pty Ltd v Specsavers Pty Ltd.14 Literary works also include a computer program or compilation of computer programs. Copyright can subsist in quite plain or ordinary material, for example, a bookkeeping system: Kalamazoo (Australia) Pty Ltd v Compact Business Systems Pty Ltd.15
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Compilations of data 4.10 The Copyright Act provides that a literary work includes a table or compilation, expressed in words, figures, or symbols: s 10. Thus, a collection of factual data may have copyright, provided it is original. This is an important issue for the protection of databases. In what sense can it be said that a database has originality (so that it will attract copyright)? In Desktop Marketing Systems Pty Ltd v Telstra Corporation Ltd,16 the Federal Court gave a broad interpretation to the issue of originality — a compilation of data was original, provided sufficient time, energy, and expense was involved in its creation. This is the so-called ‘sweat of the brow’ theory of originality. On this 11 Acohs Pty Ltd v Ucorp Pty Ltd (2010) 86 IPR 492; [2010] FCA 577, upheld on appeal, special leave denied, where it was held that the source code for electronic material safety data sheets was not a work of joint authorship, so was not an original literary work. 12 (2010) 273 ALR 725; 90 IPR 1; [2010] FCAFC 149, see 4.10C. 13 See ‘Monkey Selfie’, January 2014, available at . 14 (2010) 86 IPR 479; [2010] FCA 507. 15 (1985) 5 IPR 213. 16 (2002) 192 ALR 433; 55 IPR 1; [2002] FCAFC 112.
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theory, copyright could be used to protect telephone directories, football fixtures, and television guides. This approach, however, was implicitly rejected by the High Court in IceTV Pty Ltd v Nine Network Australia Pty Ltd,17 a case concerning schedules for television programs, where it was suggested that for copyright to subsist in a compilation of data, there must be something more than just labour and expense involved in the creation of the database. The High Court decision in IceTV Pty Ltd v Nine Network Australia Pty Ltd was applied in the following case. Telstra Corporation Ltd v Phone Directories Company Pty Ltd (2010) 273 ALR 725; 90 IPR 1; [2010] FCAFC 149 Facts: Telstra produced the White Pages and the Yellow Pages telephone directories for geographic areas across Australia. Substantial labour and expense went into collecting, verifying, recording, assembling, and producing the directories. The data contained in the directories was reproduced by PDC without permission from Telstra. Telstra argued that this amounted to an infringement of copyright. Telstra was unsuccessful at first instance and appealed to the Full Court. Telstra submitted that its employees applied intellectual effort at ‘every stage of the process’ from collection to publication. Decision: The court held that copyright did not subsist in Telstra’s White Pages or Yellow Pages. To be original, a literary work (including compilations of data) must involve ‘sufficient independent intellectual effort’. This independent intellectual effort must be directed to reducing the work to its material form. The requisite effort of Telstra’s employees was not directed to the final phase of the work and so was not relevant for determining originality. The work was ultimately created through a highly sophisticated computerised process and was not the work of a human author.
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Telstra’s application for special leave to appeal the decision to the High Court was denied.
Many databases will therefore not attract copyright protection in Australia. This is in contrast to Europe where there is a special law protecting databases.18
Advertising material and trade names 4.11 Copyright could subsist in advertising material such as the lyrics of jingles and advertising copy. Copyright could even subsist in an advertising slogan, although a compilation of commonplace sentences commonly in use will not be original: see Kirk v J & R Fleming Ltd.19 Copyright is unlikely to subsist in a trade name because to be a literary work, the trade name must be sufficiently substantial.
17 (2009) 239 CLR 458; 254 ALR 386; 80 IPR 451; [2009] HCA 14, see 4.41C. 18 1996 Directive on the Legal Protection of Databases 96/9/EC. 19 [1928–35] Macg Cop Cas 44.
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4.11C
Exxon Corporation v Exxon Insurance Consultants Ltd [1982] Ch 119; [1981] 3 All ER 241 Facts: The plaintiff was a multinational oil corporation. It spent considerable time and research in creating and adopting the word ‘Exxon’ as its corporate name. The name was chosen because it satisfied the three criteria set out by the company: • It was capable of being readily identified with the plaintiff and its associates and their goods and services. • It was an invented word and devoid of any meaning in English or any other language spoken in any place where the plaintiff’s goods or services were marketed or likely to be marketed. • It was short, distinctive, and easily memorised. The name was widely registered as a trade mark. The defendant insurance company used the name Exxon without the plaintiff’s permission. The plaintiff sued for passing off and copyright infringement.
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Decision: The plaintiff was successful in passing off but failed to establish copyright infringement. The court held that a literary work is something that provides either information or instruction or pleasure in the form of literary enjoyment. Exxon does not perform any of those functions and, indeed, has no meaning except where used with other words or in a particular juxtaposition as, for example, on goods. The court also suggested that a single word is too insubstantial to amount to a literary work.
Applying the Exxon principle, courts have refused to recognise copyright in single words such as ‘Wombles’,20 ‘Kojak’21 (both of which were the names of successful television programs), and ‘Smartfax’.22 For similar reasons copyright did not subsist in the slogan ‘Somewhere in the Whitsundays’: Sullivan v FNH Investments Pty Ltd;23 or in the words ‘The Man who Broke the Bank at Monte Carlo’: Francis Day & Hunter Ltd v Twentieth Century Fox Corp Ltd;24 or in the phrase ‘Beauty is a social necessity, not a luxury’: Sinanide v La Maison Kosmeo.25 Copyright was held not to subsist in the words ‘Help-Help-Driver-in-Danger-Call-police-Ph.000’: State of Victoria v Pacific Technologies (Australia) Pty Ltd (No 2).26 Any legal protection would have to come from trade marks law, the law of passing off, or the Australian Consumer Law.27 It is unlikely, therefore, that advertisers will often be able to rely on copyright to protect product or trade names or slogans. Perhaps, if the name or slogan is given sufficiently original artistic content, some limited form of copyright protection may be available as an original artistic work: see 4.11. In Elwood Clothing Pty Ltd 20 Wombles Ltd v Wombles Skips Ltd [1977] RPC 99. The more appropriate avenue for protection in a case such as this is the Trade Marks Act 1995 (Cth). 21 Taverner Rutledge Ltd v Trexapalm Ltd [1977] RPC 275. 22 Brodel v Telstra Corp Ltd [2004] FCA 505. 23 (2003) 57 IPR 63; [2003] FCA 323, see 4.69C. 24 [1939] 4 All ER 192. 25 (1928) 44 TLR 574. 26 (2009) 81 IPR 525; [2009] FCA 737. 27 Competition and Consumer Act 2010 (Cth) Sch 2.
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v Cotton On Clothing Pty Ltd,28 the court protected t-shirt designs as artistic works, but held that the words and numbers were too insubstantial to be a literary work. Copyright only protects the original part of the work. If the originality is limited, the monopoly provided by the Copyright Act will be limited correspondingly.
Computer software 4.12 As originally enacted, the Copyright Act made no mention of computer software. Therefore it was interpreted in the same way as any other work. In Computer Edge Pty Ltd v Apple Computer Inc,29 the High Court (applying the principle from Exxon) held that copyright could subsist in the source code of a computer program (which could be read by a programmer), but not in the object code (which only a machine could read). As a result, the law was quickly changed. A ‘computer program’ is now defined to mean a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result: Copyright Act s 10. This means that the object code can also be protected. This is now fairly universally established, ‘notwithstanding any incongruity in treating computer programs as literary works’: Stevens v Kabushiki Kaisha Sony Computer Entertainment.30 Computer programs may also be protected by the Patents Act. Patents law, however, requires a relatively high level of originality and creativity. Procedurally, patenting is unattractive to the software industry because of its registration and public disclosure requirements.31
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Original Dramatic Works 4.13 Part III of the Copyright Act protects original dramatic works. Dramatic works include plays, film scripts, and choreographic shows, although this is not an exhaustive list. There is considerable overlap between dramatic works and literary works. Generally a dramatic work is distinguished by the fact that it is designed to be performed. In Banner Universal Motion Pictures Ltd v Endemol Shine Group Ltd,32 the High Court of England and Wales held that TV show formats could be eligible for copyright protection as dramatic works. On the facts of that case it was held that the format in question was too commonplace as to be original and lacked sufficient organisation and coherence so as to be capable of reproduction, in the case, by way of performance. 28 29 30 31
(2008) 172 FCR 580; 80 IPR 566; [2008] FCAFC 197, see 4.44C. (1986) 161 CLR 171; 65 ALR 33; 6 IPR 1; [1986] HCA 19. (2005) 221 ALR 448; 65 IPR 513; [2005] HCA 58. See, for example, Advisory Council on Intellectual Property, Review of the Innovation Patent System, Canberra, 2014. A number of submissions claimed that patents undermine innovation in the software industry. 32 [2017] EWHC 2600 Ch; [2017] WLR(D) 686.
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Original Musical Works 4.14 Part III of the Copyright Act protects original musical works. An original musical work is a reference to the musical score or notation. Provided the test for originality is satisfied, copyright will subsist in the score for an opera, a popular song, or an advertising jingle; see, for example, Larrikin Music Publishing Pty Ltd v EMI Songs Pty Ltd;33 Larrikin Music Publishing Pty Ltd v EMI Songs Australia Pty Ltd (No 2).34 The words or lyrics to a song do not form part of the musical work. They are protected as literary works. Therefore, obtaining permission to use a song in an advertisement could involve seeking authorisation from at least two copyright holders.
Original Artistic Works 4.15 The Copyright Act protects original artistic works. Section 10 provides that an artistic work includes original paintings, sculptures, drawings, engravings, or photographs, buildings, or models of buildings, whether of artistic quality or not. It also provides that artistic works include works of artistic craftsmanship. Works of artistic craftsmanship differ from all other works in that they require some element of artistic quality. A piece of modern sculpture, for example, may attract copyright both as a sculpture and as a work of artistic craftsmanship. As with literary, dramatic, and musical works, the level of originality required for an artistic work is not great.
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Copyright in photographs 4.16 Copyright will normally subsist in a photograph, even a simple snapshot. Therefore, care must be taken to get copyright permission where a photograph is being reproduced.35
Copyright in logos and simple marketing designs 4.17 Provided it can be said that sufficient skill, judgment and independent intellectual effort has gone into its creation, a logo or other distinguishing mark may attract copyright protection as an artistic work.36 Thus, a graphic bar containing the words ‘Opera in the Outback’ done in stylistic fashion used on the cover of a brochure for a concert was sufficiently original to attract copyright, 33 (2010) 263 ALR 155; 83 IPR 582; [2010] FCA 29, see 4.45C. 34 (2010) 270 ALR 481; 87 IPR 357; [2010] FCA 698, see 4.45C. 35 Care should also be taken when the photograph is of a work. Some exceptions apply; for example, a photograph of a sculpture in a public place: Copyright Act 1968 s 65. 36 For this analysis it does not matter whether the logo is registered as a trade mark under the Trade Marks Act: Catnic Components Ltd v Hill & Smith Ltd [1978] FSR 405; [1982] RPC 183.
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even though the choice of font style was made from a computer program and the whole design was put together quickly: Lott v JBW & Friends Pty Ltd.37 The particular way in which the Chinese characters that made up the masthead of a Chinese language newspaper were written (the calligraphy) was held to be an artistic work in Melbourne Chinese Press Pty Ltd v Australian Chinese Newspapers Pty Ltd.38 Copyright in the form of an artistic work has been held to subsist in the look and feel of a design for clothing that consisted mainly of words and numbers: see Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd.39
Roland Corporation v Lorenzo & Sons Pty Ltd40
Australian Home Loans v Phillips41
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However, not every doodle or scrawl is an artistic work. Some things are too trivial or commonplace to attract copyright. There is no sufficient measure of skill, judgment or intellectual effort involved.42 In Cortis Exhaust Systems Pty Ltd v Kitten Software Pty Ltd,43 Tamberlin J held that a digitally produced product logo simply using the letters ‘SIM’ was too trivial to attract copyright. In Merchandising Corp of America Inc v Harpbond Ltd44 Lawton LJ, commenting on whether Adam Ant’s facial makeup could be an artistic work, said, ‘Two straight lines drawn with greasepaint with another line in between them drawn with some other colouring matter, in my judgment, by itself could not possibly attract copyright.’
Copyright in product designs, production moulds, and prototypes 4.18 Copyright subsists in original drawings, original sculptures, and original engravings. As no artistic merit is required, drawings for industrial products will often be artistic works. Thus, copyright has been held to subsist in engineering
37 38 39 40 41 42 43 44
(2000) 76 SASR 105; [2000] SASC 3. (2004) 63 IPR 38; [2004] FCAFC 201. (2008) 172 FCR 580; 80 IPR 566; [2008] FCAFC 197, see 4.44C. (1991) 105 ALR 623; 22 IPR 245. (1998) ATPR 41-626. Re Karo Step Trade Mark [1977] RPC 255. (2001) ATPR 41-837; [2001] FCA 1189. [1983] FSR 32, see 4.7.
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drawings of expansion joints for bridges,45 industrial pumps,46 a hot water system,47 and an exhaust system for a Leyland motor car.48 Copyright may subsist in the drawings for a yacht,49 and in dressmaking designs and patterns.50
4.18C1
Krueger Transport Equipment Pty Ltd v Glen Cameron Storage & Distribution Pty Ltd (2008) 78 IPR 262; [2008] FCA 803 Facts: Krueger design and build trailers for the Australian transport industry. Amcor, a very large cardboard packaging company, called for tenders for a cartage contract. It invited Camerons, a transport and logistics group involved in transporting goods in Australia, to tender. If successful, Camerons would need to acquire about 20 new trailers. Camerons sought quotes from Krueger, Vawdrey (a competitor of Krueger), and two others. At a meeting between Camerons and Krueger, Krueger showed Camerons a special ‘load restraint system’ it had designed for carting cardboard. This was ideal for the Amcor contract. At the meeting, Camerons agreed that the information would be kept confidential. Krueger supplied Camerons with sketches and drawings showing the trailers with the new ‘load restraint system’. Krueger had not taken out a design registration. Nor at that stage had it applied for a patent. Further, there was no written evidence that Camerons had promised to keep the information confidential. After the meeting, Camerons described the new system to Vawdrey, which then prepared design drawings based on that description. Amcor awarded the tender to Camerons, which then awarded the contract to Vawdrey. Krueger claimed breach of confidence and copyright infringement.
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Decision: The information supplied by Krueger had the necessary element of confidentiality. Although nothing was put in writing at the time of the meeting, Camerons was clearly under an express obligation not to use the information without permission. Camerons had breached that confidence. The drawings were an original artistic work and therefore attracted copyright protection. Vawdrey had prepared its drawings based on a description of the Krueger drawings. The Vawdrey drawings reproduced a substantial part of the originality contained in the Krueger drawings. Therefore, copyright was infringed. Vawdrey had been encouraged to produce the infringing drawings by Camerons. Therefore, Camerons was liable for authorising the infringement. The issue of remedies was set aside to be heard separately. (Vawdrey’s appeal was dismissed: Vawdrey Australia Pty Ltd v Krueger Transport Equipment Pty Ltd.51)
45 Compagnie Industrielle de Precontrainte et D’Equipment des Constructions SA v First Melbourne Securities Pty Ltd (1999) 44 IPR 512; [1999] FCA 660. 46 Amalgamated Mining Services Pty Ltd v Warman International Ltd (1992) 111 ALR 269; 24 IPR 461; Warman International Ltd v Envirotech Australia Pty Ltd (1986) 67 ALR 253; 6 IPR 578; (1986) ATPR 40-714. 47 SW Hart & Co Pty Ltd v Edwards Hot Water Systems (1985) 159 CLR 466; 61 ALR 251; 5 IPR 13; [1985] HCA 59. 48 British Leyland Corp v Armstrong Patents Co Ltd [1986] AC 577; 6 IPR 102; [1986] 1 All ER 850; [1986] 2 WLR 400. 49 Dorling v Honnor Marine Ltd [1965] Ch 1; [1964] 1 All ER 241; Swarbrick v Burge (2004) 208 ALR 19; 61 IPR 543; [2004] FCA 813. 50 Muscat v Le (2003) 204 ALR 335; 60 IPR 276; [2003] FCA 1540. 51 [2009] FCAFC 156.
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The benefit of claiming copyright in product drawings is that copyright will protect three-dimensional products that correspond to the drawings52 and the protection will last much longer than for a registered design.53 To prevent misuse of copyright designed to protect artistic works, the Copyright Act provides a special defence to an action for copyright infringement where a design corresponding to the copyright work (an artistic work) has been registered under the Designs Act or applied industrially: see Greenfield Products Pty Ltd v Rover-Scott Bonnar Ltd.54 This defence is discussed at 4.53–4.56. Product development may also involve the creation of models, prototypes, and moulds. From time to time, copyright has been claimed in all these various stages of the evolution of an industrial product. In Lincoln Industries Ltd v Wham-O Manufacturing Co,55 copyright was claimed in various aspects of the development of a flying disc toy called a ‘Frisbee’, including the original drawings, the original wooden model (as a sculpture), the mould or die (as an engraving), and the final product produced by an injection moulding process (as a sculpture or an engraving). The New Zealand Court of Appeal accepted most of these submissions, although it rejected the idea that a product made from an injection moulding process was a sculpture. Other jurisdictions will not necessarily take such an expansive approach. In the United Kingdom, the Stormtrooper helmet used in the Star Wars films was held not to be a sculpture; agreeing with the lower courts, the Supreme Court said the helmet was a mixture of costume and prop and its primary function was utilitarian: Lucasfilm Ltd v Ainsworth.56 It is likely that a similar result would occur in Australia.
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Greenfield Products Pty Ltd v Rover-Scott Bonnar Ltd (1990) 95 ALR 275; (1990) 17 IPR 417 Facts: Both the applicant and the defendant manufactured ride-on motor mowers. The applicant developed a new drive mechanism which had substantial advantages over existing technology. However, the applicant failed either to take out a patent covering the inventive elements of the drive mechanism or to register the design of the drive mechanism under the Designs Act. When the product was released on to the market, the defendant examined and then imitated the drive mechanism, making some modifications and improvements. The applicant sued for copyright infringement, claiming that the original drawings for the drive mechanism and the final product were artistic works. Decision: The court held that utilitarian products made from a moulding process were not ‘sculptures’. The court also rejected the notion that a sculpture included machinery. In contrast to the Frisbee case, the court rejected the argument that a mould or die for producing machinery 52 Copyright Act 1968 s 21(3). See King Features Syndicate Inc v O & M Kleeman Ltd [1941] AC 417; (1941) 1B IPR 215; [1941] 2 All ER 403 (‘Popeye the Sailor’ case). 53 A design monopoly lasts 10 years: see Chapter 5. 54 (1990) 95 ALR 275; 17 IPR 417, see 4.18C2. 55 [1984] 1 NZLR 641; (1984) 3 IPR 115; [1985] RPC 127. 56 [2012] 1 AC 208; (2011) 92 IPR 647; [2011] 4 All ER 817; [2011] UKSC 39.
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Copyright in buildings and models for buildings 4.19 Copyright clearly subsists in the floorplan for a house as a drawing, provided the drawing is original.57 Copyright also subsists in the building itself and in a model of the building. A building is a structure of any kind: Copyright Act s 10. In Half Court Tennis Pty Ltd v Seymour,58 copyright was held to subsist in a mini tennis court as a building. The Copyright Act specifically provides that it is not an infringement of copyright to photograph, draw, paint, or include in a film or television broadcast a building or model of a building: s 66.
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Works of artistic craftsmanship 4.20 Works of artistic craftsmanship are works which require some skill to produce (craftsmanship) and which appeal to aesthetic (artistic) tastes, even though they may also serve a useful purpose. For example, a hand-crafted vase is likely to be a work of artistic craftsmanship because it takes skill to produce the vase and it appeals to taste. The same may be said of a piece of pottery, a stained glass window, or a silver candelabra, but cannot be said of many machine-produced goods. The importance of works of artistic craftsmanship is that, unlike other artistic works (such as design drawings), they do not lose copyright protection once they have been industrially applied. Thus, if the product copied in Greenfield Products Pty Ltd v Rover-Scott Bonnar Ltd59 had been a work of artistic craftsmanship, the plaintiff would have been able to sue for copyright infringement even though the work had been applied industrially. The reason for the exception is to encourage ‘real artistic effort’ in the field of industrial design. The expression ‘work of artistic craftsmanship’ is a composite phrase designed to highlight works that, while having a functional use, owe more in the final crafting to an appeal to artistic taste rather than function. According to the High Court in Burge v Swarbrick,60 ‘[w]ith wallpaper, a tapestry, stained glass window, piece of jewellery or Tiffany artefact, there is considerable freedom of design choice relatively unconstrained by the function or utility of the article so produced.’ The
57 See Eagle Homes Pty Ltd v Austec Homes Pty Ltd (1999) 87 FCR 415; 161 ALR 503; 43 IPR 1; Collier Constructions Pty Ltd v Foskett Pty Ltd (1991) 97 ALR 460; 19 IPR 44. 58 (1980) 53 FLR 240. 59 (1990) 95 ALR 275; 17 IPR 417, see 4.18C2. 60 (2007) 232 CLR 336; 234 ALR 204; 72 IPR 235; [2007] HCA 17, see 4.20C1.
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vital question, therefore, is to what extent is the design constrained by function? The High Court examined this question in the context of a design for a yacht. Burge v Swarbrick (2007) 232 CLR 336; 234 ALR 204; 72 IPR 235; [2007] HCA 17 Facts: Swarbrick is a naval architect who developed a yacht known as the ‘JS 9000’. It was described by one expert witness as a sports boat. In the process of developing the yacht, Swarbrick produced a plug model (the Plug) handcrafted by himself (a hand-crafted full-scale model of the finished yacht). From the Plug, the mouldings are made, and from the mouldings, the yacht itself. Swarbrick’s design brief stated that: [T]he market at which the JS 9000 was aimed comprised persons who, in no particular order, were reasonably experienced amateur sailors, aged 45 or more, who wanted a yacht of good performance, capable of racing, but for typical use in day sailing, relatively simple to sail with a minimum crew size, and visually attractive. Promotional material described the yacht as follows: The JS 9000 is a unique high performance racing yacht with the following characteristics: absolute simplicity in fitout; economical building costs; easily sailable by just a crew of two; exceptionally fast; easily transportable in the security of shipping containers for export. The Plug took a large amount of time and skill to produce. The work was largely done by Swarbrick. During the construction of the Plug, many changes were made to the original digitised design. At all times Swarbrick was concerned to produce a yacht that was visually attractive. A number of changes were made to achieve this outcome.
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The design was not registered under the Designs Act. The defendants copied Swarbrick’s design without his permission. Swarbrick sued for copyright infringement. The defendants argued, among other things, that they were protected by the provisions of s 77(2) of the Copyright Act (the copyright/design overlap provisions). Swarbrick argued that s 77(2) did not apply because the Plug was a work of artistic craftsmanship. At trial and on appeal Swarbrick succeeded. The defendants appealed to the High Court. Decision: Where a work exhibits both skilled craftsmanship and artistic appeal, the question whether it is a work of artistic craftsmanship depends in each case on the significance of functional constraints. The court held that: [D]etermining whether a work is ‘a work of artistic craftsmanship’ does not turn on assessing the beauty or aesthetic appeal of work or on assessing any harmony between its visual appeal and its utility. The determination turns on assessing the extent to which the particular work’s artistic expression, in its form, is unconstrained by functional considerations. The development of the Plug was significantly constrained by the need to satisfy the requirements of the design brief and the promotional material. These were functional requirements. Therefore, the Plug was not a work of artistic craftsmanship.
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There must, of course, be an element of craftsmanship about the work. Thus, simple machine-made garments are not works of craftsmanship: Guild v Eskandar Ltd.61 Nor, generally speaking, are the products of commonplace physical activities. For instance, in Cuisenaire v Reed,62 the court held that there was no element of craftsmanship involved in cutting strips of wood into predetermined lengths and then painting them in different colours so as to produce a set of wooden rods for the teaching of mathematics. Anyone who could handle a saw could produce the rods. Although works of artistic craftsmanship require an element of craftsmanship, they are not restricted to pure handicrafts; the definition permits some scope for the use of machines: see Coogi Australia Pty Ltd v Hysport International Pty Ltd.63 Coogi Australia Pty Ltd v Hysport International Pty Ltd (1998) 157 ALR 247; 41 IPR 593 4.20C2
Facts: Both parties manufactured garments. A design team at Coogi created a new fabric design (the XYZ design) which had both a distinct pattern and a distinct weave. One of the designers developed a computer program to operate the knitting machines that produced the fabric containing the XYZ design. The designer spent considerable time adjusting the program and the knitting machines until the desired look was finally achieved. The design was not registered under the Designs Act. Hysport produced a number of garments embodying a similar fabric structure. However, the Hysport garments used different colour schemes to the Coogi fabrics. Coogi claimed the XYZ fabric was a work of artistic craftsmanship and that Hysport had infringed its copyright. Essentially, Coogi argued that there were so many similarities between the stitch structures of the two fabrics that Hysport had reproduced a substantial part of the structure of the XYZ fabric.
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Decision: On the basis of the evidence Drummond J held that the first run of the Coogi XYZ fabric in the particular colour selection first adopted by Coogi satisfied the test for a work of artistic craftsmanship. On the question of craftsmanship Drummond J said: Before a work will qualify as a work of craftsmanship, it must be a manifestation of pride in sound workmanship and the result of the exercise of skill on the part of its creator in using the materials of which the article is made and the devices by which those materials are turned into the article. Drummond J rejected the notion that something had to be hand-crafted to be a work of craftsmanship. He said: There is no necessary difference between a skilled person who makes an article with handheld tools and a skilled person who uses those skills to set up and operate a machine which produces an article. Such an article can still be a work of craftsmanship even though the creator has used a highly sophisticated computer-controlled machine to produce it, if nevertheless it is a manifestation of the creator’s skill with computer-controlled machinery, knowledge of materials and pride in workmanship. However, Coogi failed in its action because Hysport had not substantially copied the Coogi work.
61 [2001] FSR 645. 62 [1963] VR 719; (1962) 1B IPR 235. 63 (1998) 157 ALR 247; 41 IPR 593, see 4.20C2.
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Finally, there is the question whether the same person must apply the artistic skill and the craft skill. In other words, must the designer also supply the craftsmanship in producing the finished product? In Bonz Group (Pty) Ltd v Cooke,64 the New Zealand High Court held certain garments, designed by the manufacturer’s principal designer and then made up by the manufacturer’s employee hand knitters, to be works of artistic craftsmanship. This followed the reasoning of Drummond J in the Australian case of Coogi Australia Pty Ltd v Hysport International Pty Ltd.65
Subject Matter other than Works — Pt IV Material
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4.21 The Copyright Act also extends copyright protection to what it refers to as ‘subject matter other than works’: • sound recordings; • cinematograph films; • television and sound broadcasts; and • published editions of works. These are often referred to as ‘Pt IV material’ or SMOTW (Subject Matter other than Works). The notion of originality is not involved in determining the existence of copyright for Pt IV material. Part IV copyright exists independently of any copyright in the material appearing in the sound recording, film, broadcast or published edition. Thus, the copyright in the recording of a song may subsist alongside the copyright in the musical score (the musical work) and in the words (the literary work). Films or sound recordings are expressed or defined in terms of the sum of visual images embodied in an article or thing, or the sum of the sounds involved in a record. In Galaxy Electronics Pty Ltd & Gottlieb Enterprises Pty Ltd v Sega Enterprises Ltd,66 a video game was held to be a cinematograph film. Unlike other forms of copyright material, television and sound broadcasts do not have to be in a material form to attract copyright. Copyright exists once the broadcast is made, whether or not the broadcast is recorded. It is an infringement of the television broadcast rights to make a film or recording of the broadcast, or to re-broadcast the broadcast. What is a television broadcast? The High Court tackled this issue in Network Ten Pty Ltd v TCN Channel Nine Pty Ltd.67
64 65 66 67
[1994] 3 NZLR 216. (1998) 157 ALR 247; 41 IPR 593 at 606, see 4.20C2. (1997) 145 ALR 21; 37 IPR 462; [1997] FCA 403. (2004) 218 CLR 273; 205 ALR 1; 59 IPR 1; [2004] HCA 14, see 4.21C.
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4.21C
Network Ten Pty Ltd v TCN Channel Nine Pty Ltd (2004) 218 CLR 273; 205 ALR 1; 59 IPR 1; [2004] HCA 14 Facts: The Panel, a comedy talk show on Channel Ten, regularly recorded and broadcast short clips (8–42 seconds) from Channel Nine programs without Channel Nine’s permission. Channel Nine argued that each image it broadcast was a television broadcast in itself and, consequently, Channel Ten infringed copyright every time it showed a single image (unless it was protected by the fair dealing defence). Decision: By a bare majority, the High Court rejected this argument. Each image broadcast by a television station was not a television broadcast. Generally, a program (as identified by the television station) will be a television broadcast for the purposes of the Copyright Act. However, there may be some cases where a segment within a program amounts to a television broadcast for the purposes of the Act. The High Court did not identify such cases. Finally, the High Court agreed with the trial judge that each television advertisement is a separate television broadcast for the purposes of the Copyright Act. The case was sent back to the Federal Court to decide whether a substantial part of the television broadcast had been copied and, if so, whether the fair dealing defence applied. See 4.48C.
Published edition copyright protects such matters as typographical layout together with other aspects of presentation, such as juxtaposition of text and photographs, and the use of headlines. See Nationwide News Pty Ltd v Copyright Agency Ltd,68 where Sackville J said:
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It is clear that layout is often extremely important in attracting readers to read a particular story or magazine. It is also clear that the choice of layout, type size, headings and colour is a skilled operation. … Published edition copyright thus protects the product of skill, labour and judgment in presenting material in an edition.
The Rights 4.22 The Copyright Act gives the owner the exclusive right to do certain things with respect to the copyright material.
Works 4.23 The copyright owner of a literary, dramatic, artistic, or musical work has the following exclusive rights.
68 (1996) 136 ALR 274; 34 IPR 53; 65 FCR 399 at 418.
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Chapter 4: Protecting Copyright Material TABLE 4.1 EXCLUSIVE RIGHTS THE RIGHTS (S 31)
LITERARY (EXC SOFTWARE) DRAMATIC, AND MUSICAL WORKS
ARTISTIC WORKS
COMPUTER PROGRAMS
To reproduce the work in a material form
√
√
√
To publish the work
√
√
√
To perform the work in public
√
To communicate the work to the public
√
To make an adaptation of the work
√
To enter into a commercial rental arrangement where the work is reproduced in a sound recording
√
To enter into a commercial rental arrangement
√ √
√ √
√
Under other legislation, authors of certain artistic works (original works of visual art such as paintings, sculpture, drawings, engravings) are entitled to receive a resale royalty of 5% of the sale price when the art is resold for more than $1000 by a museum, art dealer, or gallery.69 The outcome of a 2013 review of the scheme has yet to be finalised.70
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Subject matter other than works 4.24 The copyright owner of a sound recording has the exclusive right to make a copy of the recording, to cause the recording to be heard in public, to communicate the recording to the public, and to enter into a commercial rental arrangement in respect of the sound recording: Copyright Act s 85. The copyright owner of a film has the exclusive right to make a copy of the film, to cause the film to be seen or heard in public, and to communicate the film to the public: Copyright Act s 86. The copyright owner of a television or sound broadcast has the exclusive right to make a film or sound recording of the broadcast as the case may be, and to rebroadcast the broadcast, or to communicate the broadcast to the public other than by rebroadcasting: Copyright Act s 87. The copyright owner of a published edition of a work has the exclusive right to make a facsimile copy of the edition: Copyright Act s 88. 69 Resale Royalty Right for Visual Artists Act 2009 (Cth) ss 8–10. 70 See .
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Moral Rights 4.25 Part IX of the Copyright Act includes certain extra rights which have been called ‘moral rights’. These rights are personal in nature and apply only to individuals and not to corporations: s 190. Unlike copyright, they are not property rights and cannot be sold or assigned or be the subject of a licence. Moral rights always remain with the author of the copyright protected work, even if ownership in the copyright changes. Moral rights attach to certain copyright protected material (literary works, dramatic works, musical works, artistic works and cinematograph films — the latter being defined as a ‘work’ for the purposes of the moral rights provisions) for the benefit of its author. The performer’s right in the table below refers only to the sounds generated by a performance. TABLE 4.2 MORAL RIGHTS
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THE RIGHT
WHAT THE RIGHT INVOLVES
DURATION
The right of attribution — ss 193–195AB
The right to be identified as the author Until copyright ceases of a work
Performer’s right of attribution — ss 195ABA–195ABE
The right to be identified as a performer in the performance (either a live performance or a recorded performance)
Until copyright ceases (recorded performance)
The right to prevent The right to prevent the work being false attribution — falsely attributed to someone else ss 195AC–195AH Performer’s right to prevent false attribution — ss 195AHA–195AHC
Until copyright ceases
The right of integrity — The right to protect a work against ss 195AI–195AL derogatory treatment (ie to protect a work against material distortion, mutilation or alteration, or any other act in relation to the work that is prejudicial to the author’s honour or reputation)
Until death of author in the case of a cinematograph film and in the case of other works, until copyright ceases
Performer’s right of integrity — ss 195ALA– 195ALB
The right not to have the performance Until performer dies subjected to derogatory treatment; (recorded performance) (derogatory treatment means doing, in relation to the performance, anything that results in a material distortion of, mutilation of, or a material alteration to, the performance that is prejudicial to the performer’s reputation)
Note: In the case of a film, the author includes the director of the film, the producer of the film, and the screenwriter: Copyright Act s 191. A performer includes, where applicable, the conductor.
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By written consent, moral rights may, in effect, be waived: Copyright Act ss 195AW–195AWA (authors) and ss 195AXJ (performers). Consent, however, is not valid if it was obtained by duress or false or misleading statements. The remedies for infringement include a discretionary power to order a public apology in addition to the normal remedies.
Author’s right of integrity 4.26 The right of integrity does not protect against distortion, mutilation, or alteration per se. To infringe an author’s moral right of integrity, the distortion, mutilation, or alteration must be prejudicial to the author’s honour or reputation. In Canada the courts have adopted an artist-friendly approach when determining this question. Snow v Eaton Centre (1982) 70 CPR (2d) 105 Facts: Michael Snow, a sculptor, created a work comprising 60 geese flying in formation entitled ‘Flight Stop’. This work was sold to the defendant shopping centre. At Christmas the shopping centre attached red ribbons to the necks of the geese as Christmas decorations. Snow sued for infringement of his right of integrity under the Canadian Copyright Act on the ground that his naturalistic composition was made to look ridiculous — equivalent, in the opinion of Snow, to putting earrings on the Venus de Milo.
4.26C1
Decision: The court ordered the ribbons be removed. Provided the author’s opinion is reasonably derived, the court should have regard to the author’s subjective opinion on the issue of whether the treatment is derogatory.
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English courts have suggested a more objective view: see Pasterfield v Denham;71 Confetti Records (a firm) v Warner Music UK Ltd (t/a East West Records).72 Tidy v Trustees of the Natural History Museum (1995) 39 IPR 501 Facts: Bill Tidy, a cartoonist, lent certain cartoons of dinosaurs to the Natural History Museum for display. The Natural History Museum produced a book that showed the cartoons. Of necessity, the cartoons were reduced considerably in size. This meant it was not possible to read the captions on the cartoons. A colour background was added to the cartoons. Tidy claimed this infringed his right of integrity. People would draw the conclusion that he did not care enough to redraw the cartoons so as to ensure that they were suitable for production in a catalogue. Decision: The court refused an interim injunction. Tidy’s view that the defendant’s conduct was prejudicial to his reputation was not enough. The issue could not be judged purely subjectively. There had to be objective evidence as to how the public viewed the matter. As there was no such evidence presented to the court, the application failed. In any event the court doubted that the book was a distortion of Tidy’s work. 71 [1999] FSR 168. 72 [2003] EWHC (Ch) 1274.
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Australian courts have recently had the opportunity to apply the right of integrity. Perez v Fernandez (2012) 260 FLR 1; [2012] FMCA 2 4.26C3
Facts: Perez is an international rap artist known as ‘Pitbull’ and is the author of the musical and literary work for the Bon, Bon song (the song). Fernandez was a disc jockey and music promoter in Perth. Fernandez and Perez were in dispute about a failed tour. Without Perez’s consent, Fernandez created a mixed version of the song using a recording of Perez saying ‘DJ Suave’ (a name by which Fernandez is known). This streamed automatically from Fernandez’s website. Perez sued for copyright infringement and infringement of his moral right of integrity. Decision: Perez was successful. Moral rights ‘have independent existence from the bundle of economic rights protected by copyright, are inalienable to the author, and give protection to the investment of the author’s personality in his or her creation’. By including the words performed by Perez out of context, it made it appear that Perez was singing about Fernandez and the failed tour. This was a material ‘distortion’ or ‘alteration’ and perhaps ‘mutilation’ of the work. It was ‘prejudicial to the author’s honour or reputation’ because it may have been heard by some listeners before the original and assumed to be the original work — about Fernandez. Furthermore, fans aware of the failed tour and the associated legal dispute would have understood the altered song to mock Perez’s reputation. Copyright in the song was infringed when it was streamed and publicly performed without a licence. Compensatory damages of $2312 were awarded. Fernandez also infringed Perez’s moral right of integrity. Damages of $10,000 were awarded for infringement of his moral rights.
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Defences to an action for infringement of moral rights 4.27 There is no infringement of the right of attribution or of the right of integrity if the defendant is able to establish that in the circumstances it was reasonable not to identify the author, film-maker, or performer, or to subject the work, film, or performance to derogatory treatment, as the case may be. The matters to be taken into account in determining reasonableness are set out in the Act.73
73 See in relation to the right of attribution s 195AR(2)–(3) (authors) and s 195AXD(2) (performers). In relation to the right of integrity see s 195AS(2)–(3) (authors) and s 195AXE(2) (performers).
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Corby v Allen & Unwin Pty Ltd (2013) 297 ALR 761; 101 IPR 181; [2013] FCA 370 Facts: Allen & Unwin published a book titled Sins of the Father (the book) about Schapelle Corby’s arrest and imprisonment in Bali for trafficking marijuana. It was Allen & Unwin’s responsibility to decide which photographs to include in the book. It was not positive in its treatment of the Corby family and did not support Schapelle Corby’s claims to be innocent of the trafficking charges. Aspects of the book (including the previous title, The Fall Girl) had already been the subject of a defamation dispute. The book included 37 photographs. The Corby family claimed that five photographs were included in the book without their permission. The photographer was not named. The Corby family commenced proceedings for copyright infringement and, for four of the photographs, infringement of the moral right of attribution of authorship (the author of a photograph is the photographer, in this case it was Rosleigh Rose, Schapelle Corby’s mother). Allen & Unwin argued that it was common practice in the industry not to name the author and that it was reasonable in the circumstances. Decision: There was an infringement of the moral right of authorship. Buchanan J was prepared to accept that photographers are not always identified, ‘particularly photographs from private collections’. However some photographs in the book were appropriately attributed and ‘there is no evidence in the present case that lack of attribution was due to the observance … of industry practice’. The reasonableness defence did not apply. There was an infringement of copyright. Allen & Unwin had an internal copyright clearance policy, but did not follow it in this instance. No consent was given to reproduce the five photographs nor any efforts made to obtain such consent. Buchanan J went so far as to say, ‘I am compelled to the conclusion that a deliberate decision was made, and agreed upon, not to make any such effort’. The court awarded $45,000 in additional damages for the copyright infringement which was ‘in flagrant disregard of the [Corbys’] rights’.
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Determining Ownership of Copyright Works 4.28 The general rule is that the author of a work is the owner of the copyright, provided the author is a qualified person: Copyright Act s 35(2). A qualified person includes an Australian citizen as well as a person resident in Australia: see 4.4. The author of the work is the person who creates the original expression, not the person who conceived the idea. For example, in Donoghue v Allied Newspapers Ltd74 the author was the journalist who wrote the jockey’s life story and not the jockey who related the incidents upon which the story was based. However, a person who merely takes down dictation is not an author. A translator is the author of the translation. A person who records traditional folk songs is not regarded as the author of a musical work for the purposes of copyright: Robertson v Lewis.75 74 [1938] Ch 106; [1937] 3 All ER 503, see 4.5C. 75 [1976] RPC 169.
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The general rule that the author of a work is the owner of the copyright in the work is subject to a number of qualifications, any of which may be modified by agreement. Where there is an agreement modifying the operation of these qualifications or exceptions, copyright shall subsist according to the terms of that agreement: Copyright Act s 35(3).
Employees 4.29 Where the author is an employee and the ‘work’ is made pursuant to the contract of employment, copyright belongs to the employer: Copyright Act s 35(6). This raises two questions. First, is the author an employee? This matter was discussed in relation to patents: see 2.39. Second, if the author is an employee, was the work created pursuant to the contract of employment? Whether a work is created by an employee ‘pursuant to the terms of his or her employment’ depends on the answer to the question: what was the employee paid to do? See EdSonic Pty Ltd v Cassidy.76 A number of factors are relevant to answering this question, such as whether the work falls within the normal duties of the employee, the terms of the contract, the position or status of the employee, whether the employee used the employer’s materials and time in developing the work, and whether the work is related to the employer’s business. Redrock Holdings Pty Ltd v Hinkley (2001) 50 IPR 565; [2001] VSC 91
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4.29C
Facts: Hinkley was a young talented computer programmer. He developed some software (a toolkit for developing other software, referred to as the library code). Hinkley was hired by Redrock to produce computer programs that would meet the requirements of Redrock’s customers. Hinkley was given considerable latitude in determining how he would meet those requirements. The programs produced by Hinkley for Redrock’s customers used, and indeed depended on, Hinkley’s library code. It was Hinkley’s choice to use his library code rather than some other library code. Redrock had left him free to make choices of this nature. After commencing work for Redrock, Hinkley made numerous changes and additions to the library code. It grew from 5000 lines of computer code to approximately 120,000 lines. The court accepted that the changes made the library code qualitatively and quantitatively different to the version that Hinkley had brought with him to Redrock. After three years and without any warning Hinkley quit Redrock to work for another software company (Hotline). Before leaving Redrock, Hinkley deleted all copies of the source code version of the library code. This effectively crippled Redrock’s ability to service its clients. Redrock claimed that it owned the programs developed by Hinkley during his time with Redrock, including the source and object code versions of the library code. Hinkley claimed that he was hired as a contractor and that, as there was no written or oral agreement covering the transfer of the library code, copyright in the code belonged to him. Hinkley argued that Redrock only had a licence to use the object code and not the source code. Hinkley additionally
76 (2010) 272 ALR 589; 88 IPR 317; [2010] FCA 1008.
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Chapter 4: Protecting Copyright Material claimed that any modifications to the library code made during his time at Redrock were made in his own time and for his own purposes and not Redrock’s. Decision: Harper J held that the changes to the library code were so substantial that the updated library code amounted to a new work. As there was no agreement covering the ownership of the copyright in the new work, the matter depended first on whether Hinkley was an employee. The court determined that he was an employee and not a contractor. Although, as a highly skilled programmer, he was given a great deal of latitude by Redrock, there were other factors that ultimately suggested that he was an employee. Hinkley’s work was central to the development of Redrock’s business; that is, it was integrated into Redrock’s business, not an accessory to it. Hinkley was on a fixed salary; group tax was deducted from his pay; he was entitled to annual leave, sick leave, and long service leave; superannuation contributions were made by Redrock on his behalf; and all necessary equipment and Internet access was provided by Redrock. If Hinkley was an employee, the next issue was whether the new library code was developed in the course of Hinkley’s employment. Despite Hinkley’s claim that the code was developed largely at home in his own time, the evidence suggested that most of the work was done at Redrock. However, according to the court, the most important evidence pointing to the conclusion that Redrock owned the copyright was the fact that Hinkley’s library code was a core element in the programs that Hinkley had been hired to develop for Redrock’s clients. The court therefore determined that copyright in the new library code belonged to Redrock.
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Journalists 4.30 Where a journalist is employed by a newspaper, magazine, or similar periodical, the newspaper proprietor owns the copyright in any literary, dramatic, or artistic work produced by the journalist. There are two exceptions. The journalist is the owner of the copyright in so far as the copyright relates to either reproduction of the work for the purpose of inclusion in a book, or reproduction of the work in the form of a hard copy facsimile (making photocopies), unless the copying is connected with publication of the newspaper, magazine, or similar periodical: Copyright Act s 35(4). Thus, it would infringe the journalist’s copyright for a person who supplies press clippings for a fee to make copies of newspaper articles without the journalist’s permission.77
Photographs, portraits, and engravings 4.31 Ordinarily the author of a photograph, portrait, or engraving, being the person who took the photograph or created the portrait or engraving, owns copyright in it. However, where a photograph, portrait, or engraving is commissioned for value and for a private or domestic purpose, copyright belongs to the person commissioning the photograph, portrait, or engraving: Copyright Act s 35(5). However, this is subject to an agreement to the contrary between the parties. Thus, 77 De Garis v Neville Jeffress Pidler Pty Ltd (1990) 95 ALR 625; 18 IPR 292.
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it is important for those commissioning photographs for commercial purposes (for example, advertising) to ensure that the issue of ownership of the copyright is dealt with expressly in the agreement commissioning the photograph. Future copyright may be assigned, but the assignment must be in writing: see 4.35.
Equitable (beneficial) ownership of copyright 4.32 Although person X may own the legal copyright in a work, the equitable or beneficial rights might belong to someone else. Whether this applies will depend on the facts of the case. Beneficial ownership may be inferred from the dealings between the parties, or be implied as a matter of commercial necessity, industry custom, or past dealings. Griggs Group Ltd v Evans & Raben Footwear [2005] EWCA Civ 11 4.32C
Facts: Griggs was the UK manufacturer and distributor of Dr Martens footwear. In 1988 it commissioned an advertising agency to produce a new logo for Dr Martens that combined the Dr Martens logo and the Air Wair logo, which is used on Dr Martens footwear. The advertising agency hired Evans, a freelance commercial artist, to do the work. There was no written agreement between any of the parties covering the issue of copyright ownership of the logo. Evans produced the following logo.
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Griggs continued to use the logo without question until court proceedings in Australia raised doubts as to the ownership of the copyright. At this point Evans asserted copyright ownership and then purported to assign the copyright to Raben Footwear, an Australian company that, while not a competitor of Griggs, was hostile to Griggs. Griggs sought an injunction and a declaration that it owned the copyright. Decision: Copyright subsisted in the logo as an artistic work. This was not disputed. Evans produced the logo as a freelance contractor, not as an employee of Griggs or the advertising agency. Therefore, pursuant to the UK Copyright Act (which is similar in this respect to the Australian Act), Evans was the legal owner of the copyright. However, the terms and nature of the arrangement made it clear that the parties must have intended Griggs to be the beneficial owner. Where the matter in dispute is the ownership of a logo, it is difficult to see that any other conclusion could be drawn. Therefore, Evans could not assign copyright to a third party without authorisation from Griggs.
Although Griggs was able to establish beneficial ownership, the matter should not have been left to chance and the courts. To avoid uncertainty and the time and costs of future disputes, it is highly recommended that the disposition of rights (including copyright) be handled by written agreement entered into at the time the work is commissioned.
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Joint authorship of works 4.33 Where two or more persons collaborate in the creation of a work, the work is regarded as having been jointly authored. Therefore, subject to the provisions of s 35 of the Copyright Act, the authors own the copyright jointly.
Subject Matter other than Works/Pt IV material 4.34 The owner of the copyright in a sound recording (other than the recording of a live performance) or a cinematographic film is the maker of the recording or film. However, where a person commissions a recording or film to be made by another person pursuant to an agreement for valuable consideration, the commissioning party is the copyright owner: Copyright Act s 97(3) (sound recordings); s 98(3) (films). A sound recording made of a live performance is jointly owned by the maker and the performers (including, where applicable, the conductor): Copyright Act s 100AE. Copyright in television and sound broadcasts is owned by the maker: Copyright Act s 99 and s 22(5). The publisher of an edition of a work is the copyright owner of any copyright subsisting in the edition: Copyright Act s 100.
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Assignment of Copyright 4.35 Copyright ownership may be sold; that is, transferred or assigned by agreement. An assignment must be in writing, although the courts do have power in special circumstances to enforce an unwritten assignment: see Griggs Group Ltd v Evans & Raben Footwear.78 Where there is an agreement concerning the ownership of copyright, copyright shall subsist according to the terms of that agreement. Where copyright material is created under a contract for services such as with an independent contractor, as opposed to an employment contract, it is important to consider an assignment. The reason for this is that under a contract for services, the general rule is that the contractor would own the copyright: see 4.29. Upon assignment, the assignee becomes the owner of the copyright, but remains subject to the author’s moral rights unless these are waived by the consent of the author of the material in favour of the assignee of the associated copyright.
Licences 4.36 Licences may be exclusive or non-exclusive. An exclusive licence must be in writing, although the courts have the power in their equitable jurisdiction to
78 [2005] EWCA Civ 11, see 4.32C.
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enforce an unwritten exclusive licence. A licence can be express or implied. Many websites today provide terms and conditions granting a copyright licence, for example, to print out one copy of the website (a reproduction) for personal use. Where necessary, the terms of the licence will be inferred from the surrounding circumstances, or implied on the basis of commercial necessity, industry custom, or past dealings. For example, where a contractor produces a work for another person for reward, a court (at the very least) will imply a term that the other person has a licence to use the work in the manner and for the purpose necessarily contemplated by the parties (based on their discussions and actions at the time of the commissioning): see Wilson v Weiss Art Pty Ltd.79 Wilson v Weiss Art Pty Ltd (1995) 31 IPR 423; (1995) AIPC 91-139 4.36C
Facts: Wilson prepared artwork at the request of an advertising agency for use by its client Peter Weiss Pty Ltd, a clothing designer and manufacturer. The artwork was to be used in advertising and merchandising the Peter Weiss range of clothing. There was no written agreement covering this deal. The agency made no attempt to obtain any formal assignments of copyright in the artwork for its client. Later the advertising agency and Peter Weiss set up a joint venture (the defendant company) to merchandise a wide variety of products (from framed prints to yo-yos) using the Wilson artwork. Wilson’s permission was not sought. When she discovered the situation Wilson sued for copyright infringement. The defendant claimed it had an implied right to use the artwork.
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Decision: The court held that Wilson had granted Weiss an exclusive and irrevocable right to use the artwork in advertising Weiss fashion goods in the media and to use the artwork on merchandise sold as a promotional adjunct to Peter Weiss clothing. However, Wilson had not licensed Weiss to use the artwork on any merchandise not connected with Weiss clothes. Therefore, there had been an infringement of copyright.
Implied licences are usually quite limited. For example, in Acohs Pty Ltd v Ucorp Pty Ltd,80 the court agreed that a user had an implied licence to reproduce the electronic material safety data sheets for hazardous substances, but the users’ implied licence did not extend to reproductions by suppliers. When an architect produces the drawings for a house, there is generally an implied licence for the person commissioning the drawings to use them to build the house.81 However, it does not mean that there is an implied licence to use the drawings to construct a number of such houses. It will depend on what is necessary to make the contract work. Similarly, the purchaser of a book does not acquire a licence to photocopy it. Buying a film on video does not carry with it the right to make further duplications. Buying a sound recording does not give the purchaser the right to make copies of the recording for sale or to play the 79 (1995) 31 IPR 423; (1995) AIPC 91-139, see 4.36C. 80 (2012) 287 ALR 403; 95 IPR 117; [2012] FCAFC 16. 81 Beck v Montana Constructions Pty Ltd (1963) 80 WN (NSW) 1578.
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recording to the public. The Copyright Act provides for the granting of statutory licences in certain circumstances. The licensee must pay a fee — a royalty — to the appropriate collecting agency, which is then responsible for distributing the fees to the copyright owners. Educational institutions have the right, in return for payment of a royalty, to copy and communicate certain works and broadcasts for educational use, and to make copies of works for distribution to students for teaching purposes, whether the original is in hard copy or electronic form: Copyright Act Pt IVA Div 4.82 Once a musical work has been recorded for the first time, anyone may produce their own recorded version of that work for retail sale, provided a royalty is paid: Copyright Act ss 54–64.83 A sound recording may be broadcast or played publicly, provided a fee is paid: Copyright Act ss 108–109.84
How Long Does Copyright Last? 4.37 The duration of copyright depends on the nature of the copyright material. Where it is calculated from the death of an author and there are joint authors, it is the author who dies last: Copyright Act s 80. Despite previous recommendations to the contrary,85 the duration of copyright for works, sound recordings, and films was extended by 20 years on 1 January 2005 following Australia’s entry into a free trade agreement with the United States.86 The duration of copyright for works and Pt IV Subject Matter other than Works (SMOTW) is as follows. TABLE 4.3 DURATION OF COPYRIGHT
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WORKS
1
TYPE OF COPYRIGHT MATERIAL
WHEN COPYRIGHT ENDS
WHEN FIRST MADE PUBLIC
Literary, dramatic, musical, or artistic works first made public before 1 January 2019
70 years from the end of the year in which the author died: s 33(2)
When the work is published, performed in public, broadcast or communicated, and for artistic works, when exhibited in public, and when records of the work are offered to the public: s 29A(1)
82 The royalties are negotiated and collected by the Copyright Agency on behalf of copyright owners. 83 The collecting agency is APRA AMCOS. 84 The collecting agencies are the Phonographic Performance Company of Australia Ltd (PPCA) on behalf of the record producers and manufacturers, and APRA AMCOS, which acts for the authors, composers, or other copyright work owners. 85 Intellectual Property Competition Review Committee, Final Report, 2000. 86 US Free Trade Agreement Implementation Act 2004 (Cth).
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TABLE 4.3 DURATION OF COPYRIGHT — cont’d TYPE OF COPYRIGHT WHEN COPYRIGHT MATERIAL ENDS
WHEN FIRST MADE PUBLIC
2
Most literary works, dramatic works, musical works and an engraving with a known deceased author and the work was first made public before 1 January 2019 but not before death of author
70 years from when work first made public: s 33(2)
As above
3
Works first made public before 1 January 2019 and identity of author not known after 70 years of work being first made public
70 years after work first made public: s 33(2)
As above
4
Works first made public after 1 70 years from the end January 2019 to which item 5 of the year in which the and 6 of this table do not apply author died: s 33(3)
As above
5
Works first made public after 70 years after work first 1 January 2019 and identity of made: s 33(3) author not known before end of 70 years of work being made and work first made public after end of 50 years after being made
As above
6
Works first made public after 1 January 2019 and identity of author not known before end of 70 years after work first made public and work first made public before end of 50 years after being made
As above
70 years after work first made public: s 33(3)
PART IV SMOTW TYPE OF COPYRIGHT MATERIAL
WHEN COPYRIGHT ENDS
HOW CONDITION MET
7
Sound recordings and films first made public before 1 January 2019
70 years from the end of the year in which the sound recording or film is first made public: s 93(2)
Made public when seen/heard in public or communicated to the public: s 29A(2)
8
Sound recordings and films first made public after 1 January 2019 and they are made public before the end of 50 years after being made
70 years from the end of the year in which the copyright material is first made public: s 94(3)
Made public when seen/heard in public or communicated to the public: s 29A(2)
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WHEN COPYRIGHT ENDS
HOW CONDITION MET
9
Sound recordings and films first made public after 1 January 2019 to which item 8 of this table does not apply
70 years from the end of the year in which the copyright material is first made: s 94(3)
Sound recording made when first record of it made: s 22(3)(a) Film made when production of first copy of it is arranged: s 22(4)(a)
10
Television and radio broadcasts
50 years from the end Broadcast made when of the year in which the it is delivered by a broadcast is first made: s 95 broadcasting service within the meaning of the Broadcasting Services Act 1992 (Cth)
11
Published editions of works
25 years from the end of the year in which the copyright material is first published: s 96
Published when reproductions of the edition have been supplied (whether by sale or otherwise) to the public: s 29(1)(a)
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Direct Infringement of Copyright — Original Works 4.38 Copyright in original works is infringed where a person, without the copyright owner’s permission, carries out any of the acts comprised in the copyright: Copyright Act s 36. This includes: • reproducing the work in a material form; • publishing the work; • communicating the work to the public; • in the case of literary, dramatic and musical works, performing the work in public; or • making an adaptation of the work. In each case, copyright is only infringed if the impugned act involves the whole or a substantial part of the copyright work: Copyright Act s 14. Thus, in the case of musical copyright, for example, it is only an infringement to reproduce the whole or a substantial part of the musical work, or to communicate the whole or a substantial part of the musical work to the public, or to perform the whole or a substantial part of the musical work in public, or to adapt the whole or a substantial part of the musical work. 159
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What is a ‘substantial part of the work’?
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4.39 The expression ‘substantial part of the work’ is not defined in the Copyright Act. However, there is no doubt it refers to the quality (including the originality) of the work, not quantity. Thus, infringement of copyright exists where a vital or material part of the work has been copied: see Cummins v Vella;87 Larrikin Music Publishing Pty Ltd v EMI Songs Australia Pty Ltd;88 Larrikin Music Publishing Pty Ltd v EMI Songs Australia Pty Ltd (No 2);89 Milpurrurru, Marika, Payunka & Public Trustee for the Northern Territory v Indofurn Pty Ltd, Bethune, King & Rylands.90 In assessing whether a substantial part of the work has been copied, the courts have regard to four principal matters:91 1. the amount of material taken, bearing in mind that quality is more important than quantity; 2. how much of the material taken is copyright material and how much is not; 3. whether the defendant’s intention was to take the plaintiff’s work for the purpose of saving himself or herself labour; and 4. the extent to which the plaintiff’s and the defendant’s works compete. Provided that what is taken is the vital or essential part, it is not necessary that it form a quantitatively large part. In Hawkes & Son (London) v Paramount Film Service Ltd,92 the defendant used 30 seconds of the four minute song ‘Colonel Bogey’ as part of a newsreel item. This was held to be an infringement because the part that was copied contained the melody of the song. When determining whether a substantial part of the work has been copied, it is necessary to keep in mind the distinction between the idea and the expression. It is fundamental to copyright law that copyright does not subsist in an idea. Therefore, copying an idea cannot amount to an infringement of copyright. However, distinguishing between the idea and the expression is sometimes very difficult. Ultimately, it must be a question of degree: see Telstra Corporation Ltd v Royal & Sun Alliance Insurance Australia Ltd93 (the Goggomobil commercial).
Unlawful reproduction of a copyright work 4.40 The most obvious case of infringement involves reproducing the whole or a substantial part of the work in a material form. ‘Reproduction’ is not defined in the Copyright Act, but means copying. Establishing an infringement of the reproduction right involves two steps:94 87 88 89 90 91
[2002] FCAFC 218, see 4.40C. (2010) 263 ALR 155; 83 IPR 582; [2010] FCA 29, see 4.45C. (2010) 270 ALR 481; 87 IPR 357; [2010] FCA 698, see 4.45C. (1994) 130 ALR 659; 30 IPR 209, see 4.65C. These were set out by Brightman J in Ravenscroft v Herbert & New English Library Ltd [1980] RPC 193 at 203 when discussing copying of a literary work. 92 [1934] Ch 593. 93 (2003) 57 IPR 453; [2003] FCA 786, see 4.42C2. 94 SW Hart & Co Pty Ltd v Edwards Hot Water Systems (1985) 159 CLR 466; 61 ALR 251; 5 IPR 13; [1985] HCA 59.
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1. proving an objective resemblance or similarity between the copyright work and the alleged copy; and 2. establishing a causal connection between the copyright work and the alleged copy. Cummins v Vella [2002] FCAFC 218 Facts: Vella is a reasonably well-known painter, whose paintings are quite similar to one another. He has done over 150 paintings of daisies in the same style and over 200 of irises. His style of painting is called naïf impasto. Cummins was inspired by the Vella style and produced a number of similar paintings. There were considerable similarities of style, colour, format, and subject matter. However, there were also differences — for example, in the number of flowers, the number and size of petals, etc. Vella sued for copyright infringement and won. Cummins appealed. Decision: The Full Court of the Federal Court said: In respect of each instance of alleged infringement of a Vella painting by a Cummins painting the Court had to decide whether (a) the latter was a copy of the former, that is to say there was (i) sufficient objective similarity to amount to the latter being a reproduction or adaptation of the former and (ii) the former was in fact the source of the latter and, if so, (b) whether the copy was of a substantial part of the Vella work.
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According to the court, not all uses of a copyright work will constitute copying amounting to infringement. There is a distinction between legitimate use of style and technique (the idea), and illegitimate copying of form and expression (the expression). Often that distinction will be difficult to draw. To establish copyright infringement, the similarities between two paintings must go beyond similarities of style, colour, subject matter, and technique. The court allowed the appeal.
There must be a causal connection between the copyright work and the alleged copy. In other words, there is no copyright infringement unless the work has been copied. In Ferntree Homes Pty Ltd v Bohan,95 Ferntree alleged that Bohan had copied one of its project homes in constructing her house. The court accepted that there were many points of objective similarity between the houses. However, Ferntree failed to establish the second element, that is, the causal connection. Ferntree could not demonstrate that Bohan had copied features from its project home. Bohan denied copying, and was able to demonstrate how the ideas for her home were generated. Of course, in many cases the similarity between two works will be such as to give rise to a strong presumption of copying. Copying does not have to be deliberate; it may be subconscious. Subconscious copying of copyright material is as much an infringement of copyright as conscious copying. If, however, the infringement is subconscious, it will be necessary at the very least to produce evidence that the alleged infringer was familiar with the
95 (2001) 54 IPR 267; [2002] FCA 16.
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copyright work.96 For example, in Bright Tunes Music Corp v Harrisongs Music Ltd,97 ex-Beatle George Harrison was found to have subconsciously copied the plaintiff’s musical work, previously recorded as He’s So Fine, in producing the song My Sweet Lord. The court specifically accepted that he had not copied the work deliberately. Copying may be indirect. Direct copying occurs where the alleged infringing copy is made directly from the copyright work; for example, photocopying a book or any other copyright work. Indirect copying occurs where an infringing work is produced not by copying the copyright work, but by reverse engineering or by following a verbal or written description of the copyright work. Thus, copying the design of a yacht by making a mould from an existing boat of that design would infringe copyright in the original design drawings.98
A. Unlawful reproduction of databases 4.41 Simply reproducing all or part of the contents of a database will not amount to copyright infringement per se. The part copied must be a substantial part of an original copyright work.
4.41C
IceTV Pty Ltd v Nine Network Australia Pty Ltd (2009) 239 CLR 458; 254 ALR 386; 80 IPR 451; [2009] HCA 14 Facts: Nine Network produces a Weekly Guide which shows the times and titles of Nine Network’s television programs (along with synopses and other information) for the coming week. Nine Network provides the Weekly Guide to firms which take the information and combine it with information from other networks to produce TV program guides in a variety of formats, including print (eg, TV Week), online (eg, YourTV Guide, Yahoo7 Guide, The OurGuide), mobile (eg, Vodafone), and electronic program guides (eg, Foxtel).
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IceTV decided to produce an interactive electronic program guide to be used in conjunction with certain PVRs (digital recorders) and media centres (computer programs that enable digital TV recording on a PC). As the television networks, other than the ABC and SBS, would not agree to a contract to supply the programming information to IceTV, IceTV hired a person (R), who was experienced in the television industry, to produce a program template. In the case of the Nine Network, he did this by watching Channel Nine Sydney for three weeks and noting down all the programs, their names and timeslots. Then, using his knowledge of television programming, R produced a predicted guide for the coming week for Channel Nine in all states. To ensure the accuracy of the IceTV guide, IceTV hired a team to compare the approved guides (mainly YourTV Guide, Yahoo7 Guide, and The OurGuide) with the predicted IceTV guide. Any differences were then assessed and amendments made to the IceTV guide, if necessary. Generally, the IceTV team adopted the information available in the approved guides, but not always. IceTV created its own program synopses and presented the programming information 96 Francis Day & Hunter Ltd v Bron [1963] Ch 587; (1963) 1A IPR 331; [1963] 2 All ER 16; EMI Music Publishing Ltd v Papathanasiou [1993] EMLR 306. 97 420 F Supp 177 (1976). 98 Shacklady v Atkins & Carroll (1994) 126 ALR 707; 30 IPR 387; Dorling v Honnor Marine Ltd [1965] Ch 1; [1964] 1 All ER 241; [1965] Ch 1.
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Chapter 4: Protecting Copyright Material in its own way. Nine Network sued for copyright infringement (ie, reproduction of the time and title information contained in the Weekly Guide). Decision: The High Court held that there was no infringement of copyright. IceTV had only taken the time and title information from the Weekly Guide. As this information required little labour or skill to produce, it did not amount to a substantial part of the overall copyright work (that is, assuming that there was copyright in the Weekly Guide, which the High Court was not convinced about).
B. Unlawful reproduction of themes, characters, and settings 4.42 Problems can arise where a person copies not the actual text of the original work, but the themes, characters, and settings. In some cases it will be difficult to determine whether the defendant has copied the idea or the expression. Ultimately it must be a question of degree. Zeccola v Universal City Studios Inc (1982) 46 ALR 189 Facts: Zeccola produced a film called Great White, which was the story of a killer shark that terrorised holiday makers at a seaside resort during the holiday season. Universal Studios claimed that this was an infringement of its copyright in the book and screenplay of Jaws, a story about a killer shark that terrorised holiday makers at a seaside resort during the holiday season.
4.42C1
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Decision: The Federal Court held that the marked degree of similarity between the two went beyond legitimate copying of an idea and amounted to infringement of copyright.
In contrast, an attempt to sue the publisher of the hugely successful novel, The Da Vinci Code, for infringement of copyright subsisting in an earlier, non-fiction book that discussed the religious themes on which The Da Vinci Code is based, failed. Although The Da Vinci Code borrowed themes from the earlier book, the use of these themes amounted to borrowing abstract ideas and not copyright infringement.99 JK Rowling, the author of the Harry Potter books, was more successful in stopping the publication of a lexicon based on her novels.100 Telstra Corporation Ltd v Royal & Sun Alliance Insurance Australia Ltd (2003) 57 IPR 453; [2003] FCA 786 Facts: Between 1992 and 1998, Telstra ran a series of very successful advertisements for the Yellow Pages featuring the actor Tommy Dysart, a telephone, and a unique automobile, the Goggomobil. Dysart became known as ‘Mr Goggomobil’. In a gently humorous fashion, the ads depict Dysart using the phone to solve a problem relating to his Goggomobil. In 2000, Royal & Sun Alliance Insurance acquired an insurer called Shannons, which specialised in insuring vintage motor vehicles. In 2002 Shannons developed two advertisements featuring
99 Baigent v Random House Group Ltd (2006) 69 IPR 143; [2006] EWHC 719 (Ch). 100 Warner Bros Entertainment Inc v RDR Books 575 F Supp 2d 513 (2008).
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Marketing and the Law Tommy Dysart and the Goggomobil. In the first advertisement Dysart is shown using the phone to arrange insurance for his Goggomobil. Telstra argued that copyright subsisted in its advertisements (the scripts) as literary and dramatic works, and that Shannons had infringed that copyright. Telstra also claimed passing off and a breach of s 52 of the Trade Practices Act 1974 (Cth). Decision: Shannons were entitled to reproduce the ideas, concepts, or theme embodied in the Goggomobil advertisement, provided the expression was not copied. Although there were many similarities (for instance, Dysart, the Goggomobil, the use of a telephone to solve a problem, and humour), the scripts and the dramatic events occurring in the advertisements were quite different. Although the Shannons advertisement conjures up the Telstra advertisement, it ‘does not use substantially the same dialogue, and the setting or structure of the first Shannons’ advertisement is sufficiently different to fall well short of a “substantial” reproduction of the first Goggomobil advertisement’. There was no infringement of copyright. However, Shannons’ conduct amounted to passing off and a breach of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law).
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C. Unlawful reproduction of computer programs 4.43 As with other works, computer programs are only infringed if a substantial portion of the work is copied. Again it is important to keep in mind the distinction between the idea and the expression of an idea. In Autodesk Inc v Dyason (No 1),101 the High Court held that the test to be applied to determine whether a substantial part of a computer program had been copied was to analyse whether the part copied was critical or essential to the program’s operation. The part of the program that had been copied only amounted to 127 bits, which is just enough to create a 16 letter word. The decision was criticised on the basis that it protected an idea rather than the expression of the idea (the two programs were really similar only in performing the same function), and on the basis that the material copied was insubstantial. The test for substantiality was criticised as being no more than a ‘but for’ test — but for the part copied, the program would not operate as intended. However, every part of a computer program is critical to its proper functioning. Therefore, every part of a program, no matter how small, would be a substantial part. An attempt to have the case re-opened narrowly failed.102 In Data Access Corporation v Powerflex Services Pty Ltd,103 the High Court held that the test applied in Autodesk Inc v Dyason (No 1)104 ought not to be followed. To determine whether a copy of a part of a computer program is a reproduction of a substantial part of that program, it is necessary to consider the originality of the part copied. The question to be asked is whether the copy has taken a substantial amount of the original structure of the program, its choice of commands, and its combination and 101 (1992) 173 CLR 330; 104 ALR 563; 22 IPR 163. 102 Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300; 67 ALJR 270; 111 ALR 385. 103 (1999) 166 ALR 228; 45 IPR 353; [1999] HCA 49. 104 (1992) 173 CLR 330; 104 ALR 563; 22 IPR 163.
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sequencing of commands. Merely taking a few command words such as ‘chart’ and ‘autofind’ did not satisfy this test. They were trigger words which largely described their function, and which could easily be replaced by any other command words.
D. Unlawful reproduction of artistic works 4.44 Infringement cases involving artistic works can be very problematic. Not only is the distinction between the idea and the expression often difficult, but so also is the issue of ‘substantiality’. In Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd105 these difficulties were compounded by an initial dispute over whether the work was a literary work or an artistic work. Some of the issues were discussed in Cummins v Vella.106 Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd (2008) 172 FCR 580; 80 IPR 566; [2008] FCAFC 197 Facts: Elwood Clothing produced the T-Shirts shown below. Cotton On Clothing produced a range of T-Shirts that were designed to have the look and feel of the Elwood designs, but with different content. A sample of the Cotton On clothing is also shown below. Elwood sued for copyright infringement of an artistic work. Cotton On claimed that the works were literary works and that the literary content of their clothes was different.
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Elwood Clothing
Cotton On Clothing
105 (2008) 172 FCR 580; 80 IPR 566; [2008] FCAFC 197, see 4.44C. 106 [2002] FCAFC 218, see 4.40C.
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Marketing and the Law Decision: The Elwood designs are artistic works, ‘of which the words and numbers, including their size, font, placement and spatial relationships with other elements, form a part’. The meaning conveyed by the words and numbers is too insubstantial and vague to constitute literary works. Such meaning as is conveyed is derived from the layout, the visual look, and feel of the design. Did the Cotton On designs reproduce a substantial amount of the Elwood original artistic work? The Cotton On designs differed in the content of the words and numbers, but not in the layout or look and feel. The trial judge found in favour of Cotton On on the basis that the look and feel of the Elwood design was an idea and thus not protectable. The Full Federal Court disagreed and held that, in the circumstances, Cotton On (by reproducing the look and feel of the Elwood design) had infringed copyright in the Elwood artistic work. An injunction was granted to prevent Cotton On making, selling, or dealing in the Cotton On designs that infringed the Elwood copyright.
In Advantage-Rent-A-Car Inc v Advantage Car Rental Pty Ltd,107 the court had to determine whether the logo used by Advantage Car Rental (the Australian firm) infringed copyright in the logo which had been used for a number of years by Advantage-Rent-A-Car (the US firm). If the Australian firm’s logo infringed copyright, it could not be registered under the Trade Marks Act.108 Copyright subsisted in the US firm’s logo as an original artistic work: see Roland Corporation v Lorenzo & Sons Pty Ltd.109 The Australian firm’s trade mark substantially reproduces the US firm’s copyright and is therefore an infringement.
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Australian trade mark
US trade mark
Reproducing a photograph involves copying the actual photograph, not taking another photograph of the same scene. Making a three-dimensional representation from a two-dimensional work, such as a drawing or a painting, is a reproduction of the two-dimensional work: Copyright Act s 21(3). Thus, to make brooches, charms, plaster dolls, and mechanical toys out of the cartoon character ‘Popeye the Sailor’, amounted to an infringement of the copyright in the two-dimensional cartoon drawings: King Features Syndicate Inc v O & M Kleeman Ltd.110 However, the three-dimensional representation must bear sufficient resemblance to the original to conclude that it is a copy. If the three-dimensional representation is merely based on the idea
107 (2001) 52 IPR 24; [2001] FCA 683. 108 Under s 42(b) of the Trade Marks Act 1995, a mark cannot be registered if its use would be contrary to law. Use of a mark that infringes copyright would be use contrary to law. 109 (1991) 105 ALR 623; 22 IPR 245, see 4.17. 110 [1941] AC 417; (1940) 1B IPR 215; [1941] 2 All ER 403.
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of the original or is concerned with the original but does not bear the necessary resemblance, then there will be no infringement of copyright.
E. Unlawful reproduction of musical works 4.45 A case involving two very well-known Australian songs highlights the care that must be taken when seeking inspiration from previous works. Larrikin Music Publishing Pty Ltd v EMI Songs Australia Pty Ltd (2010) 263 ALR 155; 83 IPR 582; [2010] FCA 29; Larrikin Music Publishing Pty Ltd v EMI Songs Australia Pty Ltd (No 2) (2010) 270 ALR 481; 87 IPR 357; [2010] FCA 698 Facts: Larrikin was the owner of copyright in the music for the song ‘Kookaburra sits in the old gum tree’. Men at Work recorded a song for EMI entitled ‘Down Under’. Down Under contained a short flute riff which reproduced two bars out of four from the Kookaburra song. Larrikin sued for copyright infringement. Decision: To the ‘ordinary reasonably experienced listener’ the flute riff from Down Under reproduced a substantial part of the original musical work contained in the Kookaburra song. Therefore, there was copyright infringement. However, the flute riff (while being a substantial part of the Kookaburra song) did not form a substantial part of the Down Under song, and, in fact, it was difficult to detect the use of the Kookaburra song in the Down Under song. Therefore, the damages (based on a licence fee) were at the lower end (assessed by the court at 5%).
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Unlawful performance of a work in public 4.46 Copyright includes the exclusive right to perform a work in public. It also includes the right to communicate the work to the public. What is meant by ‘in public’ and ‘to the public’? For example, can a firm play recorded music in the lifts of its building, or to its employees on the factory floor, or to its customers in a shop? The critical factor in determining the ‘public’ is the character of the audience and not the number of persons involved. If the unauthorised performance was made to the copyright owner’s public or a part of that public, the performance was made in public: Telstra Corporation Ltd v Australasian Performing Right Association Ltd111 (the music on hold case). Was the performance such that the author might have expected to receive a fee? This is what distinguishes a performance in public from a performance that can be characterised as domestic or private. Thus, the playing of films transmitted by a video cassette recorder to television sets in motel rooms by the proprietor of the motel was held to be in public: Rank Film Production Ltd v Dodds.112 Playing music over a loudspeaker in a shop, even a music shop, would infringe the public performance right: Performing Right Society 111 (1997) 146 ALR 649; 71 ALJR 1312; 38 IPR 294; [1997] HCA 41. 112 [1983] 2 NSWLR 553.
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Ltd v Harlequin Record Shops Ltd;113 but playing music at a large but private party would not: Performing Right Society Ltd v Rangers FC Supporters Club, Greenock.114 Playing recorded music to employees in a factory has been held to be ‘in public’: Ernest Turner Electrical Instruments Ltd v Performing Right Society Ltd.115 Allowing a performance of a copyright work in front of 11 employees as part of a training program has also been held to be an infringement: Australasian Performing Right Association Ltd v Commonwealth Bank of Australia.116 Can a telephone company transmit ‘music on hold’ to users of mobile phones? In Telstra Corporation Ltd v Australasian Performing Right Association Ltd117 the High Court held that the transmission of ‘music on hold’ to conventional and mobile telephones was to the public. Although each telephone call is private, the provision of music on hold is part of a commercial undertaking. Thus, it is a transmission to the public.
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Unlawful communication of a work to the public 4.47 ‘Communicate’ means to make a work or other subject matter, including a performance or live performance within the meaning of the Copyright Act, available online or to transmit it electronically (whether over a path or a combination of paths provided by a material substance or otherwise): Copyright Act s 10. A communication other than a broadcast is taken to have been made by the person responsible for determining the content of the communication. In practice this means the person who uploads the material and makes it available online is the one who makes the communication, rather than a downloader. An example concerning website hyperlinks illustrates this point. In Cooper v Universal Music Australia Pty Ltd118 Tamberlin J held that it is not the facilitator’s website but rather the computer/website on which the material is stored that makes available or transmits the material for the purposes of determining who has made a communication:119 The Cooper website contains hyperlinks to thousands of sound recordings which are located on remote websites and are downloaded directly from those websites to the computer of the internet user. When a visitor to the Cooper website clicked on a link on the website to an MP3 file hosted on another server, this caused the user’s browser to send a ‘GET’ request to that server, resulting in the MP3 file being transmitted directly across the internet from the host server to the user’s computer. The MP3 file does not pass through or via or across the Cooper website. 113 114 115 116 117 118 119
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[1979] 2 All ER 828. [1975] RPC 626 at 634 per Clerk LJ. [1943] Ch 167; [1943] 1 All ER 413. (1992) 111 ALR 671; 25 IPR 157. (1997) 146 ALR 649; 71 ALJR 1312; 38 IPR 294; [1997] HCA 41. (2006) 71 IPR 1. (2006) 71 IPR 1 at 65.
Chapter 4: Protecting Copyright Material The Cooper website facilitates the easier location and selection of digital music files and specification to the remote website. However, the downloaded subject matter is not transmitted or made available from the Cooper website and nor does the downloading take place through the Cooper website. While the request that triggers the downloading is made from the Cooper website, it is the remote website which makes the music file available and not the Cooper website.
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Direct Infringement of Copyright — Pt IV SMOTW 4.48 Copyright in Pt IV Subject Matter other than Works is infringed (s 101 of the Copyright Act) by doing, without the copyright owner’s permission, any of the things set out in: • s 85 of the Copyright Act (sound recordings); • s 86 of the Copyright Act (films); • s 87 of the Copyright Act (television and sound broadcasts); and • s 88 of the Copyright Act (published edition of works). For example, making a copy of a sound recording, film, or broadcast without permission amounts to copyright infringement. Causing a recording or film to be heard or seen in public without permission is also an infringement. Communicating the sound recording, film, or broadcast to the public without permission infringes the copyright. In Dallas Buyers Club LLC v iiNet Ltd120 the Federal Court considered whether individuals sharing parts of the film The Dallas Buyers Club online via BitTorrent peer to peer file sharing could be liable for copyright infringement by ‘communicating’ a part of the film to the public in contravention of the copyright owner’s exclusive rights under s 86. The court granted the application to compel ISPs to disclose the identity of the 4726 Australian file sharers, being satisfied as to a real possibility that the IP addresses of the 4726 individuals identified by the investigators hired by the film company were being utilised by end-users who were breaching copyright in the film by making it available for sharing online using BitTorrent.121 Connect TV Pty Ltd v All Rounder Pty Ltd (No 5)122 concerned infringement of right to communicate a television broadcast to the public, in this case via online streaming of the original Russian TV program to Australian customers who accessed the broadcast using a set-top box and codes provided to them by All Rounder. The court found that as All Rounder was responsible for determining what, if any, part of the Russian television broadcast should be made available to 120 (2015) 327 ALR 670; 112 IPR 1; [2015] FCA 317. 121 (2015) 112 IPR 1 at 31. 122 (2016) 338 ALR 96; 118 IPR 133; [2016] FCA 338.
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consumers in Australia via its set-top boxes, it was liable for communicating the broadcast to the public in breach of the copyright owner’s rights under s 86. As with works, infringement only applies if the impugned act involves a substantial part of the copyright material. Thus, in the case of a film it is only an infringement to copy a substantial part of the film, or to communicate a substantial part of the film to the public, or to cause a substantial part of the film to be seen in public. What amounts to a substantial part of a film or television program?
4.48C
TCN Channel Nine Pty Ltd v Network Ten Pty Ltd (No 2) (2005) 216 ALR 631; 65 IPR 571; [2005] FCAFC 53 Facts: The court had to determine whether certain short excerpts copied from Channel Nine programs by Channel Ten’s The Panel infringed Channel Nine’s copyright in those programs. For example, The Panel showed 17 seconds from Nine’s Midday program which lasted over one hour. This excerpt showed the Prime Minister, Mr Howard, singing ‘Happy Birthday’ to Sir Donald Bradman. In another example, The Panel showed 10 seconds from Channel Nine’s broadcast of the ‘Inaugural Allan Border Medal Dinner’ for the best cricketer of the year. The program lasted over two hours. The excerpt focused on Glenn McGrath, as he was announced as the winner of the award.
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Decision: In determining whether the excerpts amounted to a substantial part of the respective programs, Finkelstein J said that quality not quantity was the key. The question is whether the excerpt constitutes ‘the heart’ of the program, ‘an essential part’ of the program, ‘an important ingredient’ in the program, ‘the best scenes’ from the program, ‘the highlights’ of the program, ‘the most valuable and pertinent portion’ of the program. This is the main test. In some marginal cases it may also be ‘necessary to consider factors such as the plaintiff’s financial interest as well as the defendant’s purpose’. All three Justices decided that the Prime Minister segment was a substantial part of the Midday program. Two out of three judges thought that the Glenn McGrath segment was an infringement.
Defences 4.49 The Copyright Act sets out a number of situations where it is permissible to use copyright material without infringing the owner’s rights.
Fair dealing 4.50 An important suite of defences to copyright infringement are known as ‘fair dealing’. Fair dealing for certain enumerated purposes set out in the Copyright Act will not infringe the copyright owner’s exclusive rights. Fair dealing for the purposes of research or study, criticism or review, parody or satire, news reporting, and for access by persons with a disability is permitted: Copyright Act ss 40–42, 103A–103C and 113E. Fair dealing means using no more than a reasonable portion of the copyright material. The fair dealing defences were discussed in TCN 170
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Channel Nine Pty Ltd v Network Ten Pty Ltd.123 There is no statutory definition of what constitutes parody or satire although the Federal Court in Pokémon Company International, Inc v Redbubble Ltd124 considered the defence of fair dealing with the artistic work for the purposes of parody or satire. Redbubble offered print on demand products featuring a Pokémon video game character, Pikachu. It was held that the defence was not available in the circumstances where Redbubble had used Pokémon’s artistic work without permission given the lack of evidence that the infringing work had been for the purpose of parody or satire. Instead the court found that Redbubble was using Pokémon’s copyright work for profit and that the fact that ‘some of the infringing works may be humorous, or even satirical or parodies, does not establish that the use was for a purpose where it may fairly be concluded that the purpose was not the parody or satire but the commercial exploitation of the original work in modified form.’125 In Australia, the fair dealing exceptions are narrow, limited, and very specific. Several reviews, most recently by the Productivity Commission,126 have recommended that the Copyright Act be amended to replace the current very specific fair dealing defence to copyright infringement with a broad fair use exception modelled on the defence in the United States. The government has started a consultation process to consider this recommendation.127
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Dealing with computer programs 4.51 Sections 47AB–47H of the Copyright Act set out a range of situations where it is permitted to reproduce or adapt a computer program. In such cases copyright is not infringed. It is permitted to make a copy of a computer program: • where the copy is made incidentally and automatically as part of the technical process of running the program: – for its normal use; or – for the purpose of studying the ideas behind the program and the way in which it functions; • as a back-up copy; • for the purposes of ascertaining information about the program necessary to create interoperable programs; • to correct errors; and • to test for security.
123 (2005) 216 ALR 631; 65 IPR 571; [2005] FCAFC 53. 124 (2017) 351 ALR 676; 129 IPR 1; [2017] FCA 1541. 125 (2017) 129 IPR 1 at 70. 126 Productivity Commission, Intellectual Property Arrangements, Inquiry Report, No 78, 23 September 2016, available at . 127 Department of Communications and the Arts, Copyright modernisation consultation paper, 19 March 2018, available at .
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Making copies for personal use 4.52 Certain common, typically private, and domestic uses have been added to the Copyright Act as exceptions to infringement. For example, you can make a backup copy of a computer program: Copyright Act s 47C; make an electronic scan of a hardcopy photograph for personal use (format shifting): Copyright Act s 47J; or record a television show so you can watch it at a more convenient time (time shifting): Copyright Act s 111.
Copying industrial products 4.53 The relevant copyright infringement defence provisions are ss 74–77A of the Copyright Act. The basic idea behind these provisions is that copyright protection should not be available to prevent copying of industrial products. The clear thrust is that industrial products ought to be protected mainly by registration pursuant to the Designs Act 2003 (Cth).
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A. Where a corresponding design is registered under the Designs Act 4.54 Section 75 of the Copyright Act provides that, where copyright subsists in an artistic work and a corresponding design is or has been registered under the Designs Act, it is not an infringement of that copyright to reproduce the work by embodying that, or any other, corresponding design in a product. A ‘product’ is defined in the Designs Act as a thing that is manufactured or handmade, and may include a component part and a thing of indefinite length. A ‘corresponding design’ in relation to an artistic work means visual features of shape or configuration which, when embodied in a product, result in a reproduction of that work, whether or not the visual features constitute a design that is capable of being registered under the Designs Act. The definition of ‘corresponding design’, therefore, excludes ‘pattern or ornamentation’ designs. In other words, if the design is essentially two-dimensional (a flat design), it can be registered under the Designs Act without losing copyright protection. For example, an original drawing will not lose copyright protection just because it is registered under the Designs Act for use on curtains or carpets. If, however, the design involves shape or configuration (a three-dimensional design), it will lose copyright protection by virtue of s 75 of the Copyright Act.
B. Where a corresponding design is not registered under the Designs Act and the design has been applied industrially 4.55 Section 77(2)(a) of the Copyright Act provides a defence to copyright infringement where: • a design corresponding to an artistic work is not registered under the Designs Act or is not capable of being registered; and 172
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• a person reproduces the work by embodying the design (or any other corresponding design) in a product; and • the design has been industrially applied and the resulting products have been offered for sale in Australia or anywhere in the world. ‘Product’ and ‘corresponding design’ have the same meaning as discussed above. When has a design been ‘applied industrially’? This is a question of fact. In PressForm Pty Ltd v Hendersons Ltd,128 the production of 41 bus seats as prototypes was held to be industrial application; in Kevlacat Pty Ltd v Trailcraft Marine Pty Ltd,129 the production of eight catamarans from a mould was held to be an industrial application. In any event, the Copyright Regulations 2017 (Cth) provide that once the design has been applied to 50 articles, industrial application is deemed to have occurred: reg 12(1). The copyright infringement defence in s 77 of the Copyright Act does not apply to: • two-dimensional designs (because they fall outside the definition of a corresponding design); • buildings or models of a building; or • works of artistic craftsmanship. Thus, other than the exceptions just mentioned, anyone may copy the design embodied in a product once it has been industrially applied and the resulting products have been offered for sale without being liable for copyright infringement.
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C. Where a corresponding design is not registered under the Designs Act and the design appears in a patent specification or a design application 4.56 Section 77(1A) of the Copyright Act provides that copyright infringement is not available against a person in the following circumstances: • a design corresponding to an artistic work is not registered under the Designs Act or is not capable of being registered; and • a product made to the corresponding design is revealed in a patent specification or a design application. Digga Australia Pty Ltd v Norm Engineering Pty Ltd (2008) 245 ALR 407; 75 IPR 251; [2008] FCAFC 33 Facts: Norm Engineering (Norm) designed a new industrial bucket to be used with Bobcat equipment. The Norm bucket could perform a number of functions and is referred to in its marketing literature as the ‘4 in 1 bucket’. The new design was contained in a number of drawings as well as in the final product. The new design was not registered under the Designs Act and was not the subject of a patent grant.
128 (1993) 112 ALR 671; 26 IPR 113. 129 (1987) 79 ALR 534; 11 IPR 77.
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Marketing and the Law Digga Australia acquired one of the 4 in 1 buckets and, through a process of reverse engineering, produced its own 4 in 1 bucket. Norm sued for infringement of copyright in the drawings. Digga argued that, even if Norm’s copyright claim was valid, the defences under ss 74–77A of the Copyright Act applied. Decision: Copyright subsisted in the drawings. Digga had not copied the drawings, but it had copied the product which was based on those drawings. Therefore, there was copyright infringement, unless s 77 applied. Norm’s 4 in 1 bucket embodied a design that corresponded to the artistic work (the drawings). Norm had industrially applied the design. The design had not been registered under the Designs Act. Therefore, Digga had not infringed Norm’s copyright by producing its own copy of the 4 in 1 bucket.
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Indirect Infringement of Copyright — Authorising Infringement 4.57 It is an infringement of copyright to authorise infringement by another person: Copyright Act ss 36 and 101 (Pt IV material). To authorise something is to ‘sanction, approve, countenance’ or even permit that thing. Evidence of express or formal permission is not necessary. In appropriate circumstances ‘inactivity’ or ‘indifference’ may be sufficient. Ultimately, ‘authorisation’ is a question of control. Sections 36(1A) (works) and 101(1A) (Pt IV material) provide that in determining whether an infringement of copyright has been authorised, the court must take into account all relevant matters, including: • the extent (if any) of the person’s power to prevent the doing of the act concerned; • the nature of any relationship existing between the person and the person who did the act concerned; and • whether the person took any reasonable steps to prevent or avoid the doing of the act, including whether the person complied with any relevant industry codes of practice.
Libraries 4.58 In University of New South Wales and Angus & Robertson (Publishers) Pty Ltd v Moorhouse,130 Frank Moorhouse, a well-known Australian author, was successful in alleging authorisation against a university library which took no steps to prevent students and staff from infringing copyright by use of a photocopying machine. As a result of this case, the Copyright Act was changed to protect libraries from claims of authorisation, provided the library put up a notice bringing the provisions of the Copyright Act to the notice of users of the photocopier. In the online context, 130 (1975) 133 CLR 1; 6 ALR 193; [1975] HCA 26.
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recent amendments to the Copyright Act also protect libraries against charges of infringement by authorisation where use has been made of the online resources of a library.
Clubs and other live music venues 4.59 The owners of copyright in musical and literary works face obvious difficulties in detecting infringements of their rights. This is particularly so in respect of songs. The musical and literary copyright in a song is potentially infringed whenever the song is performed live by a cover band, or whenever a recording of the song is played at a public venue or bar or played over the radio or on television. For this reason, most copyright owners are members of APRA AMCOS, previously known as the Australasian Performing Right Association Ltd. Members assign the performance and communication rights in their work to APRA AMCOS, which then negotiates agreements with the radio and television stations, owners of music venues, event promoters, and others. APRA AMCOS also monitors live, broadcast, and other performances to ensure compliance with the Copyright Act. In Australasian Performing Right Association Ltd v Canterbury-Bankstown League Club Ltd,131 the club was held to have authorised infringement of copyright in respect of music performed by the orchestra at club dances. The club had no knowledge of the music to be played by the orchestra, nor did it seek to be consulted on the matter. However, by giving the orchestra general authority to play what it wished, the club had authorised the orchestra within the meaning of s 36 of the Copyright Act. A similar result was reached in Australasian Performing Right Association Ltd v Jain.132
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Australasian Performing Right Association Ltd v Metro on George Pty Ltd (2004) 210 ALR 244; 61 IPR 575; [2004] FCA 1123 Facts: Metro on George (the venue) was a popular venue in Sydney for cabarets, award nights, and theatrical performances. Many of these occasions involved live musical performances. The company Metro on George Ltd (Metro) controlled the venue, but did not run the performances. Rather, Metro hired the venue to independent promoters. Metro, however, supplied the bar facilities, promotional advertising, security, and, if required, ticketing services. Metro had no control over, or input into, the choice of songs performed. All persons who hired the venue were required to sign a contract, in which the hirer warranted that: Metro does not authorise or permit any particular performance whether containing copyright material or otherwise. The Hirer warrants that it will ensure all performances at the event will comply with the Copyright Act and the licence requirements of the Australian Performing Right Association [APRA]. Despite warnings from APRA, music continued to be performed at the venue without the proper licence from APRA. APRA sued.
131 [1964–5] NSWR 138. 132 (1990) 26 FCR 53; 96 ALR 619; 18 IPR 663.
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Marketing and the Law Decision: The court held that Metro had authorised the copyright infringements because it was in control of how the premises were used. Metro had not taken any reasonable steps (within the meaning of s 36(1A)(c) of the Copyright Act) to prevent or avoid the copyright infringements. The term of the hiring contract was insufficient in the circumstances.
Hardware and modern software technology 4.60 Reproduction technology — whether hardware products (such as tape recorders, video recorders, and CD recorders) or software products (such as digital compression technology, including MP3 and file-sharing systems like BitTorrent) — has created problems for copyright owners. The problem is essentially a s 36 problem. As it is impossible to track down every person who copies a piece of music without permission, copyright owners have concentrated on pursuing those who could be said to have authorised such infringement. In the days before the advent of modern software technology, the first target was manufacturers of twindeck tape recorders: see CBS Songs Ltd v Amstrad Consumer Electronics plc133 and Amstrad Consumer Electronics plc v British Phonographic Industry Ltd.134
4.60C
CBS Songs Ltd v Amstrad Consumer Electronics plc [1988] AC 1013; [1988] 2 All ER 484; (1988) 11 IPR 1 Facts: CBS alleged that Amstrad had authorised illegal taping by manufacturing and selling twin-deck tape recording machines.
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Decision: The House of Lords rejected the argument. ‘Authorising’ meant to ‘sanction, approve or countenance’. On the facts, Amstrad had not done this. The twin-deck tape recorder had legitimate uses and Amstrad had no control over the use to which the recorders were put after purchase.
Thus, provided manufacturers of reproduction equipment are careful in their advertising not to sanction, approve, or countenance illegal taping, they will not be liable for illegal taping done by those who purchase their equipment. The High Court reached a similar conclusion in relation to the sale of blank tapes in Australian Tape Manufacturers Association Ltd v Commonwealth of Australia.135
Software 4.61 Can the provider of software platforms such as Pirate Bay be held liable under s 36 of the Copyright Act because the software is used to locate and copy films or music without authorisation? The key to this issue is the meaning of ‘authorise’. 133 [1988] AC 1013; [1988] 2 All ER 484; (1988) 11 IPR 1, see 4.60C. 134 [1986] FSR 159. 135 (1993) 176 CLR 480; 112 ALR 53; 25 IPR 1.
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In the US an injunction was granted against file sharing website Napster in A&M Records Inc v Napster Inc.136 Napster differs from tape manufacturers in two respects. First, it was aware that its users were infringing copyright and, second, it has the power to control access by such users. In Metro-Goldwyn-Mayer Studios Inc v Grokster Ltd,137 the US Supreme Court held Grokster and Streamcast liable for authorising infringement of US copyright law. According to the Court, where a person distributes a device with the purpose of promoting its use to infringe copyright (as evidenced by clear expression or other affirmative steps taken to foster infringement, which goes beyond mere distribution), he or she is liable for infringement. In Australia, the file sharing site Kazaa was held liable for authorising copyright infringement: see Universal Music Australia Pty Ltd v Sharman Licence Holdings Ltd.138
Website linking
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4.62 In Cooper v Universal Music Australia Pty Ltd,139 Cooper ran a website that linked users of his website to MP3 music files. Most of the links were provided by site users. Cooper knew this. Indeed, the links could not have been added without Cooper making the appropriate facility available. Cooper did not have permission from the copyright owners to do this. No songs were stored on Cooper’s computers. By clicking on the hyperlink, the website users downloaded copies of songs without permission. The copyright owners argued that Cooper had unlawfully authorised infringement of their copyright. Each time one of the website users downloaded a song without permission, they infringed copyright. The court held that Cooper knowingly approved of and permitted his website to be used to infringe copyright. Cooper had sufficient control of his own website to take steps to prevent the infringements, but failed to do so.
ISPs 4.63 Can an Internet service provider (ISP) be liable for authorising infringement of copyright? Where the ISP is fully aware of the infringement and takes an active role in the acts that constitute the infringement, the ISP is clearly liable: see Cooper v Universal Music Australia Pty Ltd.140 However, the ISP is not liable just because a subscriber uses the facility provided to engage in infringement of copyright: Copyright Act s 112E. There must be evidence that the ISP sanctioned, approved, or countenanced the infringement.
136 (2000) 50 IPR 232; 239 F 3d 1004 (2001). 137 125 SCt 2764 (2005). 138 (2005) 220 ALR 1; 65 IPR 289; [2005] FCA 1242. 139 (2006) 237 ALR 714; 71 IPR 1; [2006] FCAFC 187. 140 (2006) 237 ALR 714; 71 IPR 1; [2006] FCAFC 187, see 4.62.
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4.63C
Roadshow Films Pty Ltd v iiNet Ltd (2012) 248 CLR 42; 286 ALR 466; 95 IPR 29; [2012] HCA 16 Facts: This action was brought by 34 of the major motion picture studios, including Universal, Disney, Paramount, Warner Bros, Twentieth Century Fox, and Village Roadshow (the companies’ representative was AFACT, the Australian Federation Against Copyright Theft) against iiNet, the second largest ISP in Australia. A number of iiNet’s subscribers and users made unlawful copies of films on the Internet using a peer-to-peer system known as BitTorrent. iiNet had no control over and no involvement in the operation of the BitTorrent system. The applicants provided details of these infringements to iiNet with a view to iiNet taking certain steps to put a stop to the contraventions (AFACT notices). The applicants wanted iiNet to send a letter of warning to the relevant subscribers. If the warning did not stop the infringements, the applicants wanted iiNet to suspend services to the relevant subscribers. The applicants also wanted iiNet to block certain websites. iiNet failed to take any of these steps. As a result, the applicants alleged that iiNet was authorising copyright infringement. At first instance, Cowdroy J held that iiNet did not authorise copyright infringement. Roadshow’s appeal to the Full Federal Court was dismissed. Special leave to appeal to the High Court was given to AFACT. Decision: The High Court unanimously dismissed the appeal. iiNet did not authorise the infringement. French CJ, Crennan, and Kiefel JJ concluded that:
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iiNet should be taken to have authorized the infringements unless it took measures with respect to its customers, assumes obligations on the part of an ISP which the Copyright Act does not impose … The extent of iiNet’s power was limited to an indirect power to prevent a customer’s primary infringement of the [plaintiffs’] films by terminating the contractual relationship between them. The information provided in the AFACT notices, as and when they were served, did not provide iiNet with a reasonable basis for sending warning notices to individual customers containing threats to suspend or terminate those customers’ accounts. For these reasons, iiNet’s inactivity after receipt of the AFACT notices did not give rise to an inference of authorisation (by ‘countenancing’ or otherwise) of any act of primary infringement by its customers.
In Roadshow Films Pty Ltd v iiNet Ltd,141 the High Court hinted that legislative reform might be needed in this area, stating that ‘[t]he difficulties of enforcement which such infringements pose for copyright owners have been addressed elsewhere … by specially targeted legislative schemes …’.142 The government has now taken up this challenge, see 4.71.
141 (2012) 248 CLR 42; 286 ALR 466; 95 IPR 29; [2012] HCA 16, see 4.63C. 142 At [79].
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Safe Harbour Defences for Online Intermediaries 4.64 Part V Div 2AA (ss 116AA–116AJ) of the Copyright Act sets out what is known as a safe harbour regime of limited defences for service providers who may otherwise be considered liable for authorising copyright infringement when their facilities or services are used to upload or transmit copyright infringing material. In order to take advantage of this defence, service providers must comply with conditions aimed at reducing online copyright infringement. These conditions include what is known as the notice and takedown regime, pursuant to which service providers must takedown or disable access to allegedly infringing online copyright material upon receipt of a notice from the copyright owner: s 116AH(1). Initially the safe harbour regime only applied to ‘carriage service providers’. This is compared to other countries such as the USA where the defence extends to a much broader range of online service providers, capturing search engines, social media platforms, YouTube and other content hosts. Australia’s provisions are essentially limited to ISPs and, as of December 2018,143 a select range of other providers. These 2018 amendments extended the safe harbour regime to a very limited range of service providers: an organisation assisting persons with a disability; libraries, archives, key cultural institutions and educational institutions.
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Indirect Infringement — Importing and Dealing 4.65 Copyright is infringed by a person who, without the licence of the owner of the copyright, imports an article into Australia for the purpose of selling, hiring, distributing, or exhibiting by way of trade the article, if the importer knew, or ought reasonably to have known, that the making of the article would, if the article had been made in Australia by the importer, have constituted an infringement of the copyright: Copyright Act ss 37 (works) and 102 (SMOTW). Milpurrurru, Marika, Payunka & Public Trustee for the Northern Territory v Indofurn Pty Ltd, Bethune, King & Rylands (1994) 130 ALR 659; 30 IPR 209 Facts: Indofurn imported some carpets to Australia which were made in Vietnam. The design on the carpets was based on certain Aboriginal paintings which Indofurn had selected and
143 Copyright Amendment (Service Providers) Act 2018.
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Marketing and the Law supplied to the carpet weavers. Indofurn did not ask permission from the artists. Because of cultural and religious significance, permission would never have been granted. The carpets did not follow the paintings exactly. They were altered to make them less ‘complicated’ and more marketable. Nevertheless, the essential and distinctive features were taken. The plaintiff sued Indofurn and its directors under s 37 of the Copyright Act, which prohibits the importation of material that infringes copyright. Decision: The evidence clearly established that the defendant had acted with the intention of taking from the applicants’ paintings so as to save the time and labour of creating an appropriate work itself. Indofurn was held liable under s 37 of the Copyright Act for knowingly importing infringing works and was ordered to pay damages. The directors were also held liable. The non-executive directors were successful in their appeal against liability: see King & Rylands v Milpurrurru, Marika, Payunka & Public Trustee (NT).144
Copyright is also infringed by a person who, without the licence of the owner of the copyright, sells, hires, distributes, or exhibits by way of trade the article, if the person knew, or ought reasonably to have known, that the making of the article constituted an infringement of the copyright or, in the case of an imported article, would, if the article had been made in Australia by the importer, have constituted such an infringement: Copyright Act ss 38 (works) and 103 (SMOTW).
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Parallel importing of copyright material 4.66 The indirect infringement provisions have traditionally applied to parallel importation cases. Parallel importing occurs where an article (embodying copyright material) is lawfully made and purchased overseas, but is then brought into Australia without licence, express or implied, from the Australian rights holder. This is sometimes referred to as grey marketing to distinguish it from black-market dealings (that is, dealings in counterfeit goods). Normally the courts will not infer a licence in cases of parallel importing.
4.66C
Interstate Parcel Express Co Pty Ltd v Time-Life International (1977) 138 CLR 534; 15 ALR 353; 1B IPR 253 Facts: The copyright owner in certain cookbooks appointed Time-Life as the exclusive licensee for Australia. Another firm purchased the books in the United States and imported them into Australia, where they went on the market at half the price charged by Time-Life. Time-Life claimed that this was contrary to s 37 of the Copyright Act. The importer argued in its defence that, as it had purchased the books lawfully in the United States, it had an implied licence to import and sell the books anywhere in the world. Decision: The High Court decided that there was no implied licence to import the books into Australia for the purpose of dealing with them in a commercial way. The mere fact that the 144 (1996) 136 ALR 327; 34 IPR 11.
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The Time-Life case was applied to prevent parallel importing of computer software in Computermate Products (Australia) Pty Ltd v Ozi-Soft Pty Ltd.145 The prohibition on parallel importing was controversial. The Time-Life case showed that exclusive licences could be used by multinational producers to inflate prices and control release dates. In both cases the consuming public suffers. As a result, the Copyright Act was amended. It is not an infringement of copyright to import or deal in: • non-infringing books: Copyright Act s 44A; • non-infringing sound recordings: Copyright Act ss 112D and 44D; • non-infringing computer programs: Copyright Act s 44E; and • non-infringing ‘electronic literary or music items’; that is, a book, or a periodical publication, or sheet music in electronic form: Copyright Act s 44F.146 Films, however, remain protected against parallel importing. The price difference between the Australian market compared to the United States and the United Kingdom for hardware and software (including games, e-books, music, and films) was the subject of an inquiry into IT pricing.147 Over 130 written submissions were received. When releasing the results of the inquiry, the chair said, ‘The committee found that big IT companies and copyright holders charge Australians, on average, an extra 50 per cent.’148
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Parallel importing — accessories to imported articles 4.67 Copyright in such things as labels, packaging, and instruction manuals has been used in the past to prevent goods from being imported into Australia. For example, in Bailey & Co Ltd v Bocaccio Pty Ltd,149 copyright in the Bailey’s Irish Cream label (an artistic work) was used to prevent importing of Bailey’s Irish Cream, even though the product itself was not protected by any intellectual property. Similarly, in Pioneer Electronics Australia Pty Ltd v Lee,150 copyright in
145 (1988) 83 ALR 492; 12 IPR 487. 146 A non-infringing book is one made lawfully in a country that is specified in the Copyright Regulations: Copyright Act 1968 s 10. This covers most developed states. A non-infringing sound recording, computer program, or ‘electronic literary or music item’ is one made lawfully in a qualifying country: Copyright Act 1968 ss 10AA–10AC. A qualifying country is a country that is a party to the Berne Convention or is a member of the World Trade Organization (and complies with the TRIPS provisions on copyright protection). 147 See House of Representatives Standing Committee on Infrastructure and Communications, Inquiry into IT Pricing: At What Cost? IT Pricing and the Australia Tax, Canberra, 2013. 148 House of Representatives Standing Committee on Infrastructure, Media Release, 29 July 2013. 149 (1986) 6 IPR 279. 150 (2000) 51 IPR 291; [2000] FCA 1926.
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trade marks and instruction manuals was used to prevent parallel importation of Pioneer DVD players. Sections 44C and 112C of the Copyright Act now provide that the importation of accessories (in which copyright subsists) is not prohibited by ss 37–38 or ss 101–103, provided the accessory is a non-infringing accessory. This raises two questions. First, what is an accessory? Second, what is a non-infringing accessory? An accessory is defined broadly under ss 10 and 10AD of the Copyright Act. Under s 10, an accessory includes any label, packaging, or instruction (whether written or contained in a sound recording or a film). This overcomes the problem in such cases as Bailey & Co Ltd v Bocaccio Pty Ltd151 and Pioneer Electronics Australia Pty Ltd v Lee.152 Trade marks, brand names, and logos are labels: Polo/Lauren Company LP v Ziliani Holdings Pty Ltd.153 Under s 10AD of the Copyright Act, an accessory now includes any copyright material (other than a feature film) attached to or embodied in an article that contains a computer program, a sound recording, or an ‘electronic literary or music item’ (that is, a book, or a periodical publication, or sheet music in electronic form). This means that products such as enhanced CDs can now be imported without seeking permission from the Australian copyright holder. To be ‘non-infringing’, the accessory must have been made lawfully in a qualifying country as described above.
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Remedies, Orders and Other Matters 4.68 The following court orders are available as a remedy for a copyright owner in appropriate circumstances: • damages or an account of profits; • injunctions; and • delivery up of infringing materials.
Damages or an account of profits 4.69 A successful plaintiff may claim damages: Copyright Act s 115. Copyright infringement is treated as a tort: WEA International Inc v Hanimex Corp Ltd.154 Therefore, the essential function of damages is to compensate the owner for the loss in value of the copyright caused by the infringement. If the defendant is able to prove that he or she did not know and had no reasonable grounds for suspecting that an infringement of copyright was occurring, the court may refuse to award damages: s 115(3); although an account of profits would still be available. 151 (1986) 6 IPR 279. 152 (2000) 51 IPR 291; [2000] FCA 1926. 153 (2008) 75 IPR 143; [2008] FCA 49. 154 (1987) 17 FCR 274; 77 ALR 456; 10 IPR 349.
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It is difficult to establish this defence, particularly if a copyright notice is attached to the work: Kalamazoo (Australia) Pty Ltd v Compact Business Systems Pty Ltd.155 To establish the defence, the defendant has to prove that he or she has undertaken reasonable enquiries as to whether copyright exists. Additional damages may be available for flagrant infringement: Copyright Act s 115(4). These are effectively punitive damages in that they punish wrongdoers rather than compensate the innocent party. In determining whether to award additional damages, the court must have regard to the flagrancy of the infringement, any benefits flowing to the wrongdoer as a result of the infringement, and the conduct of the wrongdoer after becoming aware of the infringement. The courts also consider the issue of deterrence. In Microsoft Corporation v Goodview Electronics Pty Ltd,156 the court awarded Microsoft additional damages of $500,000 for infringement of copyright in its software. In Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd157 the defendant was ordered to pay $150,000 in additional damages because the infringement was flagrant, the infringement continued after the plaintiff had warned the defendant, and there was a need to deter the defendant whose business plan involved deliberately copying successful clothing ranges. FNH Investments Pty Ltd v Sullivan (2003) 59 IPR 121; [2003] FCAFC 246 Facts: Sullivan, a photographer, was commissioned by FNH Investments to take photographs of FNH’s resort. The contract provided that FNH would be entitled to use the photographs once Sullivan’s account was paid. FNH complained about the quality of the photographs and aggressively refused to pay. Despite this, FNH used the photos in its promotional material, in a magazine article about the resort, and even converted the photos to digital images for use on its website. Sullivan sued and sought additional damages. The court decided in favour of Sullivan. FNH appealed.
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Decision: The Full Court dismissed the appeal. FNH was ordered to pay the plaintiff’s account of $7,425 plus additional damages of $15,000.
Conversion damages are available: Copyright Act s 116. A conversion is a tort and occurs where one party, without authority, deals with the property of another person in a way that is inconsistent with the owner’s ownership. For example, it is conversion to sell another’s property without his or her permission. The damages are the sale price of the property sold. No deduction is made for the wrongdoer’s costs. This makes conversion a worthwhile remedy. The Copyright Act treats infringing copies as if they were the property of the copyright owner. For example, if someone illegally makes prints of an artist’s work, the prints so made are regarded as the property of the artist. Therefore, 155 (1985) 5 IPR 213. 156 (2000) 49 IPR 578; [2000] FCA 1852. 157 [2008] FCAFC 197, see 4.44C.
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selling the prints amounts to an act of conversion, entitling the artist to seek conversion damages. The damages would be the amount for which the prints were sold. Although the copyright owner can seek damages for infringement and damages for conversion, the court will not make an award that effectively gives the copyright owner two lots of damages. The copyright owner may elect to have an account of profits instead of damages. The owner cannot have both damages and an account of profits: Facton Ltd v Rifai Fashions Pty Ltd.158 The difficulty with electing an account of profits is assessing the defendant’s profits.
Other remedial powers, including interlocutory orders 4.70 The court may grant interim injunctions, Mareva injunctions, and make Anton Piller orders.159 Permanent injunctions may be ordered in appropriate circumstances. An injunction is a discretionary remedy and the courts will refuse to grant one if the plaintiff has acquiesced in the defendant’s conduct. Because the infringing copies are regarded as the property of the copyright owner, that person may seek an order for the copies to be delivered up by the defendant: Copyright Act s 116. This will normally only be made along with an injunction where it is necessary to make the injunction effective.
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Injunctions against online sites providing access to overseas online copyright infringing locations 4.71 As a result of cases such as Roadshow Films Pty Ltd v iiNet Ltd discussed above at 4.63C, the Copyright Act was amended to introduce a new ‘blocking injunctions’ remedy: s 115A. This is the result of the government’s efforts to deal with online infringement and potential liability of online intermediaries such as ISPs, for authorising infringement. The remedy is designed to deal only with overseas piracy websites. Under s 115A, a copyright owner can make an application to the Federal Court for an injunction requiring a Carriage Service Provider (as defined under the Telecommunications Act 1997 — in effect an ISP or telco) to block or disable access to an online location outside Australia that has the primary purpose or primary effect of infringing copyright or facilitating the infringement of copyright (whether or not in Australia). There have been a number of online location blocking orders made under s 115A, with most applications made by record or film companies to stop infringing offshore websites. For example in 2017 the Federal Court made an order under s 115A requiring TPG Internet to block the popular piracy website, Kickass Torrents, which was facilitating infringement of Universal Music’s copyright in 158 (2012) 287 ALR 199; 95 IPR 95; [2012] FCAFC 9. 159 See Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55; [1976] 1 All ER 779.
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its sound recordings.160 Section 115A was subsequently amended161 so that it now also applies to online search engine providers (rather than just carriage service providers) and this extends the scope of the remedy for copyright owners.
Criminal penalties and seizure powers 4.72 There are criminal penalties for a number of acts, including selling, making, hiring, exhibiting, or importing an article, which infringe copyright: Copyright Act Pt V Div V. Sanctions can include imprisonment: see Ly v The Queen.162 Customs has the power to seize infringing material: Copyright Act s 135(7).
Making unjustified threats 4.73 Care must be taken when threatening another with an action for infringement of copyright. If the threats are not justified, the person threatened may claim damages: Copyright Act s 202. This provides a deterrent against unjustifiable intimidation which might have the effect of preventing competition or discouraging the use of skills.
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Circumvention devices 4.74 To protect their work against piracy, copyright owners of computer program software products often build electronic locks or other protection devices into their products. For example, Sony protects its Playstation software through the use of access codes. Pirates, however, are forever trying to overcome these protection measures. Copyright owners have an action against any person who makes, sells, or uses a device whose purpose is to overcome locks or protection measures that copyright owners build into their products to prevent unauthorised copying: Copyright Act Pt V Div 2A Subdiv A. Copyright owners also often attach electronic rights management information to their products. Copyright owners have an action against anyone who removes or alters such information and against anyone who imports or distributes products from which such information has been removed: Copyright Act Pt V Div 2A Subdiv B.
International Aspects of Copyright 4.75 There is no international copyright. Copyright is protected by national laws of each state. Those laws, however, are quite similar. No formalities are required. 160 Universal Music Australia Pty Ltd V TPG Internet Pty Ltd (2017) 348 ALR 493; 126 IPR 219; [2017] FCA 435. 161 Copyright Amendment (Online infringement) Act 2018. 162 (2014) 315 ALR 398; [2014] FCAFC 175, see 7.59C.
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States apply the doctrine of national treatment to foreign copyright. This means that states treat foreign copyright in the same manner as they treat copyright belonging to locals. By virtue of reg 4 of the Copyright (International Protection) Regulations as amended, the provisions of the Copyright Act apply to works first published in other countries, in like manner as those provisions apply in relation to works first published in Australia and to Australian residents. Australia is a signatory to a number of international treaties or conventions dealing with copyright, including the Berne Convention,163 the TRIPS Agreement — an intellectual property agreement that is an annexure to the treaty establishing the World Trade Organization164 — and the US-Australia Free Trade Agreement.165
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Marketing Advice 4.76 Copyright issues are now quite common in business. • There is no need to mark ‘copyright’ on files or other material, but this is good practice and acts as a warning to those who may not know much about copyright law. • Copyright is critical to the music, book, film, computer, advertising, and retail entertainment industries and important for every business that has an online presence. • Copyright cannot be relied on to protect industrial designs. Designers should consider whether to register their designs under the Designs Act. • Copyright ownership and licensing issues often arise when work is outsourced. It is cheaper and more efficient to consider such issues at the outset rather than leave them to be determined by a court at a later date. • Businesses must be careful to avoid not only direct infringement of copyright, but also indirect infringement, such as authorising copyright infringement, and importing or dealing in infringing copies.
163 The Berne Convention for the Protection of Literary and Artistic Works was formed in 1886 and since then has been revised or added to on numerous occasions. The latest extension to which Australia is a signatory is 1971 (Paris). 164 Signed in Marrakesh, Morocco, on 15 April 1994. 165 US Free Trade Agreement Implementation Act 2004 (Cth).
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Protecting Commercial Designs
5
Introduction to the Designs Act ....................................................... 5.2 Purpose of the Designs Act ............................................................... 5.3 Designs Act in Practice ...................................................................... 5.4 The Nature of a Design ..................................................................... 5.5 Definition of a design ..................................................................... 5.5 Definition of a product .................................................................. 5.6 Distinction between the design and the product ...................... 5.7 Distinction between visual feature and function ...................... 5.8 Component and spare parts .......................................................... 5.9 When is a Design Registrable? ......................................................... 5.10 When is a design new? ................................................... 5.11 When is a design distinctive? ....................................................... 5.12 What is included in the prior art base? .................................... 5.13 A. When has a design been publicly used in Australia? ............................................................................... 5.14 B. When has a design been published within or outside Australia? ................................................................. 5.15 C. Publications and uses that do not destroy novelty or distinctiveness..................................................... 5.16 What is the priority date? ............................................................. 5.17 Design Rights ...................................................................................... 5.18 Registering a Design .......................................................................... 5.19 How long does registration last? ................................................. 5.19 Who may register a design? ............................................................. 5.20 The registration process ........................................................... 5.21 The examination process ............................................................... 5.22 Infringement of Designs ...................................................................... 5.23 187
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Identical or substantially similar in overall impression ........... 5.24 Defences ......................................................................................... 5.25 Remedies for Infringement .............................................................. 5.26 Court orders ................................................................................... 5.26 Making unjustified threats ........................................................... 5.27 Offences .......................................................................................... 5.28 Why Register? Industrial Designs and Other Laws ...................... 5.29 Industrial designs and the Copyright Act .................................. 5.30 Industrial designs and the Patents Act ................................ 5.31 Industrial designs and passing off ............................................... 5.32 Review of the Design System .......................................................... 5.33 International Aspects of Designs Law ............................................ 5.34 Circuit Layout Rights ........................................................................ 5.35 Marketing Advice ............................................................................... 5.36
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5.1 The way a product looks can be an important element of marketing. A distinctive appearance can give a product an edge in the marketplace. The law provides some protection to this aspect of marketing. This chapter examines the law relating to industrial designs, in particular the Designs Act 2003 (Cth).
Introduction to the Designs Act 5.2 Some protection for designs may be obtained from copyright law, or from passing off, or from the law relating to misleading or deceptive conduct. These are discussed later in the chapter. In the main, however, protection for industrial designs is governed by the Designs Act. The Designs Act provides a system of registration for new and distinctive designs. Certain designs cannot be registered under the Designs Act, the main one being circuit layouts. The Circuit Layouts Act 1989 (Cth) provides protection for original layout designs for integrated circuits and computer chips. This Act is discussed briefly at 5.35.
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Purpose of the Designs Act 5.3 The purpose of the Designs Act is to protect the look by which a product is presented for sale. It is not intended to protect the product’s function, its feel, its uses, or the way in which it is constructed. Perhaps the most common misconception made about the Designs Act is the belief that it protects functional innovations. The misconception arises because some designers seem to confuse function and appearance. A good example is Firmagroup Australia Pty Ltd v Byrne & Davidson Doors.1 Firmagroup Australia Pty Ltd v Byrne & Davidson Doors (1987) 180 CLR 483 Facts: Firmagroup Australia Pty Ltd was the owner of a registered design for a ‘combination handle and lock for shutter doors’. The product was innovative in that it used a plate which included a keyhole and recessed door handle. Firmagroup sued Byrne & Davidson for infringing its design. The registered design and the allegedly infringing design are depicted below.
1
Defendant’s design
Plaintiff’s design
(1987) 180 CLR 483, see 5.3C.
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Marketing and the Law Decision: The High Court refused to interpret the design monopoly so as to protect the concept of a rectangular plate with keyhole and recessed handle: ‘The idea of shape or configuration conveyed by those features is altogether too general to attract statutory protection’. The court limited the monopoly to the specific, individual appearance of the Firmagroup combination lock and recessed handle. Firmagroup was thus unable to stop competitors from producing a similar product using a recessed handle and lock. The defendant had sufficiently distinguished its product. Consequently, there was no breach.
This distinction between a ‘design innovation’ and a ‘functional innovation’ is critical to an understanding of the Designs Act. Although the Firmagroup case was decided under the old Designs Act, there is no reason to believe that the outcome would necessarily be different under the new Act. Functional innovations are protected under the Patents Act 1990 (Cth). Function is irrelevant to the scope of the Designs Act. Of course, an innovative product design may also have innovative functional characteristics. It may therefore be necessary to consider registration under both the Designs Act and the Patents Act. The justification for providing this state-guaranteed monopoly is that it encourages innovation in design. However, there are those who argue that a design monopoly is not justified on economic or other grounds and that, in fact, the Designs Act may even stifle innovation at the same time as stifling competition. Protection under the Designs Act depends on registration. Provided the design is properly registered, the registered owner gets a maximum 10-year monopoly on the use of that design in relation to the product in respect of which it is registered.
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Designs Act in Practice 5.4 Industry does not make as widespread use of the Designs Act as it does of the Patents Act or the Trade Marks Act 1995. For example, in 2015, compared with applications to register designs, about four times as many patents applications were made and approximately 10 times as many applications to register trade marks.2 Whilst there has been an increased number of design applications in recent years, applications from non-residents account for most of this increase.3 Australia, together with other English-speaking countries, has traditionally treated designs as being of less importance than continental Europe and Japan do.4
2
Productivity Commission, Intellectual Property Arrangements, Inquiry Report, No 78, 23 September 2016, p 339, available at . 3 Productivity Commission, Intellectual Property Arrangements, Inquiry Report, above n 2, at p 339. 4 See generally Bureau of Industry Economics, The Economics of Intellectual Property Rights for Design, Occasional Paper 27, AGPS, 1995.
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The Nature of a Design Definition of a design 5.5 Under the Designs Act, a reference to a ‘design’ is always a design used in relation to a product: Designs Act s 8. A design of a product means the overall appearance of the product resulting from one or more visual features of the product: Designs Act s 5. Visual features include the shape, configuration, pattern, or ornamentation of the product: Designs Act s 7(1). Therefore, a design may be three-dimensional (as, for example, the shape or configuration of a coffee pot), or two-dimensional (such as the pattern or ornamentation on a curtain or a carpet). A product may have both a new shape plus a new pattern embodied in it. It is not possible for a designer to register a shape or pattern per se. For example, a designer who created a new pattern to be applied to curtains and wallpaper would have to register the design in respect of both products. A visual feature may, but need not, serve a functional purpose: Designs Act s 7(2). However, the visual features do not include the feel of the product or the materials used in the product: Designs Act s 7(3). In the case of a product that has one or more indefinite dimensions, the visual features do not include the indefinite dimension: Designs Act s 7(3).
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Definition of a product 5.6 A ‘product’ is a thing that is manufactured or hand made: Designs Act s 6(1). A component part of a product may be a product for the purposes of the Designs Act, if it is made separately from the product: Designs Act s 6(2); otherwise it is not a product in respect of which a design may be registered. A problem that arose under the old law was the issue of products produced in indefinite lengths. For example, items such as door frames, glazing jambs, guttering, and insulating panels vary in length and perhaps width according to the particular job in hand. Section 6(3) of the Designs Act provides that these items are products (and therefore capable of embodying a registrable design) if any one or more of the following applies to the thing: (a) a cross-section taken across any indefinite dimension is fixed or varies according to a regular pattern; (b) all the dimensions remain in proportion; (c) the cross-sectional shape remains the same throughout, whether or not the dimensions of that shape vary according to a ratio or series of ratios; (d) it has a pattern or ornamentation that repeats itself.
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Section 6(4) of the Designs Act provides that a kit which, when assembled, is a particular product, is taken to be that product.
Distinction between the design and the product 5.7 A fundamental aspect of designs law is the distinction between the product and the design (whether three-dimensional or two-dimensional) that is applied to it.5 If a manufacturer creates a new type of coffee pot, the Designs Act will only protect the particular shape of the coffee pot, not the idea of a coffee pot itself. If a product has only one possible shape it will not be possible to register a design in relation to that product, as that would be equivalent to granting a monopoly over the product itself. The Designs Act will not grant monopolies for the fundamental or essential form of a product. Of course, determining the fundamental or essential form of a product will often be a difficult question. For example, what is the fundamental form of an evaporative air conditioner? The following case was decided under the old Act of 1906, but is nevertheless relevant to the new law. Fortunately, this is likely to be a rare occurrence, as most articles will have more than one possible shape.6 Dalgety Australia Operations Ltd v FF Seeley Nominees Pty Ltd (1985) 68 ALR 458; 5 IPR 97
5.7C
Facts: Dalgety designed a slim upright air conditioner and registered the design pursuant to the Designs Act. Prior to this, air conditioners had had a thick or ‘chunky’ appearance. Dalgety sued Seeley for infringement of design. Seeley countered that the Dalgety design was not registrable.
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Decision: The court made it clear that the Designs Act cannot be used to obtain a monopoly in an article, stating that: It is essential to remember that the Act gives a monopoly in design and not to the trading of the article to which it is applied. Without the design the article would still have its own character. That is to say, without a design a chair would still be a chair, a fork would still be a fork, a table would still be a table. The idea in the design will operate on the article. The design will appeal to the eye giving that article its own peculiar appearance to the eye. The design turns a chair into something more than a mere chair. It becomes a chair with a conception or suggestion about shape or configuration beyond the fundamental form of a chair. If something said to be a design does not by appeal to the eye take the article beyond the fundamental form of the class of article under consideration it is not a registrable design. The fundamental form of any class of article will be something of the most rudimentary kind. The fundamental form of air conditioners, before the Dalgety product, was of a ‘thick’ box or
5
Re Wolanski’s Registered Design (1953) 88 CLR 278; Malleys Ltd v JW Tomlin Pty Ltd (1961) 35 ALJR 352; 1A IPR 559. 6 See Stenor Ltd v Whitesides (Clitheroe) Ltd [1948] AC 107; [1947] 2 All ER 241; (1947) 65 RPC 1, in which a fuse was held to have only one shape and was, therefore, unregistrable.
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Chapter 5: Protecting Commercial Designs cabinet on a stand. The thinness of the Dalgety air conditioner went beyond this fundamental form and was registrable. The decision was upheld on appeal.7
Distinction between visual feature and function 5.8 As previously mentioned, the Designs Act is not concerned with function. Thus, if the creative element in the hypothetical coffee pot is the way it works (its function), the manufacturer should register under the Patents Act. If, however, the innovation is both a visual feature and functional, there is nothing to stop the design being registered: Designs Act s 7(3). British Franco Electric Pty Ltd v Dowling Plastics Pty Ltd [1981] NSWLR 448 Facts: Dowling Plastics and British Franco Electric entered into a joint venture to manufacture and market furniture castors. The castor had been developed by Dowling Plastics, but registered under the Designs Act by British Franco Electric. After the joint venture broke up, Dowling Plastics started to produce the castors itself. British Franco sought an injunction for breach of registered design. Dowling Plastics cross-claimed for rectification of the register or cancellation of the registration. One of the grounds argued by Dowling was that the design should not have been registered because the only novel feature of the castor was dictated purely by function and indeed would not be seen when the castor was assembled and put on to furniture.
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Decision: The Designs Act is not concerned with function. The fact that the shape of an article is largely dictated by function is irrelevant in determining whether the design should be registered. The castor design was therefore capable of being registered. However, the registration was cancelled because the design did not satisfy other requirements for registration.
Therefore, if the shape of an article is intrinsic to its operation, some protection can be gained under the Designs Act for what is really a functional element, provided the shape is not the only shape that can be applied to the article and provided that the visual shape feature is new and distinctive.
Component and spare parts 5.9 The replacement parts market (the after-market) can be very lucrative for a manufacturer because of the captive nature of the audience. If the manufacturer can obtain a monopoly via the Designs Act (or, even better, under the Copyright Act 1968), then the market becomes very lucrative indeed. The old Designs Act was not clear as to whether spare parts and components could be registered separately from the entire product. 7 See Dalgety Australia Operations Ltd v FF Seeley Nominees Pty Ltd (1986) 64 ALR 421; 6 IPR 361.
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The new Designs Act clarifies the situation somewhat. Section 7(2) of the Designs Act 2003 provides that a component part of a product may be a product for the purposes of the Designs Act, if it is made separately from the product. Thus, the component parts of many manufactured items would qualify as ‘products’ under the Designs Act because they are manufactured separately. Certainly all parts for which replacements are manufactured would qualify as products. The issue then is whether the shape given to the component is the fundamental shape for that product. As we have seen, a shape cannot be registered if it is the fundamental form or shape of a product. Although the shape of component parts is partly dictated by the function (the need to fit other parts), normally the designer of the part would have had a number of potential shapes from which to choose. In that case, the particular shape chosen will not be the fundamental form of the product and therefore if the shape is new and distinctive, the design is registrable. Therefore the shape of spare parts will normally be protected under the Designs Act. For this reason, the Act contains a specific defence relating to the manufacture of genuine spare parts. This is discussed at 5.25.
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When is a Design Registrable? 5.10 Section 15 of the Designs Act provides that a design is a registrable design if the design is new and distinctive when compared to the prior art base for the design as it existed before the priority date of the design. This raises the following issues: • When is a design new? • When is a design distinctive? • What is included in the prior art base? • What is the priority date? • Does the Designs Act provide any grace period?
When is a design new? 5.11 Section 16(1) of the Designs Act provides that a design is new unless it is identical to a design that forms part of the prior art base for the design. Therefore, the Designs Act starts with the assumption that the design is new. However, this will be defeated if there is evidence that it is identical to a design forming part of the prior art base.
When is a design distinctive? 5.12 Section 16(1) of the Designs Act provides that a design is distinctive unless it is substantially similar in overall impression to a design that forms part of the 194
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prior art base for the design. Section 19 contains a list of instructions to be used in determining whether a design is substantially similar in overall impression to another design: see World of Technologies (Aust) Pty Ltd v Tempo (Aust) Pty Ltd.8 Although distinctiveness is judged on the design as a whole, the applicant for design registration (the design owner) may include a statement of newness and distinctiveness, the purpose of which is to direct attention to those particular elements of the design which the owner claims are new and distinctive. Section 19 of the Designs Act provides that: (1) If a person is required by this Act to decide whether a design is substantially similar in overall impression to another design, the person making the decision is to give more weight to similarities between the designs than to differences between them. (2) The person must also: (a) have regard to the state of development of the prior art base for the design; and (b) if the design application in which the design was disclosed included a statement (a statement of newness and distinctiveness) identifying particular visual features of the design as new and distinctive: (i) have particular regard to those features; and (ii) if those features relate to only part of the design — have particular regard to that part of the design, but in the context of the design as a whole; and (c) if only part of the design is substantially similar to another design, have regard to the amount, quality and importance of that part in the context of the design as a whole; and (d) have regard to the freedom of the creator of the design to innovate. Copyright © 2019. LexisNexis Butterworths. All rights reserved.
(3) If the design application in which the design was disclosed did not include a statement of newness and distinctiveness in respect of particular visual features of the design, the person must have regard to the appearance of the design as a whole. (4) In applying subsections (1), (2) and (3), the person must apply the standard of a person who is familiar with the product to which the design relates, or products similar to the product to which the design relates (the standard of the informed user). (5) In this section, a reference to a person includes a reference to a court.
One of the criticisms made of the old Designs Act was that, while it was relatively easy to get a design registered, it was very difficult to convince a court that the
8
(2007) 71 IPR 307; [2007] FCA 114, see 5.15C.
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registered design had been infringed. Supposedly, this was due to the old law’s concentration on looking for the differences between designs. The new Act sets out to correct that situation. The emphasis moved from concentrating on differences, to concentrating on similarities: Designs Act s 19(1). This applies to both registration and infringement.9 In this way, while it will be more difficult to register a design, it should become easier to prove an infringement. Distinctiveness is to be judged from the perspective of the informed user: Designs Act s 19(4). Commenting on an informed user in a case involving a designer dress, Kenny J, in Review 2 Pty Ltd v Redberry Enterprise Pty Ltd,10 said: In summary, the standard of the informed user is an objective one. In this case, the assessment must be that of a user of ladies’ garments, which would include a potential purchaser, either in retail sales (such as a buyer for a fashion store) or at the ultimate consumer level. A designer or manufacturer of ladies’ garments is not, on account of design or manufacturing knowledge alone, an informed user. The notional user must be informed, in the sense that the user is familiar with ladies’ garments. The informed user is not an expert, but must be more than barely informed. The focus for consideration is on eye appeal and not on internal or less visible manufacturing features.
What is included in the prior art base?
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5.13 Section 15(2) of the Designs Act provides that the prior art base for a design (the designated design) consists of: (a) designs publicly used in Australia; and (b) designs published in a document within or outside Australia; and (c) designs in relation to which each of the following criteria is satisfied: (i) the design is disclosed in a design application; (ii) the design has an earlier priority date than the designated design; (iii) the first time documents disclosing the design are made available for public inspection under section 60 is on or after the priority date of the designated design.
A. When has a design been publicly used in Australia? 5.14 The prior art base includes designs publicly used in Australia. A design has been used if it has been exposed to public view. However, secret use is not counted. Thus, if disclosure of the design is made in circumstances where the recipient is under an obligation to keep the design secret, then registrability will not be lost.
9 For a discussion on infringement see 5.23. 10 (2008) 79 IPR 214; [2008] FCA 1588.
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Designers should give consideration to requiring express acknowledgements of confidentiality. In the case of employees and others with whom the designer has a contract, the acknowledgement ought to be part of the written contract. If the designer relies upon an implied obligation of confidence, it will be necessary to show that the designer has taken reasonable steps to keep the design secret. It is not necessary that the design be exposed to the entire public to be publicly used. Showing the prototype of a bicycle helmet to a small number of retailers without imposing any obligation of confidence upon the retailers could very well mean that the design has been used.11 Selling a product to which the design has been applied would amount to public use,12 as would displaying or offering the product for sale. Any public use of the design after the priority date (usually the date of filing the application) will not affect the newness or distinctiveness of a design.
B. When has a design been published within or outside Australia? 5.15 The prior art base includes designs published in a document within or outside Australia. This means that the design has been published if it has been displayed with reasonable clarity in a publication available to the public within or outside Australia. This would include magazines, advertisements, and catalogues. It would also include publication on a website accessible to the public. World of Technologies (Aust) Pty Ltd v Tempo (Aust) Pty Ltd (2007) 71 IPR 307; [2007] FCA 114
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Facts: World of Technologies (WoT) is an importer and wholesaler of household goods and electrical appliances, including vacuum cleaners. In 2005 it imported a bagless vacuum cleaner manufactured in China by Suzhou Fak Electric Co (SFE). In April 2005, SFE exhibited a brochure of its vacuum cleaner at an Export Fair held in Guangzhou, China. The brochure contained a front-on photo of the bagless vacuum cleaner. The manager of Tempo, another Australian importer of vacuum cleaners, attended the Fair and liked SFE’s products. He placed an order for a quantity of the bagless vacuum cleaner. He also brought a copy of the brochure to Australia. A copy of the photograph in the brochure was posted to Tempo’s website in May 2005. In May 2005 SFE wrote to WoT giving WoT permission to apply for design registration, although ‘the ownership of the Design and the Copyright are the property of [SFE]’. WoT registered the design in its own name in June 2005. The priority date was 16 June 2005. WoT sued Tempo for breach of registered design (and other claims). Tempo argued that the registration should be revoked, first, because the design was not new and original at the priority date, and second because WoT was not a person entitled to register the design. Decision: A design must be new and distinctive as at the priority date (s 15). The photograph in the brochure and the copy of it on Tempo’s website were published prior to the priority 11 Safe Sport Australia Pty Ltd v Puma Australia Pty Ltd (1985) 4 IPR 120. 12 Re application by Baker & Priem (No 2) (1989) 15 IPR 660; (1989) AIPC 90-599.
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Marketing and the Law date. The photo only showed the vacuum cleaner from the front and, therefore, was not identical to the registered design (s 16). Thus, the registered design was new. However, the photo did convey a clear impression of what the overall design must look like — therefore, it was substantially similar in overall impression to the registered design (s 16). Therefore, the registered design was not distinctive and ought to be struck off the register. Even if the design was registrable, WoT was not entitled to take out that registration (s 13). WoT did not create the design, nor had the design been assigned to it.
The publication does not have to be available for sale to the public, provided it is available for inspection. In J Rapee & Co v Kas Cushions,13 a cushion design which appeared in an IKEA store catalogue was held to constitute prior publication (for the purposes of the old Designs Act) because the catalogue, while not distributed among the public, was available for inspection by customers and had, in fact, been shown to customers. If the publication is publicly available, it is not necessary that any member of the public has actually looked at it: J Rapee & Co v Kas Cushions.14 A patent application might constitute prior publication. Therefore, to avoid difficulties, if patent protection is sought it is better to lodge simultaneous design and patent applications. Generally it will be necessary for there to have been a pictorial representation of the design, although it is possible to refer to written directions explaining the pictorial representation.15 Any publication of the design after the priority date (usually the date of filing the application) will not affect newness or distinctiveness of a design.
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C. Publications and uses that do not destroy novelty or distinctiveness 5.16 Section 17 of the Designs Act gives the designer a grace period within which the design may still be registered, even though it has been published or used in limited specified circumstances. Where a design is published or used at an official exhibition prior to the priority date with the consent of the owner, the design may still be registered provided that application for registration is made within six months of the exhibition: Designs Act s 17(1)(a) and Designs Regulations 2004 reg 2.01. Where a design is published or used prior to the priority date without the consent of the owner by a person who derived or obtained the design from the owner, the design may still be registered provided that application for registration is made within six months: Designs Act s 17(1)(b) and Designs Regulations 2004 reg 2.01. 13 (1989) 90 ALR 288; 15 IPR 577. 14 (1989) 90 ALR 288; 15 IPR 577. 15 Rosedale Associated Manufacturers Ltd v Airfix Products Ltd [1957] RPC 239 at 244.
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Chapter 5: Protecting Commercial Designs
For example, assume X is a designer who was hired by Y to produce a design for a ladder. The contract clearly stated that all rights belonged to Y. Prior to Y lodging an application for registration under the Designs Act, X used the design to produce a prototype for himself, which he then showed to a number of persons within the trade. The use and publication made by X was prior to the design application. Normally this would make it part of the prior art base, with the result that Y’s design would not be new and distinctive. However, as X obtained the design from Y and as Y had not consented to X’s use or publication, X’s use or publication did not destroy the design’s registrability. Section 18 of the Designs Act also provides for some further uses of a design that will not destroy the novelty or distinctiveness of a design, allowing the designer to achieve design registration despite previous use and or publication of the design. Section 18 is concerned with a design that is also an artistic work protected by the Copyright Act. When a person seeks to register a design that is also an artistic work under s 10 of the Copyright Act, in determining whether the design is new and distinctive, all prior uses of the artistic work (made with the consent of the copyright owner) are to be ignored, except where the prior use ‘consisted of, or included, the sale, letting for hire or exposing for sale or hire of products to which the design had been applied industrially’: Designs Act s 18. When has a design been industrially applied? If 50 or more products carrying the design are produced, then the design has been industrially applied: Copyright Regulations 2017 reg 12(1)(a). However, a design may have been industrially applied even where fewer than 50 products have been produced, if the circumstances are appropriate. For example, in Press-Form Pty Ltd v Hendersons Ltd,16 Hendersons used a new design for a bus seat in manufacturing 41 bus seats as prototypes. This was held to be an industrial application of the design. An example demonstrates the scope of this section. A is the creator and copyright owner of a drawing of a cartoon character. The cartoon has appeared in the newspaper for a number of years. A decides to apply the drawings of the cartoon character to T-shirts. The drawings have not been used on T-shirts previously, except by A for the purpose of preparing a prototype. A seeks to register the design (the cartoon character) in respect of a product (T-shirts) under the Designs Act. To be registered under the Designs Act in respect of T-shirts, the design must be new and distinctive: Designs Act s 15. As the design is an artistic work, any use of the design (eg, in the cartoon strips) is to be ignored in determining whether the design is new and distinctive. Although the design has been applied to a T-shirt prior to the design application being made (the priority date), this was solely for the purposes of producing a prototype. This would not amount to industrial application within the meaning of s 18(2) of the Designs Act and therefore must be
16 (1993) 112 ALR 671; 26 IPR 113.
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ignored in determining newness and distinctiveness. Therefore, the design ought to be registrable.
What is the priority date? 5.17 The priority date of a design is generally the filing date of the design application. An earlier priority date will apply where an application to register the design has previously been made overseas in a country which is a Convention country and the Australian application is made within six months of the application date in the Convention country: Designs Act s 27(1)(b) and Designs Regulations 2004 reg 3.06(2). The list of Convention countries is quite extensive. As in patents law, the priority date is important in determining newness and distinctiveness. Designers must be careful not to destroy their chance of registration by prematurely publishing or using the design prior to lodging an application for registration. Even if a design is registered, it may still be challenged on the basis that it was not new and distinctive at the priority date. There have been a number of successful applications to have designs removed from the register. This is one factor that the owner of a registered design must take into account in deciding whether to commence infringement proceedings.
Design Rights
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5.18 Section 10 of the Designs Act provides that the registered owner of a registered design has the exclusive right, during the term of the registration: (a) to make or offer to make a product, in relation to which the design is registered, which embodies the design; and (b) to import such a product into Australia for sale, or for use for the purposes of any trade or business; and (c) to sell, hire or otherwise dispose of, or offer to sell, hire or otherwise dispose of, such a product; and (d) to use such a product in any way for the purposes of any trade or business; and (e) to keep such a product for the purpose of doing any of the things mentioned in paragraph (c) or (d); and (f) to authorise another person to do any of the things mentioned in paragraph (a), (b), (c), (d) or (e).
Being a monopoly, the owner is protected not only against copying, but also against independent creation. The right created by design registration is personal property and can be assigned or licensed: Designs Act s 10(2) and (3). An assignment should be in writing signed by, or on behalf of, the assignor and the assignee.
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Registering a Design How long does registration last? 5.19 A design is initially registered for five years, but may be renewed on application for a further five years. It is up to the registered owner to ensure that renewals are applied for.
Who may register a design?
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5.20 Section 13 of the Designs Act provides that persons entitled to be registered as the owner of a registered design include: • the designer; • where the designer was an employee, the employer of the designer, provided the design was created in the course of employment; • where the designer was under a contract, the person contracting the designer, provided the design was created pursuant to a contract; and • an assignee of the design. Essentially, therefore, the creator of the design is the person entitled to be registered as owner. The creator is the person ‘whose mind conceives the relevant shape, configuration, pattern or ornamentation applicable to the article in question and reduces it to visible form’.17 See World of Technologies (Aust) Pty Ltd v Tempo (Aust) Pty Ltd.18 The creator may assign the rights and, in that case, the person entitled to be registered is the assignee: Designs Act s 13(1)(c). As with other areas of intellectual property, where the design is created in the course of employment, the person entitled to be registered as owner is the employer: Designs Act s 13(1)(b). The design must be created in the course of the employment: Courier Pete Pty Ltd v Metroll Queensland Pty Ltd.19 This is a question of fact. The cases that were discussed under patents law are relevant to this enquiry: see 2.40. Where the designer created the design under a contract with another person, that other person is entitled to be registered unless the contract provides otherwise: Designs Act s 13(1)(b). This situation refers to contracts for services, for example, where the designer (who is an independent contractor) is specially hired to produce a design for a product.
17 Chris Ford Enterprises Pty Ltd v BH & JR Badenhop Pty Ltd (1985) 60 ALR 400; 4 IPR 485; (1985) ATPR 40-568 at 491, applied to the Designs Act in LED Technologies Pty Ltd v Elecspess Pty Ltd (2008) 80 IPR 85; [2008] FCA 1941. 18 (2007) 71 IPR 307; [2007] FCA 114, see 5.15C. 19 (2010) 87 IPR 397; [2010] FCA 735.
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The registration process 5.21 The person entitled to be registered as the owner may file an application in the prescribed form, including a request that the design be registered. Where the owner is part of a corporate group, care should be taken to ensure that the correct entity is named on the application.
5.21C
Foster’s Australia Ltd v Cash’s (Australia) Pty Ltd (2013) 299 ALR 134; 101 IPR 546; [2013] FCA 527 Facts: Foster’s Australia Ltd, a subsidiary of Foster’s Group Ltd, commissioned a third party, Cash’s (Australia) Pty Ltd to create new beer taps and handles. Under the terms of the contract with the designer, Foster’s Australia was to own the relevant intellectual property. Foster’s Group, the holding company of the Foster’s corporate group, filed patent and design applications for the beer taps and handles. When the mistake was discovered, it assigned the registrations to Foster’s Australia. Foster’s Australia sued Cash’s for infringement of the relevant patents and designs. Cash argued that the patents and designs were invalid and should be revoked, on the grounds that the original applications were made by Foster’s Group, a firm not entitled to claim ownership of the intellectual property.
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Decision: The patents and designs were validly registered. The court held that the applications had been made by Foster’s Group as ‘constructive trustee’ for Foster’s Australia. The court declined to revoke the designs registrations because it would result in injustice and substantial prejudice to Foster’s Australia.
Once the registrar is satisfied that the formalities required by reg 4.04 of the Designs Regulations 2004 have been complied with, the registrar must register the design: Designs Act s 39. The formalities include that: • the product or products in relation to which the design is sought to be registered must be identified sufficiently to enable each product to be classified in accordance with the Locarno Agreement (an international system for classifying products for industrial design purposes);20 • a representation of the design must be provided; and • a specimen of the design may be filed in accordance with reg 4.04(1)(e). There are certain designs that may not be registered: Designs Act s 43. For example, the registrar may not register a design used in relation to a product that is an integrated circuit within the meaning of the Circuit Layouts Act: Designs Act s 43(1)(c). For protection of the design of integrated circuits, see the Circuit Layouts Act and 5.35. Once registered, the registrar must issue a certificate of registration and publish a notice stating that the design has been registered. The register is accessible to the public. 20 Locarno Agreement establishing an international classification for industrial designs, signed 1968.
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The examination process
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5.22 There is no formal examination process prior to registration. This means that a design is not formally compared to the prior art base before registration. This is a significant change from the previous Designs Act under which the registrar was required to conduct a formal examination before registration. The reason for dispensing with the automatic examination is to reduce the costs of registration. Only when a registered design is challenged is there likely to be any need for an examination. When a design registration is not challenged, it is largely a waste of resources to conduct an examination. As the registered owner cannot commence infringement proceedings without first having the design examined, it makes sense that the examination should only occur at this point. When requesting an examination, the owner may include in the request any material in relation to the newness and distinctiveness of the design that the owner considers to be relevant. The registrar must examine the design registration to determine whether grounds for revocation exist: Designs Act s 65. The primary ground for revocation is that the registered design was not a registrable design within the meaning of s 15 of the Designs Act: Designs Act s 65(2).21 This means that the registrar must determine whether the design is new and distinctive when compared with the prior art base for the design as it existed before the priority date of the design. Having conducted the examination, the registrar may revoke the registration (Designs Act s 68), amend the registration (Designs Act s 66), or issue a certificate of examination validating the registration (Designs Act s 67). Only after a certificate of examination has been issued by the registrar can the registered owner begin infringement proceedings.
Infringement of Designs 5.23 The test for infringement under s 71(1) of the Designs Act is as follows. A person infringes a registered design if, during the term of registration of the design, and without the licence or authority of the registered owner of the design, the person: (a) makes or offers to make a product, in relation to which the design is registered, which embodies a design that is identical to, or substantially similar in overall impression to, the registered design; or (b) imports such a product into Australia for sale, or for use for the purposes of any trade or business; or
21 A second ground for revocation is that the design should not have been registered because of s 43 (eg, an integrated circuit).
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An infringement under s 71(1)(a) is referred to as a primary infringement. An infringement under any of s 71(1)(b)–(e) is referred to as a secondary infringement. The design monopoly protects the registered owner against parallel importing.22 This potentially places considerable power in the hands of manufacturers who have substantial component and spare parts sales. To overcome this, the Designs Act provides a spare parts defence: see 5.25. Section 71(4) of the Designs Act states that infringement proceedings must be started within six years from the day on which the alleged infringement occurred. This can mean proceedings can still be commenced even after the registered design has expired for infringement that occurred prior to that time: Gram Engineering Pty Ltd v Bluescope Steel Ltd.23
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Identical or substantially similar in overall impression 5.24 Infringement consists of making, importing, using etc a product in relation to which design is registered, that embodies an identical or substantially similar design. The key to infringement is to determine what is meant by the expression ‘identical to or substantially similar in overall impression to the registered design’. Whether two designs are identical is a relatively simple question of fact. This test is applied from the perspective of the ‘informed user’ — someone more informed than the ‘ordinary user’ but not a design expert: LED Technologies Pty Ltd v Roadvision Pty Ltd.24 The difficult cases are those where the court has to determine whether the defendant’s design is substantially similar in overall impression to the registered design. Section 71(3) of the Designs Act provides that, in determining whether an allegedly infringing design is substantially similar in overall impression to the registered design, a court is to consider the factors specified in s 19 of the Designs Act, and in particular to give more weight to the similarities between two designs than the differences, s 19(1): see 5.12. One of the major criticisms levelled at the old Designs Act was that it was difficult to establish an infringement.25 There was a strong perception among designers that copyists only had to make relatively small changes to a registered design to avoid
22 Parallel importing refers to the practice of buying products overseas and then importing them to Australia without obtaining permission from the person who holds the right to deal in those products in Australia. 23 (2013) 106 IPR 1; [2013] FCA 508. 24 (2012) 287 ALR 1; 94 IPR 481. 25 The old Designs Act referred to infringement by an ‘obvious or fraudulent imitation’. Because of difficulties in interpreting these expressions, the new Designs Act deliberately uses quite different language.
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infringement of that registered design. See, for example, Firmagroup Australia Pty Ltd v Byrne & Davidson Doors26 and Koninklijke Philips Electronics NV v Remington Products Australia Pty Ltd.27 The Designs Act 2003 was crafted to change that view. Keller v LED Technologies Pty Ltd (2010) 268 ALR 613; 87 IPR 1; [2010] FCAFC 55 Facts: LED Technologies (LED) is registered under the Designs Act as the owner of two designs relating to combination rear or tail lights used on trucks, buses, caravans, and trailers. The ground-breaking technology was developed in Australia. LED sued a number of firms for distributing imported combination rear or tail lights, known as the Condor range. The Condor products were based on LED’s idea, and manufactured overseas at about 20% less cost than the LED lights. The defendants argued that LED was not the owner — LED produced drawings of the design which were then given to a manufacturer to produce the product; the manufacturer transposed the drawings to a computer program and used that to produce the actual tail light. The defendants also argued that LED’s designs were not new and distinctive and therefore should not have been registered. The case, therefore, raised issues of ownership, validity, and infringement. LED succeeded at trial on all issues. The defendants appealed on the grounds of validity and infringement, but not ownership.
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Decision: The LED designs were validly registered. The defendant’s Condor range of tail lights embodies a design that is substantially similar in overall impression to each of LED’s registered designs. Therefore, they infringe LED’s designs. The court granted injunctions and damages.
In Hunter Pacific International Pty Ltd v Martec Pty Ltd,28 the court considered the alleged infringement of a registered design for a ceiling fan. Applying the s 19 factors to make an assessment of whether the allegedly infringing design was substantially similar in overall impression, Nicholas J recognised a number of obvious differences between the registered design and the allegedly infringing Razor fan produced by Martec, but the overall impression conveyed was one of similarity. In particular, the lower ‘hubs’ of each ceiling fan were similarly proportioned and conveyed a generally sleek and flat appearance. The court took the view that it was this feature which contributed most to the informed user’s assessment of the design given that a ceiling fan hub would be viewed from underneath, looking up. Martec’s Razor ceiling fan was found to infringe Hunter Pacific’s registered design rights. Unlike copyright infringement, which depends on proof of conscious or unconscious copying, there is no need to establish that the registered design was copied. Registration under the Designs Act protects against independent creation. The defendant may have been totally unaware of the registered design. In this
26 (1987) 180 CLR 483, see 5.3C. 27 (2000) 177 ALR 167; 48 IPR 257; [2000] FCA 876. 28 (2016) 121 IPR 1; [2016] FCA 796.
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respect, the protection provided by the Designs Act is a true monopoly, like the protection provided by the Patents Act.
Defences
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5.25 A special defence is provided in the case of repairing complex products: Designs Act s 72. This is known as the spare parts defence. A complex product is a product comprising at least two replaceable component parts, permitting disassembly and re-assembly of the product: Designs Act s 5. Provided the repair is for the purpose of restoring the complex product’s overall appearance (in whole or in part), it is not an infringement to use or authorise another to use a product that embodies a registered design: Designs Act s 72(1). ‘Using’ a product includes making, selling, or importing the product, or using the product for the purposes of any trade or business. ‘Repair’ is defined very broadly to include carrying out maintenance, restoring damage or decay and replacing incidental items as part of this repair process. An example of when this spare parts defence operates is in the car repair industry. If you wish to have the damaged bonnet of your car replaced, for example, the panel beater can use a non-genuine compatible replacement bonnet without being liable for design infringement, notwithstanding that the maker and designer of the car has a separate design registration for the particular shape and configuration of its car bonnet. This defence therefore operates to increase competition in the after-market for spare parts in many industries. The onus is on the plaintiff in infringement proceedings to prove that the defendant knew, or ought reasonably to have known, that the use or authorisation was not for the permitted purpose: Designs Act s 72(2).
Remedies for Infringement Court orders 5.26 The court has the power to make the following orders in appropriate circumstances: • injunctions: Designs Act s 75; • damages, or (at the election of the plaintiff) an account of profits: Designs Act s 75;29 29 In cases of primary infringement, the court may refuse to award damages or an account of profits if the defendant is able to establish that he or she was not aware that the design was registered and had taken all reasonable steps to ascertain whether the design was registered: Designs Act s 75(2)(a). Where goods are marked so as to indicate registration, it is prima facie evidence that the defendant knew the design was registered. In cases of secondary infringement, the court may refuse to award damages or an account of profits if, at the time of the infringement, the defendant was not aware, and could not reasonably have been expected to be aware, that the design was registered: Designs Act s 75(2)(b).
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• additional damages which the court considers appropriate, having regard to the flagrancy of the infringement and all other relevant matters: Designs Act s 75; • revocation of a registration: Designs Act s 93 — the onus of proving that a registration should be revoked is on the party seeking revocation; • rectification of the Register to amend a registration; and • compulsory licences where the court is satisfied that products embodying the designs have not been made in Australia and the registered owner of the design has given no satisfactory reason for failing to exercise or license the exclusive rights in the design: Designs Act s 90.
Making unjustified threats 5.27 Care must be taken when threatening another with an action for infringement of a registered design. If the threats are not justified, the person threatened may claim compensatory damages, and where the circumstances warrant, additional damages: Designs Act s 77. This provides a deterrent against unjustifiable intimidation which might have the effect of preventing competition or discouraging the use of skills.
Offences
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5.28 A person commits an offence if he or she both represents that a design is registered and knows, or is reckless as to whether, the representation is false: Designs Act s 132.
Why Register? Industrial Designs and Other Laws 5.29 There would be little point in registering an industrial design if adequate protection were available under other laws.
Industrial designs and the Copyright Act 5.30 Copyright will not protect an industrial design once the design has been industrially applied and commercially dealt with, unless it is a two-dimensional design (ie, unless it is a design concerned with pattern or ornamentation, not shape or configuration): see 4.53–4.56. Most commercial product designs should
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therefore be registered under the Designs Act: see, for example, Digga Australia Pty Ltd v Norm Engineering Pty Ltd30 and Seafolly Pty Ltd v Fewstone Pty Ltd.31 Even though two-dimensional designs do not lose copyright protection (if any), there are a number of reasons why registration under the Designs Act might still be useful, for instance: • A registered design only has to be new and distinctive in relation to the product in respect of which it is registered. Copyright, on the other hand, will only subsist if the visual appearance is original, no matter what product it is applied to. • Registration of the design may make it easier to assign or license the design, as the buyer may require some documentation of ownership. • The Designs Register is a public document and competitors are thereby warned that the design is already taken. • Registration of a design creates a true monopoly in that it protects not only against copying, but also against independent creation. • In an action for breach of a registered design, it is sufficient for the plaintiff to establish registration and infringement. If the defendant wishes to challenge the registration, it is up to the defendant to prove that the design ought not to have been registered. In an action for breach of copyright, by contrast, the plaintiff must first establish that the work is an original artistic work and that the plaintiff was the creator of the work or otherwise entitled to the copyright.
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Industrial designs and the Patents Act 5.31 Whereas the Designs Act protects the visual features of a product, the Patents Act protects any novel inventive or innovative step contained in the product. The Patents Act can even protect uses of a product, provided the use is part of a novel process. Thus, the Designs Act and the Patents Act target quite different innovations. Nevertheless, there is often a degree of overlap, in the sense that a novel idea may result in both a patentable invention or innovation and a new and distinctive design. As registration under both Acts may be denied where the invention or design is publicly used or disclosed before the date of application for registration, there will be occasions where it is necessary to consider registration under both Acts.
Industrial designs and passing off 5.32 The tort of passing off and s 18 of the Australian Consumer Law32 can provide some protection for the design of a product. However, provided the defendant
30 (2008) 245 ALR 407; 75 IPR 251; [2008] FCAFC 33, see 4.56C. 31 (2014) 313 ALR 41; 106 IPR 85; [2014] FCA 321. 32 Competition and Consumer Act 2010 (Cth) Sch 2.
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takes steps to distinguish its product name and ‘get-up’ from the plaintiff’s so as to avoid misleading the public, generally that will be sufficient to avoid passing off. Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 1; 42 ALR 1; 1A IPR 684; (1982) ATPR 40-307 Facts: Puxu manufactured and sold a distinctive and successful range of lounge furniture called the Contour range. The design of the furniture was not registered pursuant to the Designs Act. Parkdale copied Puxu’s design and called it the Rawhide range. The labels, which were attached to the furniture in the normal manner, clearly showed the product name as Rawhide and the manufacturer as Parkdale. There was evidence that a number of people purchased the Rawhide furniture believing they were getting Contour. Unfortunately a number of retailers deliberately covered up or removed the labels. Puxu sued for the tort of passing off and misleading or deceptive conduct. Decision: Designs law, passing off, and misleading or deceptive conduct are separate laws and must be applied according to their own requirements. Passing off and misleading or deceptive conduct depend on deception of consumers. Where deception exists, it is necessary to determine the source of the deception. Although some buyers of the Rawhide range were misled, the cause of the deception was not the manufacturer’s copying of the Puxu design, but rather the retailers’ removal or concealment of the labels. The manufacturer had discharged its responsibility by labelling the furniture appropriately according to industry practice. Mason J, however, at [43-790] sounded the following warning, referring to what was then s 52 of the Trade Practices Act 1974 (Cth), now s 18 of the Australian Consumer Law:
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[I] agree … that knowledge by a manufacturer that some retail salesmen, at some time, would deceive customers as to the identity of the manufacturer of its furniture … would not … amount to [misleading or deceptive] conduct breaching s 52. This is not to say that more specific knowledge about the practices of retailers could not provide grounds for attributing that practice to the manufacturer. If [Parkdale] knew that certain retailers were removing its labels or otherwise disguising the furniture’s identity, then assuming that labelling was necessary to comply with s 52, delivery of labelled furniture to those retailers without more may be insufficient to discharge that requirement.
A similar result was reached in Koninklijke Philips Electronics NV v Remington Products Australia Pty Ltd33 (involving a new concept for shavers), Flamingo Park Pty Ltd v Dolly Dolly Creations Pty Ltd34 (involving fabric designs), Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd35 (involving look-alike footwear), and Playcorp Group of Companies Pty Ltd v Peter Bodum A/S36 (involving coffee plungers and teapots). The prudent designer will not rely on passing off and misleading or deceptive conduct if it is possible to register a design. The necessity of proving a reputation in the design, for example in a passing off action, could be costly and
33 34 35 36
(2000) 177 ALR 167; 48 IPR 257; [2000] FCA 876. (1986) 65 ALR 500; 6 IPR 431; (1986) ATPR 40-675. (2010) 84 IPR 542; [1999] FCA 461. (1999) 44 IPR 281; [2010] FCA 23.
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ineffective given that the courts are clearly concerned about creating or extending monopolies: see Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd.37
Review of the Designs System 5.33 A variety of concerns have been raised about the effectiveness of the designs system. The Advisory Council on Intellectual Property (ACIP) completed its review of the designs system in March 2015,38 looking at how the designs system could be improved. This was followed by the Productivity Commission’s 2016 Report into Australia’s intellectual property arrangements more broadly,39 including a consideration of those for designs. In its response to both the ACIP report and the Productivity Commission report, the government has agreed to introduce a general grace period for design applicants, so that inadvertent disclosure of a design in the six months before an application for registration will not destroy its newness or distinctiveness. The government has also agreed to consult on the question of whether Australia should join the Hague Agreement for the international registration of industrial designs, which would bring Australian designs law more into line with our major trading partners and international40 treaties, and allow design applicants to seek registration protection in 70 countries through a single international application.
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International Aspects of Designs Law 5.34 The nature of the protection provided for industrial designs varies greatly between countries. There appears to be little consensus as to what should be protected and what the duration of protection should be. The Paris Convention for the Protection of Industrial Property,41 to which Australia is a signatory, requires Australia to provide some legal protection to industrial designs. Clearly Australia satisfies this requirement. The Paris Convention also requires Australia to treat foreign applications on the same basis as it treats resident applications (‘national treatment’) and to provide a right of priority. ‘National treatment’ means Australia may not apply discriminatory 37 (1982) 149 CLR 1; 42 ALR 1; 1A IPR 684; (1982) ATPR 40-307, see 5.32C. 38 Advisory Council on Intellectual Property, Review of the Designs System, Final Report, March 2015, available at . 39 Productivity Commission, Intellectual Property Arrangements, Inquiry Report, above n 2. 40 IP Australia’s response to public consultation on the Hague Agreement, 28 June 2018, available at . 41 Paris Convention for the Protection of Industrial Property 828 UNTS 305 (opened for signature 14 August 1967, entered into force 26 April 1970).
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procedural or substantive rules against foreign applications. Equally, Convention countries must treat Australian nationals in like manner to their own citizens. The right of priority means that any foreign application filed in Australia within six months of having been filed in a signatory country is treated as if it were filed in Australia on the day it was filed in that signatory country. The same applies to Australian applications made in a Convention country. However, it should be noted that the rules and procedures do vary from country to country. Australia is a member of the World Trade Organization. As such it is bound by the provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS),42 which sets out minimum levels of protection for intellectual property. As with the Paris Convention, TRIPS requires countries to provide some protection for industrial designs, but leaves the content of such protection up to each individual country. The Australian Designs Act complies with TRIPS.
Circuit Layout Rights
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5.35 The Circuit Layouts Act 1989 (Cth) provides protection for original layout designs for integrated circuits and computer chips. In the Act, an original layout design for an integrated circuit or computer chip is referred to as an ‘eligible layout’. Eligible layouts are found in a wide variety of electronic equipment, from computers to heart pacemakers. The rights that accrue to the owner of an eligible layout are called the ‘EL rights’. There is no system of registration. Originality is defined in a negative way. Thus, s 11 of the Circuit Layouts Act provides that a circuit layout shall be taken not to be original if: • its making involved no creative contribution by the maker; or • it was commonplace at the time it was made. The owner of the EL rights is the person who made the eligible layout: Circuit Layouts Act s 16. Where the layout was made by a person under the terms of his or her employment under a contract of service or apprenticeship, the employer is taken to be the maker of the layout: Circuit Layouts Act s 16(2). Pursuant to s 17 of the Circuit Layouts Act, the owner of the EL rights has the exclusive right to: • copy the layout, directly or indirectly, in a material form; • make an integrated circuit in accordance with the layout or a copy of the layout; or
42 Agreement on Trade-Related Aspects of Intellectual Property Rights, 15 April 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, The Legal Texts: the Results of the Uruguay Round of Multilateral Trade Negotiations 320 (1999), 1869 UNTS 299. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is an annexure to the GATT Agreement, being the General Agreement on Tariffs and Trade, 15 April 1994, Marrakesh Agreement: the Results of the Uruguay Round of Multilateral Trade Negotiations 17 (1999), 1867 UNTS 187.
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• exploit the layout commercially in Australia (importing, selling, hiring, or otherwise distributing by way of trade). Under s 19 of the Circuit Layouts Act, the EL rights in an eligible circuit are infringed when a person: • copies, or authorises the copying, of the layout in a material form; • makes, or authorises the making of, an integrated circuit made in accordance with the layout; or • commercially exploits, or authorises the commercial exploitation of, the layout in Australia if the person knows or ought reasonably to know, that he or she is not licensed by the owner of that right to do so. It is a defence to a claim of commercial exploitation for the defendant to prove that the defendant did not know, and could not reasonably be expected to have known, that the circuit was unauthorised: Circuit Layouts Act s 20. Copying for private use, for research or teaching purposes or for evaluation or analysis is permitted: Circuit Layouts Act ss 21–23. Protection lasts for 10 years from the date on which the eligible layout was first commercially exploited: Circuit Layouts Act s 5.
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Marketing Advice 5.36 The Designs Act is important to firms that create value through the use of innovative or attractive product designs; that is, where value lies not just in the product generally, but specifically in the way it looks. • If this applies to your firm, you should consider registering the designs under the Designs Act. • The design must be new and distinctive when it is registered. This means that it must be kept secret until the application for registration is lodged. • Ensure that registration is considered at an early stage of design development. • Ensure that all outsourcing contracts have appropriate terms covering ownership of designs. It may also be necessary to include confidentiality clauses. • Firms should have a register of design so that registrations are renewed. Once a design registration lapses, it cannot be renewed. • Check the market for infringing copies and take immediate action.
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Passing Off and Unfair Trading
16
Introduction.......................................................................................... 6.1 Passing Off........................................................................................... 6.2 The elements of passing off at common law.............................. 6.3 A. Reputation................................................................................ 6.4 i. Level of business activity necessary to establish a reputation in the marketplace........................................ 6.5 ii. Reputation in a market where no business activities are carried on...................................................... 6.6 iii. The owner of the reputation does not have to be personally known in the marketplace..................... 6.7 iv. Can a reputation be owned by more than one trader?.......................................................................... 6.8 v. Acquiring a reputation in descriptive words or material........................................................................... 6.9 B. Misrepresentation.................................................................. 6.10 i. Proving confusion or deception in passing off cases................................................................................... 6.11 ii. Intention to deceive......................................................... 6.12 iii. Common field of activity................................................. 6.13 iv. Use of a disclaimer to avoid the likelihood of deception...................................................................... 6.14 C. Damage.................................................................................... 6.15 Remedies......................................................................................... 6.16 Misleading or Deceptive Conduct — Statutory Passing Off........ 6.17 The elements of statutory passing off....................................... 6.18 The overlap between s 18 and passing off................................. 6.19 213
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Advantages of statutory protection over the common law....... 6.20 A. Reputation............................................................................... 6.21 B. Misrepresentation.................................................................. 6.22 C. Damage................................................................................... 6.23 Intention to mislead or deceive.................................................. 6.24 Degree of differentiation required to avoid a contravention of s 18................................................................. 6.25 Use of a disclaimer to avoid a contravention of s 18............... 6.26 Preventing other traders from using descriptive words or material................................................................................... 6.27 Remedies......................................................................................... 6.28 Types of Passing Off — Common Law and Statutory................. 6.29 Brand names ................................................................................... 6.30 ‘Get-up’ or packaging of products.............................................. 6.31 Business and company names..................................................... 6.32 Internet domain names................................................................ 6.33 Keyword advertising...................................................................... 6.34 Search engine optimisation......................................................... 6.35 Design of products........................................................................ 6.36 Advertising themes and slogans.................................................. 6.37 Devices or logos............................................................................. 6.38 Names for events or programs.................................................... 6.39 Titles for publications.................................................................... 6.40 Quality or standard of products.................................................. 6.41 Character merchandising and sponsorship............................... 6.42 A. Real persons........................................................................... 6.43 B. Voice........................................................................................ 6.44 C. Fictitious characters and images......................................... 6.45 Marketing Advice............................................................................... 6.46
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Introduction 6.1 In the process of marketing and selling products, the designation used to identify a product in the marketplace — most often a brand name or business name — is usually an important element in achieving commercial success. The name, mark or other indicia under which [a product] is sold will … play a crucial role in attracting custom, and the goodwill or reputation that are built up around such names, marks or indicia will be critically important marketing assets for any trader.1
Broadly, the law protects trade designations in three ways: 1. The goodwill or reputation associated with a trade designation, established by a trader in the course of marketing a product, can be protected at common law by the passing off action. 2. Trade designations are indirectly protected by the provisions of the Australian Consumer Law (Sch 2 to the Competition and Consumer Act 2010), which includes a prohibition on misleading or deceptive conduct. 3. Distinctive trade designations can be registered pursuant to the Trade Marks Act 1995 (Cth), a step which grants proprietary rights to the registered owner. The first two areas of law will be dealt with in this chapter, and the registration of trade marks in Chapter 7.
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Passing Off 6.2 Traditionally, trade designations such as brand names and business names have been protected at common law by the passing off action and, despite the introduction of a system for the registration of trade marks, passing off remains a widely used legal remedy. The fact that a designation has been or could be registered as a trade mark does not affect the right of a trader to rely on the passing off action for protection, which in some ways can be broader than the protection available under the trade marks legislation. The tort of passing off is designed to prevent a trader from damaging another trader’s reputation or goodwill by causing potential customers to associate one trader’s product or business with another trader’s where no such connection exists. This is often done by the adoption of a brand name or business name which is the same as, or very similar to, a competitor’s brand or business name. The passing off action can be used to protect more than just a brand name or business name. For example, the general appearance or ‘get-up’ of a product can be protected, as well as distinctive advertising or packaging. To this extent, it has 1
S Ricketson, Intellectual Property, Butterworths, Sydney, 1994, p 803.
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advantages in comparison to the rights obtained on registration of a trade mark. However, there are downsides to the passing off action. To begin with, for passing off it is necessary to prove the existence of a reputation in the products or business being protected, whereas the only requirement necessary to protect a trade mark is registration. Furthermore, it is necessary to prove that the actions of the defendant trader have confused or are likely to confuse the purchasing public into associating the defendant’s products or business with the plaintiff’s. It is with regard to such matters that the Trade Marks Act provides its primary advantage. Registering a trade mark gives the registered owner proprietary rights to the mark and, with it, the right to sue another trader who uses the mark for infringement, usually without the need to prove any deception or confusion in the marketplace. In contrast, ‘a passing off action is a remedy for the invasion of a right of property not in the mark, name or get-up improperly used, but in the business or goodwill likely to be injured by the misrepresentation’ made by passing off one person’s goods or services as the goods or services of another.2
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The elements of passing off at common law 6.3 To comprehensively define ‘passing off’ is not an easy task. Lord Oliver provided a traditional and widely accepted definition in Reckitt & Colman Products Ltd v Borden Inc,3 where the core concepts of the passing off action were outlined. It is essential to establish that: • the trader’s get-up, including the brand name or business name, is recognised by the public as distinctive (ie, the trader has established a reputation); • there has been a misrepresentation by the defendant to the public (whether or not intentional) leading or likely to lead the public to believe that the goods or services offered by the defendant are the plaintiff’s goods or services;4 and • the plaintiff suffered, or is likely to suffer, damage by reason of the erroneous belief engendered by the defendant’s misrepresentation that the source of the defendant’s goods or services is the same as the source of those offered by the plaintiff. It must be noted that the modern day passing off action has been extended to circumstances involving the deceptive or confusing use of names, descriptive 2 3
4
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Star Industrial Co Ltd v Yap Kwee Kor t/as New Star Industrial Co (1975) 1B IPR 582; [1976] 2 FSR 256 at 269 per Lord Diplock. (1990) 17 IPR 1; [1990] 1 All ER 873; [1990] 1 WLR 491 at 406, see 8.3C. Cited with approval by Gummow J in ConAgra Inc v McCain Foods (Australia) Pty Ltd (1992) 106 ALR 465; 23 IPR 193 at 246–248; and by the Full Federal Court in TGI Friday’s Australia Pty Ltd v TGI Friday’s Inc (1999) 45 IPR 43; [1999] FCA 304, Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354; [2002] FCAFC 157, see 6.11C2, and Peter Bodum A/S v DKSH Australia Pty Ltd (2011) 280 ALR 639; 92 IPR 222; [2011] FCAFC 98. Whether the public is aware of the plaintiff’s identity as the manufacturer or supplier is immaterial, provided the goods or services are identified with a particular source, for example, a brand name or business name that belongs to the plaintiff.
Chapter 6: Passing Off and Unfair Trading
terms, or other indicia designed to persuade purchasers to believe goods or services have an association, quality, or endorsement which belongs to the goods or services of another.5 The important elements6 from the definition above that require amplification are: • reputation (goodwill); • misrepresentation (deception); and • damage.
A. Reputation 6.4 In establishing passing off, an essential element is the need to prove the existence of a reputation or goodwill on the part of the plaintiff in the trade designation which is the subject of the dispute. A successful passing off action is designed to protect property — not property in a particular trade designation, but property in the reputation or goodwill that will be injured by the improper use of that trade designation.7 It is this requirement which lies at the heart of the action. Nevertheless, it is an element that, in practice, has not proved difficult to establish, provided some element of commercial activity in respect of the trade designation is evidenced, such as selling or advertising within the relevant jurisdiction.
i. L evel of business activity necessary to establish a reputation in the marketplace 6.5 A simple trading presence in the jurisdiction appears to be a satisfactory means of establishing a reputation in the marketplace.
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Stannard v Reay [1967] RPC 589 Facts: The plaintiffs commenced business on the Isle of Wight (UK) with a mobile fish and chip van under the trade name ‘Mr Chippy’. The defendants independently had the idea to commence a similar kind of business and began to trade under the same name three weeks after the plaintiffs had commenced their business. The plaintiffs sought an injunction to prevent the defendants from trading under the name ‘Mr Chippy’. The defendants argued that the plaintiffs had not built up a reputation and established goodwill in the name ‘Mr Chippy’. Decision: No person has the right to trade or dispose of their goods in such a way as to suggest that their trade or goods are in fact the trade or goods of another. Even though the plaintiffs had only been trading for about three weeks, there was evidence of substantial takings by the 5
Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 at 445; 56 ALR 193; 3 IPR 545 per Deane J, see 3.13C2; and see Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354; [2002] FCAFC 157 at [61], see 6.11C2; and Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45; 169 ALR 677; [2000] HCA 12 at [109], see 6.30C. 6 Described as the ‘classical trinity’ or the ‘core concepts’ by Gummow J in ConAgra Inc v McCain Foods (Australia) Pty Ltd (1992) 106 ALR 465; 23 IPR 193 at 247. 7 Burberrys v J C Cording & Co Ltd (1909) 100 LT 985; 26 RPC 693 at 701 per Parker J.
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Marketing and the Law business, which fell when the defendants commenced trading. It is not impossible for goodwill in a new kind of business to be built up in a short period of time. An injunction was granted.
The level of sales does not have to be substantial. Cricketer Ltd v Newspress Pty Ltd & David Syme & Co Ltd [1974] VR 4778 Facts: The plaintiff, an English company, had for a number of years published a monthly magazine known as The Cricketer. It contained mainly news about cricket in England, with around half a page on Australian cricket. It was printed on quality paper and it sold around 1200 to 1300 copies a month through Australian newsagents, of which about 130 were sold in Victoria. In addition, about 300 to 400 copies per month were posted to Australian subscribers.
6.5C2
The defendant commenced publishing a monthly magazine in Victoria called Cricketer. Bold type on the front indicated that the magazine was ‘Australia’s New Monthly Magazine’. The magazine was printed on newspaper quality paper and was largely devoted to cricket in Australia. The plaintiff sought an injunction to restrain the defendant from passing off and distributing its magazine under the name Cricketer.
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Decision: A major issue was whether the name The Cricketer had a distinctive reputation in Victoria, given the small level of sales in that state. In making such a judgment, the proportion of readers to the public at large is not relevant. All that is necessary is that a substantial number of readers exist in the jurisdiction who associate the name The Cricketer with the plaintiff. Such was held to be the case here. Despite this conclusion, the case was dismissed because no proof of actual or likely confusion between the two publications was established before the court.
Sales alone are not the only indicator of a reputation in the marketplace. Widespread advertising as a precursor to commencing a business within a jurisdiction may be sufficient: see Turner v General Motors (Aust) Pty Ltd9 and Fletcher Challenge Ltd v Fletcher Challenge Pty Ltd.10 Website visits can also be useful evidence of reputation: see REA Group Ltd v Real Estate 1 Ltd.11 In Knott Investments Pty Ltd v Winnegbago Industries Inc,12 evidence of the travel habits of Australians was relevant evidence.
ii. Reputation in a market where no business activities are carried on 6.6 In Australia, it now appears settled that it is not necessary to have commenced business activities within the jurisdiction in which a passing off action is commenced, provided the existence of a reputation in that jurisdiction is proved. 8
This case has many similarities to Emap Elan Ltd v Pacific Publications Pty Ltd (1997) 37 IPR 1; (1997) ATPR 41-551; [1997] FCA 50, see 6.40C, where s 52 of the Trade Practices Act 1974 (Cth) (now s 18 of the Australian Consumer Law) was relied upon by a UK publisher to gain an interlocutory injunction preventing an Australian publisher from publishing a magazine under an identical title. 9 (1929) 42 CLR 352; 1B IPR 415. 10 [1981] NSWLR 196; (1981) 5 ACLR 532. 11 (2013) 102 IPR 1; [2013] FCA 559, see 6.27C4. 12 (2013) 299 ALR 74; 101 IPR 449; [2013] FCAFC 59, see 6.16C.
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Hansen Beverage Co v Bickfords (Australia) Pty Ltd (2008) 251 ALR 1; 79 IPR 174; [2008] FCAFC 18113 Facts: Hansen had, since 1992, successfully marketed a range of non-alcoholic beverages in the US. In 2002 it launched a new energy drink in a super-sized container, to compete with Red Bull. The brand name created for the product was ‘MONSTER ENERGY’. The product was targeted at 18–30 year old males. Hansen engaged in a significant amount of indirect advertising through its website and the internet, sponsorship of athletes and events (which received media and internet coverage), clothing, merchandise, and the like. The product became highly successful in the US and in some overseas locations, including Hong Kong — so much so that it became the second biggest selling energy drink in the world. However, the product was not sold or directly promoted in Australia. Bickfords is an Australian beverage manufacturer based in Adelaide. In 2006 it launched a ‘super-sized’ energy drink using the name ‘Monster’, which it registered as a trade mark. It also adopted a black can and used a green ‘Monster’ mark, the same colours as used by Hansen in the US. Both products essentially had the same ingredients. Hansen sued Bickfords alleging passing off and breach of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law). The trial judge in the Federal Court dismissed the case on the basis that Hansen had not established that it had a reputation in Australia. Despite acknowledging that there was an awareness of the Hansen product by Australians who followed ‘extreme sports’, the trial judge decided that exposure to incidental or indirect advertising, without direct sales or advertising in Australia, was not sufficient to establish a reputation. Hansen appealed against this finding. Decision: The Full Federal Court upheld the appeal. It noted the impact of indirect advertising and acknowledged that the advertising industry had moved away from relying on direct marketing techniques as their primary source of advertising. The value of indirect advertising through sponsorship of sports was clearly recognised, especially by Finkelstein J, who stated that:
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[I]ndirect brand advertising … can establish reputation as well as, if not better than, direct advertising. After all, everyone knows that James Bond drives an Aston Martin, Janis Joplin wanted to own a Mercedes Benz and Audrey Hepburn had breakfast at Tiffany’s. The case was referred back to the trial judge for a rehearing, with instructions that greater weight was to be given to the indirect marketing campaign undertaken by Hansen to establish its reputation. (The rehearing did not take place. In December 2008, the parties entered into a confidential settlement agreement resolving the dispute. Bickfords agreed to cease all use of the Monster and Monster Energy marks in Australia (after depletion of its existing inventory) and to assign to Hansen all of its trade mark applications.)
In Hansen Beverage Co v Bickfords (Australia) Pty Ltd,14 the Federal Court has thus confirmed its preference for a test based solely on reputation, without the extra requirement of proving a business presence.15 13 See also 10.12C. 14 (2008) 251 ALR 1; 79 IPR 174; [2008] FCAFC 181, see 6.6C and 10.12C. 15 This case is consistent with the views expressed by the Federal Court in ConAgra Inc v McCain Foods (Australia) Pty Ltd (1991) 101 ALR 461; 22 IPR 175; (1991) ATPR 41-121.
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It is not difficult to see why the courts had some reservations before adopting this approach. The traditional view is that passing off is a cause of action designed to protect a trader’s goodwill. If the trader does not do business within the jurisdiction, then goodwill cannot suffer — the trader is unable to point to any losses or the expectation of losses. However, the commercial reality is that companies do have reputations that transcend the boundaries of the areas in which they do business. This is largely the result of the revolution in international communications, especially the burgeoning growth in the use of the internet. The ground rules have changed in this digital era. Australian courts have now formally recognised the power of indirect marketing techniques when applied to well-known brands sold overseas, but not yet sold in Australia. When assessing reputation in Australia, the courts can look at the impact of indirect marketing through ‘jurisdiction-transcending’ marketing techniques. Traders with an international reputation would suffer a loss if that reputation could not be protected, namely, the loss of the right to use a name or image in Australia, or the loss of the right to a licensing fee.
iii. T he owner of the reputation does not have to be personally known in the marketplace
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6.7 As long as a trader can establish that a reputation exists for its trade designation in the marketplace, it does not matter that the trader is not personally known. It is generally the source of the product or business that is important to the buying public: see Emrik Sporting Goods Pty Ltd v Stellar International Sporting Goods Pty Ltd.16 However, the plaintiff must be able to establish that members of the public had purchased a product, or were likely to do so, in the belief that it had emanated from a particular source: see Polite Chnika Ipari Szouetkezet v Dallas Print Transfers Ltd.17
iv. Can a reputation be owned by more than one trader? 6.8 In rare cases it is possible for a reputation or goodwill to be owned by a number of traders collectively. As long as the plaintiff is one of the sources of the product in question, a passing off action can be commenced against a person who is not a legitimate source of the product.
16 (1981) 53 FLR 319; (1981) ATPR 40-217. 17 [1982] FSR 529.
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Bollinger v Costa Brava Wine Co Ltd (No 2) [1961] 1 All ER 561; [1961] RPC 11618 Facts: The defendant imported sparkling wine from Spain and marketed it in the United Kingdom. It was described as ‘Spanish Champagne’. The plaintiffs, Bollinger and 11 other producers of wine from the Champagne district in France, sought an injunction restraining the sale of the wine relying upon passing off. The plaintiffs alleged that the public would be deceived into thinking that the Spanish wine was the wine with the great reputation made in the Champagne district by the ‘methode champenoise’.
6.8C
Decision: By using the term ‘Champagne’, the defendant was damaging the plaintiffs’ goodwill. The term ‘Champagne’ had long been exclusively used in the United Kingdom with regard to wines produced by the plaintiffs. A significant number of people whose life or education has not taught them much about the nature and production of wine and who had been recommended to purchase Champagne would be deceived by the description ‘Spanish Champagne’. These people would not be aware that the Champagne district is in France, and that the defendant’s wine was a different product altogether. An injunction was granted on the basis of the passing off.
v. Acquiring a reputation in descriptive words or material 6.9 Before a plaintiff can bring a passing off action, it is necessary to show that any words or ‘get-up’ used have become distinctive of the particular trader. Descriptive or generic words will often not meet this requirement. For example, the more descriptive a word or words, the more difficult it will be to convince a court that a plaintiff ought to have some sort of monopoly over the word or words. However, it is possible for descriptive words to acquire a secondary meaning distinctive of (or exclusively associated with) a plaintiff, which the courts will protect.
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BM Auto Sales Pty Ltd v Budget Rent A Car System Pty Ltd (1976) 12 ALR 363; 51 ALJR 254 Facts: Budget operated a car rental business in most major centres throughout Australia, although not in Darwin. In 1967 it made arrangements to open an agency in Darwin and from 1968 its name and telephone number appeared in the local telephone directory. Until 1971 Budget did no other advertising in Darwin. The Darwin agent’s role was primarily to handle inquiries from interstate visitors. In 1968 the defendant, who operated a car repair and hire business in Darwin, commenced use of the name ‘Budget’ in relation to the hiring of cars. In 1971 the plaintiff expanded its operation in Darwin and demanded that the defendant stop using the word ‘Budget’. Eventually the plaintiff brought an action alleging passing off. The evidence indicated that the plaintiff was known in Darwin by virtue of its Australia-wide reputation.
18 See also Erven Warnink BV v J Townend & Sons (Hull) Ltd [1979] 2 All ER 927; (1979) 1A IPR 666 (use of the word ‘advocaat’) and Chocosuisse Union des Fabricants Suisses de Chocolat v Cadbury Ltd [1999] RPC 826, see 6.41C. The UK decision of Bollinger v Costa Brava Wine Co Ltd (No 2) [1961] 1 All ER 561; [1961] RPC 116, see 6.8C, can be contrasted with the outcome of a similar dispute in Australia, Comité Interprofessional du Vin de Champagne v N L Burton Pty Ltd (1981) 38 ALR 664; (1981) ATPR 40-258; (1982) 1 TPR 128. Legislation now regulates the term ‘champagne’ as a geographical indication: see Wine Australia Corporation Act 1980 (Cth).
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Marketing and the Law Decision: The High Court concluded that the plaintiff had a reputation in Darwin by virtue of its Australia-wide reputation and by virtue of the fact that it had commenced business activities in Darwin by appointing an agent and placing its name in the telephone directory. This occurred prior to the defendant using the name. There was sufficient evidence to conclude that the similarity between the names had caused confusion between the businesses of the plaintiff and the defendant. An injunction preventing the defendant trading under the name ‘Budget’ was granted.
Even if the courts do grant some form of monopoly over the use of descriptive words, they will be careful to restrict the monopoly. The owner of the name ‘Budget’ in relation to hire cars cannot expect its monopoly over the word to extend to other products, for example, motels offering accommodation services.
B. Misrepresentation 6.10 Generally speaking, passing off will have occurred where the defendant’s conduct has misled, deceived, or confused a significant number of persons in the marketplace into believing either that: • the defendant’s business is that of the plaintiff, or that the defendant’s products are those of the plaintiff; or • the defendant’s business or products are associated with the plaintiff, at least to the extent of implying some sort of approval on the part of the plaintiff of the activities of the defendant.
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The most obvious type of passing off is where the defendant is producing a product similar to the plaintiff’s product in competition with the plaintiff and uses a name or ‘get-up’ (package, label, logo) that is so similar to the plaintiff’s that a reasonable number of customers will be confused as to the origin of the product. Targetts Pty Ltd v Target Australia Pty Ltd (1993) 26 IPR 51; (1993) ATPR 41-231 6.10C
Facts: The plaintiff had for many years carried on a retail clothing and footwear business in Launceston, Tasmania, under the name ‘Targetts’. The defendant, Target Australia, operated a large number of discount stores throughout mainland Australia and proposed to commence trading in Launceston, near the Targetts store. Both parties used a ‘target’ logo that was similar to the other in both shape and colour.
Target Targetts The plaintiff sought an injunction to prevent ‘Target’ trading under its business name, relying on passing off and s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law).
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Chapter 6: Passing Off and Unfair Trading Decision: Targetts had a well-established reputation in Launceston and surrounding areas in the business which it conducted, and there was no evidence to show any widespread awareness among the Launceston public of the existence and operations of the defendant. By using the name ‘Target’ and its logo, Target was likely to mislead or deceive members of the public in Launceston in the following ways: • A significant number of potential customers intending to deal with Targetts would end up going to Target. • People seeing the similar name and logo being used in a similar business by a new entrant would be likely to believe that this could only happen by virtue of some arrangement or connection between the old established business, Targetts, and the newcomer, Target. The existence of the reputation of Targetts in Launceston and the likelihood of confusion among its customers and potential customers by the use of a similar name and logo amounts to passing off. The conduct would also mislead and deceive in breach of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law). An injunction was granted restraining ‘Target’ from using its name and logo in connection with any business of retail sale of clothing, footwear, or manchester products within 30 kilometres of the plaintiff’s store.
i. Proving confusion or deception in passing off cases
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6.11 It is not always easy to prove confusion or deception. In some cases, the facts are such that the likelihood of deception is very apparent. In other cases, without evidence of actual deception in the marketplace, a passing off action will be difficult to establish unless a strong probability of deception can be established. However, there is no strict requirement for proof of actual deception: Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd;19 Nutrientwater Pty Ltd v Baco Pty Ltd.20 Cadbury Schweppes Pty Ltd v Pub Squash Co Pty Ltd [1980] 2 NSWLR 851; (1980) 32 ALR 387; [1981] 1 All ER 213 Facts: The plaintiff, Cadbury Schweppes, was a major manufacturer of soft drinks. In 1973 the plaintiff decided upon a new strategy to increase its share of the market in soft drinks in Australia. It would develop a new product to compete with Coca-Cola (but not cola flavoured). The plaintiff selected as its product a lemon squash, which the trial judge described as ‘a type of soft drink commonly accepted in hotels and licensed clubs and restaurants as an occasional alternative to beer’. It was to be presented as a man’s drink, fit for, and a favourite with, rugged, masculine adventurers. The advertising campaign was to stress its masculinity and at the same time invoke happy memories of the sort of squash that hotels (pubs) and bars in the past used to make. The two themes of manliness and nostalgia were reflected in the name of the product and its get-up. The product was named ‘Solo’ and the plaintiff designed a medallion type of label very similar
19 (2002) 55 IPR 354; [2002] FCAFC 157, see 6.11C2. 20 (2010) 265 ALR 140; 84 IPR 452; [2010] FCA 2.
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Marketing and the Law to the labels used on beer sold in Australia. It was to be sold in cans and bottles, but especially cans, for which the plaintiff chose a distinctive greenish-yellow colour. In 1976, the Pub Squash Co released a product similar in appearance, colour, and size under the ‘Pub Squash’ label. In so doing, it set out in a deliberate and calculated fashion to take advantage of the plaintiff’s past efforts in developing Solo and ‘chose a product name and package … derived from and intended to gain the benefit of the plaintiff’s past and anticipated advertising campaign and the plaintiff’s package for their product’. The competition from Pub Squash and certain other lemon squashes that entered the market in 1975 had an effect upon the sales of Solo. They were 15% lower in 1976 than they had been in 1975. In 1977 the plaintiff instituted proceedings against Pub Squash, claiming an injunction and either damages or an account of profits for passing off. Decision: A balance must be maintained between free competition and protection of a trader’s investment in its product. A defendant does no wrong by entering a market created by another and competing with the creator, as long as the defendant sufficiently differentiates its product from that of the creator. In this case, the radio and television advertisements were descriptive of the product (Solo), but had not become a distinguishing feature. In other words, they had not become so much a part of the image of Solo that the plaintiff could be said to have property in the concepts of masculinity and nostalgia used in the advertising campaign. In relation to the similarity in the cans, the defendant was under a duty to ensure that its can was sufficiently distinguished from the plaintiff’s. Although there were similarities between the two cans and although there may have been some initial confusion by consumers (due largely to the consumers’ casual attitude), the cans were sufficiently different that any confusion would have been dispelled before the moment of sale.
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Thus there was no ‘relevant misrepresentation’ in the sense that customers, or potential customers, were led by the similarities in the get-up and advertising of the two products into believing that Pub Squash was the Cadbury Schweppes product. In other words, the defendant had sufficiently distinguished its product from Solo.
The decisive factor in Cadbury Schweppes Pty Ltd v Pub Squash Co Pty Ltd21 was the use of a distinctive and prominent brand name by the defendant, which overcame the fact that there were a number of other similarities between the products involved. This approach has long been the accepted way of dealing with allegations of misrepresentation in passing off disputes. However, that approach was challenged in Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd.22
6.11C2
Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354; [2002] FCAFC 157 Facts: Red Bull was an energy drink that had been successfully marketed in Australia since 1997. It was sold in slimline cans with a distinctive design incorporating the colours silver and blue, a brand name in large red letters, and a graphic device depicting two red bulls charging each other. The defendant began distributing a competitive energy drink known as Live Wire. 21 [1980] 2 NSWLR 851; (1980) 32 ALR 387; [1981] 1 All ER 213, see 6.11C1. 22 (2002) 55 IPR 354; [2002] FCAFC 157, see 6.11C2.
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Chapter 6: Passing Off and Unfair Trading The plaintiff alleged that the get-up of the defendant’s product was so similar as to constitute passing off, based on the fact that it incorporated a similar design and layout with an almost identical red, blue, and silver colour scheme on the same distinctive slimline can as that used by the plaintiff. The defendant argued that any similarities and potential to deceive was overcome by the use of a distinctive and prominent trade mark on the front of the can, critical to the outcome in Cadbury Schweppes Pty Ltd v Pub Squash Co Pty Ltd.23 To overcome this argument, the plaintiff called upon an expert witness who focused on the ‘gestalt’ of the Red Bull brand — gestalt being defined as ‘an integrated perceptual structure or unity conceived as functioning more than the sum of its parts’. In other words, the overall identity of a brand includes the name, colour, physical properties and packaging, as well as associations with the brand, including advertising and distribution channels. Buyers recognise and differentiate between brands on the basis of the overall look and feel of the product and its total image, particularly where no single brand element is dominant, and where the whole is greater than the sum of its parts. It was submitted that, where the gestalt of two products are almost identical, some consumers are likely to perceive them as comprising the same brand and/or as being derived from the same source. On the basis of such evidence, the trial judge concluded that passing off had been established. On appeal to the Full Federal Court, the defendant argued that the trial judge had erred in not considering the effect upon his perceptions of the prominent brand names of the products involved.
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Decision: While the Full Court acknowledged that the brand names were prominent and created significant differences in appearance, and were therefore highly relevant in determining the likelihood of deception, it (perhaps surprisingly) refused to overturn the trial judge’s decision. While the Court did not give a ringing endorsement to the gestalt theory, it appeared a little critical of the failure on the part of the defendant’s counsel to adequately challenge the expert opinions and the evidence presented. It was therefore unwilling to find that the trial judge had erred in relying upon such evidence. The Full Court accepted the trial judge’s view that the defendant had gone ‘too far’ in seeking to ‘cash in’ on the reputation of Red Bull, and had stepped over the line of misrepresentation.24
This decision should, however, be treated with caution. While it is true that evidence of actual confusion is not necessary to prove passing off, and that it is only necessary to prove the likelihood of confusion, usually the absence of such evidence will make it difficult to demonstrate such a likelihood. This is particularly the case when the offending product has been in the marketplace for some time, in which situations the courts are more likely to require actual proof of deception. In Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd,25 where 23 [1980] 2 NSWLR 851; (1980) 32 ALR 387; [1981] 1 All ER 213, see 6.11C1. 24 If it can be shown that a defendant had the object of causing damage (ie, to encourage purchasers to deal with the defendant instead of the plaintiff due to a misrepresentation), the courts will often infer that the defendant has achieved this purpose without proof of actual deception. A factor supporting such a view in Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354; [2002] FCAFC 157, see 6.11C2, was the choice of the prominent colours by the defendant, which could not be justified on the basis of their descriptive nature; in contrast to Cadbury Schweppes Pty Ltd v Pub Squash Co Pty Ltd [1980] 2 NSWLR 851; (1980) 32 ALR 387; [1981] 1 All ER 213, see 6.11C1, where the yellow-green used on both products signified the lemon flavour of the drink. 25 (2002) 55 IPR 354; [2002] FCAFC 157, see 6.11C2.
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the plaintiff moved quickly to assert its rights, the absence of such evidence seemed to be overcome by the presentation of expert evidence that was not vigorously challenged. It should be observed that in Simplot Australia Pty Ltd v McCain Foods (Aust) Pty Ltd,26 reliance on the gestalt theory failed to convince the court that passing off had occurred in a case where the clearly different and well known trade marks used by the parties were prominently displayed on the packaging.27 The approach used in Cadbury Schweppes Pty Ltd v Pub Squash Co Pty Ltd28 now appears to have been firmly reestablished in Mars Australia Pty Ltd v Sweet Rewards Pty Ltd.29 Mars Australia Pty Ltd v Sweet Rewards Pty Ltd [2009] FCAFC 17430 6.11C3
Facts: The plaintiff, Mars Australia Pty Ltd (Mars), has successfully manufactured, distributed, and marketed Maltesers in Australia since 1989. Maltesers are a well-known confectionery consisting of chocolate-covered malt balls, and are a major player in the bite-size confectionery market. The plaintiff registered the word ‘Maltesers’ as a trade mark. For quite some time a typical packet of ‘Maltesers’ has looked like this:
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Maltesers in such packaging have been sold in numerous locations throughout Australia and have been marketed extensively on television, in print, and at cinemas. Sweet Rewards imports confectionery products into Australia. In 2005, Sweet Rewards began distributing a chocolate-covered malt ball product made in Singapore under the name ‘Delfi’ Malt Balls. Delfi Malt Balls was sold principally through Target and Kmart, but also through a number of other discount stores. The product looked like this:
26 27 28 29 30
(2001) 52 IPR 539; [2001] FCA 518, see 6.27C2. There were also significant differences in the packaging itself. [1980] 2 NSWLR 851; (1980) 32 ALR 387; [1981] 1 All ER 213, see 6.11C1. (2009) 81 IPR 354; [2009] FCA 606, see 6.11C3. See also Nutrientwater Pty Ltd v Baco Pty Ltd (2010) 265 ALR 140; 84 IPR 452; [2010] FCA 2.
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Chapter 6: Passing Off and Unfair Trading The colour schemes used on the respective labels and packages were quite similar, both having a deep red background. (Delfi Malt Balls were also available in orange packaging, but these products were not in contention in this case.) Mars, relying on the passing off action and s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law), alleged that the distribution of Delfi Malt Balls was unlawful because the ‘get-up’ wrongly suggested a connection between it and Maltesers, which did not exist; and represented to consumers that the contents were the same as Maltesers when, in fact, they were not. (It also complained that the use of the words ‘Malt Balls’ infringed the registered trade mark ‘Maltesers’.) Decision: On appeal, the court confirmed the judgment at first instance. They held that because the principal component in the Maltesers get-up is the word ‘Maltesers’, it was highly unlikely that any ordinary consumer of chocolate confectionery could mistake something which is not called a Malteser for a Malteser. In that sense, they noted, Mars is a victim of its own success. The fact that the Delfi jars carry the name Malt Balls and use slightly different visual features was sufficient to distinguish them from the Maltesers products. The court held that cases may well be imagined — the present was not one — where two product names might be deceptively similar because of the names used and the manner in which those names are presented. For example, the use of the fictional word ‘Mallesers’ among visual features that were otherwise identical to those of the Maltesers products would be likely to confuse some people, even some ordinary consumers of chocolate confectionery, into thinking they were buying Maltesers. Similarly, the use of the words ‘Malt Balls’ in the script and style denoted in the Maltesers brand flag, and among visual features that were otherwise identical to those of the Maltesers products, might also be a source of confusion. In that context, shape and form may have a part to play. In the court’s view, no ordinary person could have thought that the Malt Balls products in their current form misleadingly resembled the Maltesers product.
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There were three other obstacles to Mars’s claim. First, the word ‘Delfi’ with a skier motif next to it emblazoned on the label is a significant feature which finds no counterpart in the Maltesers get-up. Second, the colour of the packaging and the use of a depiction of the contents (cut-through malt balls) is commonplace in confectionery packaging. Third, while there was some limited similarity between the red Delfi jar and the Maltesers product, in that both were festooned with floating chocolate balls, this condition was not sufficient to overcome the effect of the words ‘Malt Balls’, the ‘Delfi’ mark, and the effect of the Maltesers mark. (The product equivalence argument was also dismissed — without any deceptive similarity of appearance between the two products, consumers were unlikely to assume that the products were made of the same ingredients or tasted the same. The trade mark infringement claim was also rejected.)
This approach is confirmed by the recent Full Federal Court decision in Stone & Wood Group Pty Ltd v Intellectual Property Development Corporation Pty Ltd.31 Stone & Wood Group Pty Ltd v Intellectual Property Development Corporation Pty Ltd (2018) 357 ALR 15; [2018] FCAFC 29 Facts: Stone & Wood are craft beer brewers, based in Byron Bay, New South Wales. Since 2010 their bestselling product has been a craft beer under the name ‘Pacific Ale’. The respondents are also craft beer brewers, based in Brunswick, Victoria. They changed the name of one of their beers, ‘Thunder
31 (2018) 357 ALR 15; [2018] FCAFC 29, see 6.11C4.
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Marketing and the Law Road’ to ‘Thunder Road Pacific Ale’ in 2015. Stone & Wood argued that the use of this name was both misleading and deceptive under s 18 of the Australian Consumer Law, and constituted passing off. (There was also a claim for trade mark infringement which was not pursued.)
Decision: Both the Federal Court at first instance and the Full Federal Court on appeal rejected these claims. The passing off claim was based on an argument that the use of the words ‘Pacific Ale’ and ‘Pacific’ would lead customers to buy Thunder Road beer when they meant to buy Stone & Wood’s product. Alternatively Stone & Wood argued that the fact that both beers used the term ‘Pacific Ale’ indicated to customers that the Thunder Road beer was produced under licence or with the authority and approval of Stone & Wood — when it was not.
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The Court accepted that Pacific Ale had a distinctive taste, and that the use of the name ‘Pacific’ was evocative of the Byron Bay location of the brewery. However, they also looked closely at the packaging. They said the dominant feature of the packaging was not the word ‘Pacific Ale’, but the Stone & Wood logo. The words ‘Pacific Ale’ appeared on the label, but in much smaller type, as a description of the beer, below the branding. They also noted that the bottle colour was a mustard, or type of orange, colour. By contrast, the Court looked at the Thunder Road packaging. They found that this was very different. The dominant feature was the words ‘Pacific Ale’ and the dominant colours were bright green and bright orange in roughly equal proportions. The shape of the label was different in the two products and the bottle caps were also different colours. The Court concluded that the overall look and feel of the two products was very different, and while they did use the words ‘Pacific Ale’, in designing its labelling Thunder Road did not emulate Stone & Wood. The Court acknowledged that Thunder Road intended to get some advantage by incorporating the words ‘Pacific Ale’ into the name of its beer. However the Court stressed that this tort is not designed to limit legitimate competition (which can include one business seeking to take advantage of the success of another business). Rather it focuses on whether there has been a false representation of association or connection between the two.32 And here, because there was no misrepresentation of association between the two, the tort was not established.
ii. Intention to deceive 6.12 It is not necessary to prove an actual intention to deceive in order to establish passing off. Deception only has to be a reasonably foreseeable consequence. 32 The Court quoted Buckley LJ in HP Bulmer Ltd [1978] RPC 79 at 99.
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However, there is still some doubt as to whether a court will grant damages (as opposed to an injunction) without proof of fraud. Persisting with a form of conduct after being given notice of passing off would be an example of conduct engaged in by a defendant which might entitle a plaintiff to damages: see Hogan v Koala Dundee Pty Ltd.33 In reality, an unwillingness to grant damages against innocent defendants is not a significant problem, as normally an injunction will be the remedy sought.
iii. Common field of activity 6.13 Most passing off cases involve a plaintiff and defendant who are operating in the same field of activity. For instance, in BM Auto Sales Pty Ltd v Budget Rent A Car System Pty Ltd,34 both parties were in the business of hiring out cars; in Cadbury Schweppes Pty Ltd v Pub Squash Co Pty Ltd,35 both parties were producers of soft drinks; in Mars Australia Pty Ltd v Sweet Rewards Pty Ltd,36 both parties were in the confectionery market; and in Stone & Wood v Intellectual Property Development Corporation Pty Ltd37 both parties were in the craft beer market. Despite some conflicting opinions in both the United Kingdom and Australia, it is now settled in Australia that it is not an essential element of the passing off action for the plaintiff and defendant to be engaged in a common field of activity.38 The respective fields of activity of the plaintiff and the defendant are simply one of the matters to take into account in determining whether the public has been confused or misled. If there is no overlap in the fields of activity, the likelihood of confusion or deception is much less than if the parties are involved in the same activity.
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Totalizator Agency Board v Turf News Pty Ltd [1967] VR 605 Facts: The plaintiff was a statutory body that had been created as an agency in Victoria to control off-course betting on horse races. It was commonly referred to in the market place as the ‘TAB’. The defendant commenced publishing a race-tipping newspaper under the name ‘TAB’. The defendant’s paper contained a disclaimer that it was not connected with the plaintiff. The plaintiff sought an injunction to restrain the defendant from using the name TAB on its publication. Decision: There was a real potential for loss of reputation that would lead to loss of sales by the plaintiff. The plaintiff had a very good reputation that was necessary for its commercial success. For it to be seen as the publisher of a ‘tipping sheet’, generally regarded as being notoriously inaccurate, would lower its reputation and injure its business. Despite the existence of the disclaimer, evidence revealed that an appreciable number of persons were in fact deceived.
33 34 35 36 37 38
(1988) 83 ALR 187; (1988) 12 IPR 508. (1976) 12 ALR 363; 51 ALJR 254, see 6.9C. [1980] 2 NSWLR 851; (1980) 32 ALR 387; [1981] 1 All ER 213, see 6.11C1. (2009) 81 IPR 354; [2009] FCA 606, see 6.11C3. (2018) 357 ALR 15; [2018] FCAFC 29, see 6.11C4. See the High Court decision of Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45; 169 ALR 677; [2000] HCA 12 at [110], see 6.30C.
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Marketing and the Law The defendant contended that, even if deception and damage were established, the action should fail as the publication of the paper by the defendant would not result in there being any common field of activity in which both the plaintiff and the defendant would be engaged. The judge treated the field of activities engaged in by the parties as being relevant, but only as a factor to be taken into account when assessing the likelihood of confusion: [T]he fact, disclosed by the evidence, that the word ‘TAB’ is used as the name of a soft drink and as part of the name of a brand of chewing gum do not, in my view, impair in any way the strength of the plaintiff’s case on the likelihood of deception. For these, obviously, are uses in entirely different fields of business, whereas the proposed paper would be aimed at the racing and betting public and, in particular, … at the customers and prospective customers of the plaintiff. An injunction was granted preventing the defendant from using the name TAB on its publication.
iv. Use of a disclaimer to avoid the likelihood of deception 6.14 A disclaimer is any device by which the trader making a representation attempts to deny the message otherwise conveyed by the representation: Totalizator Agency Board v Turf News Pty Ltd;39 and Hutchence v South Sea Bubble Co Pty Ltd.40
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6.14C
Children’s Television Workshop Inc v Woolworths (NSW) Ltd [1981] 1 NSWLR 273; (1980) 1B IPR 609 Facts: The plaintiff was the owner and producer of the children’s television program ‘Sesame Street’. The program was very popular in Australia, especially some of the characters known as the ‘muppets’. The plaintiff licensed the right to reproduce the muppet characters as soft toys. At the time of this case, no such licence had been granted in Australia, although negotiations were in hand. The defendant operated a chain of department stores which sold, among other things, soft toys. It purchased some toys from Korea which bore a close resemblance to the muppet characters. The plaintiff had not given any permission to the Korean manufacturer or to the defendant. The Korean toys were sold at a significantly lower price than the plaintiff’s licensed toys could be expected to sell for. The plaintiff alleged that the defendant had passed off the Korean toys as products associated with the plaintiff, in the sense of being products licensed or endorsed by the plaintiff. The defendant attempted to avoid liability by affixing to the bag in which each toy was wrapped, a sticker which read: This product is not manufactured or sold under licence from Children’s Television Workshop Inc or Muppets Inc and is not sold as a Sesame Street character or Muppet character. Decision: It was well known that the creators of fictional characters license others to manufacture or deal in product representations of those characters. The muppets were well known. The Korean toys looked sufficiently like the television characters that persons (especially children) would be misled into believing that the toys were produced and sold with the approval of the plaintiff. It is not necessary to prove actual loss of reputation. The mere 39 [1967] VR 605, see 6.13C. 40 (1986) 64 ALR 33; 6 IPR 473; (1986) ATPR 40-667, see 6.43C1.
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Chapter 6: Passing Off and Unfair Trading presence of the deceptive copies meant that the plaintiff’s business was bound to be adversely affected in some way. The disclaimer on stickers attached to the toys was inadequate. It was insignificant in size, sometimes affixed to obscure places, and was even absent from some toys (having fallen off or not been affixed at all). Many purchasers of the toys were therefore unaware of the existence of the disclosure that the toys were not intended to be representations of the ‘Sesame Street’ characters.
There will, however, be situations where the disclaimer is so clearly made that any potential deception is overcome. The disclaimer must leave no one in doubt that there is no connection between the defendant and the plaintiff or the plaintiff’s product: see Newton-John v Scholl-Plough (Australia) Ltd.41
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C. Damage 6.15 The usual remedy sought by victims of passing off is an injunction. In order to obtain this remedy, the plaintiff must prove actual damage or a real likelihood that such damage will be incurred if the defendant’s activities are allowed to continue. In Solarhart Industries Pty Ltd v Solar Shop Pty Ltd,42 the Solar Shop (‘Solar Hut’) radio commercial was found to amount to a misrepresentation, but the passing off case failed because there was no damage — ‘the confusion engendered by the radio commercial is so complete that it can only have worked to Solahart’s advantage, rather than to its detriment’.43 If damages are sought, the plaintiff must usually establish compensable loss. Where the passing off takes the traditional form of copying the plaintiff’s name or get-up, the potential damage lies in the possibility of sales being diverted from the plaintiff to the defendant. However, sometimes passing off will have the effect of diminishing (diluting) the plaintiff’s reputation. This is especially the case where the reputation is based on the quality of the goods or services provided by the plaintiff: see Totalizator Agency Board v Turf News Pty Ltd,44 where the court accepted that there was a real potential for loss of reputation that would ultimately lead to loss of sales.45 Another form of compensable loss is the loss of a business opportunity, such as the receipt of a sponsorship fee or licence fee. In Henderson v Radio Corp Pty Ltd,46 the court accepted the potential loss of endorsement rights as sufficient to grant an injunction. In Children’s Television Workshop Inc v Woolworths (NSW) Ltd,47 the court acknowledged that the loss of a right to collect a licensing fee was a potential loss justifying an injunction, irrespective of any actual loss of reputation. However, in 41 42 43 44 45
(1986) 11 FCR 233; (1986) ATPR 40-697, see 10.21C. (2011) 281 ALR 544; 92 IPR 165; [2011] FCA 700. At [76]. [1967] VR 605, see 6.13C. See also Bollinger v Costa Brava Wine Co Ltd (No 2) [1961] 1 All ER 561; [1961] RPC 116, see 6.8C, and Chocosuisse Union des Fabricants Suisses de Chocolat v Cadbury Ltd [1999] RPC 826, see 6.41C. 46 (1960) 60 SR (NSW) 576; 77 WN (NSW) 585; 1A IPR 620. 47 [1981] 1 NSWLR 273; (1980) 1B IPR 609, see 6.14C.
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cases such as this, there would clearly be a reduction in goodwill if the defendant could imitate the plaintiff’s product with impunity. Finally, the loss of an opportunity to extend or expand the product range (and in so doing to take advantage of an established brand name’s reputation) should also be recognised as a form of compensable loss: see Campomar Sociedad, Limitada v Nike International Ltd;48 and Lego System Aktieselskab v Lego M Lemelstrich Ltd49 (where the toy manufacturer was able to prevent Israeli irrigation equipment from being marketed in Britain as ‘lego’).
Remedies 6.16 Typically, remedies for passing off include: • an injunction to restrain or prevent the passing off from continuing; • damages (including exemplary damages) or an account of profits; • delivery up or destruction of goods or materials that would breach the injunction; and/or • other related orders; for example, the transfer of a domain name. The prevailing view is that damages should only be awarded in passing off cases when the defendant has intentionally sought to deceive the public. It is important to note that remedies for passing off are awarded at the discretion of the court and are not an automatic entitlement.
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6.16C
Knott Investments Pty Ltd v Winnebago Industries Inc (2013) 299 ALR 74; 101 IPR 449; [2013] FCAFC 59 Facts: Winnebago Industries has manufactured and sold recreational vehicles (motor homes) in the US and other countries (but not Australia) since 1959. Knott Investments began selling such vehicles in Australia in 1978, using the same name (‘Winnebago’) and a similar logo. Winnebago became aware of Knott’s activities in 1985, but did not take any action until 1991. In 1992 the parties entered into a settlement agreement. The parties disagreed as to the meaning and effect of the settlement agreement. In 2010 Winnebago commenced proceedings in the Federal Court, alleging passing off and misleading conduct. At first instance, the court ordered an injunction to prevent Knott from using the Winnebago name in Australia. Knott appealed to the Full Federal Court. Decision: The court agreed with the trial judge on most substantive issues (ie, that Knott’s behaviour was misleading and that it amounted to passing off). However, the Full Court held that the injunction was ‘unreasonable and unjust’ given the fact that Winnebago had known that Knott had been using its name and logo since 1985, but had effectively taken no action for 25 years. In the circumstances, it was unfair to allow Winnebago to now trade off the reputation and goodwill that Knott had developed in Australia. As a consequence of its extraordinary delay, Winnebago was denied the remedies it sought.
48 (2000) 202 CLR 45; 169 ALR 677; [2000] HCA 12, see 6.30C. 49 [1983] FSR 155.
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Chapter 6: Passing Off and Unfair Trading Although Knott was permitted to continue using the name ‘Winnebago’, it was ordered to provide prominent disclaimers whenever its name or logo appeared (whether on a vehicle or a document) that it and its vehicles were not associated with the US Winnebago. FIGURE 6.1 THE POTENTIAL FOR SUCCESS OF A PASSING OFF ACTION
Does your trade designation have a reputation in the marketplace?
NO
YES Do you have goodwill in that reputation?
NO
YES Does the conduct of you and your competitor take place in the course of trade? YES
NO
Has your competitor made a misrepresentation?
NO
YES Does your competitor’s misrepresentation damage or potentially damage your reputation/goodwill?
NO
YES
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ACTION WILL LIE
NO ACTION WILL LIE
Misleading or Deceptive Conduct — Statutory Passing Off 6.17 With the passing by the Commonwealth government of the Trade Practices Act, a new form of protection for traders emerged. Although Pt V of the Act was inserted for reasons of consumer protection, in practice it has had a very broad application. The most-often used section in Pt V has been s 52. This section has now been replaced by s 18 of the Australian Consumer Law. Section 52 cases remain good authority for understanding the prohibition in s 18: see Workwear Industries Pty Ltd v Pacific Brands Workwear Group Pty Ltd.50 50 (2013) 104 IPR 1; [2013] FCA 1042.
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Marketing and the Law
The elements of statutory passing off 6.18 The requirements necessary to establish a contravention of s 18 of the Australian Consumer Law are: • a person,51 • in trade or commerce, • must not engage in misleading or deceptive conduct, or conduct likely to mislead or deceive. The drafting of s 18 is in the same form as s 52, except for the reference to a ‘person’ (the s 52 prohibition was directed to a ‘corporation’). A ‘person’ includes a natural person and a legal person (a corporation). The phrase ‘trade or commerce’ is defined in s 2 of the Australian Consumer Law and includes any business or professional activity or conduct of a commercial character: see 9.16. Conduct which falls within the scope of s 18 may also contravene more specific prohibitions in the Australian Consumer Law, such as that against ‘false or misleading representations’ in s 29 (based on s 53 of the Trade Practices Act 1974).
The overlap between s 18 and passing off 6.19 Section 18 of the Australian Consumer Law has conferred benefits upon private traders wishing to protect their business goodwill and intellectual property which are very like those provided by the passing off action. The close relationship between the tort of passing off and the use of s 18 was explained by the High Court in Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre.52
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FIGURE 6.2 OVERLAP BETWEEN S 18 OF THE AUSTRALIAN CONSUMER LAW AND THE COMMON LAW
Section 18 (ACL) Prevents the deception of consumers in the course of trade This type of deception
Passing Off Prevents injury to goodwill caused by unfair practices of a trade rival
may produce
This type of injury
Legislation designed to prevent such deception will sometimes prevent such an injury
51 For constitutional reasons, the application of the Trade Practices Act was generally restricted to corporations. These constitutional limitations have now been overcome by the Australian Consumer Law — a single national law that is applied nationally and in each state and territory through the cooperation of the federal and state governments. 52 (1978) 140 CLR 216; 18 ALR 639; 1B IPR 818, see 6.27C1.
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Chapter 6: Passing Off and Unfair Trading
In practice, a trader bringing a case of this type to court will claim a breach of both the common law and s 18 of the Australian Consumer Law. In theory, the outcome of a dispute involving an alleged breach of s 18 and common law passing off should not necessarily be the same under both heads of the law. The common law passing off action is designed to prevent the misappropriation of a trader’s reputation, whereas s 18 is intended to prevent misleading conduct. The courts have consistently emphasised that the two actions are not identical:53 The backgrounds of s 52 [now s 18 of the Australian Consumer Law] and the law of passing off are quite different. Their respective purposes and the interests which they primarily protect are contrasting. Their areas of operation do not coincide. The indiscriminate importation into s 52 cases of principles and concepts involved in passing off … is likely to be productive of error and to give rise to arguments founded on false assumptions.
Despite such observations, if protecting a business reputation is involved, the questions raised in most cases are virtually the same (whether the argument is based on s 18 of the Australian Consumer Law or passing off):54 • Does the plaintiff have a distinctive reputation? • Has the relevant public been led into error (or is it likely to be deceived) by the defendant’s conduct? • Has the deception caused (or is it likely to cause) loss or damage to the plaintiff? This explains why, in reality, cases where the result is different under s 52 (now s 18) as compared to passing off, are very difficult to find. In fact, given that a misrepresentation must exist for passing off to be engaged in,55 this essentially requires that s 18 has been contravened (and often s 29 and s 151 as well).
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Advantages of statutory protection over the common law 6.20 There is an argument that the use of s 18 of the Australian Consumer Law offers several advantages compared to reliance on the common law passing off action. Realistically, in certain types of cases, it is even possible to suggest the lack of any need to rely upon the common law at all now in Australia, although the common law still has a greater potential to prevent certain forms of misappropriation (for
53 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 199; (1982) ATPR 40-303, per Deane and Fitzgerald JJ, see 6.32C. 54 For an excellent discussion of this issue, see A Stewart, P Griffith, J Bannister and A Liberman, Intellectual Property in Australia, 5th ed, LexisNexis, Sydney, 2014, at [16.38]–[16.39]. 55 Even though the decision in Hogan v Koala Dundee Pty Ltd (1988) 83 ALR 187; 12 IPR 508 would suggest that a misrepresentation is not always required to establish passing off, there must be some doubt on this aspect of the case: see Stewart, Griffith, Bannister and Liberman, Intellectual Property in Australia, above n 54, at [16.27]; see 6.12.
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Marketing and the Law
example, celebrity and character merchandising).56 Some of the advantages of reliance on the Australian Consumer Law are discussed below.
A. Reputation 6.21 The need to establish the existence of a reputation or goodwill is more critical under passing off, as this requirement underpins the passing off action. This is not the case under statute.57 The question is not whether an applicant has shown a sufficient reputation in a particular get-up or name. The question is whether the use of the particular getup or name by an alleged wrongdoer in relation to his product is likely to mislead or deceive persons familiar with the claimant’s product to believe that the two products are associated, having regard to the state of knowledge of consumers in Australia of the claimant’s product.
Thus, in some (admittedly rare) cases, a reputation may not even exist: see Peter Isaacson Publications Pty Ltd v Nationwide News Pty Ltd.58 However, if the allegation of misleading conduct is one that relates to the plaintiff’s reputation, which will usually be the case, it will be necessary to prove as a question of fact that the plaintiff does have a reputation.
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B. Misrepresentation 6.22 The need to prove that a misrepresentation has taken place is common to both actions. However, s 18 is infringed by conduct that is ‘likely to mislead or deceive’, meaning that it is unnecessary to prove that the conduct in question actually deceived or misled anyone, or that there was a strong probability of confusion,59 as is required at common law. Establishing that conduct is ‘likely’ to mislead is sufficient: Google Inc v ACCC.60 The court will apply an objective test in determining for itself whether conduct is misleading or likely to be so. That the burden may be less onerous under statute, is evidenced by Cricketer Ltd v Newspress Pty Ltd & David Syme & Co Ltd,61 when compared to Emap Elan Ltd v Pacific Publications Pty Ltd.62 Undoubtedly, the most significant advantage of using s 18 is that it can be relied on no matter what type of misrepresentation has been made. Thus, in some cases, a trader’s conduct may be deceptive (and thus breach s 18), even though it is not deceptive in the passing off sense. 56 57 58 59
See D Healy and A Terry, Misleading or Deceptive Conduct, CCH, Sydney, 1991 at pp 133–134. Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (2007) 159 FCR 359 at 419. (1984) 56 ALR 595; 3 IPR 255. This is the burden of proof in a quia timet action, where the applicant seeks an injunction to prevent some act (passing off) being done that has a ‘real prospect’ of causing damage. 60 (2013) 249 CLR 435; 294 ALR 404; 99 IPR 197; [2013] HCA 1, see 6.34C and 19.54C. 61 [1974] VR 477, see 6.5C2. 62 (1997) 37 IPR 1; (1997) ATPR 41-551; [1997] FCA 50, see 6.40C.
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Chapter 6: Passing Off and Unfair Trading
Stuart Alexander and Co (Interstate) Pty Ltd v Blenders Pty Ltd (1981) 37 ALR 16163 Facts: Stuart Alexander marketed and advertised ‘Andronicus’ coffee in jars that were very similar to the distinctive apothecary jars which Blenders had been using for many years in marketing its ‘Moccona’ brand of coffee. A television advertisement produced by Stuart Alexander favourably compared the price of its coffee with the applicant’s brand of coffee. In the advertisement, in a reference to Moccona, the announcer said: ‘Some imported coffees come in a beautiful jar, but they cost the earth’, with emphasis on the word ‘imported’. Blenders sought an injunction to restrain the screening of the commercial and the supply of Andronicus coffee in the new jars and labels, on the grounds that the defendants were engaging in misleading conduct and making misleading statements under s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law) or alternatively were passing off its products as those of the plaintiff. Decision: An injunction to restrain the defendant from using the distinctive apothecary jars and labels was refused, on the grounds that the defendant had sufficiently differentiated its product from that of the applicant’s. The brand names ‘Moccona’ and ‘Andronicus’ were prominently displayed in each case and were printed in a different style and colour from each other.64 However, the applicant did succeed in a claim that the defendant’s television advertisement was misleading because it implied, contrary to fact, that the defendant’s ‘Andronicus’ brand coffee was not imported (implying that, as a result, it was less expensive than the applicant’s ‘Moccona’ brand).
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C. Damage 6.23 It is not a requirement to prove damage (in the sense of a misappropriation of reputation or goodwill) to bring an action under s 18 of the Australian Consumer Law.65 This means that a misrepresentation made at an early stage in a ‘statutory passing off’ type action, will not be remedied by arguing that customers did not ultimately end up buying the wrong product. It will be recalled that the lack of such evidence was the reason behind the dismissal of the common law passing off allegation in Cadbury Schweppes Pty Ltd v Pub Squash Co Pty Ltd,66 where damage, or the probability of damage, could not be demonstrated.67 (Note, however, that damages for breach of s 18 will only be available if actual damage can be demonstrated.) 63 Other aspects of this case are discussed at 10.27C3. For another example of this type of case, see Bently Fragrances Pty Ltd v GDR Consultants Pty Ltd (1985) 5 IPR 183; 11 FCR 29; (1985) ATPR 40-589, which was concerned with the misrepresentation of the quality of goods (perfumes). 64 Distinctive packaging can sometimes be protected: see John Haig and Co Ltd v Forth Blending Co Ltd (1953) 70 RPC 259. 65 Although of course this will be necessary if the applicant is seeking the remedy of damages or an account of profits on the basis of a passing off type of allegation. 66 [1980] 2 NSWLR 851; (1980) 32 ALR 387; [1981] 1 All ER 213, see 6.11C1. 67 See also Central Equity Ltd v Central Corporation Pty Ltd (1995) 32 IPR 481.
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6.22C
Marketing and the Law
Intention to mislead or deceive 6.24 Liability for contravention of s 18 of the Australian Consumer Law is strict: Google Inc v ACCC.68 The defendant’s intention or state of mind is irrelevant. A person may breach s 18 despite the fact that a statement or representation has been made honestly, innocently, and without any intention to actively mislead or deceive: Thai Silk Co Ltd v Aser Nominees Pty Ltd.69 A court will, nevertheless, more easily find a breach of s 18 where there is clear evidence of an intention to mislead or deceive, or where reckless indifference exists: Nylex Corporation Ltd v Sabco Ltd;70 Campomar Sociedad, Limitada v Nike International Ltd.71
Degree of differentiation required to avoid contravention of s 18 6.25 A defendant can successfully defend an alleged breach of s 18 of the Australian Consumer Law by establishing that its business or product has been sufficiently differentiated from that of the plaintiff. Clearly displaying a distinctive brand or business name on a product, even if the product itself has been copied or imitated, will usually result in the dismissal of any action brought against the defendant.
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TABLE 6.1 CASE LAW ON DIFFERENTIATION BETWEEN PRODUCTS IMITATED PRODUCT
CASE
Furniture
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd72
Coffee jar
Stuart Alexander and Co (Interstate) Pty Ltd v Blenders Pty Ltd73
Confectionery
Mars Australia Pty Ltd v Sweet Rewards Pty Ltd74
Sports drinks
Nutrientwater Pty Ltd v Baco Pty Ltd75
Cookbook
Brock v Terrace Times Pty Ltd76
Fire place
Fire Nymph Products Pty Ltd v Jalco Pty Ltd77
Shelves
Marlbro Shelving Systems Pty Ltd v ARC Engineering Pty Ltd78
68 69 70 71 72 73 74 75 76 77 78
(2013) 249 CLR 435; 294 ALR 404; 99 IPR 197; [2013] HCA 1, see 6.34C and 19.54C. (1991) ATPR 41-146 at 53,089. (1987) ATPR 40-752 at 48,179 per Woodward J. (2000) 202 CLR 45; 169 ALR 677; [2000] HCA 12, see 6.30C. (1982) 149 CLR 1; 42 ALR 1; 1A IPR 684; (1982) ATPR 40-307, see 5.32C. (1981) 37 ALR 161, see 6.22C. (2009) 81 IPR 354; [2009] FCA 606, see 6.11C3. (2010) 265 ALR 140; 84 IPR 452; [2010] FCA 2. (1982) 40 ALR 97; 56 FLR 464. (1983) 47 ALR 355; 74 FLR 102; 1 IPR 79. (1983) 72 FLR 418; (1983) ATPR 40-355.
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Chapter 6: Passing Off and Unfair Trading TABLE 6.1 CASE LAW ON DIFFERENTIATION BETWEEN PRODUCTS — cont’d IMITATED PRODUCT
CASE
Garden hose
Nylex Corporation Ltd v Sabco Ltd79
Shampoo bottle
Freeman Cosmetic Corporation v Jenola Trial Pty Ltd (t/as South Pacific Cosmetics)80
Electric shaver
Koninklijke Philips Electronics NV v Remington Products Australia Pty Ltd81
Craft beer
Stone & Wood Group Pty Ltd v Intellectual Property Development Corporation Pty Ltd82
However, should a similar brand name or business name be utilised in conjunction with a similar ‘get-up’, the line between permissible imitation and passing off is likely to be overstepped: see examples given in Mars Australia Pty Ltd v Sweet Rewards Pty Ltd.83
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TABLE 6.2 CASE LAW ON SIMILARITIES IN MARKETING IMITATED PRODUCT
CASE
Potato chips
Kettle Chip Co Pty Ltd v Apand Pty Ltd84
Disinfectant
Sterling Winthrop Pty Ltd v R & C Products Pty Ltd85
Pine log garden edging
Bedford Industries Rehabilitation Association Inc v Pinefair Pty Ltd & Porter86
Florist services
Roses Only & Lush Pty Ltd v Mark Lyons Pty Ltd87
Energy drink
Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd88
Magazine
Pacific Publications Pty Ltd v IPC Media Pty Ltd89
Use of a disclaimer to avoid a contravention of s 18 6.26 A disclaimer may be potentially effective by eliminating confusion. An effective disclaimer will prevent liability from arising under s 18 of the Australian 79 80 81 82 83 84 85 86 87 88 89
(1987) ATPR 40-752. (1993) ATPR 41-270. (2000) 177 ALR 167; 48 IPR 257; [2000] FCA 876. (2018) 357 ALR 15; [2018] FCAFC 29, see 6.11C4. (2009) 81 IPR 354; [2009] FCA 606, see 6.11C3. (1993) 119 ALR 156; 27 IPR 321; (1994) ATPR 41-287; [1993] FCA 819, see 6.31C. (1994) ATPR 41-308. (1996) ATPR 41-448. (1999) 47 IPR 593; [1999] FCA 1000. (2002) 55 IPR 354; [2002] FCAFC 157, see 6.11C2. (2003) 57 IPR 28; [2003] FCA 104.
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Marketing and the Law
Consumer Law by communicating information to a consumer so that he or she is not misled or deceived. A disclaimer must be brought clearly to the attention of the parties concerned and must contain provisions that are clear, prominent, and unambiguous. In practice, it will often be difficult to meet such criteria, as already illustrated by Totalizator Agency Board v Turf News Pty Ltd90 and the Children’s Television Workshop Inc v Woolworths (NSW) Ltd.91 However, there have been cases where a disclaimer has been effectively used to avoid breaching the law.
6.26C
Sony Music Australia Ltd v Tansing (t/as Apple House Music) (1993) 27 IPR 649; (1993) ATPR 41-279 Facts: Sony owned the exclusive rights to Michael Jackson’s recordings. Tansing, trading as Apple House, announced that it would release three ‘bootleg’ albums of Michael Jackson songs. These albums were recorded live without authority at various Michael Jackson concerts in Europe. Apple House planned to put a number of disclaimers on its album cover. At the top across the full width of the label would appear the words: ‘THE UNAUTHORISED RECORDINGS’. At the bottom, the words: ‘THE SOUND RECORDING MAY NOT BE OF THE SAME QUALITY AS AN AUTHORISED RELEASE’. In the middle would be a picture of Michael Jackson and running vertically across the picture in block red capitals the word ‘UNAUTHORISED’. Sony sued for breach of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law) and passing off. Decision: The Federal Court refused an interim injunction on the basis that it was highly unlikely that any breach had occurred. Einfeld J said:
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[I]t seems to me on the evidence presently presented, it would be an extremely stupid young member of the public who, upon being confronted by this recording, would come to the conclusion that it was a production which Michael Jackson had authorised, that it was a production of Michael Jackson’s record company or some other associated organisation, and that the quality of the recording was one of which Michael Jackson would or does approve or with which he would wish or be proud to be associated.
Preventing other traders from using descriptive words or material 6.27 As is the case at common law, a plaintiff seeking to protect trade designations, especially words, must establish that such designations are distinctive of the business or product to which they are attached, or in other words that they are exclusively associated with the plaintiff in the minds of customers or potential customers. This will be difficult to establish in cases where a trader uses descriptive words in connection with a product or business. For example, if a name is chosen by a trader which is merely descriptive of a particular type of business, its use by others who carry on that same type of business will not be deceptive or misleading. 90 [1967] VR 605, see 6.13C. 91 [1981] 1 NSWLR 273; (1980) 1B IPR 609, see 6.14C.
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Chapter 6: Passing Off and Unfair Trading
Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre (1978) 140 CLR 216; 140 CLR 216; 1B IPR 818 Facts: The plaintiff had carried on business in Sydney for over 20 years under the name Sydney Building Information Centre, the business being essentially the setting up of a display centre for various building materials to be inspected by interested buyers.
6.27C1
The defendant set up a similar business located in Hornsby (on the outskirts of Sydney) and adopted the name Hornsby Building Information Centre. The plaintiff alleged that the defendant, by trading under a similar name, was engaging in conduct which would result in the public confusing the two businesses, such that the public would be misled or deceived within the meaning of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law). Decision: The defendant had not engaged in misleading or deceptive conduct in breach of s 52. There was no likelihood of any misconception as to the existence of a business connection between the Hornsby Building Information Centre and the Sydney Building Information Centre. The plaintiff had chosen to use descriptive words (Building Information Centre) in its business name and could not complain if a competitor set up a similar business using the same form of words, provided there was an attempt to differentiate the two businesses. This requirement was met by the defendant’s addition of a geographical prefix (Hornsby) to the descriptive words.
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Using descriptive words to describe the nature of the service offered would also not usually be protectable. In Communication Credit Union Ltd v National Westminster Finance Australia Ltd,92 it was held that the name ‘Phone-A-Loan’ was not distinctive of the applicant’s facility, in that it merely described a means of doing business; that is, making an application for a loan by telephone. Words that describe a product, in a generic sense, can also be used by any other trader,93 and cannot be monopolised by one trader. Simplot Australia Pty Ltd v McCain Foods (Aust) Pty Ltd (2001) 52 IPR 539; [2001] FCA 518 Facts: Simplot marketed Birds Eye ‘Hash Browns Crunchy Triangles’, a potato-based product. It sought an injunction to stop McCain from manufacturing, supplying, promoting, or selling any hash brown product using the name ‘Hash Brown Triangles’, relying on s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law) and passing off. Decision: Simplot did not have any goodwill or reputation in the trade description ‘Hash Brown Triangles’. The very descriptiveness of such words meant it could not be distinctive of Simplot’s product, and hence its use on other like products by competitors would not ordinarily mislead the public. A plaintiff that uses descriptive words in its trade names will find that quite small differences in a competitor’s trade name will render the latter immune from action. An injunction was refused because of the prominence of the ‘Birds Eye’ and ‘McCain’ trade marks and other significant differences in the packaging of the products.
92 (1983) 51 ALR 375; 1 IPR 507; (1983) ATPR 40-410. 93 See Comité Interprofessional du Vin de Champagne v N L Burton Pty Ltd (1981) 38 ALR 664; (1981) ATPR 40-258; (1982) 1 TPR 128.
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6.27C2
Marketing and the Law
However, there are cases where the plaintiff has been able to establish that apparently descriptive words have acquired, among members of the public, a secondary meaning which is distinctive of its goods or business.
6.27C3
Abundant Earth Pty Ltd v R & C Products Pty Ltd (1985) 59 ALR 211; 4 IPR 387; (1985) ATPR 40-53294 Facts: R & C Products produced a successful product called ‘Pure and Simple’ (a vegetable oil) which was used in cooking. The product was widely sold through supermarkets. R & C Products was planning to launch a range of products under the ‘Pure and Simple’ name, including a prepared mustard. Abundant Earth produced a health food mustard called ‘Pure and Simple’, which was sold in health food shops as well as in the specialty sections of some supermarkets. R & C sought an injunction for a breach of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law). Decision: A breach had occurred. In reaching this conclusion the court was influenced by a number of factors: • Although there was no strict common field of activity the products were closely related and had similar customers. • Both products highlighted the name ‘Pure and Simple’. • Both products were inexpensive food items containing natural ingredients. • Although the name was descriptive, it had become widely associated with R & C. • There was no adequate disclaimer which was important with this type of relatively cheap product where the emphasis was on selling without the customer doing much individual work. The court awarded an injunction.
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REA Group Ltd v Real Estate 1 Ltd (2013) 102 IPR 1; [2013] FCA 559 6.27C4
Facts: REA operates the online real estate businesses, realestate.com.au and realcommercial. com.au. Real Estate 1 began operating an online real estate business as realestate1.com.au and realcommercial1.com.au. REA commenced proceedings for misleading or deceptive conduct, passing off, and trade mark infringement. Decision: REA established that the term ‘realestate.com.au’ had acquired a secondary meaning. In other words, it developed a reputation in the name in a way that distinguished REA from other online real estate websites. It was found that Real Estate 1 had a deliberate strategy to trade off REA’s reputation (a ‘naïve business strategy’). However, Bromberg J held that since ‘real estate’ is so descriptive, even a very small difference (the addition of the number ‘1’) was enough to allay consumer confusion. Further, it was unlikely that consumers would be misled or deceived because, when they came across ‘realestate1.com. au’ in search results, it would appear much lower down in the search ranking than ‘realestate. com.au’. Finally, Bromberg J held that a consumer would immediately recognise his or her 94 See also Opals Australia Pty Ltd v Opal Australiana Pty Ltd (1993) ATPR 41-264.
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Chapter 6: Passing Off and Unfair Trading error if he or she clicked on ‘realestate1.com.au’ by mistake. The passing off and misleading or deceptive conduct claims were unsuccessful. The trade mark infringement claim was successful.
Clearly it is not easy to draw a line between a descriptive and non-descriptive (distinctive) name, but there is a distinction.95 The reality is that there is a continuum with at the extremes purely descriptive names at one end, completely invented names at the other and in between names that contain ordinary English words that are in some way or other at least partly descriptive. The further along the continuum towards the fancy names one goes, the easier it will be for a plaintiff to establish that the words used are not descriptive of the plaintiff’s business. The closer along the continuum one moves towards a merely descriptive name the more a plaintiff will need to show that the name has obtained a secondary meaning, equating it with the products of the plaintiff (if the name admits of this — a purely descriptive name probably will not) and the easier it will be to see a small difference in names as adequate to avoid confusion.
Marketers would do well to heed the comments of Stewart, Griffith, Bannister and Liberman, who consider that the cases on descriptive words boil down to a common sense proposition:96 [T]he use of descriptive terms, while carrying advantages in terms of making the product or business self-explanatory, has the corresponding disadvantage that it will require more effort than would be the case with non-descriptive terms to establish a public perception of the plaintiff as the distinctive source of the product or business so described.
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Remedies 6.28 A range of remedies is available for a contravention of s 18 of the Australian Consumer Law: • an injunction to restrain a contravention, or conduct which amounts to aiding, abetting, inducing, or being knowingly concerned in such a contravention: Australian Consumer Law s 80; • damages for any loss or damage suffered as a result of a contravention: Australian Consumer Law s 82; • any other order considered appropriate by the court, such as an account of profits: Australian Consumer Law s 87. In determining the proper measure of compensation, the common law principles which apply to an action in passing off are often used: Gates v City Mutual Life 95 Equity Access Pty Ltd v Westpac Banking Corp (1989) 16 IPR 431; (1990) ATPR 40-994 at 50,956 per Hill J. 96 Stewart, Griffith, Bannister and Liberman, Intellectual Property in Australia, above n 54, at [17.5].
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Marketing and the Law
Assurance Society Ltd.97 However, it will be recalled that at common law an award of damages can be dependent upon the contravention being intentional, which is not a relevant factor with regard to an award of damages under s 18. Further, an award of damages (or an account of profits) does not require proof of loss or damage to ‘goodwill’, simply compensable loss or damage per se. FIGURE 6.3 POTENTIAL STATUTORY PROTECTION UNDER S 18 OF THE AUSTRALIAN CONSUMER LAW
Has a competitor made a representation?
NO
YES Has the representation been made in the course of trade or commerce?
NO
YES Is the representation likely to deceive or mislead a significant number of ordinary consumers? YES
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ACTION WILL LIE
NO
NO ACTION WILL LIE
Types of Passing Off — Common Law and Statutory 6.29 Misrepresentation amounting to passing off at common law and under statute can take many different forms. An illustrative set of case examples is referred to below. The majority of cases involve allegations of both passing off and breach of the Australian Consumer Law.
Brand names 6.30 A trader providing goods or services in the marketplace will usually identify his or her product by a brand name, and perhaps the most fundamental form of protection provided by the passing off action is to protect such brand names.98
97 (1986) 160 CLR 1; 63 ALR 600; 6 IPR 462; (1986) ATPR 40-666. 98 See also Helena Rubinstein v Von Bronneck (1943) 43 SR (NSW) 283; 60 WN (NSW) 117.
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Chapter 6: Passing Off and Unfair Trading
Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45; 169 ALR 677; [2000] HCA 1299 Facts: The Nike group of companies had built up a significant reputation for the manufacture and distribution of athletic footwear and sports clothing distinguished by the NIKE mark in Australia. The defendant had registered the word ‘Nike’ as a trade mark for perfumes and essences, and had commenced marketing Nike Sports Fragrance in Australia. Nike alleged that the use by the defendant of the word ‘Nike’ amounted to passing off and would mislead or deceive consumers into wrongly associating the products of the two businesses in breach of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law). It sought an injunction to prevent the defendant from using the word Nike.
6.30C
Decision: The defendant’s product had a get-up prominently featuring the expression ‘NIKE Sports Fragrance’, with the first word appearing in significantly larger print than the other words. The product was sold in pharmacies in the same area as other products marketed as sports fragrances, including one produced by Adidas, a competitor of Nike International. As such, the public was likely to be misled or deceived into thinking that NIKE Sports Fragrance was in some way promoted or distributed by Nike International, or with its consent and approval. An injunction was granted restraining the defendant from marketing NIKE Sports Fragrance in Australia. (The defendant’s trade mark registration was not cancelled, as the court concluded that the defendant might still be able to use the mark on some products in a way that would not infringe the Trade Marks Act or the Trade Practices Act or amount to passing off.)
‘Get-up’ or packaging of products
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6.31 The distinctive appearance of a product as it is offered in the marketplace can be protected by a passing off action. Kettle Chip Co Pty Ltd v Apand Pty Ltd (1993) 119 ALR 156; 27 IPR 321; (1994) ATPR 41-287; [1993] FCA 819 Facts: Apand was the largest manufacturer of potato chips in Australia. It marketed its products under the name ‘Smith’s’. The Kettle Chip Co entered the market with a chip called ‘The Kettle Chip’. The chips were cooked in small batches and had a distinctive flavour and texture. The chips were marketed in distinctive shiny foil packaging under a get-up featuring a stylised steaming cauldron in which chips were cooking, a colour scheme making bold use of gold and deep blue, and the words ‘The Kettle Chip’ in large letters. The product was distributed through outlets such as milk bars at a premium price and with very little promotion. The product was very successful and within a relatively short time had captured about 5% of the potato chip market. Apand responded by bringing out a new line of chips closely resembling The Kettle Chip. Although the product was mass-produced in continuous fryers, it nevertheless closely imitated The Kettle Chip. The new chips were sold in packaging that was identical in size and material and it included all the elements of The Kettle Chip packaging in terms of colour scheme, graphic images, key words, and type-face. The defendant’s packaging was dominated by the
99 See also R & C Products Pty Ltd v Hunters Products Pty Ltd (1988) ATPR 40-839.
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Marketing and the Law words ‘Country Kettle’ in large capital letters. By contrast, the defendant’s trade mark ‘Smith’s’ device was less prominent.
The Kettle Chip Co sought an injunction and damages, or an account of profits, in respect of alleged misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law) and for passing off. Decision: The defendant had too closely imitated the name, symbols, and get-up. Taken together, the symbols, the colours used on the packaging, and the word ‘Kettle’ were so overwhelming that for many customers the differences between the get-up of the two products was insufficient, given that most customers have imperfect memories. Furthermore, the word ‘Kettle’ was not descriptive of a type of potato chip in Australia. A significant proportion of the relevant public perceived ‘Kettle’ as the brand of the potato chips. The defendant, by deliberately subordinating its name of ‘Smith’s’ in favour of the word ‘Kettle’, had engaged in conduct likely to mislead or deceive a significant number of persons in the marketplace.
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An injunction was granted. In a later hearing, $4,057,386 was awarded based on an account of profits made by the defendant in connection with the use and sale of the Country Kettle brand name: Kettle Chip Co Pty Ltd v Apand Pty Ltd.100 The sum was made up of a trading profit ($655,000); a portion of the capital profit attributed to the brand name Country Kettle made on the sale of the businesses ($1,870,800); and interest on these amounts. An appeal against this order was dismissed by the Full Federal Court in Apand Pty Ltd v Kettle Chip Co Pty Ltd (No 2).101
Although the injunction was granted in Kettle Chip Co Pty Ltd v Apand Pty Ltd,102 ‘passing off is not made out merely by demonstrating that the rival manufacturer is found to have copied the features of its rival’s product’: Peter Bodum A/S v DKSH Australia Pty Ltd.103 One aspect usually associated with packaging that has received some publicity in recent times is colour. Colour recognition or attraction can play an important part in consumer decisions to purchase products. This is the reason behind a long-running
100 (1998) 155 ALR 134; 40 IPR 481; [1998] FCA 586. 101 (1999) 162 ALR 505; 43 IPR 225; [1999] FCA 483. 102 (1993) 119 ALR 156; 27 IPR 321; (1994) ATPR 41-287; [1993] FCA 819, see 6.31C. 103 (2011) 280 ALR 639; 92 IPR 222; [2011] FCAFC 98.
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Chapter 6: Passing Off and Unfair Trading
battle by Cadbury to claim ‘ownership’ in the colour purple, a prominent feature in the packaging and advertising of the Cadbury brand of chocolate. In 2003 Cadbury initiated proceedings against Darrell Lea,104 alleging that the defendant had engaged in misleading or deceptive conduct and passing off by using a shade of dark purple on some of its chocolate products that closely resembled its own ‘Cadbury Purple’. In 2006, Heerey J of the Federal Court dismissed Cadbury’s claim, declaring that Cadbury did not own the colour purple and did not have an exclusive reputation in purple in connection with chocolate. Darrell Lea was entitled to use purple, or any other colour, as long as it did not convey to the reasonable consumer the idea that it or its products had some connection with Cadbury: Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 4).105 Cadbury appealed this decision on the basis that the judge was incorrect in refusing to admit evidence from marketing experts regarding the importance of colour in marketing and sales activities. In 2007, the Full Court upheld Cadbury’s appeal and the case was remitted back to the original trial judge for a rehearing.106 However, even after the expert evidence was presented, Heerey J could see no reason for departing from his original finding. The judge observed that conduct which results in mere confusion or consumers being ‘caused to wonder’ does not amount to misleading or deceptive conduct.107 In this case, the evidence established that consumers knew that the colour purple was connected with a number of chocolate brands; that Darrell Lea uses its name in a distinctive script widely and consistently in marketing, packaging, and point of sale presentation; and that consumers seeing chocolate products in purple wrapping in a Darrell Lea shop would not be misled into thinking it was a Cadbury product. The names Darrell Lea and Cadbury are quite distinct in sound and appearance. In reaching his overall decision, the judge thought it important that it was established that consumers were never presented at the point of sale with Cadbury’s products (whether incorporating use of the colour purple in the packaging or otherwise), without the name Cadbury being prominently displayed: Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 8).108
Business and company names 6.32 A business or company name well established in the marketplace, like a brand name, is clearly protectable using the laws of passing off.109 104 Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 4) (2006) 229 ALR 136; 69 IPR 23. 105 (2006) 229 ALR 136; 69 IPR 23. 106 Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 8) [2008] FCA 470. 107 In Google Inc v ACCC (2013) 249 CLR 435; 294 ALR 404; 99 IPR 197; [2013] HCA 1, see 6.34C and 19.54C, the High Court (majority judgment) said ‘conduct causing confusion and wonderment is not necessarily coextensive with misleading and deceptive conduct’. 108 (2008) 75 IPR 557; (2008) ATPR 42-229; [2008] FCA 470. 109 See 7.70–7.75 for an outline of the business and company name registration process, and the lack of protection these procedures provide.
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Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177; (1982) ATPR 40-303 6.32C
Facts: Taco Bell Pty Ltd was an Australian company which had been operating a Mexican restaurant called ‘Taco Bell’s Casa’ in the Sydney suburb of Bondi since before 1977. The restaurant offered primarily inexpensive meals to patrons who wished to be served by a waiter. The restaurant also operated a take-away service. Taco Co was an American company which operated a chain of well-known Mexican restaurants throughout the US and Canada. These restaurants were all designed in the same way and all named ‘Taco Bell’. There was no waiter service and most customers used the restaurant as a take-away. In 1981 a subsidiary of the US company opened two restaurants in Sydney — one in the city centre and the other in the western suburbs — and called them ‘Taco Bell’. Both restaurants largely followed the distinctive pattern of the US restaurants. The US company had previously approached the Australian company to see if it would sell the name Taco Bell, but the Australian company refused. Both parties sought an injunction relying on s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law) and the tort of passing off. Decision: The court decided in favour of the Australian company on the grounds of both a breach of s 52 of the Trade Practices Act and the tort of passing off. Having regard to the reputation built up by the Australian company throughout Sydney, the actions of the US company would mislead members of the relevant section of the public to conclude that the new Taco Bell restaurants were connected in some way with the Bondi restaurant of the same name. An injunction covering Sydney was granted.
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Internet domain names 6.33 If a person registers a domain name110 and uses that domain name to identify an active website in such a way as to mislead members of the public into believing that the user is associated with some other entity, there will usually be an actionable passing off involved.111 This area of the law is discussed at 19.60–19.66. A person who connects to a website that resembles the name of a well-known business or brand may conclude that the user must be connected or associated with the well-known business or brand. Some of these disputes will be resolved by the domain name dispute resolution process now operating in Australia,112 whereas others will end up before the courts.
110 See 7.76 and 19.60 for details of this process. 111 It should be noted, however, that the ability of a court to deal with passing off issues might be a problem when the domain name user is located in, and the domain name is registered in, another jurisdiction. Unless the user is conducting business in Australia, it will be essential for the claimant to establish that the domain name user is operating in a jurisdiction which recognises passing off, and that the claimant has a reputation in the relevant jurisdiction. Furthermore, the use of a disclaimer by the domain name user making it clear that the user has no connection with the claimant might also ensure that no actionable misrepresentation has taken place. For a successful action using the Trade Practices Act 1974, see ACCC v Chen (2003) 201 ALR 40; (2003) ATPR 41-948; [2003] FCA 897. 112 See details at 19.62–19.63.
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Architects (Australia) Pty Ltd v Witty Consultants Pty Ltd [2002] QSC 139 Facts: The plaintiff traded as Architects Australia and had conducted a successful architectural practice in Brisbane for over 20 years. In 2000 the defendant applied to register the internet domain name ‘architectsaustralia.com.au’, and this was granted in 2001. The name was used to promote and develop an internet-based directory advertising the services of architects throughout Australia and the world. Listed architects paid the defendant an annual registration fee. The defendant claimed to be unaware of the plaintiff’s business when it registered the domain name. The plaintiff claimed the defendant had engaged in conduct that was misleading and deceptive (or likely to be so) in breach of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law) and that the similarity between its trading name and the defendant’s domain name was sufficient to support an action for passing off. Decision: The defendant had breached s 52 and had engaged in passing off. The plaintiff had established a reputation under the name ‘Architects Australia’ that was recognised in the market for architectural services. Although the words had a descriptive element, they had become distinctive of the plaintiff’s business. There was no significant difference between the trading name, Architects Australia, and the domain name, architectsaustralia.com.au. The suffix ‘com.au’ did no more than indicate that it was an internet site. A potential customer knowing the plaintiff’s trading name could be misled by the defendant’s domain name into thinking that the plaintiff could be contacted on the internet. Upon accessing the website, a customer would find many other architects listed who provided similar services to the plaintiff, thus leading customers to confuse the two businesses in a passing off sense. Similarly, there was a substantial risk that consumers of architectural services would be confused as to the identity of the defendant and the nature of its services. The conduct of the defendant therefore amounted to misleading and deceptive conduct.
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The defendant was ordered to de-register its domain name.
Most passing off disputes in recent times have been between domain name pirates (variously described as cyberpirates, cyberjackers, or cybersquatters) and businesses who claim to be entitled to use a domain name that has been registered by one of these pirates.113 Usually, the pirate registers a domain name that duplicates or in some way resembles the trading name or trade mark of a business, and then offers the domain name for sale to that business. Celebrities in the entertainment and sporting field have also been victim to this practice. The problem with bringing an action against domain name pirates is that they do not usually make actual use of the domain names. The websites remain passive. The domain names are simply offered for sale to the party most likely to be associated with the name by consumers. In such circumstances, the question is whether there is a misrepresentation to consumers that is likely to cause damage to the goodwill of the claimant as required for the tort of passing off.
113 See D Osborne, ‘Domain Names, Registration and Dispute Resolution and Recent UK Cases’ [1997] 11 EIPR 644 and R Meyer-Rochow, ‘Passing Off as a Remedy against Domain Name Piracy’ [1998] EIPR 405.
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Marks & Spencer Plc v One In A Million Ltd (1997) 42 IPR 309; [1998] FSR 265114 6.33C2
Facts: The defendant, One In A Million Ltd, registered and sold domain names. It successfully registered domain names that included the names of some very well-known UK businesses, namely ‘virgin’, ‘ladbrokes’, ‘sainsburys’, ‘marksandspencers’, and ‘britishtelecom’. The companies claiming the rights to these names brought a consolidated action against the defendant alleging passing off (and trade mark infringement), and seeking an order that the names be delivered up (transferred) to the ‘rightful owners’. The defendant argued that there could be no passing off when there had been no commercial use of these names, there being no misrepresentation in such circumstances, and thus no damage or risk of damage to the plaintiffs’ reputation or goodwill. Decision: The defendant engaged in passing off. The defendant had a deliberate and longestablished practice of registering domain names that were chosen to resemble the names and marks of other people because of the goodwill attached to those names. The motive of the defendant was to use that goodwill, and threaten to sell it to another who might use it for passing off, to obtain money from persons such as the plaintiffs. The value of the names lay in the threat that they would be used in a fraudulent way. Those who put, or authorise someone to put, an ‘instrument of deception’ into the hands of others, commit the tort of passing off. A name that will, by reason of its similarity to the name of another, inherently lead to passing off if used, is such an instrument. The plaintiffs were held to be entitled to the domain names that had been registered by the defendant.
In CSR Ltd v Resource Capital Australia Pty Ltd,115 the Federal Court in Australia noted the Marks & Spencer Plc v One In A Million Ltd decision with approval, but based its decision on s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law), rather than the common law.
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CSR Ltd v Resource Capital Australia Pty Ltd (2003) ATPR 41-929; [2003] FCA 279 6.33C3
Facts: CSR Ltd was mainly involved in refining and selling sugar and sugar by-products and was one of the largest sugar millers in the world. It had registered ‘CSR’ and ‘CSR Sugar’ as trade marks, and had registered ‘www.csr.com.au’ as a domain name. The defendant registered the business name ‘CSR Sugar Supply’ in 2001, and on the same day registered the domain names ‘csrsugar.com’ and ‘csrsugar.com.au’. It later sent a letter to CSR Ltd offering to sell a certain domain name for upwards of $25,000. CSR Ltd refused the offer and responded by asserting its right to the two CSR domain names. It eventually took the issue to court, alleging a breach of s 52 of the Trade Practices Act. It argued that, by registering the two domain names, the defendant had implied that the domain names were being registered on behalf of CSR, or that the defendant was in some way connected with CSR. Decision: The defendant had engaged in cybersquatting in breach of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law). A person seeing these domain names would assume that CSR was the real owner and entitled to use them for its purposes on the internet in connection with its sugar businesses. The act of the defendant in obtaining registration of
114 See also 19.65C. 115 (2003) ATPR 41-929; [2003] FCA 279, see 6.33C3.
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Chapter 6: Passing Off and Unfair Trading both domain names constituted conduct that was misleading and deceptive in breach of s 52, or alternatively constituted a representation that CSR and the defendant were affiliated when they were not. The defendant was ordered to transfer the two domain names to the applicant.
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(The court expressed doubt that the defendant had infringed the applicant’s trade marks, as it had not ‘used’ them as a trade mark, but found it unnecessary to determine the issue.)
As the internet is global, and not limited by geographic boundaries, so the protection offered by s 18 will extend to misleading domain names and websites operated in other countries. Mr Chen, a resident of New York in the United States, operated a website www.sydneyopera.org from servers based in the United States, which claimed to provide tourists with the opportunity to purchase tickets to events at the Sydney Opera House. In ACCC v Chen116 the regulator claimed that several consumers from the United Kingdom and Europe tried to buy tickets through this imitation site. Their credit cards were charged, but they were either overcharged or did not receive the tickets. The court granted both declaratory relief and an injunction to stop the infringing website from operating. This case raises interesting questions about international cooperation in enforcement of what is truly an international issue. The court was aware that even though the injunction itself could not be enforced in US courts, there would be cooperation from US agencies such as the Federal Trade Commission. An international agency exists, International Consumer Protection and Enforcement Network (ICPEN),117 to promote cooperation and enforcement worldwide. More than 30 countries are members, including Australia through the ACCC. The other common scenario likely to be played out is where two businesses each claim a legitimate interest in the same second level domain name, which each has registered in different top level domains (for example, one trader has a ‘.com’ registration and the other a ‘.com.au’ registration). How are such disputes to be resolved? This type of dispute occurred in Sydney Markets Ltd v Sydney Flower Market Pty Ltd.118 Sydney Markets Ltd v Sydney Flower Market Pty Ltd [2002] FCA 124 Facts: Sydney Markets Ltd and Sydney Flower Market Pty Ltd had each registered domain names incorporating the words ‘Sydney Flower Market’. One had a website address at www. sydneyflowermarket.com, and the other at www.sydneyflowermarket.com.au. Each company sought an injunction to stop the other using a domain name that it regarded as deceptively similar to its own.
116 [2003] FCA 897. 117 See further their website at . 118 [2002] FCA 124.
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Marketing and the Law Decision: The Federal Court found that neither party was entitled to the exclusive use of the words ‘Sydney Flower Market’, although the court acknowledged that the concurrent use of the domain names had the potential to mislead sections of the public. The solution was to order each company to place on its website a prominent and appropriately worded disclaimer indicating that it had no connection with the business conducted by the other. The court acknowledged that, while the use of disclaimers on products was often insufficient to avoid confusion, different considerations apply in the case of websites, where appropriately worded disclaimers can be used effectively to overcome potential confusion.
Keyword advertising 6.34 Keyword advertising can also give rise to passing off or misleading conduct. When search engines (such as Google) display results in response to a search, they provide a list of organic results which are displayed for free based on the search engine’s relevancy algorithm. The search engines also display keyword advertisements (such as sponsored links) usually at the top of the results list or on the side in return for payment of a fee from the advertiser. Google’s ‘AdWords’ product was the subject of a recent long-running dispute.
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6.34C
Google Inc v ACCC (2013) 249 CLR 435; 294 ALR 404; 99 IPR 197; [2013] HCA 1119 Facts: Google operates a well-known internet search engine. Part of its business includes the sale of ‘sponsored links’ to advertisers. During 2005 and 2008, the Australian Competition and Consumer Commission (ACCC) claimed that certain search results were misleading and deceptive in breach of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law). For example, Trading Post, a classifieds business, purchased ‘Kloster Ford’ from Google’s AdWords program. As a consequence, when someone searched ‘Kloster Ford’ in the Google search engine, the results would include a sponsored link to the Trading Post website with the headline ‘Kloster Ford’. In ACCC v Trading Post Australia Pty Ltd,120 it was held that this (falsely) implied an association between the Kloster Ford car dealer and Trading Post and that information regarding Kloster Ford could be found at the Trading Post website. This purchase was held to be misleading or deceptive conduct in contravention of ss 52 and 53 of the Trade Practices Act (now ss 18 and 29 of the Australian Consumer Law). The ACCC also alleged that Google had engaged in misleading or deceptive conduct by publishing the misleading sponsored links. The ACCC claimed that Google had engaged in misleading or deceptive conduct by failing to distinguish between organic search results and sponsored links. Google argued that:121
119 See also 19.54C. 120 [2011] FCA 1086. 121 At [65]–[66].
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Chapter 6: Passing Off and Unfair Trading [T]he fact that [Google] displayed the sponsored links in response to users’ search requests was not sufficient to justify a finding that Google had itself made the misleading representations conveyed by the sponsored links, or otherwise engaged in misleading and deceptive conduct. Google emphasised that each relevant aspect of a sponsored link — the headline, the advertising text, the advertiser’s URL, the keywords and the use of keyword insertion — was specified by the advertiser, and that Google merely implemented the advertiser’s instructions. Google further contended that any commercial association or affiliation between an advertiser and another trader was something peculiarly within the knowledge of the advertiser, and was not a matter within Google’s expertise. Decision: At first instance, Nicholas J122 found that: [O]rdinary and reasonable users of the Google search engine would have understood that the sponsored links were advertisements paid for by advertisers to promote their products and businesses, and that Google was merely passing them on. The ACCC successfully appealed to the Full Court. Google was granted special leave to appeal to the High Court. The High Court unanimously found in favour of Google, allowing the appeal. Google ‘did not itself engage in misleading or deceptive conduct, or endorse or adopt the representations which it displayed on behalf of advertisers’.123 Heydon J124 explained that there is no basis upon which it could be concluded that ordinary and reasonable members of the relevant class would have regarded Google as adopting the advertisements:125
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The ACCC’s submission boiled down to the proposition that Google had made misrepresentations in the impugned sponsored links because the content of those sponsored links was responsive to the user’s query through Google’s AdWords program. If that proposition were sound, that submission would mean that Google would be liable unless it could discharge the burden of proving that it had no reason to suspect that an advertisement was in contravention of the TPA … That is an unacceptably extreme submission.
Search engine optimisation 6.35 Search engine optimisation is an important tool to help your name appear above the name of your competitors in internet searches. This can give rise to issues of passing off and misleading and deceptive conduct. Lift Shop Pty Ltd v Easy Living Home Elevators Pty Ltd [2013] FCA 900 Facts: Lift Shop and Easy Living both supply elevators and lifts for the home market and both competitors rely heavily on online advertising. Easy Living employed a search engine optimisation agency to tailor its website and the content of its home page so it would appear higher in search engine rankings for certain key words. The term ‘lift shop’ (the name of its 122 ACCC v Trading Post (2011) 197 FCR 498 at [66]. 123 Google Inc v ACCC (2013) 249 CLR 435; 294 ALR 404; 99 IPR 197; [2013] HCA 1 at [73]. 124 At [148]. 125 At [164].
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Marketing and the Law competitor) was selected as a key word and added into the title of its website and home page. Google search results for the term ‘lift shop’ displayed as Easy Living’s listing: Easy Living Lifts | Home Elevators | Lift Shop – Lift Shop www.easy-living.com.au At Easy Living home elevators website you will find details on all of our lifts and home elevators here, which will help you achieve the easy living you deserve. Lift Shop commenced proceedings against Easy Living claiming trade mark infringement, misleading and deceptive conduct, and passing off (although this action was not pursued at the hearing). Decision: The term ‘lift shop’ was found to be generic rather than distinctive, and the court noted that other businesses in the same market were also identified if a search for ‘lift shop’ was conducted. Easy Living had not tried to associate itself with Lift Shop, but instead endeavoured to obtain business by openly competing with Lift Shop. The court noted the differences between the entries on the search pages, the differences between the nature of the products supplied and that before a customer could proceed towards the purchase of a lift they would need to leave the search page, and enter the actual website. At this stage it would be obvious that the two companies were not related. The court found that Easy Living was using the term ‘Lift Shop’ on its website in a descriptive, not a deceptive, manner to maximise its search rankings, and not to falsely associate itself with its competitor. Accordingly, s 18 of the Australian Consumer Law had not been breached.
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Design of products 6.36 A distinctive design for a product sold in the marketplace can sometimes be protected by a passing off action if it is too closely imitated by a competitor: see Chris Ford Enterprises Pty Ltd v BH & JR Badenhop Pty Ltd.126 However, the law of passing off (whether at common law or under statute) cannot be used to protect the design or ‘look’ of a product per se. There must be deception. If the copying product is clearly labelled or differentiated from the original product then deception can be avoided.127
6.36C
Interlego AG v Croner Trading Pty Ltd (1991) 102 ALR 379; 21 IPR 373; (1991) ATPR 41-124; Interlego AG v Croner Trading Pty Ltd (1992) 111 ALR 577; 25 IPR 65; (1993) ATPR (Digest) 46-098 Facts: Lego was the producer of internationally famous toy blocks, which were the subject of patent protection in many countries, including Australia. However, patent protection only lasts for a limited time. After the patents expired, Croner imported an American toy called Tyco blocks. The Tyco blocks were a copy of the Lego product. In fact, the whole marketing strategy of Tyco was to make Tyco fully compatible with Lego so that ‘a child could reach into a toy box, bucket, container of some kind, pull out a block and not care whether it is a Tyco block or a 126 (1985) 60 ALR 400; 4 IPR 485; (1985) ATPR 40-568. 127 See also Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (1999) 44 IPR 281; [1999] FCA 461 and Koninklijke Philips Electronics NV v Remington Products Australia Pty Ltd (2000) 177 ALR 167; 48 IPR 257; [2000] FCA 876.
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Chapter 6: Passing Off and Unfair Trading Lego block …’. Tyco sold its toy blocks in packs which had some similarities to the Lego packs, but were clearly labelled ‘TYCO’. On the packs there also appeared a bullet containing a picture of two blocks and the words ‘WORKS WITH LEGO’, followed by an asterisk and the ® symbol. Underneath, in far less prominent type, were the words ‘Tyco blocks connect to Lego blocks’. Below this, in smaller type again, appeared the sentence ‘Lego is a registered trade mark of Interlego A.G.’. In Australia there is no requirement to use an asterisk or the ® symbol when using a registered trade mark. There was survey and anecdotal evidence of confusion among buyers. There was also evidence that a number of Tyco pieces were not compatible with Lego. Lego sued for passing off, breach of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law), and copyright infringement. Decision: Tyco had a right to copy the Lego product, provided it did not suggest that it was connected with Lego or that the Tyco blocks were made by Lego. Tyco had adequately labelled the product to ensure that such was the case. However, it was found that the statement ‘‘Works With Lego’’ was misleading and deceptive within the meaning of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law). The blocks were intended for use by children, and children were likely to draw the simple conclusion that all Tyco pieces fitted with all Lego pieces. Some Tyco pieces were not compatible with Lego. Tyco was therefore restrained from using the words ‘Works With Lego’.
Advertising themes and slogans 6.37 It has been recognised that, in appropriate cases, distinctive advertising themes and slogans can be protected by the passing off action. This was confirmed in Cadbury Schweppes Pty Ltd v The Pub Squash Co Pty Ltd.128
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R & C Products Pty Ltd v S C Johnson & Sons Pty Ltd (1994) ATPR 41-234 Facts: R & C Products (trading as Samuel Taylor) manufactures an insect spray called ‘Mortein’. Between 1968 and 1981, Mortein was advertised on television by a well-known personality, John Laws. The advertisements used a slogan which became quite famous: ‘When you are on a good thing, stick to it’. Johnson manufactures ‘Raid’ which is a competitor of Mortein. Johnson & Sons produced a television advertisement designed to compare Raid favourably with Mortein. Johnson & Sons used John Laws and the punch line: ‘When you find a better thing, switch to it’. R & C Products alleged that the defendant’s conduct amounted to a passing off and a breach of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law) in that Johnson’s advertisement created the impression that there was a connection or association between the manufacturer of Raid and the manufacturer of Mortein. Decision: The matters that are relevant in determining whether, in the minds of the public, an association exists, are not limited to the nature of the products, their names or the get-up used. All the circumstances must be looked at, including, in this case, the use of the same presenter and a similar slogan. 128 [1980] 2 NSWLR 851; (1980) 32 ALR 387; [1981] 1 All ER 213, see 6.11C1.
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Marketing and the Law If advertising or get-up has acquired special significance, then the adoption of elements of the advertising or get-up by another trader may give rise to a misrepresentation. Then the question will be whether other steps have been taken which sufficiently distinguish the one trader and its products from the other trader and its products. Johnson had not sufficiently distinguished its product. The public would believe that there was a connection between the manufacturers of Raid and Mortein. An injunction was granted preventing use of the commercial.129
For a similar case involving the use of the same presenter (Mr Goggomobil), initially by Yellow Pages and then by Shannons Insurers, see Telstra Corporation Ltd v Royal & Sun Alliance Insurance Australia Ltd.130
Devices or logos 6.38 A distinctive logo or device identifying a trader or its product can be protected under the law of passing off.
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6.38C
Pinetrees Lodge Pty Ltd v Atlas International Pty Ltd (1981) 38 ALR 187; 59 FLR 244131 Facts: The applicant operated a guesthouse called ‘Pinetrees’ on Lord Howe Island. It used a distinctive logo representing Lord Howe Island in association with its business. The dark blue and green logo was used on letterheads, envelopes, brochures, and advertisements, and on calendars and T-shirts sold to tourists. The design was as follows:
The defendant conducted a tourist and travel agency, handling accommodation on the island. It began advertising Lord Howe Island holidays using in the advertisements, in black and white, the following logo:
129 Johnson & Sons subsequently changed its advertisement to include the words ‘it’s one of the reasons I switched companies’. In a subsequent court case, it was decided that the reference to ‘switching companies’ indicated that the two flysprays emanated from different manufacturers: R & C Products Pty Ltd v S C Johnson & Sons Pty Ltd (1994) ATPR 41-364. 130 (2003) 57 IPR 453; [2003] FCA 786, see 4.42C2. 131 See also Yau’s Entertainment Pty Ltd v Asia Television Ltd (2002) 54 IPR 1; [2002] FCA 338; [2002] FCAFC 78, involving the incorrect use of logos on video recordings; and Rolls-Royce Motors Ltd v DIA (Engineering) Pty Ltd (1981) 50 FLR 340, where the radiator shape and badge of the Rolls-Royce motor vehicle was wrongfully imitated.
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The design was always used in association with the name ‘Lord Howe Island Tourist Centre’. On some stationery and in colour advertising literature, the colours dark blue, green, and mustard yellow were used. The applicant alleged that the defendant was engaging in conduct that was misleading or deceptive in breach of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law) and passing off, and sought an injunction to restrain the defendant from using its logo. Decision: The similarity of the logos, in particular the silhouette of the island, was such that a significant number of relevant members of the public would have been likely to have been misled or deceived into believing that the two businesses were the same or that there was some business connection between them. It passes beyond mere confusion. In determining this issue, it is not sufficient to compare the two logos side by side. The matter must be considered by looking at the actions of the public acting in the ordinary course of business. A substantial proportion would have only a passing and therefore imperfect recollection of the applicant’s logo and one which would not retain the detail but only an impression. Thus, the ordinary member of the public would be unlikely to notice any substantial difference between the two logos. The defendant was also guilty of passing off for the same reasons. An injunction was granted.
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Names for events or programs 6.39 On occasions, organisers of events or producers of programs will use titles to identify their events or programs and, once established, such titles can be protected by the law of passing off: see Willard King Organisation Pty Ltd v United Telecasters Sydney Ltd132 and Yardley of London (Australia) Pty Ltd v Chapman & Lester the Sales Promotion Agency Pty Ltd.133
Titles for publications 6.40 It has been long recognised that titles given to publications are protectable under the laws of passing off: see Cricketer Ltd v Newspress Pty Ltd & David Syme & Co Ltd.134 However, publications are often sold with descriptive titles, and the titles in their own right are often difficult to protect, so that the overall ‘get-up’ or appearance of the publication (including the title) must also be imitated in order for passing off to be proved: see S & I Publishing Pty Ltd v Australian Surf Life 132 [1981] 2 NSWLR 547. 133 (1989) 17 IPR 345; (1990) ATPR 40-989. 134 [1974] VR 477, see 6.5C2.
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Saver Pty Ltd.135 In this regard, the more distinctive a title, the more likely it can be protected in its own right (irrespective of ‘get-up’).
6.40C
Emap Elan Ltd v Pacific Publications Pty Ltd (1997) 37 IPR 1; (1997) ATPR 41-551; [1997] FCA 50136 Facts: Emap was a UK publisher of a magazine entitled More!, a fortnightly magazine with worldwide sales of over 430,000. It was aimed at young female readers and placed emphasis on sex and related issues, particularly relationships, fashion, cosmetics, gossip, films, music, and health. It had been distributed in Australia for several years through a limited number of newsagents and bookshops, and had only achieved a small level of sales (varying from 124 to 196 copies per issue). The defendant launched a magazine in Australia under the name More, aimed at the 25–40 age group and, in particular, at married women with children concerned with the role of homemaker. Prior to publishing its first issue, the defendant was informed of the fact that the English magazine was sold in Australia, but took the view that, as the name had not been registered in Australia as a trade mark, the name was free to be used. Emap sought an injunction preventing the defendant from using the title More for its magazine, relying on s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law). The defendant argued that Emap’s reputation in Australia was insignificant, that the word ‘More’ was an ordinary English word that Emap should not be allowed to monopolise, and that the two publications were aimed at different markets and had been sufficiently differentiated; so that there was no misleading or deceptive conduct in breach of s 52.
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Decision: The Federal Court held that the low level of sales of Emap’s publication in Australia was not detrimental to its case. To begin with, it is not necessary for a plaintiff to have an established business in the jurisdiction — it is sufficient that the plaintiff has a reputation within the jurisdiction in respect of trade or business conducted elsewhere.137 The flow of international communications in modern times makes it easier to prove the existence of a reputation. In any event, the level of sales achieved by More!, and the fact that readership is always greater than actual sales, was sufficient to establish that a ‘substantial number of persons’ were aware of the UK publication. The court accepted that there was a likelihood of deception in this case, even though the respective magazines were aimed at different market segments, not because consumers would believe the two publications were the same, but rather that consumers might conclude that the Australian publication was connected through licensing with the UK publication. Furthermore, young women inevitably grow older, and a person who is a member of the readership group of the UK publication will rapidly advance into the category of person the Australian publication was designed to attract. The court held that the UK publisher had established a distinctive reputation in the name More, a word which was not merely descriptive, or descriptive at all. An injunction was granted.
135 (1998) 168 ALR 396; 43 IPR 581; (1999) ATPR 41-667. 136 See also Melbourne Chinese Press Pty Ltd v Australian Chinese Newspaper Pty Ltd (2004) 63 IPR 38; [2004] FCAFC 201. 137 See Hansen Beverage Co v Bickfords (Australia) Pty Ltd (2008) 251 ALR 1; 79 IPR 174; [2008] FCAFC 181, see 6.6C and 10.12C.
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Quality or standard of products 6.41 Misappropriating a person’s goodwill by falsely claiming for one’s product a quality which is exclusively possessed by another or others can constitute passing off. Chocosuisse Union des Fabricants Suisses de Chocolat v Cadbury Ltd [1999] RPC 826 Facts: Cadbury, the leading chocolate manufacturer in the UK, introduced a new chocolate bar called ‘Swiss Chalet’ to the market. It was made of honey-flavoured milk chocolate and small pieces of almond nougat. On the front of the packaging, the predominant words were ‘Swiss Chalet’ (in gold-edged red letters) and, slightly smaller in size, the word ‘Cadbury’ in its well-known script form. The packaging also had a picture of a snow-capped mountain closely resembling the Matterhorn in Switzerland, with a chalet in the valley below it. The Cadbury ‘glass and a half’ logo was also featured. The chocolate was not made in Switzerland, nor was it made in accordance with Swiss food regulations, and it contained non-cocoa vegetable fat. Chocosuisse, an association of Swiss chocolate manufacturers (such as Lindt and Suchard), commenced proceedings against Cadbury for passing off. The association claimed that Swiss chocolate was a clearly defined class of good in England with distinctive characteristics and a well established reputation for quality, and that Cadbury was passing off its chocolate as belonging to that class.
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Decision: The plaintiffs had proved that, for a significant part of the public, the words ‘Swiss chocolate’ denoted a group of products of distinctive reputation, as Swiss chocolate was perceived to have special qualities. ‘The fact that members of the public have different views of what the features of the distinctive quality are or are incapable of defining it is of little relevance.’ The class of products entitled to bear the designation ‘Swiss chocolate’ was chocolate made in Switzerland in accordance with Swiss food regulations and which was free from vegetable fat other than cocoa fat. The use of the word ‘Swiss’ in ‘Swiss Chalet’ by Cadbury would confuse some members of the public in the sense of indicating that the product was Swiss chocolate. For some people, the Swiss scene on the packaging would reinforce such a message. While the numbers who would be confused into thinking that Swiss Chalet was Swiss chocolate were likely to be smaller than the numbers who would not be confused, nonetheless a substantial number were likely to be confused into thinking that Swiss Chalet belonged to a group of products possessing a particular reputation (Swiss chocolate). As a result, there would be an erosion of the exclusiveness, and damage to the distinctiveness of the term ‘Swiss chocolate’. Cadbury’s use of the words ‘Swiss Chalet’ and the form of its packaging constituted passing off.
A similar allegation was made in Mars Australia Pty Ltd v Sweet Rewards Pty Ltd,138 where Mars argued that the use of red and orange jars by the defendant conveyed representations that the Malt Balls they contained were made from the same ingredients, made from the same recipe, or provided the same taste experience as Maltesers when eaten — in other words, that the products were equivalent in taste and quality. It was common ground that the product equivalence representation 138 (2009) 81 IPR 354; [2009] FCA 606, see 6.11C3.
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was not true if it was made. The judge concluded that the use of the red and orange jars by the defendant did not contain any express representation about product equivalence. There was no statement on the jars to the effect that ‘Malt Balls taste like Maltesers’. The link between the appearance of the red and orange jars and the supposed product equivalence was, therefore, founded upon some aspect of the reputation inherent in the Maltesers product. The defendant submitted, and the judge agreed, that it must be implicit in Mars’s case that there is a deceptive similarity between the appearance of the defendant’s ‘Delfi’ brand jars and the Maltesers get-up. On this view of things, a consumer would think that Malt Balls taste like, or are made from the same ingredients as, Maltesers, only because of the similarity between the two sets of packaging. This argument was rejected. In light of the fact that the orange and red jars were found to be not deceptively similar to the Maltesers get-up, the judge decided that the premise upon which the ‘product equivalence’ argument rested was unsound, and dismissed the allegation.
Character merchandising and sponsorship139
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6.42 Character merchandising and sponsorship is the use of well-known characters or personalities, fictional or real, usually from the entertainment and sporting fields, to advertise, promote, sponsor, and sell products; for example: • singers (Rihanna);140 • comic strips (Superman,141 Batman, Peanuts, Popeye the Sailorman,142 Garfield); • film cartoons and animations (Mickey Mouse, Minnie Mouse143); • television shows (The Muppets,144 Bananas in Pyjamas, South Park, The Simpsons145); • films (Star Wars, ET, Crocodile Dundee,146 Lord of the Rings); • pop groups (Abba,147 INXS148); • singers (Olivia Newton-John,149 Michael Jackson,150Adam Ant);
139 For further information on this topic see L Stevenson, ‘Protection of Character Merchandise Marks under the UK Copyright Act 1956’ [1979] EIPR 66; J McKeough, ‘Character Merchandising: Legal Protection in Today’s Marketplace’ (1984) UNSWLJ 97; S Ricketson, ‘Character Merchandising in Australia: Its Benefits and Burdens’ (1990) IPJ 191; and A Terry, ‘Proprietary Rights in Character Merchandising Marks’ (1990) 18 ABLR 229. 140 Robyn Rihanna Fenty v Arcadia Group Brands Ltd (t/a Topshop) [2015] EWCA Civ 3. 141 DC Comics v Pan American Grain Mfg Co Inc 77 USPQ2d 1220 (TTAB, 2005). 142 King Features Syndicate Inc v Kleeman (O & M) Ltd [1941] AC 417. 143 Radio Corporation Pty Inc v Disney (1937) 57 CLR 448. 144 Children’s Television Workshop Inc v Woolworths (NSW) Ltd (1981) 1 NSWLR 273. 145 Twentieth Century Fox Film Corp & Matt Groening Productions Inc v South Australian Brewing Co Ltd & Lion Nathan Australia Pty Ltd (1996) 66 FCR 451; 34 IPR 225; [1996] FCA 1484. 146 Hogan v Pacific Dunlop Ltd (1988) ATPR 40-914. 147 Lyngstad v Anabas Products Ltd [1977] FSR 62. 148 Hutchence (t/as ‘INXS’) v South Sea Bubble Co Pty Ltd (trading as ‘Bootleg T-shirts’) (1986) 8 ATPR 40-667. 149 Newton-John v Scholl-Plough Australia Ltd (1986) ATPR 40-697. 150 Sony Music Productions Pty Ltd v Tansing (1993) 27 IPR 640.
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• advertising campaign characters (The Smurfs, Mr Goggomobil151); • greeting card characters (Holly Hobbie152); • books (Pooh-Bear, The Wombles, Mr Men153); • film and television stars (Demi Moore, Paul Hogan,154 Hugh Jackman, Andie MacDowell, Sarah Jessica Parker); • models (Elle MacPherson,155 Claudia Schiffer); • media personalities (Ita Buttrose156); and • sporting personalities (Ian Thorpe,157 Kieren Perkins,158 Lisa Curry-Kenny, Greg Norman, Tiger Woods,159 Tracey Wickham,160 Michael Jordan, Andre Agassi, Pat Rafter, Mark Taylor, Ricky Ponting, Adam Gilchrist, Leigh Matthews).
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Character merchandising involves commercialising popular names or characters, and is most often utilised in appealing to children and youth markets. Character merchandising usually consists of: • additions to products, such as the reproduction of images or names upon stationery, clothing (such as shirts and windcheaters), toys, toiletries, food, and so on; or • the product itself, such as dolls, badges, collector cards, and posters, where without the character the product would not exist.161 Sponsorship usually consists of a well-known person ‘giving’ their name to a product in the form of a recommendation or endorsement. The person involved will usually be a celebrity in the entertainment or sporting field, such as an actor attributing his or her beautiful complexion to a particular brand of soap; or a sporting personality attributing his or her success (at least partially) to the use of a particular product (for example, a tennis racquet or golf ball); or his or her healthy condition or fitness to the consumption of certain brands or types of food (such as fat-reduced milk or fibre-enriched bread). This type of advertising is used very broadly in the marketplace and is aimed at virtually all age groups. For the owner or creator of the character, or the celebrity involved, character merchandising and sponsorship provides extra income from licensing the use of the character or the name or image of the celebrity. 151 Telstra Corporation Ltd v Royal & Sun Alliance Insurance Australia Ltd (2003) 57 IPR 453; [2003] FCA 786. 152 Re ‘Hollie Hobbie’ Trade Mark (1984) 1 IPR 486. 153 Nostac Enterprises v New Concept Imports Services Pty Ltd (1981) ATPR 43-135. 154 Hogan v Pacific Dunlop Ltd (1988) ATPR 40-914. 155 See, for example, Trade Mark Number 516423, at . 156 Buttrose v Senior’s Choice (Australia) Pty Ltd [2014] FCCA 2156. 157 Torpedoes Sportswear Pty Ltd v Thorpedo Enterprises Pty Ltd (2003) 132 FCR 326. 158 Talmax Pty Ltd v Telstra Corporation Ltd [1997] 2 Qd R 444. 159 ETW Corporation v Jireh Publishing Inc 332 F 3d 915 (6th Cir, 2003). 160 Wickham v Associated Pool Builders Pty Ltd (1988) ATPR 140-910. 161 Note there is a strong crossover with trade mark in this area, and celebrities will often (sometimes unsuccessfully) attempt to trade mark their names to provided added protection. Kylie Minogue and Kylie Jenner had a long running dispute as to who owned the name ‘Kylie’ (which appears to have been settled out of court) and Beyonce is attempting to trade mark the name of her daughter, Blue Ivy, in a broad range of categories.
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In recent years, there have been many cases concerned with establishing the extent of protection in claims relating to character merchandising and sponsorship. Protection often depends upon the ability to establish passing off, whether at common law or under statute. Further protection can sometimes be claimed utilising the Copyright Act 1968 (Cth) or Trade Marks Act. These statutes are discussed in Chapters 4 and 7 respectively. Copyright protection exists where the copyright creator has a monopoly in the work for a limited period of time. Anyone copying such works, in any form, may be sued for infringement of copyright. A trade mark infringement action can be brought when a character name or motif has been registered as a trade mark for particular products, and someone else uses the mark without authority in connection with their products. In establishing passing off, it is not enough simply to show that some unauthorised use of a character or personality has taken place. There must be a misrepresentation involved. This usually involves proving that the unauthorised use has misled or confused members of the public into believing, contrary to fact, that permission to use the character’s or personality’s name or image has been given.
A. Real persons 6.43 It has now been clearly established in the courts that well-known personalities (celebrities) can protect their name and characteristics, such as their appearance (image) or distinctive voice.
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6.43C1
Hutchence v South Sea Bubble Co Pty Ltd (1986) 64 ALR 33; 6 IPR 473; (1986) ATPR 40-667 Facts: INXS was a successful pop group. The group had granted MMA Management the exclusive right to exploit its name and other property in relation to T-shirts and other clothing. South Sea Bubble Co Pty Ltd (trading as Bootleg T-Shirts) was in the business of retailing T-shirts. Its practice was to take existing designs, mostly associated with successful pop groups, print those designs on T-shirts, and sell them at markets such as Paddy’s Market in Sydney. Without seeking the permission of INXS, the defendant sold T-shirts depicting designs from three of INXS’s albums. The T-shirts were sold from a stall which displayed the following small, handwritten sign at the front: ‘The T-shirts are genuine Bootleg products which have not been authorised by the relevant parties’. Each T-shirt also bore a label and/or adhesive sticker to the following effect: ‘The manufacturer does not warrant the depiction hereon has been authorised’. On the other hand there was evidence that at least one purchaser had been assured that INXS had granted permission to use their album covers on the T-shirts. INXS sought orders for breaches of ss 52 and 53(c) of the Trade Practices Act (now ss 18 and 29(1)(g) of the Australian Consumer Law), passing off, and copyright infringement. Decision: The Federal Court held at an interim hearing that an injunction should be granted on the grounds of passing off and breach of s 52 of the Trade Practices Act, in that some members of the public were likely to be misled or deceived into thinking that the members of INXS had produced, distributed, or authorised the defendant’s T-shirts. The disclaimer was unlikely to have much effect where the target audience was young, the product was inexpensive, and the
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Chapter 6: Passing Off and Unfair Trading sale took place at a crowded market. The court also found that the defendant had represented that its goods, the T-shirts, had a sponsorship or approval that they did not, in fact, have, in breach of s 53(c) of the Trade Practices Act.
Talmax Pty Ltd v Telstra Corp Ltd [1997] 2 Qd R 444; (1996) 36 IPR 46; (1996) ATPR 41-535162 Facts: Telecom (now Telstra) placed a four-page telecommunications advertising supplement, which generally promoted Telstra’s products and services, in the Brisbane Courier Mail. The supplement also contained some general articles, one of which was headed ‘Keiren Leads Charge By Telecom Dolphins’. This article promoted the upcoming Telecom Australian Open Swimming Championships. It included a colour photograph of Keiren Perkins wearing a Telstra Dolphins swimming cap. Telstra sponsors the Australian Swimming Team and National Swimming Squad, which is often described as the ‘Telstra Dolphins’. The advertorial included in the supplement had not been consented to by Perkins or his management company, Talmax. It was alleged that the public would be misled into believing that a commercial relationship existed between Perkins and Telstra, in breach of the Trade Practices Act (now the Australian Consumer Law). Decision: Although Perkins was unsuccessful at first instance, on appeal it was held that the article was misleading. It suggested to the ordinary reader that Perkins was endorsing Telstra products or services or had consented to the article, and that he was a member of the Telecom Dolphins, which at the time was not true. The diminution of an opportunity to exploit commercial advantage was loss or damage for which Perkins should be compensated.
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Clearly, a disclaimer may be used in cases such as these which, in appropriate circumstances, will save the public from being misled: see Newton-John v SchollPlough (Australia) Ltd.163
B. Voice 6.44 In the original hearing of Sim v HJ Heinz Co Ltd, McNair J said:164 It was urged before me that in the case of a professional man like an actor, his reputation in the mind of the public, based on his performances, is a right of property capable of invasion, just as is the right of property contained in a particular kind of goods or method of get-up of goods, and that here the defendants were passing off as and for a performance by the plaintiff a performance that was not by him. Put in a slightly different way, it was said that an actor had business or trade resting in performance by him of dramatic or musical works and that his goodwill lay in that performance. To confuse the public as to his performances was to do injury to that goodwill. 162 Contrast Honey v Australian Airlines Ltd (1989) 14 IPR 264; (1989) ATPR 40-961. 163 (1986) 11 FCR 233; (1986) ATPR 40-697, see 10.21C. 164 [1959] 1 All ER 547 at 551; [1959] RPC 75.
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Marketing and the Law I am not at this stage going to rule on the question whether, in any circumstances, an action of passing off would lie for the unauthorised use of a man’s voice, be he actor or not an actor, though it would seem to me to be a grave defect in the law if it were possible for a party, for the purpose of commercial gain, to make use of the voice of another party without his consent.
The sentiments of McNair J would appear to have subsequently been borne out by the case law, and there seems to be no reason to disallow a person with a distinctive voice from preventing unauthorised imitation in an appropriate case. However, obvious parodies would not generally confuse or mislead and, as such, would not be prohibited.
C. Fictitious characters and images
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6.45 As is the case with real persons, the creators (or owners) of fictitious characters and images can now fairly readily prevent the name or characteristics of their creations from being copied or imitated, relying upon passing off laws. This has not always been the case. In Wombles Ltd v Wombles Skips Ltd,165 the court refused to grant an injunction to the owners of the well-known television characters called ‘the Wombles of Wimbledon Common’. A hirer of rubbish skips in the Wimbledon area called itself ‘Wombles Skips’. The court did not accept that users of Wombles Skips would believe that there was a connection between the plaintiff and the skip company. However, this case was determined at a time when licensing arrangements were much less common. More recently, the courts are far more ready to infer a misrepresentation that a business connection, generally in the form of a licensing arrangement, exists: see Hexagon Pty Ltd v Australian Broadcasting Commission,166 Children’s Television Workshop Inc v Woolworths (NSW) Ltd,167 and Surge Licensing Inc v Pearson168 (the Teenage Mutant Ninja Turtles case).
6.45C
Twentieth Century Fox Film Corp & Matt Groening Productions Inc v South Australian Brewing Co Ltd & Lion Nathan Pty Ltd (1996) 66 FCR 451; 34 IPR 225; [1996] FCA 1484 Facts: The Simpsons is produced by Fox Film. In the series Homer Simpson drinks ‘Duff’ beer, a make-believe product. At least two episodes of The Simpsons are devoted mainly to Duff beer. The characters from The Simpsons appear on a wide range of merchandise. Duff beer appears on T-shirts and caps. SA Brewery produced a beer called ‘Duff’. On its beer can and in its promotion, SA Brewery made no reference to The Simpsons. The design, colour (yellow), and get-up of the SA Brewery can were quite different from that featured in The Simpsons. SA Brewery sent letters to retailers asking them not to use ‘Simpsons’ imagery when selling the beer. SA Brewery did not seek 165 [1977] RPC 99. 166 (1975) 7 ALR 233. 167 [1981] 1 NSWLR 273; (1980) 1B IPR 609, see 6.14C. 168 (1991) 21 IPR 228; (1991) ASC 56-077.
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Chapter 6: Passing Off and Unfair Trading permission from Fox Film to use the word ‘Duff’’. The evidence suggested that consumers drew an immediate and strong connection with The Simpsons. Fox Film sued SA Brewery for passing off and a breach of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law). Decision: The court found in favour of Fox Film. The word ‘Duff’, when used in association with beer, had acquired a secondary meaning. It had become associated in the minds of the relevant section of the public with The Simpsons. SA Brewery had not taken any, or any sufficient, steps to disclaim any such association. On the issue of intention, Tamberlin J said:169 The intention of the breweries is to persuade consumers to believe that there is a strong association between their product and The Simpsons. The breweries realised that they might be running a risk in promoting their can yet their intention was to obtain full benefit of The Simpsons association while at the same time attempting to distance the product from the series just sufficiently to avoid liability under the Act or at common law … In short, the breweries and their advisers intended to exploit the association between The Simpsons series and the beer by attempting to use the least necessary degree of overt connection, while at the same time being able to rely on the force of that association in promoting their beer. In accordance with the advice received, they decided to rely on the ‘Duff’ name as sufficient alone to make the connection. Their intention was to ‘sail as close as possible to the wind’ in order to ‘cash in’ on the reputation of The Simpsons without stepping over the line of passing off or deceit … Accordingly, I consider this knowledge is important evidence to support the inference that the goal of creating and exploiting the powerful association with The Simpsons had been achieved.
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If a person loosely imitates the image of a person or character in such a way that it should be evident to the average member of the public that what is being done is a send-up, spoof, or parody, then the consumer is not likely to be confused, misled, or deceived, and the law will not be broken. However, if the conduct is engaged in for commercial advantage, the imitator must be extremely careful to avoid breaching the law: see Pacific Dunlop Ltd v Hogan.170
Marketing Advice 6.46 When choosing a trade name or designation, the following principles should be kept in mind. • Descriptive or semi-descriptive names or designations can be protected pursuant to a passing off action, but it is not easy, and generally evidence establishing that the name or designation has acquired a secondary meaning associated with the user will need to be produced.
169 At 466–467. 170 (1989) 87 ALR 14; 14 IPR 398; (1989) ATPR 40-948, see 10.29C.
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• The more distinctive and the less descriptive a name or designation, the easier it will be to protect the name or designation relying upon passing off. A reputation attaches more easily to a distinctive name. • Distinctive names are far more easily registered under the Trade Marks Act and it is advisable to take this step whenever possible: see Chapter 7. Registered trade designations are more readily protectable than unregistered designations: see Chapter 7. • Ensure that any chosen trade name or designation is not too similar to that used by another trader in the marketplace. Solicitors and trade mark attorneys can carry out ‘clearance’ searches to assist your investigations of the market. If there is any likelihood of confusion with your chosen trade name or designation and one already in use by another trader, reconsider your choice. • If some similarities to another trader’s name or designation are unavoidable, consider the strategic use of an appropriate disclaimer to avoid possible confusion. • Distinctiveness in packaging is also important and can overcome the use of a similar name. • Do not use the names or designations (including images and likenesses) of personalities or fictitious characters in connection with your business without first obtaining explicit permission (or a licence) to do so.
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Registration of Trade Marks
7
Introduction to Trade Marks ............................................................. 7.1 History of Trade Marks Protection ................................................... 7.2 Overview of the Trade Marks Act ..................................................... 7.3 Consumer protection ..................................................................... 7.4 Trader protection ............................................................................. 7.5 What is a Trade Mark? ....................................................................... 7.6 The Registration Process .................................................................... 7.7 Classification of goods and services ............................................ 7.8 Registering a trade mark for all classifications ........................... 7.9 Requirements for Registration of a Trade Mark ........................... 7.10 Capable of distinguishing ............................................................ 7.11 Inherently adapted to distinguish ............................................... 7.12 A. Non-descriptive words ........................................................ 7.13 B. Invented words ..................................................................... 7.14 C. The signature of an applicant ............................................. 7.15 D. Device marks or logos ......................................................... 7.16 E. Shapes, sounds, and scents ................................................. 7.17 i. Shapes ......................................................................... 7.18 ii. Sounds ......................................................................... 7.19 iii. Scents .......................................................................... 7.20 F. Marks not inherently adapted to distinguish .................. 7.21 G. Marks only partially inherently adapted to distinguish ............................................................................ 7.22 i. Slogans ........................................................................ 7.23 ii. Colours ........................................................................ 7.24 H. Marks distinguished through extensive use .................... 7.25 i. Shapes and colours ..................................................... 7.26 267
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Marketing and the Law
ii. Surnames ..................................................................... iii. Place names ................................................................. Other registration requirements ................................................ A. The trade mark consists of or contains prohibited signs ....................................................................................... B. The trade mark cannot be represented graphically ........ C. The trade mark is scandalous ............................................ D. Use of the trade mark would be contrary to law ........... E. The trade mark is likely to deceive or cause confusion .............................................................................. F. The trade mark is too similar to another registered mark .................................................................... i. Substantially identical ................................................ ii. Deceptively similar ...................................................... iii. Similar goods or services ............................................. iv. Closely related goods or services ................................ When can a Sign be Registered as a Trade Mark? ...................... Disclaiming Rights to Exclusive Use ............................................... Opposition to Registration ............................................................. Trade Mark Rights ............................................................................ Term of Protection ........................................................................... Infringement of Registered Trade Mark Rights ........................... Use on the same goods or services ............................................ A. Use ‘as a trade mark’ .......................................................... B. The difference between ‘substantially identical’ and ‘deceptively similar’ .................................................... Use on similar goods or services ................................................ A. Goods or services of the same description...................... B. Closely related goods and services .................................... C. Confusion or deceptive use ............................................... Use on unrelated goods or services ........................................... Importing trade-marked goods .................................................. Dealing in second-hand trade-marked goods .......................... Defences to an Infringement Action ............................................. Remedies for Infringement .............................................................. Unjustified threats ........................................................................ Criminal liability ........................................................................... Amendment, Revocation, or Cancellation of Trade Marks ....... The trade mark has become descriptive .................................... Non-use of the trade mark ......................................................... On any grounds which could have been used to oppose a trade mark ............................................................................... Further reasons for amendments or cancellation ................... Defensive Trade Marks .................................................................... Certification Marks ........................................................................... 268
7.27 7.28 7.29 7.30 7.31 7.32 7.33 7.34 7.35 7.36 7.37 7.38 7.39 7.40 7.41 7.42 7.43 7.44 7.45 7.46 7.47 7.48 7.49 7.50 7.51 7.52 7.53 7.54 7.55 7.56 7.57 7.58 7.59 7.60 7.61 7.62 7.63 7.64 7.65 7.66
Chapter 7: Registration of Trade Marks
7.67 7.68 7.69 7.70 7.71 7.72 7.73 7.74 7.75 7.76 7.77
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International Registration of Trade Marks ................................... Management of Trade Marks ......................................................... Comparison between Passing Off and the Trade Marks Act ..... Business and Company Names ...................................................... Definition of a business name ..................................................... Purpose of the business names legislation ................................ Refusal of registration ................................................................. Company names ........................................................................... No rights conferred on registered business and company names.......................................................................... Internet Domain Names ................................................................. Marketing Advice ...............................................................................
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Introduction to Trade Marks 7.1 Trade marks, usually in the form of brand names or logos, have long been used by suppliers in the marketplace to identify a connection between themselves and their products. A successful and well-established trade mark is one of the most valuable intangible assets a marketer can possess. The value attached to internationally recognised brand names such as Amazon, Google, Coca-Cola, Mercedes, adidas, Nike, and the like, and the symbols or logos used in connection with such names, are almost incalculable. A trade mark performs two significant roles. 1. Trader protection: The primary purpose of a trade mark is to indicate the origin of goods or services, thus protecting the interests and reputation of traders. Trade marks clearly facilitate the advertising of products. Mass advertising and distribution have significantly increased the importance and value of trade marks by encouraging brand loyalty. Furthermore, a new product bearing an existing mark has a much higher likelihood of success than a new product with a totally new mark, and considerably less advertising expenditure needs to be incurred in persuading consumers to try such products.1 2. Consumer protection: Consumers use trade marks to choose between competing goods and services. Consumers often rely on the fact that a trade mark emanates from a particular trader recognised for consistency and quality.
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History of Trade Marks Protection2 7.2 Trade marks law is an extension of the law of passing off. The passing off action has always protected unregistered or ‘common law’ trade marks, and still does. However, the often difficult, time-consuming, and costly procedure involved in successfully proving that passing off has occurred in the marketplace, led to agitation for a voluntary system of registered trade marks, resulting in the trade marks legislation being introduced. The creation of a Register of trade marks was designed to overcome the need for a trader to prove, in each case, the elements of passing off, such as reputation, deception, and damage. Registration alone was evidence of the rights of the trade mark proprietor. The origins of the Australian registered trade marks system are to be found in the United Kingdom, which passed the Merchandise Marks Act in 1862, followed by the Trade Marks Registration Act in 1875. Legislation along the lines of these 1 2
270
See A Stewart, P Griffith, J Bannister and A Liberman, Intellectual Property in Australia, 5th ed, LexisNexis, Australia, 2014 at [19.2]. For a comprehensive reference, see B Elkington, M Hall and D Kell, Butterworths Annotated Acts: Annotated Trade Marks Act 1995, LexisNexis, Sydney, 2010.
Chapter 7: Registration of Trade Marks
Acts was enacted by various Australian colonies, but after Federation uniform legislation was passed by the Commonwealth parliament in the form of the Trade Marks Act 1905 (Cth). The current Act is the Trade Marks Act 1995 (Cth).
Overview of the Trade Marks Act 7.3 The Trade Marks Act establishes a Trade Marks Office, which is part of IP Australia. The Trade Marks Office is administered by a Registrar of Trade Marks. A Register of trade marks is kept at the Trade Marks Office, which contains particulars of trade marks, certification trade marks, collective trade marks, and defensive trade marks. The Register is open to public inspection and can be searched online.3 The Register establishes a convenient system for determining whether a trade mark might belong to another.
Consumer protection 7.4 By preventing the registration of the same or very similar marks,4 the Trade Marks Act prevents confusion in the minds of the public in relation to similar registered trade marks.
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Trader protection 7.5 The Trade Marks Act also assists the owner of a registered trade mark in passing off situations, by allowing the registered proprietor to sue for infringement without the need to rely on common law passing off. This is done by establishing that another mark is a copy or imitation of the registered mark. In this sense, the protection provided to the registered trade mark owner can be narrower than that provided by the passing off action, as trade mark infringement is concerned with only one method of passing off, namely, the wrongful use of a trade mark.5 However, the statutory protection provided by the Trade Marks Act has one significant advantage: protection can be absolute, in the sense that, once the wrongful use of a mark on goods or services for which it has been registered has been established within the terms required by the Act, infringement is proven. In other words, with respect to infringement under s 120(1) of the Trade Marks Act, there is no requirement that the owner of the trade mark prove that its use by another trader has caused confusion in the marketplace.6
3 4 5 6
The Register can be searched at . Usually with respect to the same or similar goods or services. This has been offset to some degree by the expanded definition of a trade mark adopted in the Trade Marks Act 1995, which now allows for a significant array of indicia to be registered: see 7.6. See Trade Marks Act 1995 s 120(1); see also 7.45–7.55, where infringement is discussed.
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What is a Trade Mark? 7.6 A trade mark is defined by s 17 of the Trade Marks Act as follows: A trade mark is a sign used, or intended to be used, to distinguish goods or services dealt with or provided in the course of trade by a person from goods or services so dealt with or provided by any other person.
In order to register a trade mark, it therefore must be a ‘sign’, which is defined in s 6 of the Trade Marks Act as including (individually or in combination): any letter, word, name, signature, numeral, device, brand, heading, label, ticket, aspect of packaging, shape, colour, sound or scent.
By far the most common forms of trade mark are those consisting of a word or words, and logos and devices, which are sometimes combined with words. However, the definition of a sign in the Trade Marks Act was broadened to specifically recognise that shapes, colours, sounds, scents, and aspects of packaging can potentially perform the function of a trade mark. This flexible definition is intended to serve the needs of the marketplace, so as to be capable of adapting to changes in marketing practices. Furthermore, it should be noted that the definition is not exclusive. Thus, the Trade Marks Office has indicated its willingness to accept trade marks which consist of moving images, holograms (which change their character when viewed from different angles), gestures, textures, and possibly even the taste of goods.7 If a sign actually functions in the marketplace as a trade mark, it should be registrable as a trade mark, provided it satisfies the usual requirements.
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The Registration Process 7.7 An application to register a trade mark may only be made by a person who claims to be the owner of the mark.8 Ownership is not established by the applicant showing ‘invention’ of the mark or that the mark is novel, but merely that it was first adopted by the applicant as a trade mark for the goods or services in question. An application for registration is made on an approved form prescribed by the Trade Marks Regulations 1995 (Cth), which must be accompanied by a specified fee. The form contains a section upon which the trade mark must be graphically represented, or for special types of trade marks such as scents or sounds, described in words. The application is examined to see if the mark meets the requirements of the Trade Marks Act before it is accepted. This can take some time, so the Trade Marks Act has a provision whereby, upon payment of an extra fee, the approval 7 8
272
See IP Australia, Trade Marks Office Manual of Practice and Procedure, available at , pt 21 at [9] and [10]. Trade Marks Act 1995 s 27(1).
Chapter 7: Registration of Trade Marks
process can be accelerated. Procedures exist so that other traders in the marketplace have the opportunity to oppose the registration of a trade mark after its acceptance and prior to its registration. If the mark passes through the examination process and is not successfully opposed, it is accepted and registered. When registering a trade mark, an applicant must indicate the class of goods or services for which registration is sought. Furthermore, within that class, the applicant must nominate the specific goods and/or services in connection with which the trade mark is to be used. The appropriate classification system is contained in the Trade Marks Regulations.
Classification of goods and services 7.8 The Schedule contained in the Trade Marks Regulations classifying goods and services under the Trade Marks Act is as follows. TABLE 7.1 SCHEDULE 1 TO THE TRADE MARK REGULATIONS: CLASSIFICATION OF GOODS AND SERVICES
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PART 1 — CLASSES OF GOODS 1.
Chemicals used in industry, science and photography, as well as in agriculture, horticulture and forestry; unprocessed artificial resins, unprocessed plastics; manures; fire extinguishing compositions; tempering and soldering preparations; chemical substances for preserving foodstuffs; tanning substances; adhesives used in industry
2.
Paints, varnishes, lacquers; preservatives against rust and against deterioration of wood; colourants; mordants; raw natural resins; metals in foil and powder form for painters, decorators, printers and artists
3.
Bleaching preparations and other substances for laundry use; cleaning, polishing, scouring and abrasive preparations; soaps; perfumery, essential oils, cosmetics, hair lotions; dentifrices
4.
Industrial oils and greases; lubricants; dust absorbing, wetting and binding compositions; fuels (including motor spirit) and illuminants; candles, wicks for lighting
5.
Pharmaceutical and veterinary preparations; sanitary preparations for medical purposes; dietetic food and substances adapted for medical or veterinary use, food for babies; dietary supplements for humans and animals; plasters, materials for dressings; material for stopping teeth, dental wax; disinfectants; preparations for destroying vermin; fungicides, herbicides
6.
Common metals and their alloys; metal building materials; transportable buildings of metal; materials of metal for railway tracks; non-electric cables and wires of common metal; ironmongery, small items of metal hardware; pipes and tubes of metal; safes; ores
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TABLE 7.1 SCHEDULE 1 TO THE TRADE MARK REGULATIONS: CLASSIFICATION OF GOODS AND SERVICES — cont’d
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7.
Machines and machine tools; motors and engines (except for land vehicles); machine coupling and transmission components (except for land vehicles); agricultural implements, other than hand operated; incubators for eggs; automatic vending machines
8.
Hand tools and implements (hand operated); cutlery; side arms; razors
9.
Scientific, nautical, surveying, photographic, cinematographic, optical, weighing, measuring, signalling, checking (supervision), life-saving and teaching apparatus and instruments; apparatus and instruments for conducting, switching, transforming, accumulating, regulating or controlling electricity; apparatus for recording, transmission or reproduction of sound or images; magnetic data carriers, recording discs; compact discs, DVDs and other digital recording media; mechanisms for coin-operated apparatus; cash registers, calculating machines, data processing equipment, computers; computer software; fire-extinguishing apparatus
10.
Surgical, medical, dental and veterinary apparatus and instruments, artificial limbs, eyes and teeth; orthopaedic articles; suture materials
11.
Apparatus for lighting, heating, steam generating, cooking, refrigerating, drying, ventilating, water supply and sanitary purposes
12.
Vehicles; apparatus for locomotion by land, air or water
13.
Firearms, ammunition and projectiles; explosives; fireworks
14.
Precious metals and their alloys; jewellery, precious stones; horological and chronometric instruments
15.
Musical instruments
16.
Paper and cardboard; printed matter; bookbinding material; photographs; stationery; adhesives for stationery or household purposes; artists’ materials; paintbrushes; typewriters and office requisites (except furniture); instructional and teaching material (except apparatus); plastic materials for packaging; printers’ type; printing blocks
17.
Unprocessed and semi-processed rubber, gutta-percha, gum, asbestos, mica and substitutes for all these materials; plastics in extruded form for use in manufacture; packing, stopping and insulating materials; flexible pipes, not of metal
18.
Leather and imitations of leather; animal skins, hides; trunks and travelling bags; umbrellas and parasols; walking sticks; whips, harness and saddlery
19.
Building materials (non-metallic); non-metallic rigid pipes for building; asphalt, pitch and bitumen; non-metallic transportable buildings; monuments, not of metal
20.
Furniture, mirrors, picture frames; unworked or semi-worked bone, horn, ivory, whalebone or mother-of-pearl; shells; meerschaum; yellow amber
21.
Household or kitchen utensils and containers; combs and sponges; brushes (except paintbrushes); brush-making materials; articles for cleaning purposes; steelwool; unworked or semi-worked glass (except glass used in building); glassware, porcelain and earthenware
22.
Ropes and string; nets; tents, awnings and tarpaulins, sails; sacks; padding and stuffing materials (except of paper, cardboard, rubber or plastics); raw fibrous textile materials
Chapter 7: Registration of Trade Marks TABLE 7.1 SCHEDULE 1 TO THE TRADE MARK REGULATIONS: CLASSIFICATION OF GOODS AND SERVICES — cont’d 23.
Yarns and threads, for textile use
24.
Textiles and substitutes for textiles; bed covers; table covers
25.
Clothing, footwear, headgear
26.
Lace and embroidery, ribbons and braid; buttons, hooks and eyes, pins and needles; artificial flowers
27.
Carpets, rugs, mats and matting, linoleum and other materials for covering existing floors; wall hangings (non-textile)
28.
Games and playthings; gymnastic and sporting articles; decoration for Christmas trees
29.
Meat, fish, poultry and game; meat extracts; preserved, frozen, dried and cooked fruits and vegetables; jellies, jams, compotes; eggs; milk and milk products; edible oils and fats
30.
Coffee, tea, cocoa and artificial coffee; rice; tapioca and sago; flour and preparations made from cereals; bread, pastry and confectionery; ices; sugar, honey, treacle; yeast, baking-powder; salt; mustard; vinegar, sauces (condiments); spices; ice
31.
Agricultural, horticultural and forestry products; raw and unprocessed grains and seeds; fresh fruits and vegetables; natural plants and flowers; live animals; foodstuffs for animals; malt
32.
Beers; mineral and aerated waters and other non-alcoholic beverages; fruit beverages and fruit juices; syrups and other preparations for making beverages
33.
Alcoholic beverages (except beers)
34.
Tobacco; smokers’ articles; matches
35.
Advertising; business management; business administration; office functions
36.
Insurance; financial affairs; monetary affairs; real estate affairs
37.
Building construction; repair; installation services
38.
Telecommunications
39.
Transport; packaging and storage of goods; travel arrangement
40.
Treatment of materials
41.
Education; providing of training; entertainment; sporting and cultural activities
42.
Scientific and technological services and research and design relating thereto; industrial analysis and research services; design and development of computer hardware and software
43.
Services for providing food and drink; temporary accommodation
44.
Medical services; veterinary services; hygienic and beauty care for human beings or animals; agriculture, horticulture, and forestry services
45.
Legal services; security services for the protection of property and individuals; personal and social services rendered by others to meet the needs of individuals
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PART 2 — CLASSES OF SERVICES
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Once registered, the owner of a trade mark can generally prevent other traders from using that mark, or a very similar mark, on or in relation to the goods or services for which it has been registered.9
Registering a trade mark for all classifications 7.9 In theory it is possible to register a trade mark for all goods or services in all 45 classifications listed in Sch 1 to the Trade Marks Regulations. However, in practice such an exercise would not only be extremely expensive (the IP Australia fees are paid per class), but usually pointless. The Trade Marks Act requires that a person applying to register a trade mark must be ‘using or intending to use’ the trade mark ‘in relation to the goods and/or services in respect of which registration is sought’: Trade Marks Act s 27.10 Even if a trade mark is registered, it can subsequently be removed from the Register for non-use: see 7.62. If an applicant for a trade mark intends to use a particular mark (or a series of marks) on goods or services in more than one class, in Australia, it is possible to do so in a single registration: Trade Marks Act ss 19(2) and 51A.
Requirements for Registration of a Trade Mark 7.10 There are a number of limitations which prevent the registration of some signs as a trade mark. The grounds for rejecting an application for a trade mark are contained in Pt 4 Div 2 of the Trade Marks Act.
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Capable of distinguishing 7.11 The primary requirement for registration of a trade mark is that it must be capable of distinguishing the applicant’s goods or services (in respect of which the trade mark is sought to be registered) from the goods or services of other persons: Trade Marks Act s 41(1). This requirement is clearly fundamental, for unless a trade mark distinguishes one person’s goods or services from another’s, it is simply not performing the function of a trade mark. In other words, it will not assist customers in differentiating between the goods or services offered by competing traders.
9
Use by other traders of a registered mark on different classes or types of goods or services can be prevented in more limited situations: see discussion of infringement at 7.45–7.55. 10 Owners of very well-known trade marks may be able to protect those trade marks by a defensive registration: see 7.65.
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In dealing with this issue, the Registrar11 is required by the Trade Marks Act to consider the extent to which the applicant’s trade mark is inherently adapted to distinguish the goods or services applied for. In doing so, the Registrar determines whether (and if so, to what extent) the mark is inherently adapted to distinguish. If the mark is not inherently distinctive (or is partly inherently distinctive), the Registrar looks to see whether the mark has acquired distinctiveness.
Inherently adapted to distinguish 7.12 Inherent adaptation refers to the nature of the mark itself and not how it may have already been used or is known. It ‘is to be assessed by reference to the perception and understanding of members of the public seeing it for the first time’.12 When a mark is examined to see if it is inherently adapted to distinguish, the question is whether the mark is ‘such that by its use the applicant is likely to attain his object of thereby distinguishing his goods from the goods of others’.13 After assessing the ‘ordinary signification’ of the mark, a further question may need to be asked.14 Kitto J15 put it this way: is ‘the word … one which other traders are likely in the ordinary course of their business and without any improper motive, to desire to use upon or in connection with their goods’? Some trade marks are more likely to be inherently capable of distinguishing one trader’s goods or services from others. For example:16 • non-descriptive words; • invented words; • signatures; and • logos.
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A. Non-descriptive words 7.13 Common words, which have no direct reference to the character or quality of the goods or services to which they will be attached, would usually be inherently adapted to distinguish the applicant’s goods and services from those of other traders.
11 12 13 14 15
References to the Registrar include the Registrar’s delegates. Mantra Pty Ltd v Spagnuolo (2012) 290 ALR 158; 96 IPR 464; [2012] FCA 769. Clark Equipment Co v Registrar of Trade Marks (1964) 111 CLR 511 at 513; 38 ALJR 215; [1964] HCA 55. Cantarella Bros Pty Ltd v Modena Trading [2014] HCA 48, see 7.13C. F H Faulding & Son Ltd v Imperial Chemical Industries of Australia and New Zealand Ltd (1965) 112 CLR 537; 39 ALJR 95. 16 Trade marks that are not inherently adapted to distinguish usually describe the kind, quality, purpose, value, geographic origin, or some other characteristic of the goods or services: Trade Marks Act 1995 s 41(4) note 1.
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For example: • • • • • •
SHELL for petrol; ROSELLA for food stuffs; APPLE for recordings, computers, clothing; VENUS for pencils; SUNSHINE for powdered milk, biscuits; VELVET for soap powder.
This applies to common words in other languages if they are well-known in Australia. When assessing descriptiveness, the focus is not just on the literal translation, but on the meaning or impression of the words as understood by Australian consumers of the goods or services. Cantarella Bros Pty Ltd v Modena Trading [2014] HCA 48 7.13C
Facts: Cantarella is the owner of Australian trade mark registrations for CINQUE STELLE and ORO for coffee. CINQUE STELLE and ORO mean ‘five stars’ and ‘gold’ in Italian. Modena’s coffee products contained the words CINQUE STELLE and ORO. Cantarella commenced proceedings for trade mark infringement. Modena sought to revoke Cantarella’s trade marks on the basis that they were not inherently adapted to distinguish. The primary judge found in favour of Cantarella. Emmet J held that most Australian consumers would not know what CINQUE STELLE and ORO meant and so they were inherently distinctive in Australia.
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On appeal, the Full Federal Court disagreed. It held that Italian was the second most spoken language in Australia, that there was a strong association between coffee and Italy, and that other traders would thus be likely in the ordinary course of their coffee business to wish to use CINQUE STELLE and ORO to describe the quality of their coffee products. Cantarella was granted special leave to appeal to the High Court. Decision: The appeal was allowed. CINQUE STELLE and ORO were inherently adapted to distinguish Cantarella’s goods in Australia. Where common words make a ‘covert and skilful allusion’ to the goods or services, they can be inherently distinctive. Where common words make a ‘direct reference’ to the goods or services, they will be descriptive and therefore not inherently distinctive. The evidence did not establish that CINQUE STELLE and ORO were ‘understood in Australia by persons concerned with coffee products to be directly descriptive of the character of quality of such goods’. The majority held that CINQUE STELLE and ORO did not make a ‘direct reference to the character or quality of the goods’. As such, the words were not ones that other traders in the ordinary course of their business without improper motive were likely to use.
B. Invented words 7.14 An invented word, being unique, is often capable of distinguishing goods and services in the marketplace. Examples of invented words which are registered as trade marks are: KODAK, ASPRO, VEGEMITE, NESCAFE, AMPOL, QANTAS, 278
Chapter 7: Registration of Trade Marks
TARAX, PELACO, DULUX, TOYOTA, MAZDA, OXO,17 KANGARUCCI, iPOD, and GRANOLA.18 Misspellings, variations, and distortions of ordinary words will not necessarily be inventive enough to be capable of distinguishing the applicant’s goods and services from those of other traders. Examples of words which might be refused registration (because their derivation is obvious, combined with the fact that the words have a descriptive quality in relation to the goods for which they are registered) are: • ORLWOOLA for woollen goods;19 • SARILLA for beverages, including sarsaparilla;20 • ROHOE for rotary hoes;21 • ELECTRIX for electrics.22
C. The signature of an applicant 7.15 In recognition that no person has identical handwriting to another, it would seem appropriate to recognise a signature as being unique and therefore capable of distinguishing that person’s goods or services from others. Protection is given to the appearance of the signature, rather than the name being signed.
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D. Device marks or logos 7.16 Distinctive pictorial representations, symbols, shapes, logos, labels, tickets, aspects of packaging, and so on are more likely to be capable of distinguishing one trader’s goods or services from another’s. Again, it is the overall appearance or representation that is being registered. A common practice is to register composite marks, consisting of devices combined with words, letters, or numerals. Some common devices, such as border embellishments (wavy lines, circles, stripes, squares) will usually not help in distinguishing goods or services from others, nor will illustrations which merely represent the product, such as the use of grapes and vine leaves for wine, thistles and tartans for shortbread biscuits, and knives and forks for eating houses (unless the illustrations are drawn in a unique stylised fashion). For example, in Beecham Group plc v Colgate-Palmolive Co,23 devices featuring a neatly formed blob of toothpaste incorporating different patterns of coloured stripes were refused registration because the representations were not sufficiently stylised or otherwise distinctive to be capable of distinguishing. 17 See Re Liebig’s Extract of Meat Co Ltd’s Trade Mark; Re Wailes, Dov & Co (1902) 22 NZLR 165. 18 Trade Mark Number 32227; although see Australasian Health & Nutrition Association Ltd (t/as Sanitarium Health Food Co) v Irrewarra Estate Pty Ltd (t/as Irrewarra Sourdough) (2012) 292 ALR 101; [2012] FCA 592. 19 Brock and Co Ltd’s Application (1909) 26 RPC 683. 20 Schweppes Ltd v Rowlands Proprietary Ltd (1913) 16 CLR 162; [1913] HCA 18. 21 Howard Auto-Cultivators Ltd v Webb Industries Pty Ltd (1946) 72 CLR 175; 20 ALJR 117. 22 Electrix Ltd v Electrolux Ltd [1960] AC 722; [1959] 3 All ER 170. 23 (2001) 58 IPR 161; [2001] ATMO 119.
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Examples of some registered device marks are:
E. Shapes, sounds, and scents 7.17 Other forms of trade mark, perhaps not so obviously capable of distinguishing, may nevertheless meet this requirement in some circumstances.
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i. Shapes 7.18 Prior to the introduction of the Trade Marks Act in 1995, attempts to register the shape of goods commonly failed. For example, registration for the donut shape of the Life Saver sweet was refused in Australia;24 the House of Lords in England refused to allow registration for the shape of the well-known ‘Coke’ bottle.25 The basic reason for refusing registration in these cases was the view that a trade mark must be separate and distinct from the product itself, in the sense that it is something added to a product to distinguish it from competitive products. Views like these do not accord with modern business practice, and the changes introduced by the Trade Marks Act acknowledge this fact. As long as the shape of a product serves primarily to identify a product and to distinguish it from competing products, it may be registered as a trade mark. Many shapes have now been registered in Australia. The majority of registrations are for distinctively shaped containers and bottles for products including drink, coffee, jam, and perfume; and shapes applied to confectionery, biscuits, ice creams, and cereals. Examples include the shape of the Coca-Cola bottle, the bear shape used by Arnotts for its Teddy Bear brand biscuits and the Caramello koala shape used by Cadbury for a chocolate bar. For a case example, see Kenman Kandy Australia Pty Ltd v Registrar of Trade Marks,26 where the majority of the Full Federal Court allowed a fanciful six-legged bug shape to be registered for confectionery. Other shapes registered include such wellknown images as the Porsche sports car (for a range of goods and services) and a number of characters created and owned by Time Warner, such as Bugs Bunny and Daffy Duck (in connection with retail services). In Re Freshfood Holdings Pty
24 Life Savers (Australia) Ltd’s Application (1952) 22 AOJP 3106. Interestingly, even under the new legislation, an attempt to register the same shape has been unsuccessful: see Cadbury Schweppes Pty Ltd & Effem Foods Pty Ltd v Société des Produits Nestlé SA [2003] ATMO 74. The main reason for refusal to register was because other traders had a need in the ordinary course of business to use the shape on similar goods. 25 Re Coca-Cola’s Trade Mark [1986] RPC 421. 26 (2002) 56 IPR 30; [2002] FCAFC 273.
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Ltd,27 it was accepted by the Registrar that a shape could be inherently adapted to distinguish if: • the shape is original; • the shape is striking to the eye; • the unusual aspects of the shape are not dictated by any functional requirements, but are rather purely ornamental; • the shape is unique to the goods of which registration is sought; and • other traders would have no reasonable basis for a desire to use the shape. An example of a shape registered for Toblerone chocolate is as follows:
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The packaging used for Toblerone comprising a triangular box and the snowcapped mountain depicted on the box has also been registered.
If a shape is not inherently capable of distinguishing one trader’s product from another’s, then it may not be registrable. This will be the case when the shape of a product is purely functional, such as an inverted ‘U’ shape of an umbrella to shelter its user from rain. Also, if a shape is one which other traders would normally expect to be freely available and which, for the sake of fair competition, they should be at liberty to use, the shape will not be considered inherently adapted to distinguish.28 Where an aspect of shape is designed for market appeal, that shape must be regarded as functional; for example, when a chocolate manufacturer produces chocolates in novelty shapes, such as sea-shells, thereby designing a product on the basis of visual appeal and in doing so adopting contemporary styles and current trends and fashions: see Re Chocolaterie Guylian NV.29 A later attempt by the same Belgian chocolate manufacturer to register seahorse shapes failed in the Federal Court, where Sundberg J concluded that ‘it does not seem to me likely that consumers would conceive of the seahorse shape on Guylian’s
27 (2005) 64 IPR 607; [2005] ATMO 8. 28 See Cadbury Schweppes Pty Ltd & Effem Foods Pty Ltd v Société des Produits Nestlé SA [2003] ATMO 74. 29 (1999) 46 IPR 201; [1999] ATMO 28.
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boxes as a trade mark, so much as simply an example of the novelty shapes that Guylian manufactures’: Chocolaterie Guylian NV v Registrar of Trade Marks.30
ii. Sounds 7.19 There are not many sound marks on the Register. The first sound mark registered in Australia was SPROING, an electronic sound used in a radio commercial for a rubber underlay floor covering.31 Other sound marks since registered include one owned by McCain Foods for the short high-pitched PING sound between the words ‘Ah McCain (“ping”) You’ve done it again’; a Sicilian waltz tune for Dolmio pasta sauces; the ‘Happy Little Vegemites’ tune registered by Kraft Foods; the musical score that introduces Fox Films; and the tune of ‘Greensleeves’ as used by Mr Whippy ice cream vans (for food services).
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iii. Scents 7.20 Scents will sometimes be capable of distinguishing one trader’s product from another’s, although it is rare for them to be registered as trade marks in Australia. While distinctive smells associated with particular items, such as beer and roses, could obviously never be registered by traders selling beer and roses respectively (they would be descriptive), such smells are capable of distinguishing completely unrelated products. Thus, the smell of cinnamon ‘applied to furniture’ and a Eucalyptus scent for golf tees were registered at the time of writing. The function of some products, such as perfumes, is to give off a scent, so the scent itself would therefore not be inherently adapted to distinguish the goods to which they were applied. Other products make use of non-functional scents, in the sense that they are designed to make the product more pleasant or attractive to use, rather than to distinguish the product from other similar products. For example, the lemon fragrance of a dishwashing liquid is unlikely to be seen as an indication of origin, as its use is common to the trade.
F. Marks not inherently adapted to distinguish 7.21 Trade marks that are not inherently adapted to distinguish goods or services are mostly trade marks that consist wholly of a sign that is ordinarily used to indicate: • the kind, quality, quantity, intended purpose, value, geographical origin, or some other characteristic of goods or services; or • the time of production of goods or the rendering of services.32 30 (2009) 258 ALR 545 at 575; 82 IPR 13; [2009] FCA 891. 31 Granted to Pacific Dunlop Ltd. The trade mark is described as ‘the sound of the word “sproing” pronounced such that there is initially a rise in pitch at the “oi” sound, which is then substantially elongated and pronounced with vibrato on the “oing” portion of the word, so as to imitate the sound of a spring reverberating on metal’. 32 Trade Marks Act 1995 s 41(4) note 1.
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The test of inherent distinctiveness is based on the overall impression that the mark creates: Fry Consulting Pty Ltd v Sports Warehouse Inc (No 2).33 Burger King Corporation v Registrar of Trade Marks (1973) 128 CLR 417; 1A IPR 504; [1973] HCA 15 Facts: The applicant ran a take-away food chain in America and was about to commence business in Australia. It applied to register the word WHOPPER as a trade mark in Australia for hamburgers. The Registrar refused to register the mark, and the applicant appealed to the High Court. Decision: The word ‘whopper’ is not inherently adapted to distinguish the applicant’s goods. ‘Whopper’ is an ordinary English word and, when applied to a hamburger, has one clear meaning, namely, that the hamburger is uncommonly large. The word is clearly descriptive of one of the characteristics of the applicant’s goods, namely their size. Another person selling a hamburger larger than normal might, in the ordinary course of business and without any improper motive, wish to use the word ‘whopper’ and, as such, the word should not be registered as a trade mark.34
Some other examples of trade marks refused registration or unlikely to be registered on such grounds are shown in the table below. TABLE 7.2 REFUSAL OF REGISTRATION
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INDICATION
TRADE MARK (SIGN)
DESIGNATED GOODS OR SERVICES
Kind
SHREDDED WHEAT NATURAL 8 PLY
Biscuits35 Knitting yarn36
Quality
CLASSIC PERFECTION LESS
Greeting cards37 Soap38 Pharmaceutical goods39
Intended purpose
WASH AND WEAR QUAFF BREAK-UP
Clothing Wine Cleaning detergents40
Value
BUDGET
Motels
Geographical origin
GREAT WESTERN YORKSHIRE
Sparkling wine41 Metal works42
33 34 35 36 37 38 39 40 41
(2012) 288 ALR 727; 94 IPR 551; [2012] FCA 81. But see 7.25 for the subsequent resolution of this matter. Shredded Wheat Co v Kellogg Co of Great Britain (1939) 57 RPC 137. Re application by JGL Investments Pty Ltd (1989) 15 IPR 349. WN Sharpe v Solomon Bros [1915] 32 RPC 15. Re Joseph Crosfield & Sons Ltd [1910] 1 Ch 130; (1909) 26 RPC 850. Registrar of Trade Marks v Muller (1980) 31 ALR 177; 54 ALJR 513. Re application by S C Johnson & Son Inc (1989) 15 IPR 349; (1989) AIPC 90-595. Thomson v B Seppelt & Sons Ltd (1925) 37 CLR 305; [1925] HCA 40, see 7.21C2. See also Trade Marks Act 1995 s 61(1)(d). 42 Yorkshire Copper Works v Registrar of Trade Marks [1954] 1 All ER 570.
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7.21C1
Marketing and the Law TABLE 7.2 REFUSAL OF REGISTRATION — cont’d INDICATION Other characteristics
Time of production
TRADE MARK (SIGN) CHARM HEAVENLY HEALTH PRESSURE PAK ALL THE COLOURS IN THE WORLD KWIK-KOPY 24 HOUR FITNESS
DESIGNATED GOODS OR SERVICES Stockings43 Lingerie44 Cocoa45 Package with pressurised contents46 Knitwear and clothing47 Printing services48 Health club services49
The reasons for these restrictions on registration are fairly obvious. Words which are directly descriptive of the characteristics, purpose, or virtues of goods or services are unsuitable for trade marks, as registration would prevent other traders from legitimately using common language in connection with their own goods or services. ‘The more apt a word is to describe the goods of a manufacturer, the less apt it is to distinguish them.’50 For example, the operator of the Mackay Airport was unable to register MACKAY AIRPORT as a trade mark for airport services: Re Mackay Airport Pty Ltd.51 Similarly, it would be inappropriate to allow a trader to obtain a monopoly in a place name, when it could be required by other traders to indicate the origin of their goods or services.52 Thomson v B Seppelt & Sons Ltd (1925) 37 CLR 305; [1925] HCA 4053
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7.21C2
Facts: Seppelt had established a winery near a small hamlet called Great Western, in the Western District of Victoria. It adopted the name ‘Great Western’ for its range of sparkling wine. It later sought to register the name as a trade mark for use on wine. Its application was opposed by other vignerons operating in the vicinity of Great Western.
43 44 45 46 47 48 49 50 51 52
Re Keystone Knitting Mills Ltd Trade Mark [1929] 1 Ch 92; (1928) 45 RPC 421. Heavenly Trade Mark [1967] RPC 306. Henry Thorne & Co v Sandow (1912) 29 RPC 440. Samuel Taylor Pty Ltd v Registrar of Trade Marks (1959) 102 CLR 650. Re application by Benetton Group SpA (1989) 14 IPR 188. Kwik Copy Trade Mark [1982] RPC 102. 24 Hour Fitness Inc (2001) 54 IPR 411; [2001] ATMO 121. Yorkshire Copper Works v Registrar of Trade Marks [1954] 1 All ER 570. (2013) 101 IPR 594, [2013] ATMO 17. In fact, s 61 of the Trade Marks Act 1995 provides for opposition to the registration of geographical indications as trade marks, although the opposition must relate to goods for which geographical indication is relevant, for example, for food or wine. 53 See also Yorkshire Copper Works v Registrar of Trade Marks [1954] 1 All ER 570; Clark Equipment Co v Registrar of Trade Marks (1964) 111 CLR 511; 38 ALJR 215; [1964] HCA 55; and Colorado Group Ltd v Strandbags Group Pty Ltd (2007) 243 ALR 127; 74 IPR 246; [2007] FCAFC 184.
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Chapter 7: Registration of Trade Marks Decision: It would be wrong to deprive other traders from using the words ‘Great Western’ for the purpose of indicating the place of origin on the wines they produced. The words denote, according to their ordinary signification, a geographical name and are therefore not adapted to distinguish the wines of Seppelt from those produced by other vignerons in the district.
However, a word will not be treated as a geographical name simply because some place on the earth’s surface has been called by it. The approach generally adopted is to ascertain whether the Australian public would recognise a name as having geographical connotations. Some names, although of a geographical nature, might be treated as fanciful and be registered as trade marks, for example, NORTH POLE for bananas.54 The rationale is that an honest competitor would simply not consider using such a name in the course of trade to indicate their bananas originated from the North Pole. In practice, this means that the Registrar often will not consider a mark to be inherently capable of distinguishing goods or services from others and will reject the application.
G. Marks only partially inherently adapted to distinguish
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7.22 If the Registrar of Trade Marks concludes that a trade mark is to some extent inherently adapted to distinguish the designated goods or services from those of other traders, but is not sufficiently inherently adapted to so distinguish, the Registrar will consider whether the mark is in fact capable of distinguishing the applicant’s goods or services from those of other persons,55 taking into account the combined effect of: • the extent to which the mark is inherently adapted to distinguish; • the use or intended use of the mark; and • any other circumstances. If it is, the mark will be accepted for registration. Some forms of trade mark are usually not so obviously capable of distinguishing one trader’s goods or services from others, such as slogans and colours. However, such marks may be registrable.
i. Slogans 7.23 While some marketing slogans may be unique and inventive, most make use, at least in part, of commonplace and/or descriptive words. As such, slogans often have a low inherent adaptation to distinguish. However, provided the mark is not entirely lacking in inherent adaptation, other factors may exist which justify registration. For example, the slogan ‘Dogs Go Wacko For Schmackos’
54 Per Kitto J in Clark Equipment Co v Registrar of Trade Marks (1964) 111 CLR 511 at 516; 38 ALJR 215; [1964] HCA 55. 55 Trade Marks Act 1995 s 41(4).
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Marketing and the Law
has been registered for pet food. An application to register the slogan ‘Make It A Blockbuster Night, Tonight’ by a trader in the retail video rental market has also been successful, despite the slogan’s semi-descriptive nature. The Trade Marks Office formed the view that, due to the extensive use made of the slogan by the applicant, on the balance of probabilities, the slogan would come to distinguish the goods and services of the applicant: Blockbuster Entertainment Inc v Civic Video Pty Ltd.56 Along similar lines, the slogans ‘Happiness Is A Cigar Called Hamlet’ (for cigars) and ‘Australians wouldn’t give a Castlemaine XXXX for anything else’ (for beer) have been registered in the United Kingdom. By way of contrast, see Austereo Pty Ltd v DMG Radio (Australia) Pty Ltd,57 where an application to register the words ‘sounds different’ by the Nova radio station was refused.
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ii. Colours 7.24 Provided the colour (or colours) applied to or used in connection with goods or services is (or are) capable of distinguishing the goods or services of a particular trader from others, registration of a colour as a trade mark is possible. Nevertheless, it will invariably be no easy task to register a colour as a trade mark, as such marks generally have a low level of inherent adaptation to distinguish. Most traders colour their products in order to make them more attractive to customers (rather than to indicate origin). In some cases it will clearly be inappropriate to register a colour as a trade mark, as the colour may be descriptive or functional. For example, a manufacturer of a mint-flavoured mouthwash should not be able to register the colour green (mint being naturally green and thus descriptive of the product), as competitors would have to use other inappropriate colours such as red or yellow for their mint-flavoured mouthwashes. It would also be wrong to allow Coca-Cola to register the colour ‘reddish-brown’ for its cola beverages, since cola is naturally this colour due to the effect of caramel in the ingredients mix. The public has become accustomed to this appearance, so a cola drink of a different colour would be difficult to sell. The colour of the drink is therefore functional and entirely unsuitable as a trade mark. Despite these observations, registering even a single colour is possible. In Philmac Pty Ltd v Registrar of Trade Marks,58 Mansfield J suggested that a single colour would be inherently registrable, provided: • the colour does not serve a utilitarian function, that is, it does not physically or chemically produce an effect, such as light reflection or heat absorption; • the colour does not perform an ornamental function, that is, it does not convey a recognised meaning such as the denotation of heat or danger or environmentalism;
56 [1999] ATMO 25. 57 (2004) 209 ALR 93; 61 IPR 257; [2004] FCA 968. 58 (2002) 56 IPR 452; [2002] FCA 1551, see 7.26C.
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• the colour does not serve an economic function, that is, it is not the naturally occurring colour of a product; and • the colour mark is not sought to be registered in a market in which there is a proven competitive need for the use of the colour, that is, it is not likely to be chosen by other properly motivated traders for use in connection with their goods or services. An example of a single colour registration obtained under what was then s 41(5) of the Trade Marks Act, now s 41(4), is a mark owned by Eagle Boys Dial-A-Pizza consisting of a ‘pink glow created by a row of pink coloured lights extending along a fascia of a building’ in which food and beverages are sold. Nevertheless, it will clearly be easier (although still difficult) to register a combination of colours, especially if arranged in a particular fashion, as a trade mark. For example, the colours RED and WHITE arranged in a particular way on motor vehicles has been registered for taxi transport services.
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H. Marks distinguished through extensive use 7.25 If the Registrar reaches the conclusion that a mark is not to any extent inherently adapted to distinguish, there is still another step that can be taken to obtain registration. If the applicant can establish that the trade mark, through extensive use in Australia, does distinguish the designated goods or services as those of the applicant, it will be eligible for registration: Trade Marks Act s 41(3). In Burger King Corporation v Registrar of Trade Marks,59 Burger King began operating in the Australian marketplace under the name Hungry Jacks. Despite its inability to register WHOPPER as a trade mark, it still elected to use the name ‘Whopper’ for its hamburgers. A significant portion of the public, because of the extensive use of the word ‘whopper’ in the selling and advertising of hamburgers by Burger King, eventually came to recognise ‘Whopper’ as a brand name associated with Burger King. At that point, the mark reached the stage when it factually distinguished Burger King’s hamburgers from the hamburgers of other persons, and when a new application was submitted, WHOPPER was registered as a trade mark.60
i. Shapes and colours 7.26 The difficulty of registering marks such as functional shapes and colours as trade marks was noted in 7.18 and 7.24. Nevertheless, extensive use of a particular shape or colour to indicate the source of a product might lead to a shape or colour being registered pursuant to s 41(3) of the Trade Marks Act. An application to register will usually need to be supported by survey evidence with a view to convincing the Trade Marks Office that a shape or colour does in fact 59 (1973) 128 CLR 417; 1A IPR 504; [1973] HCA 15, see 7.21C1. 60 See Trade Mark Number 751333. On similar grounds, the word ‘beautiful’ has been registered as a trade mark for perfume: Re Estee Lauder Cosmetics Ltd (2000) 50 IPR 131; [2000] ATMO 46.
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Marketing and the Law
distinguish the applicant’s goods or services from similar goods or services sold in the marketplace. For example, when Nestlé lodged an application to register the shape of the Kit Kat chocolate-coated wafer biscuit bar (described as two or four bars attached to one another by a thin base), it was successfully opposed by a competitor (Aldi) on the grounds that the shape was functional, one that allowed the individual fingers of a Kit Kat bar to be snapped off. However, on appeal to the Federal Court it was accepted (on the basis of a survey which indicated that 77% of the public identified the shape as that of a Kit Kat bar), that the shape had acquired distinctiveness pursuant to what was then s 41(6), now s 41(3), of the Trade Marks Act: Société des Produits Nestlé SA v Aldi Stores.61 If using survey evidence to register a colour, the survey, for example, might ask consumers questions such as ‘What manufacturer makes pink insulation?’ and ‘Do you identify the product at the point of sale on the basis of this colour?’, with a view to establishing almost universal recognition of the supplier, ACI, as the relevant manufacturer of pink insulation. In other words, the colour must have acquired a secondary meaning as an indicator of trade source for members of the public. In such a case, ACI might be successful in registering the colour pink for home insulation products.62 Philmac Pty Ltd v Registrar of Trade Marks (2002) 56 IPR 452; [2002] FCA 1551 7.26C
Facts: Philmac applied to register the colour terracotta as a trade mark for the polypipe fittings and inserts it produced for use with rural irrigation pipes. The Registrar refused the application. Philmac appealed to the Federal Court.
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Decision: The colour terracotta was not inherently adapted to distinguish the applicant’s polypipe fittings and inserts from those of other manufacturers. The range of colours available to an honestly motivated trader is limited. The colour terracotta, or any deceptively similar shade of terracotta, might naturally and legitimately occur to another trader as a choice of colour for application to these types of fittings and inserts. Nevertheless, although not inherently adapted to function as a trade mark, Philmac had used the colour terracotta on its polypipe fittings and inserts to such an extent (prior to filing its application) that it had become distinctive in fact of Philmac’s products. This factual distinctiveness was satisfied through sales of approximately 2.7 million units per annum over a period beginning in 1995, which gave Philmac a market share of around 70%. Philmac had started using the terracotta colour to distinguish its products from those of competitors, who generally produced all black fittings and inserts. Importantly, the colour terracotta was not a naturally occurring colour for plastic fittings and inserts, in contrast to terracotta roof tiles and garden pots. An order was made that the trade mark be registered.
On the basis of similar criteria, MHCS (Veuve Clicquot) has registered the colour ORANGE in Australia for use on labels attached to its bottles of champagne, 61 [2010] FCA 218. 62 See Re Owens-Corning Fiberglass Corp 774 F 2d 1116 (Fed Cir 1985).
288
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Chapter 7: Registration of Trade Marks
and Yellow Cabs (Queensland) Pty Ltd has successfully registered the colour ORANGE when applied to the body of a taxi-cab. In contrast, BP has failed to obtain registration for the colour GREEN as used on the exterior of its service stations. Its application was opposed by Woolworths, who used the colours red, green, and white as part of the get-up for its service stations. The Full Federal Court found that, on the evidence, the green colour trade mark applied for by BP had not become factually distinctive through use. Although survey evidence presented by BP showed that green was widely recognised as being part of BP’s colour scheme, in the court’s view it did ‘not lead to the conclusion that green alone or green predominantly with other unspecified colours has been used as a trade mark’. The evidence showed the colour yellow remained ‘recognisably part of’ BP’s corporate colours, albeit subsidiary to the colour green: Woolworths Ltd v BP plc (No 2).63 BP applied to the High Court for special leave to appeal against this decision, but failed: BP plc v Woolworths Ltd.64 BP has registrations for its green and yellow petrol station.65 Like BP, Cadbury also has been involved in an extended battle in Australia to try to register a colour as a trade mark — in this instance a shade of the colour PURPLE for chocolate. When it first applied for registration, it failed: see Re application by Cadbury Ltd,66 where it was held that the colour purple used by Cadbury on its chocolate products had not (at the date of application) acquired a secondary meaning in addition to its ordinary meaning of being an attractive packaging for confectionery. For instance, Cadbury had not used the colour in a trade mark sense by utilising slogans such as ‘When you see the purple wrapper, you know it is Cadbury’s’ or ‘Think purple, think Cadbury’s’. Nor had it identified purple as a trade mark on the packaging itself.67 Cadbury subsequently lodged an amended application, but it was opposed by competitors, including Darrell Lea. The matter was referred to the Federal Court for determination, but the hearing was eventually suspended until the resolution of a passing off dispute between the same parties over the use of the colour purple: see 6.31. Although the passing off dispute was ultimately resolved in 2009 in favour of Darrell Lea, the trade mark dispute was settled. Darrell Lea withdrew its opposition and Cadbury was finally granted trade marks for several shades of purple by the Office of Trade Marks. However, this does not mean that Cadbury ‘owns’ the colour purple per se, rather it ‘owns’ the exclusive right to use certain shades of purple for use in relation to ‘block chocolate and boxed chocolate’. The settlement reached allows Darrell Lea to use a different shade of purple in its stores, for packaging and on staff uniforms. 63 64 65 66 67
(2006) 235 ALR 698; 70 IPR 25; [2006] FCAFC 132. [2007] HCA Trans 249. Trade Mark Number 728555. (2002) 55 IPR 561; [2002] ATMO 56. See also Re Minnesota Mining & Manufacturing Co [2002] ATMO 8, in which Minnesota Mining & Manufacturing Co was denied registration of the colour ‘canary yellow’ in respect of POST-IT adhesive stationery notes.
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Marketing and the Law
This was followed up by Mars Australia Pty Ltd (formerly Effem Foods Pty Ltd) v Société des Produits Nestlé SA,68 where the Federal Court allowed Mars to register its WHISKAS PURPLE to identify cat food. In the hearing, Mars acknowledged that registration of WHISKAS PURPLE did not prevent its primary use as a colour for trivial, descriptive, or other non-trade mark use by competitors; for example, to indicate a particular variety in a product range. Frucor Beverages was unsuccessful in its attempt to register the colour green for its ‘V’ line of energy drinks, in part because the Federal Court found that the green colour of the packaging functioned more as an indicator of the variety of the energy drink, and as such was descriptive of the product, rather than functioning as a trade mark to distinguish Frucor’s energy drinks from those of other traders.69 TABLE 7.3 EXAMPLES OF COLOURS REGISTERED IN AUSTRALIA7071727374 COLOUR
GOOD/SERVICE
REGISTERED OWNER
LIGHT BLUE
for metal building frames
Bluescope steel70
RED applied to the sole of a shoe
for ladies high-heeled shoes
Christian Louboutin71
PALE BLUE
for jewellery and packaging
Tiffany and Company72
SAPPHIRE WITH SILVER SPECKS applied to kitchenware
for pots, pans and saucepans
Danoz Direct73
PINK
for laundry bleaching preparations
Reckitt Benckiser74
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ii. Surnames 7.27 Another example of trade marks which might be registered under s 41(3) of the Trade Marks Act is surnames. Surnames are not specifically dealt with by the Trade Marks Act. However, the fact remains that common surnames are generally less suited to performing the function of a trade mark; that is, to distinguish one trader’s goods or services from another.75 Many people share the same surname 68 69 70 71 72 73 74 75
[2010] FCA 639. Frucor Beverages Ltd v Coca Cola Company (2018) 358 ALR 336; 132 IPR 318. Trade Mark Number 1157536. Trade Mark Number 1352410. Trade Mark Number 1414010. Trade Mark Number 1517365. Trade Mark Number 1194047. Rare surnames may be easier to register, for example, Bogart (for perfumes or cosmetics): Amco Wrangler Ltd v Jacques Konckier (1978) 10 IPR 376; and Cassini (for clothing): Cassini v Golden Era Shirt Co Pty Ltd (1985) 6 IPR 247; (1986) AIPC 90-263.
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and ought to be entitled to use it on their goods or services. Thus, it may be difficult to establish that common surnames have any inherent adaptation to distinguish. However, it is possible for surnames to satisfy registration requirements after long and extensive use. TABLE 7.4 EXAMPLES OF SURNAMES REGISTERED UNDER THE TRADE MARKS ACT
SURNAME REGISTERED
GOOD/SERVICE
HOLDEN
for motor vehicles
HEINZ
for baby foods
CADBURY
for chocolate
KELLOGG
for breakfast cereal
Even if a surname is registered as a trade mark, a person will not infringe that mark if the person is using his or her own name in good faith: Trade Marks Act s 122(1)(a).
iii. Place names
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7.28 As with surnames, well-known geographical or place names are generally not capable of distinguishing one trader’s goods or services from another’s. Many people may operate a business from a particular location and ought to be entitled to refer to that location on or in connection with their goods and services. Despite the general unsuitability of geographical or place names for trade marks, extensive use of some geographical names may lead to registration pursuant to s 41(3) of the Trade Marks Act. Blount Inc v Registrar of Trade Marks [1998] FCA 440 Facts: The applicant, Blount Inc, applied to register the following trade mark, for use on various goods, including chainsaws, hand tools, and machinery:
The application was rejected by the Registrar of Trade Marks on the grounds that Oregon is a US state, and a state known for its forestry products and instrument-making industry, which meant that other manufacturers and traders of goods similar to Blount’s were highly likely to want to use the word ‘Oregon’ to show the origin of their goods. As such, the mark was not capable of distinguishing the applicant’s goods from other traders’ goods. Blount appealed against the Registrar’s decision, relying upon its extensive use of the ‘Oregon’ mark in Australia. It presented evidence in the Federal Court which showed that Blount had sold chainsaw parts, accessories, and hand tools bearing the ‘Oregon’ brand in Australia since the 1950s. During that time, Oregon products had been substantially promoted and advertised to the trade and householders, with the result that everyone concerned with chainsaws and related equipment recognised and used the word ‘Oregon’ as a brand for such products.
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7.28C
Marketing and the Law Decision: The court concluded that the word ‘Oregon’ was not inherently adapted to distinguish the applicant’s goods from those of other traders on the grounds that the word ‘Oregon’ was a geographical name (being the name of a US state) and a descriptive term (being a common name in Australia for timber from the Douglas Fir). However, the court accepted that, because of Blount’s extensive use of the trade mark ‘Oregon’ before its application to register had been filed, the trade mark did in fact distinguish the goods to which it was applied. The issue was entirely one of fact. On the evidence, the mark did distinguish Blount’s goods from similar goods of other traders and was therefore capable of distinguishing such goods. The application to register was accepted.
It should be noted that even if a geographical or place name is registered as a trade mark, a person will not infringe that mark if the person in good faith uses the mark to indicate the person’s place of business: Trade Marks Act s 122(1)(a); or the geographical origin of the person’s goods or services: Trade Marks Act s 122(1)(b); see Angoves Pty Ltd v Johnson.76
Other registration requirements
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7.29 Apart from the main requirement that a trade mark must be capable of distinguishing an applicant’s goods or services from those of other persons, there are several other grounds for refusing registration of a trade mark. Registration will be refused if the trade mark: • consists of or contains prohibited signs; • cannot be represented graphically; • is scandalous; • is contrary to law; • is likely to deceive or cause confusion; or • is too similar to another registered trade mark.
A. The trade mark consists of or contains prohibited signs 7.30 Certain signs are ineligible for use as a trade mark, for example, the words ‘patent’, ‘registered’, ‘registered design’, ‘copyright’, or symbols to the same effect; and a representation of a flag or seal of the Commonwealth, state, or territory: Trade Marks Act s 39 and Trade Mark Regulations reg 4.15.
B. The trade mark cannot be represented graphically 7.31 An application for the registration of a trade mark must be rejected if the trade mark cannot be represented graphically: Trade Marks Act s 40. It is essential that a system which allows traders to assert rights to registered trade marks allows other traders to ascertain the scope of existing rights. Usually other traders will search 76 (1982) 43 ALR 349, see 7.56C1.
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the Register to obtain such information. Thus, for the purposes of registration, trade marks must be represented in a form which can be recorded and published. Graphic representations can be achieved by writing, drawing, or by graph. For example, a three-dimensional mark might be portrayed by one or more drawings or photographs and/or described in words. Perspective or isometric drawings are preferable for all shape marks, showing all features of the sign. However, the requirement that marks must be represented graphically would appear to create problems from a practical viewpoint when registering sensory trade marks, like sounds or scents, even though both may effectively indicate the trade connection of certain goods or services. Some assistance, however, is given by the Regulations:77 If a trade mark for which registration is sought contains or consists of a sign that is a colour, scent, shape, sound or an aspect of packaging, or any combination of those features, the application for registration of the trade mark must include a concise and accurate description of the trade mark.
If the Registrar reasonably believes that the description or representation of a trade mark in an application for registration of the trade mark does not:78
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(a) demonstrate the nature of the trade mark sufficiently; or (b) show each feature of the trade mark sufficiently; to permit proper examination of the trade mark, the Registrar may require the applicant to give to the Registrar: (c) a description, or further description, of the trade mark; and (d) a specimen of the trade mark.
The application form to register a trade mark produced by the Trade Marks Office indicates that a clear description of a sign (in the form of diagrams and/or writing) consisting of a shape, scent, sound, or colour can be used in lieu of a graphic representation. For instance, sound trade marks can be represented by a precise description of the sound. The application should include the graphic representation of the trade mark (for example, ‘clip, clop, moo’) and a precise and accurate description of the trade mark (for example, ‘the trade mark consists of the sound of two steps taken by a cow on pavement, followed by the sound of a cow mooing as rendered in the recording accompanying the application’).79 If a trade mark consists of a tune or contains music, it can be represented by musical notation. Sound marks must also be recorded and filed when an application to register such a mark is made. Scents can also be represented by a precise verbal description. The trade mark should be represented graphically (for example, a ‘high impact fresh floral fragrance reminiscent of plumeria blossoms’ — a fragrance emanating from the frangipani tree) and accurately described (the ‘floral fragrance of the frangipani tree blossom as applied to embroidery yarn’).80 Such a mark was registered in 77 78 79 80
Trade Mark Regulations reg 4.3(7). Trade Mark Regulations reg 4.3(8). IP Australia, Trade Marks Office Manual of Practice and Procedure, above n 7, pt 21 at 6.1. Ibid, at 7.1.
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the US case Re Clarke,81 the first fragrance mark in history. The Australian Trade Marks Office has formed the view that the use of a verbal or written description is currently the only practical way of representing a scent that would actually convey a meaning to the ordinary person examining the Register for the purpose of comparison. For example, using the results of analytical techniques to represent a scent would convey little or nothing to the ordinary person.82 Nevertheless, it is clear that the current system may cause problems when it comes to defining precisely the extent of the right, once such marks have been registered.83
C. The trade mark is scandalous 7.32 A trade mark application will be rejected if it contains or consists of scandalous matter: Trade Marks Act s 42(a). Whether or not a trade mark is scandalous should be evaluated in the context of how an ordinary person would react.84 While an application for strong profanity would likely be rejected, NUCKIN FUTS was registered in 2012 for nuts, dried fruits, and snacks. Interestingly the registration was endorsed to say ‘it is a condition of registration that the trade mark will not be marketed to children’.85
D. Use of the trade mark would be contrary to law 7.33 A trade mark application will be rejected if its use would be contrary to law: Trade Marks Act s 42(b). This does not include common law (such as passing off),86 but can capture clear breaches of legislation.
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TABLE 7.5 EXAMPLES OF TRADE MARKS WHICH MUST BE REJECTED DUE TO USE BEING CONTRARY TO LAW ITEM Olympic symbol Australian flag AFC Asian Cup 2015 Cricket World Cup 2015 Gold Coast Commonwealth Games 2018 Red Cross ANZAC
LEGISLATION Olympic Insignia Protection Act 1987 (Cth) Flags Act 1953 (Cth) Major Sporting Events (Indicia and Images) Protection Act 2014 (Cth) Geneva Conventions Act 1957 (Cth) War Precautions Repeal Act 1920 (Cth)
81 17 USPQ 2d 1238 (TTAB 1990). 82 IP Australia, Trade Marks Office Manual of Practice and Procedure, above n 7, pt 21 at 7.1. 83 D Lyons, ‘Sounds, Smells & Signs’ [1994] 12 EIPR 540. See also H Burton, ‘The UK Trade Marks Act 1994: An Invitation to an Olfactory Occasion’ [1995] 8 EIPR 379. 84 Nevertheless, it has been held in Australia that ‘crudity’ or ‘bad taste’ do not constitute sufficient grounds for refusal: see, for example, Cosmetic, Toiletry and Fragrance Association Foundation v Fanni Barns Pty Ltd (2003) 57 IPR 594, [2003] ATMO 10 (LOOK GOOD+FEEL GOOD=ROOT GOOD accepted for cosmetics, sexual hygiene products, and clothing). 85 Trade Mark Number 1408134. 86 This may be relevant under s 43 of the Trade Marks Act: see 7.34.
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The Tobacco Plain Packaging Act 2011 (Cth) requires tobacco to be sold in plain packaging. Enacted to discourage the use of tobacco products, the Tobacco Plain Packaging Act severely limits the use of trade marks on tobacco products and otherwise regulates their display and appearance. Despite this, an application for a trade mark for tobacco will not be rejected as being contrary to law under s 42(b) of the Trade Marks Act.87
E. The trade mark is likely to deceive or cause confusion 7.34 A trade mark will not be registered if it is likely to deceive or cause confusion because of some connotation conveyed by the mark: Trade Marks Act s 43. For example, a mark may deceive or confuse in the sense of indicating a quality or origin that the goods do not have. Re Yanx Registered Trade Mark; Ex parte Amalgamated Tobacco Corp; Sub nom Menzala Cigarette Co Ltd (1951) 82 CLR 199; 1B IPR 504 Facts: An English importer of cigarettes sought to register the trade mark YANX for a brand of cigarettes made in the United Kingdom. The Trade Marks Office refused to register the mark on the grounds that it was deceptive and misleading. The applicant appealed.
7.34C1
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Decision: In its ordinary use the word ‘Yankee’ or ‘Yank’ has come to mean a citizen of the US and ‘Yanx’ means such citizens in the plural. The word ‘Yanx’, which is simply a misspelling of ‘Yanks’, is so conspicuously displayed on the label that its use alone would suggest to persons buying the cigarettes that they were American cigarettes, and this suggestion is heightened by its combination with the stars and stripes which are emblematic of the national flag and song of the US. The words ‘Made in England’ are not very conspicuous on the label and could easily be overlooked. The label is therefore likely to deceive the public and should not be registered.
A mark may also deceive or confuse in the passing off sense, by suggesting an association between goods or services that does not exist. Such confusion may arise even when the mark is used in respect of different categories of goods or services.88 If so, registration will be refused. Re Players Trade Mark [1965] RPC 363 Facts: The applicant sought to register the word PLAYERS for confectionery cigarettes. The mark had already been registered for tobacco goods. Registration was refused and the applicant appealed. Decision: Given the extensive reputation of the trade mark PLAYERS for tobacco products and the similar appearance of the goods, use of the mark on confectionery cigarettes would be liable to deceive and cause confusion. The decision to refuse registration was upheld.
87 Tobacco Plain Packaging Act 2011 s 28(2). 88 See Southern Cross Refrigerating Co v Toowoomba Foundry Pty Ltd (1954) 91 CLR 592; 1A IPR 465.
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F. The trade mark is too similar to another registered mark 7.35 A trade mark will not be registered if it is ‘substantially identical’ or ‘deceptively similar’ to a registered trade mark for ‘similar’ or ‘closely related’ goods or services: Trade Marks Act s 44. Each of these concepts is discussed below.
i. Substantially identical 7.36 The courts use a side by side test to determine whether marks are substantially identical based upon appearance; that is, by using the eye. The similarities and differences are assessed with regard to the essential features of the marks. If they differ only in inessential respects, then they are substantially identical. This is discussed further at 7.48.
ii. Deceptively similar 7.37 A trade mark is taken to be deceptively similar to another trade mark if it so nearly resembles that other trade mark that it is likely to deceive or cause confusion: Trade Marks Act s 10. The relevant legal test is discussed further at 7.48.
iii. Similar goods or services
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7.38 Goods or services are similar to other goods or services if they are the same or of the same description as the other goods or services: Trade Marks Act s 14. In Re Players Trade Mark,89 despite the fact that tobacco cigarettes and confectionery cigarettes are often sold in the same outlets, the court felt this was counteracted by the fact that the uses and the nature of the two products were clearly quite different and could not be said to be goods of the same description. This issue is discussed at 7.49.
iv. Closely related goods or services 7.39 Sometimes goods will be ‘closely related’ or allied with particular services and vice versa; for example, take-away food services and certain food items.90 This issue is discussed at 7.51.
When can a Sign be Registered as a Trade Mark? 7.40 Based on the discussion above, the following decision tree illustrates when a sign can be registered as a trade mark. 89 [1965] RPC 363, see 7.34C2. 90 See Rowntree plc v Rollbits Pty Ltd (1988) 10 IPR 539, see 7.51C.
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Chapter 7: Registration of Trade Marks FIGURE 7.1 WHEN CAN A SIGN BE REGISTERED AS A TRADE MARK? NO
Is the mark a sign and being (or intended to be) used as a trade mark? YES Is the mark inherently capable of distinguishing one product from another?
NO
Is the mark capable of distinguishing one product from another due to extensive use by the applicant?
NO
Is the mark to some extent inherently adapted to distinguish? If yes, will it distinguish through use or other circumstances?
NO
YES
YES Is the trade mark scandalous or illegal?
YES
NO Is the use of the trade mark likely to deceive or cause confusion?
YES
NO Is the trade mark substantially identical with or deceptively similar to a registered trade mark for similar or closely related goods or services?
YES
NO Can the mark be depicted graphically?
NO
YES THE MARK WILL USUALLY BE REGISTRABLE
THE MARK IS NOT REGISTRABLE
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Disclaiming Rights to Exclusive Use 7.41 Sometimes a trade mark will contain matter which is not capable of distinguishing, such as descriptive words; for example, the word BIG in Big Mac for hamburgers — or the words PRESSURE PAK in Mortein Pressure Pak on packages containing liquid under pressure (such as fly spray). Under the previous trade marks legislation,91 the Registrar of Trade Marks would only register such marks on the condition that the applicant agreed not to claim rights to the exclusive use of specific components of the mark; for example, the descriptive words ‘big’ or ‘pressure pak’ in the above examples. There is no requirement for entry of disclaimers as a condition of registration under the Trade Marks Act. Instead, an applicant for registration may voluntarily disclaim the exclusive right to use part of the trade mark, which will be duly entered on the Register if the trade mark is accepted for registration: Trade Marks Act s 74. While this step does have the advantage of overcoming the time and expense previously incurred by the Trade Marks Office in applying the compulsory disclaimer provision, the provision did at least provide certainty and clarity of rights arising from registration. It is now likely that there will be more conflicts 91 Trade Marks Act 1955 (Cth).
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between traders over the use of certain signs in the marketplace. An owner of a trade mark may consider that registration grants exclusive rights to all components of the mark, when in fact this will not always be the case. For example, registration of ‘Coca-Cola’ protects the composite mark, but does not prevent other traders from using the term ‘cola’, a word describing a type of drink. If a disclaimer has been registered in respect of a part of a registered trade mark, such as the word ‘big’ in the registered trade mark BIG MAC owned by McDonald’s, another trader does not infringe the trade mark by using that part of the trade mark: Trade Marks Act s 122(2). Thus, a take-away food outlet advertising that its ‘hamburgers are BIG’ would not infringe the BIG MAC trade mark.
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Opposition to Registration 7.42 Once a trade mark has passed the examination stage and been accepted for registration, but before it proceeds to registration, another trader can oppose a trade mark application. Any grounds which the Trade Marks Office can use to refuse to register a trade mark, can also be utilised in such opposition proceedings, except the ground that the trade mark cannot be represented graphically: Trade Marks Act s 57. These grounds were discussed at 7.10–7.39, and include: • the mark is not a sign; • the mark does not distinguish the relevant goods or services; • the mark consists of or contains prohibited signs; • the mark is scandalous; • the mark is contrary to law; • the mark is likely to deceive or cause confusion if used; • the mark is substantially identical with or deceptively similar to a registered trade mark for similar or closely related goods or services. The following cases involve opposition proceedings where some of these grounds were relied on. McDonald’s Corporation v Lubowski [2004] ATMO 5692 7.42C1
Facts: The applicant (Lubowski) applied to register the word mark MCCHINA for restaurant services providing Chinese food and other Asian food (in Class 42). The McDonald’s Corporation opposed the proposed acceptance on several grounds, one being that the use of the mark would be likely to mislead or cause confusion. It was the practice of McDonald’s to invent trade marks for use in relation to food and beverages by combining the prefix MC with words 92 See also McDonald’s Corporation v Bellamy (2004) 62 IPR 133; (2004) AIPC 91-995, where McDonald’s successfully opposed registration of MCBABY as a trade mark. In Scotch Whisky Association v De Witt (2008) 75 IPR 280; [2008] FCA 73, the trade mark GLENN OAKS was allowed to be registered for some spirits, but was not allowed to be used on whisky not emanating from Scotland because of the Scottish connotations suggested by the word ‘glen’. Consumers might be misled into thinking that the whisky was Scottish in origin.
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Chapter 7: Registration of Trade Marks describing or alluding to the nature of goods or services. McDonald’s was the owner of 25 word marks consisting of the prefix MC with a word or words with a descriptive tinge, and it extensively used and promoted these trade marks in Australia. Decision: The trade mark MCCHINA is contextually deceptively similar to the existing trade marks of McDonald’s when considered in relation to Chinese food. Given the extensive reputation of McDonald’s trade marks and its history of offering ‘ethnic-style’ food for sale as part of special promotions, a substantial number of persons would be likely to regard MCCHINA as the sort of trade mark McDonald’s would use if it were to provide take-away Chinese food. Therefore, use of MCCHINA by the applicant in connection with a take-away Chinese food restaurant is likely to result in confusion, as a reasonable number of persons will be in doubt as to whether the services are provided by McDonald’s. It was held that the mark should not be registered.
Coca-Cola Company v The Big Australian (Australia) Pty Ltd [1999] ATMO 5893 Facts: The Big Australian (the applicant) applied to register the word mark SOLA COLA for soft drinks and fruit juices (in Class 32). The Coca-Cola Company opposed the registration of this mark on the ground that the mark was substantially identical with or deceptively similar to its registered trade marks COCA-COLA and SOLO, which were registered for similar goods.
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Decision: Substantially identical trade marks: In considering whether trade marks are substantially identical, they should be compared side by side, noting the similarities and differences, especially with regard to the essential features of the marks, and the total impression of resemblance or dissimilarity that emerges from the comparison. • Coca-Cola v Sola Cola: The differences between COCA and SOLA are both visually and aurally striking. Placed side by side, only a very careless or stupid person could confuse these marks. Coca-Cola and Sola Cola are not substantially identical. • Solo v Sola Cola: Placed side by side, the marks SOLO and SOLA COLA have some similarity, but not of sufficient magnitude to find that the marks are substantially identical. The first three letters of each mark are identical, but the similarity ends there. One mark is for one word and the other for two words; one mark has a dictionary meaning and the other does not; and the aural differences are substantial. The marks are not substantially identical. Deceptively similar trade marks: The test for deceptive similarity is centred upon the impression based on an imperfect recollection of one mark when the two marks to be compared are not seen side by side. In making an assessment, the court should consider the effect of careless pronunciation and speech on the part of both buyers and sellers. • Coca-Cola v Sola Cola: Given that the word ‘cola’ is generic on cola goods, the marks are not deceptively similar. Although the two words COCA and SOLA share common vowels in the same locations in their four letters, the pronunciation and appearance of the words are very 93 See also Effem Foods Pty Ltd v Wandella Pet Foods Pty Ltd (2006) 69 IPR 243; [2006] FCA 767, where the brand name ‘Whackos’ was found to be deceptively similar to the registered trade mark ‘Dogs Go Wacko for Schmackos’ (both marks being used for pet food). Contrast Kingswood Distillery Pty Ltd v Guinness United Distillers & Vintners (Australia) Ltd (2002) AIPC 91-829; [2002] ATMO 78, where the trade marks LEMON RUSKI and LIMONSKY were held not to be deceptively similar; and Torpedoes Sportswear Pty Ltd v Thorpedo Enterprises Pty Ltd (2003) 204 ALR 90; 59 IPR 318; [2003] FCA 901.
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Marketing and the Law different. COCA-COLA and SOLA COLA provide quite different aural presentations. Even allowing for rather lazy speech, the sounds are sufficiently different to enable differentiation by the average purchaser or seller. Similarly, differences in the visual impressions are sufficiently marked to ensure that deception and confusion are readily avoided. • Solo v Sola Cola: Although SOLO is actually used on lemon-flavoured soft drinks in the marketplace, the registration of the word for use on soft drinks in general means that the possible use of the mark SOLO on cola drinks has to be considered. On such drinks, the word cola is simply a generic description. The general public would request such goods as SOLO cola and SOLA COLA. Aurally, these requests would be very similar. The only difference lies in the vowel ‘o’ or ‘a’ at the end of the first word. These vowel sounds could readily be mispronounced or misheard. The first part of each word, ‘sol’, is identical. The visual similarity of SOLO and SOLA may also provide some difficulties, particularly to a younger child or customer with a measure of thirst, given that the goods are not costly. The marks SOLO and SOLA COLA are deceptively similar. The opposition was successful.
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Another common form of dispute arises from the registration of logos that are alleged to be confusing, or deceptively similar, to an existing mark. For example, the Victorian Dairy Industry Authority successfully opposed the application by McDonald’s of its ‘M’ logo for milkshakes and prepared coffee on the grounds that the mark was too similar to its ‘Big M’ logo and would cause confusion in the marketplace.94 The respective marks involved were as follows:
Some other opposition case examples where the courts decided that the trade marks were not deceptively similar or confusing, and upheld the decision to register, are as follows.
94 Re application by McDonald’s Corporation (1986) 9 IPR 509.
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Chapter 7: Registration of Trade Marks TABLE 7.6 TRADE MARKS HELD NOT TO BE DECEPTIVELY SIMILAR OR CONFUSING95 REGISTERED MARK
OPPOSED MARK
Pacific Dunlop v Bonny
Dunlop logo
Bonny logo
Oroton Pty Ltd v Kovac
Oroton logo
Bush Collection logo
Nike International Ltd v Champion Socks Pty Ltd
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Nike logo
Nile logo
Other grounds that can be used to oppose registration include: • the applicant is not the owner of the mark: Trade Marks Act s 58; • the opponent’s earlier use of a similar trade mark: Trade Marks Act s 58A; • the applicant does not intend to use the mark: Trade Marks Act s 59; • the mark is substantially identical with or deceptively similar to another mark which, although unregistered, had acquired a reputation in Australia in relation to the relevant goods or services prior to the registration (or proposed registration) date, so that use of the mark applied for would be likely to deceive or cause confusion in the marketplace: Trade Marks Act s 60; • the mark contains or consists of a false geographical indication: Trade Marks Act s 61; • the applicant has relied on documentation containing materially false evidence or representations: Trade Marks Act s 62; and • the application was made in bad faith: Trade Marks Act s 62A.
95 Pacific Dunlop v Bonny (1995) 31 IPR 511; Oroton Pty Ltd v Kovac (1994) 31 IPR 145; Nike International Ltd v Champion Socks Pty Ltd [2001] ATMO 117.
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The Sizzler case concerned the s 58 ground of opposition concerning ownership of a trade mark. Sizzler Restaurants International v Sabra International Pty Ltd (1990) 20 IPR 331 7.42C3
Facts: Sabra applied to register as a trade mark the word SIZZLER for restaurant services. The opponent had used the mark SIZZLER extensively overseas in relation to restaurant services, but had not actually established any restaurants in Australia at the time of the application. It had, however, carried out market research and conducted negotiations with prospective franchisees in Australia. Decision: The opponent, by conducting market research and engaging in trade negotiations, had exposed its use of the mark SIZZLER to the public, at least so far as the restaurant industry in Australia was concerned. The opponent had thereby established public use of its mark by the time of the applicant’s application, and the latter’s application should therefore be refused.
Occasionally trade mark applications are filed by so-called ‘name pirates’ — persons who foresee that a particular trader (usually located overseas) may expand its business to include Australia, or that a particular trader may expand its present product offerings to include other classes of goods or services. Such persons have no genuine intention to use the mark themselves, but register the mark more in the hope of being able to sell it to the original creator of the mark. The following case concerned an opposition on the grounds that the applicant for the mark had no intention to use the mark at the time of applying for it. Rawhide Trade Mark [1962] RPC 133
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7.42C4
Facts: The applicant made a practice of studying the titles of film series to be shown on American television and, if he expected that any particular one was likely to be televised in England, applying for a trade mark in respect of that title to be used if the expectation was realised. In this case, the application was in respect of certain toys and games for the mark RAWHIDE, which was the title of a series of ‘Westerns’. The application was opposed by a licensee associated with the film proprietors, who had merchandising rights in respect to the series. Decision: The Registrar has a discretionary right as to whether or not to register a mark, although it must be exercised judicially on reasonable grounds. As the applicant in this case did not have a sufficiently present and unconditional intention to use the mark, the proposed use being contingent on the show being screened in the United Kingdom, the court upheld the Registrar’s decision not to register the mark.
If an applicant actually registers and first uses a trade mark in Australia, even if it has been used on similar goods overseas by another, the registration cannot usually be challenged in the absence of fraud or breach of confidence. There are some potential exceptions to this rule. The Trade Marks Act allows a person who has registered a trade mark in a convention country (countries that have entered into treaties with each other) to seek registration of the trade mark in Australia 302
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and claim priority based on the date of the overseas application: Trade Marks Act ss 29, 72, and 225. However, to take advantage of this right, the application must be made in Australia within six months of the overseas application. More importantly, as already outlined, registration of a trade mark can be opposed on two grounds relevant to this point. The first ground is that the mark is substantially identical with, or deceptively similar to, a trade mark that (before the application was made) had acquired a reputation in Australia in respect of the goods or services involved — in other words, a reputation may exist in Australia for a particular trade mark, even though it has not yet been specifically used on goods or services marketed in this country: s 60.96 The second ground relates to applications that have been made in ‘bad faith’: Trade Marks Act s 62A. DC Comics Ltd v Cheqout Pty Ltd [2013] FCA 478 Facts: Cheqout applied to register SUPERMAN WORKOUT for conducting exercise classes and fitness clinics. The application was accepted by the Trade Marks Office and opposed by DC Comics. Cheqout used SUPERMAN WORKOUT together with a shield device in relation to its personal training and other videos on its website. DC Comics has an Australian registered trade mark for Superman with the superhero figure or the S Shield device but not the word Superman alone. The grounds of opposition included s 60 (trade mark similar to another mark that has acquired a reputation in Australia and likely to deceive or cause confusion) and s 62A (trade mark application made in bad faith) of the Trade Marks Act. DC Comics argued that consumers would make an association between fitness and DC Comics. Cheqout argued that consumers might think of the Superman character, but would not be caused to wonder whether its fitness classes were licensed by DC Comics because DC Comics has never operated in the health and fitness industry.
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DC Comics was unsuccessful before the delegate of the Registrar and appealed to the Federal Court. Decision: Section 60: The dictionary meaning of superman refers not only to the DC Comics character, but also to the strength of a superior being. DC Comics does not have a trade mark registration for the word SUPERMAN alone. The use of the word ‘superman’ is descriptive of strong qualities in a person. When not used with other DC Comics or superhero indicia, Bennett J held97 that ‘the public would not be caused to wonder whether “superman workout” came from the same source as the Superman character or DC Comics’, they would see the word as descriptive. Section 62A: Previous authorities have rejected the proposition that ‘mere awareness that an overseas company owning the mark operated or intended to operate in Australia would amount to bad faith’ and that the applicant’s mental state would be relevant.98 Bad faith suggests behaviour that is unscrupulous or underhand. Bennett J held that the inference is clear that, by using SUPERMAN WORKOUT together with a shield device, its particular design, and use of the colours red, white, and blue, Cheqout intended to ‘strengthen the allusion to Superman. The inference can also be drawn that this use was designed to gain a benefit by appropriating
96 See Anheuser-Busch Inc v Castlebrae Pty Ltd (1991) 32 FCR 64; 23 IPR 54. 97 At 50. 98 At 63, citing Dodds-Streeton J in Fry Consulting Pty Ltd v Sports Warehouse Inc (No 2) (2012) 288 ALR 727; 94 IPR 551; [2012] FCA 81.
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Marketing and the Law Superman indicia and the reputation of the DC Comics superhero, so as to further the viewer’s association’99 between DC Comics and Cheqout. The application was made in bad faith. The application to register the trade mark was refused.
The opponent bears the onus of proof in an opposition: Food Channel Network Pty Ltd v Television Food Network GP.100
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Trade Mark Rights 7.43 If a trade mark is registered, the registered owner of the trade mark obtains the exclusive rights: • to use the trade mark; and • to authorise other persons to use the trade mark, in relation to the goods and/or services in respect of which the trade mark is registered: Trade Marks Act s 20(1).101 The registered owner also has the right to obtain relief if the trade mark has been infringed: Trade Marks Act s 20(2). A trade mark is a proprietary right: Trade Marks Act s 21. Thus, it can be licensed or assigned. The Registrar of Trade Marks can register a trade mark subject to conditions and limitations: Trade Marks Act s 69(1)(c). The exclusive right to use a trade mark may include limitations as to: • mode of use; • use within a territorial area within Australia; or • use in relation to goods or services to be exported: Trade Marks Act s 102. Other limitations that may be imposed include limitations as to colour: Trade Marks Act s 70. If such a limitation is not imposed, the trade mark is taken to be registered for all colours.
Term of Protection 7.44 The initial period of protection granted upon registration of a trade mark is 10 years from the filing date of the application: Trade Marks Act s 72(3). The registration can then be renewed perpetually for further 10-year periods: Trade 99 At 73. 100 [2010] FCAFC 58. 101 Although see Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45; 169 ALR 677; [2000] HCA 12, see 6.30C, where a valid registration was restricted in how it could be used to avoid misleading or deceptive conduct and passing off.
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Marks Act ss 75–77. If an owner fails to renew a trade mark, it will expire and be removed from the register six months after the day on which the registration expired. However, prior to removal, a late application to renew will be accepted.
Infringement of Registered Trade Mark Rights 7.45 There are three main grounds upon which an owner of a trade mark can rely in bringing an infringement action against another trader: 1. using a substantially identical or deceptively similar mark on goods or services for which the mark is registered: s 120(1); 2. using a substantially identical or deceptively similar mark on goods or services ‘of the same description’ as, or ‘closely related to’, the goods or services for which the mark is registered, unless it can be established by the defendant that such use is not likely to deceive or cause confusion: s 120(2); and 3. using a substantially identical or deceptively similar mark to a ‘well-known’ trade mark on unrelated goods or services, subject to the use being likely to suggest a trade connection between those goods or services and the registered owner of the well-known mark: s 120(3). These three grounds will be examined in detail.
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Use on the same goods or services 7.46 It is an infringement for another trader to use as a trade mark a sign that is substantially identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered: Trade Marks Act s 120(1). A competitive trader dealing in the same goods or services as the owner of the trade mark must not use a trade mark which is the same or too similar to that of the registered owner. Mere ‘use’ of the trade mark as a trade mark will constitute infringement. A mark is ‘used’ if it is placed upon goods, or in physical or other relation to goods or services: Trade Marks Act s 7(4) and (5). A verbal representation of a trade mark also amounts to use: Trade Marks Act s 7(2). The alleged infringer cannot argue under s 120(1) that the use did not or was not likely to deceive or cause confusion in the marketplace. However, in order to establish infringement, it must be shown that the ‘use’ is use ‘as a trade mark’.
A. Use ‘as a trade mark’ 7.47 A mark is used ‘as a trade mark’ when it is used to indicate the origin or source of goods or services. It is ‘use of the mark as a ‘badge of origin’ in the sense 305
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that it indicates a connection in the course of trade between goods and the person who applies the mark to the goods’.102 This assessment requires consideration of the allegedly infringing mark, not the registered mark: Edgetec International Pty Ltd v Zippykerb (NSW) Pty Ltd.103
7.47C1
Mark Foy’s Ltd v Davies Coop & Co Ltd (1956) 95 CLR 190; 1A IPR 470; [1956] HCA 41 Facts: Mark Foy was the registered proprietor of the trade mark TUB HAPPY for clothing. Davies Coop manufactured and marketed Exacto brand windcheaters. In a newspaper advertisement for Exacto windcheaters it described its product as ‘Cotton Fresh, Budget Wise, Tub Happy’. The words ‘Tub Happy’ were meant to suggest that the garment could be washed in a washing machine (or ‘tub’). Mark Foy sued for infringement of its trade mark. Decision: Mark Foy had the exclusive right to use the words TUB HAPPY ‘as a trade mark’. If the defendant had claimed that its goods were as good as TUB HAPPY goods, in a comparative sense, then this would not have been use ‘as a trade mark’. However, in this case the defendant was advertising the words TUB HAPPY in relation to its own goods in the course of trade, which was an infringement. It was using the words TUB HAPPY as a trade mark.
In Coca-Cola Company v PepsiCo Inc (No 2),104 Besanko J was not persuaded that consumers would consider the outline or silhouette of the PepsiCo ‘Carolina’ bottle alone as a feature to indicate a connection between the drink and PepsiCo. As a consequence, there was no infringement of the Coca-Cola Company’s CONTOUR BOTTLE trade mark registrations. If the use of a trade mark is not understood to indicate the origin of goods or services, then it is not use of the mark ‘as a trade mark’, and there is no infringement.
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Musidor BV v Tansing (t/as Apple Music House) (1995) 123 ALR 593; 29 IPR 203 7.47C2
Facts: The defendant, trading as Apple Music House, produced and sold unauthorised recordings of famous artists. One of these recordings featured the Rolling Stones, whose name naturally appeared on the cover of the CD recording. Musidor BV was the registered proprietor of the trade mark ROLLING STONES. It alleged that the use of the words ‘Rolling Stones’ by the defendant on CD recordings infringed its trade mark. Decision: The use by the defendant of the words ‘Rolling Stones’ was not a use ‘as a trade mark’. The words were being used accurately to identify the recording artists to be heard on the CD recording. The mark was not being used in the sense of indicating that the recording originated from or was produced by Musidor BV, the owner of the mark.
102 Coca-Cola Company v All-Fect Distributors Ltd (1999) 47 IPR 481; (2000) ATPR 41-735; [1999] FCA 1721. 103 (2012) 98 IPR 1; [2012] FCA 281. 104 (2014) 109 IPR 429; [2014] FCA 1287.
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Australian Health & Nutrition Association Ltd (t/as Sanitarium Health Food Co) v Irrewarra Estate Pty Ltd (t/as Irrewarra Sourdough) (2012) 292 ALR 101; [2012] FCA 592 Facts: Sanitarium is the licensed user of the trade mark GRANOLA, which has been registered for cereals in Australia since 1921. (The owner of the trade mark was also a party to the infringement proceedings.) Irrewarra makes and sells breads and cereals. Its labelling includes use of the word ‘granola’. Sanitarium alleged that Irrewarra infringed the GRANOLA trade mark.
7.47C3
Decision: The trade mark was not infringed because the use by Irrewarra was not use ‘as a trade mark’. In coming to this decision, Jagot J looked at the packaging as a whole, which included the prominent use of the IRREWARRA SOURDOUGH trade mark and the fact that the use of the word ‘granola’ was in plain font as part of the phrase ‘all natural handmade granola’ in a smaller size. Irrewarra used the word ‘granola’ to describe the bread and cereal products. It was not used as a ‘badge of origin’ to indicate the source of the product.
In Solarhart Industries Pty Ltd v Solar Shop Pty Ltd,105 Perram J reiterated that, while mere registration of a domain name does not amount to trade mark infringement, use of a domain name to attract customers to a website to benefit from a flow of traffic to the website might amount to use as a trade mark. It will depend on the context.
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Lift Shop Pty Ltd v Easy Living Home Elevators Pty Ltd (2014) 311 ALR 207; 106 IPR 419; [2014] FCAFC 75 Facts: Lift Shop is the owner of an Australian trade mark registration for elevators (lifts) for a composite device mark which includes the words LIFT SHOP and an image of an arrowhead in a circle-shaped button. Easy Living is a competitor in the market for disability platform elevators. Easy Living engaged a marketing firm to use search engine optimisation (SEO) to improve the ranking of its website in search results. It added the words ‘lift shop’ to the title of its website, included ‘lift shop’ on its home page, and purchased keyword advertising for ‘lift shop’. Lift Shop commenced proceedings for trade mark infringement and misleading or deceptive conduct under s 18 of the Australian Consumer Law. The primary judge dismissed the proceedings. Buchanan J found that the keyword advertising by Easy Living used ‘lift shop’ descriptively (to refer to stores from which one could purchase an elevator) and not ‘as a trade mark’. (It was not misleading and deceptive conduct because consumers would not have understood this to have suggested an association between the two businesses). Lift Shop appealed to the Full Federal Court. Decision: The LIFT SHOP trade mark was not infringed because the use by Easy Living was not use ‘as a trade mark’. The court held that the relevant question is whether the words ‘lift shop’, when used by Easy Living on its website and in its advertising, ‘functioned to distinguish its goods or services from those of others’. In other words, was it functioning ‘as a trade mark’ to indicate origin? No. Consumers searching the internet for ‘lift shop’ would have understood the results to mean that Easy Living ‘was using those words to convey that its business was one of supplying “lifts” and “home elevators” … that their only functional significance was to describe the character 105 [2011] FCA 700.
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7.47C4
Marketing and the Law of that business … not to distinguish its business from others … Such use is the antithesis of trade mark use.’106 The appeal was dismissed.
The overall circumstances in Mantra Group Pty Ltd v Tailly Pty Ltd (No 2)107 led Reeves J to find that use of domain names such as ‘circleoncavile.com.au’ and ‘circleoncavillapartments.com.au’ by a real estate agent (for various apartments, including those in the Circle on Cavill complex) was use as a trade mark and infringed the CIRCLE ON CAVILL trade mark registered by the Circle on Cavill owner/on-site rental agent. In Accor Australia and New Zealand Hospitality Pty Ltd v Liv Pty Ltd,108 Accor was the licensed user of trade mark registrations for ‘Cairns Harbour Lights’ and ‘Harbour Lights’, which it used to promote the sale of apartments at the Harbour Lights, also known as the Cairns Harbour Lights complex in the city of Cairns in Northern Queensland. The Full Federal Court found that use of metatags in the source data of Accor’s competitor, Liv’s, website, infringed the registered trade marks, given that the words ‘Harbour Lights Apartments’ effectively functioned as a business name to distinguish Liv’s business from those of other traders.
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B. The difference between ‘substantially identical’ and ‘deceptively similar’ 7.48 The legal tests for assessing the difference between these criteria are well established. • ‘Substantial identity’ is assessed using a side by side test. This involves assessing the similarities and the differences of a mark’s essential features. If two marks differ only in inessential respects, they are substantially identical. The judgment will usually be made by the eye alone; but in the case of words and sounds, judgment can be made by the ear; or in the case of scent by the nose. • ‘Deceptive similarity’ exists when one mark so nearly resembles the other that it is likely to deceive or cause confusion: Trade Marks Act s 10. The test does not involve a side by side comparison. It is based on impression.109 The question posed by the court is: Would the recollection of a mark held by a person of ordinary intelligence and memory be such that confusion between the mark and the defendant’s mark was likely? Allowance must also be made for those who know of one mark, but not the other: REA Group Ltd v Real Estate 1 Ltd.110 106 At 46. 107 (2010) 267 ALR 347; 86 IPR 19; [2010] FCA 291. 108 (2017) 345 ALR 205; [2017] FCAFC 56. 109 Adidas AG v Pacific Brands Footwear Pty Ltd (No 3) (2013) 308 ALR 74; 103 IPR 521; [2013] FCA 905. 110 (2013) 102 IPR 1; [2013] FCA 559, see 6.27C4.
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Polaroid Corporation v Sole N Pty Ltd [1981] 1 NSWLR 491111 Facts: The plaintiff was the registered proprietor of the trade mark POLAROID for plastic sheets or blocks. The defendant had used the trade mark SOLAROID for window tinting materials, which are goods of a similar class. The plaintiff sued the defendant for infringement on the grounds that the defendant’s trade mark was ‘substantially identical’ with or ‘deceptively similar’ to its registered mark.
7.48C1
Decision: Were the trade marks substantially identical? SOLAROID was not substantially identical with POLAROID in regard to the essential features of the mark because the first letter conveys a difference to the mind when the two marks are judged side by side. ‘Solar’ involves a concept of the sun; whereas ‘Polar’ evokes an entirely different concept, so there is not a total impression of resemblance between them to the extent of substantial identity. Were the trade marks deceptively similar? In determining this issue, the impression is not judged by viewing the two marks side by side. Instead the impression is based on the recollection — sometimes an imperfect recollection — that persons of ordinary intelligence and memory would have. In applying the test, the similarity between the two marks is such as to qualify as deceptive similarity. The two words are so alike that there is a strong likelihood of confusion arising from such similarity in the marketplace, especially given the nature of the goods and of the prospective purchasers. An infringement had therefore occurred.
Aldi Stores Ltd Partnership v Frito-Lay Trading Co GmbH (2001) 190 ALR 185; 54 IPR 344; [2001] FCA 1874
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Facts: Frito-Lay was the registered proprietor of the trade mark TWISTIES in respect of goods in class 30 for ‘tasty preparations made from cereals, primarily for use as a snack’. Aldi, which operated a discount chain of grocery stores, sold a cereal-based cheese-flavoured snack food called CHEEZY TWISTS in its outlets. The words CHEEZY TWISTS were prominently displayed on the front of the packet. A blue logo containing the word ‘Chazoos’ appeared above the words CHEEZY TWISTS. Frito-Lay sought an injunction restraining Aldi from infringing its TWISTIES trade mark by using the words CHEEZY TWISTS. Aldi denied infringement on the ground that the words CHEEZY TWISTS were not used as a trade mark and were only used descriptively.112 Aldi argued that ‘Chazoos’ was the only trade mark on its package and CHEEZY TWISTS was merely a description of the snack — ‘twists’ was descriptive of the shape of the product and ‘cheezy’ properly described the cheese flavour of the product. Frito-Lay was successful at first instance, with the trial judge finding that the composite sign CHEEZY TWISTS sounded so similar to the mark TWISTIES that it was likely to deceive or cause confusion. Aldi appealed to the Full Federal Court. Decision: The court was unanimous in finding that the words CHEEZY TWISTS were being used by Aldi as a trade mark (ie, to distinguish its goods in the eyes of consumers from the products of other traders) in addition to the ‘Chazoos’ trade mark.
111 See also Noodle Box Pty Ltd v Dave’s Noodle Box [2002] FCA 579. 112 The same defence failed in Mark Foy’s Ltd v Davies Coop & Co Ltd (1956) 95 CLR 190; 1A IPR 470; [1956] HCA 41, see 7.47C1.
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7.48C2
Marketing and the Law However, the majority found that although Aldi had set out to produce a product that rivalled Twisties, it had not appropriated the TWISTIES trade mark for itself. The sign CHEEZY TWISTS was not substantially identical with the TWISTIES mark, nor was it deceptively similar. The trial judge had erred in not considering matters other than aural resemblance, such as the price of the two products, the outlets in which the products were sold, and the role of speaking and hearing the two marks when considering aural resemblance. Given that both products were invariably sold on a self-service basis, the aural resemblance was given too much significance by the trial judge. The dual word character of CHEEZY TWISTS afforded a clear visual distinction from the one word TWISTIES mark, and the latter was a more memorable word with a long and well established reputation.
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The appeal was upheld in favour of Aldi.
A dispute with many similarities to Aldi Stores Ltd Partnership v Frito-Lay Trading Co GmbH113 occurred in Mars Australia Pty Ltd v Sweet Rewards Pty Ltd,114 a case discussed in relation to passing off. Apart from the passing off allegation, Mars claimed that the use of the words ‘Malt Balls’ by the defendant infringed its registered mark MALTESERS. The defendant clearly displayed the brand name ‘Delfi’ on its product, and claimed that the use of the words ‘Malt Balls’ was descriptive only. In contrast to the Aldi case, the judge agreed that this was not a case where one label bore two marks, finding that the words ‘Malt Balls’ were only being used descriptively (and not as a trade mark). However, the judge then went on to say that even if the defendant had been using ‘Malt Balls’ as a trade mark, it was not ‘deceptively similar’ to the MALTESERS mark. He concluded that persons of ordinary intelligence and memory would not be left with an impression of similarity when recollecting these two marks. If a trade mark is ‘notoriously so ubiquitous and of such long standing that consumers must be taken to be familiar with it’, confusion is less likely to occur. The MALTESERS mark is very famous, so it was impossible for consumers to be confused between it and ‘Malt Balls’, a conclusion supported by the fact that, aurally, ‘Maltesers’ does not sound like ‘Malt Balls’. Similarly, in Australian Postal Corporation v Digital Post Australia,115 the Full Court of the Federal Court held that DIGITAL POST AUSTRALIA was not deceptively similar to AUSTRALIA POST. This was another example of where the fame of the AUSTRALIA POST mark may have contributed to the court’s finding.
Use on similar goods or services 7.49 It is an infringement for another trader to use as a trade mark a sign that is substantially identical with, or deceptively similar to, a registered trade mark which is registered for: 113 (2001) 190 ALR 185; 54 IPR 344; [2001] FCA 1874, see 7.48C2. 114 (2009) 81 IPR 354; [2009] FCA 606, see 6.11C3. 115 (2013) 308 ALR 1; 105 IPR 1; [2013] FCAFC 153.
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• goods of the same description as the user’s goods; or • services of the same description as the user’s services; or • goods closely related to the user’s services; or • services closely related to the user’s goods: Trade Marks Act s 120(2). A trader can infringe a registered trade mark even where the mark is used on goods or services which are not exactly the same as those for which the mark has been registered. Protection is provided by preventing use of the same or a very similar mark on goods or services of the same description, or which are closely related to one another. For example, the Coca-Cola Company was able to prevent the sale of confectionery in the shape of a contour bottle with ‘Cola’ inscribed on it, on the grounds that it was deceptively similar to the registered drawing of the CONTOUR BOTTLE that it used to package soft drink: see Coca-Cola Company v All-Fect Distributors Ltd.116 By way of contrast, Apple Inc, the owner of the well-known iPOD trade mark for small portable music players, was unable to prevent the seller of accessories for digital devices (such as laptop carry bags) from using ‘Dopi’ (the letters of Apple’s trade mark in reverse order) as a trade mark. The Registrar of Trade Marks concluded that the two marks were not ‘deceptively similar’, as a person of ordinary intelligence and memory would not be caused to wonder,117 or be left in doubt, about whether the ‘Dopi’-marked goods came from Apple merely because the trade mark terminates in the letter ‘i’, no matter how presented. Nor was it considered likely that a significant or substantial number of relevant consumers would wonder whether the goods were those of Apple because ‘Dopi’ is made up of the letters of the iPOD trade mark in reverse order: Apple Inc v Wholesale Central Pty Ltd.118 It is important to note that a defence, internal to s 120(2) only, to an infringement action exists for this form of use. In such cases the alleged infringer is allowed to argue that the use did not or was not likely to deceive or cause confusion in the marketplace.119
A. Goods or services of the same description 7.50 In determining whether goods are of the same description as other goods, or whether services are of the same description as other services, the courts have utilised the following criteria: • the nature and characteristics of the goods or services; • the use or purpose of the goods or services; and • the trade channels and customers for the goods or services. 116 (1999) 47 IPR 481; (2000) ATPR 41-735; [1999] FCA 1721. 117 This test is different from the test applied in passing off: Southern Cross Refrigerating Company v Toowoomba Foundry Pty Ltd (1954) 91 CLR 592 at 608; 1A IPR 465. 118 [2010] ATMO 7. 119 Although the plaintiff does not carry the burden of having to prove deception or confusion, evidence of actual cases of deception or confusion will greatly assist in proving infringement: see Nike International Ltd v Champion Socks Pty Ltd [2001] ATMO 117.
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Marketing and the Law TABLE 7.7 COURT DECISIONS REGARDING GOODS OR SERVICES OF THE SAME DESCRIPTION120121122123124125126127128 GOODS OR SERVICES GOODS OR SERVICES UPON FOR WHICH MARK WAS WHICH MARK WAS USED BY REGISTERED ANOTHER TRADER Wine Wines Jellies Cheese Insurance services Spices/seasonings Boots/shoes Sportswear Footwear
Beer Spirits Ice creams Flavoured milk Travel services Instant fish batter Shoe polish Sports equipment Camping gear
DECISION: WERE GOODS OR SERVICES OF THE SAME DESCRIPTION? Yes120 Yes121 Yes122 Yes123 Yes124 Yes125 No126 No127 No128
B. Closely related goods and services
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7.51 The concept of ‘closely related goods and services’ has been explained as follows:129 [I]n certain cases there is likely to be confusion if similar trade marks are used by different proprietors, one for services and the other for goods. So, for example, the use of identical or deceptively similar marks in respect of prepared foods and in respect of a takeaway food service would suggest that both the goods and the service might be attributed to the same source. Motor vehicles and vehicle hire services, cosmetics and beauty salon services, insecticides and pest eradication services are other examples. These are all likely to fall within the concept of ‘closely related goods and services’.
120 E & J Gallo Winery v Lion Nathan Australia Pty Ltd (2010) 241 CLR 144; 265 ALR 645; 86 IPR 224; [2010] HCA 15. 121 Re Australian Wine Importer’s Trade Mark (1889) 6 RPC 311. 122 J Lyons & Co Ltd’s Application [1958] RPC 466. 123 New South Wales Dairy Corp v Murray Goulburn Co-operative Co Ltd (No 1) (1989) 86 ALR 549; 14 IPR 26. 124 American Express Co v NV Amev (1985) 5 IPR 267; [1985] RPC 466. 125 McCormick & Co Inc v McCormick (2000) 51 IPR 102; [2000] FCA 1335. 126 Jellinek’s Application (1946) 63 RPC 59. 127 General Sportscraft Co Ltd v Sportscraft Consolidated Pty Ltd (1993) AIPC 90-967. 128 Walkabout Footwear Pty Ltd v Sunshine Aust Group Pty Ltd (1987) 9 IPR 558. 129 F J Smith, ‘The Trade Marks Amendment Act 1978’ (1979) 53 ALJ 118 at 119.
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Rowntree plc v Rollbits Pty Ltd (1988) 10 IPR 539 Facts: The plaintiff was the registered owner of the trade mark ROLO in relation to ‘confectionery, including toffee, chocolate and chewing gum’. The defendant sought to register the following mark:
It was to be used on biscuits, cakes, pastry goods, and in respect of the services of providing food and drink through restaurants, take-away food stores, and all other retail food outlets. The plaintiff opposed the registration on the grounds that the proposed mark was substantially identical with or deceptively similar to its mark, which was registered for goods of the same description and goods closely related to the applicant’s services. Decision: The defendant’s goods were of the same description as those of the plaintiff, and the services contemplated by the defendant were services closely related to the plaintiff’s goods. The Rolo product is sold in milk bars, grocery stores (including supermarkets), and in theatres — outlets which the defendant was also likely to use to distribute its product. The articles are both food and food of a casual type; they will be sold in similar outlets to similar kinds of customers. There would be a likelihood of deception if the defendant’s trade mark was registered. In the trade and among the public it was common to refer to the plaintiff’s chocolate toffees as ‘Rolo Bar’, so it was difficult to see how confusion could not arise. It is likely that customers would ask for ‘Roll-o-Bars’ when purchasing the defendant’s product.
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C. Confusion or deceptive use 7.52 This issue has been discussed above at 7.34. See also the following cases: • Re Players Trade Mark;130 • McDonald’s Corporation v Lubowski;131 • Coca-Cola Company v The Big Australian (Australia) Pty Ltd;132 • Aldi Stores Ltd Partnership v Frito-Lay Trading Co GmbH;133 and • Rowntree plc v Rollbits Pty Ltd.134
Use on unrelated goods or services 7.53 It is an infringement for another trader to use a sign that is substantially identical with or deceptively similar to a registered trade mark that is well-known in Australia, as a trade mark for unrelated goods or services, so as to indicate a 130 [1965] RPC 363, see 7.34C2. 131 [2004] ATMO 56, see 7.42C1. 132 [1999] ATMO 58, see 7.42C2. 133 (2001) 190 ALR 185; 54 IPR 344; [2001] FCA 1874, see 7.48C2. 134 (1988) 10 IPR 539, see 7.51C.
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7.51C
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Marketing and the Law
connection between the unrelated goods or services and the registered owner of the trade mark such that the interests of the registered owner are thereby likely to be adversely affected: Trade Marks Act s 120(3). The protection afforded to well-known registered trade marks is extended by this provision. In deciding whether a trade mark is well-known in Australia, a court must take account of the extent to which the trade mark is known within the relevant sector of the public, whether as a result of the promotion of the trade mark or for any other reason: Trade Marks Act s 120(4). If a well-established registered trade mark is used by another trader on goods or services of a different description, it may be possible for the registered owner to sue for infringement.135 The right apparently depends upon establishing elements usually associated with the passing off action, such as the existence of a reputation and confusion among customers in the marketplace.136 As with passing off, it would appear that the alleged infringer will be able to argue as a defence that the use did not or was not likely to deceive or cause confusion in the marketplace137 and that the interests of the registered trade mark owner would not be adversely affected by any such likely indicated connection.138 Infringement of a well-known mark was considered in McDonald’s System (Aust) Pty Ltd v McWilliam’s Wines Pty Ltd (No 2),139 dealing with McDonald’s as the registered proprietor of BIG MAC for hamburgers. When McWilliam’s used the term in an advertisement for wine, a completely different class of goods, McDonald’s was unable to sue for infringement under the previous Trade Marks Act, which applied at the time. Instead it relied (unsuccessfully) on the Trade Practices Act 1974 (Cth) (now the Australian Consumer Law). Under the current Trade Marks Act it would be possible for a proprietor of a registered trade mark, such as McDonald’s in the above scenario, to sue for infringement, provided the proprietor could establish the defendant’s use was such ‘as to indicate a connection between the unrelated goods or services and the registered owner of the trade mark’. This would still not be an easy task, as the defendant will often be able to establish that its use of the trade mark was not likely to result in the public assuming the existence of a trade connection between the relevant traders. A case that illustrates the application of s 120(3) is Virgin Enterprises Ltd v Virgin Star Pty Ltd,140 in which Virgin Enterprises sought an interlocutory injunction to 135 It is arguable that there does not have to be any use of the mark in Australia — the reputation may be based on an international reputation. 136 See Baywatch Productions Co Ltd v Home Video Channel [1997] FSR 22. 137 See McIllhenny Co v Blue Yonder Holdings Pty Ltd formerly t/as Tabasco Design (1997) 149 ALR 496; 39 IPR 187; (1997) ATPR 41-587, where the proprietor of the famous TABASCO mark registered for use on chilli sauce, relying upon passing off, was unable to prevent another business from trading as ‘Tabasco Design’ due to the absence of a representation of connection between it and the defendant. 138 Trade Marks Act 1995 s 120(3)(d). 139 (1979) 28 ALR 236; 41 FLR 436; (1979) ATPR 40-140. 140 (2005) 67 IPR 557; [2005] FCA 1846.
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restrain Virgin Star from using ‘virgin’ in its domain names, website, and otherwise in association with its internet service provider business. Virgin Enterprises based its claim on s 120(3) trade mark infringement and misleading or deceptive conduct (now s 18 of the Australian Consumer Law). Although Virgin Enterprises ultimately failed in its injunction application, the court found that there was a serious question to be tried141 because VIRGIN was sufficiently well-known. In Google LLC v Weeks,142 the Federal Circuit Court found that Google’s registered Australian trade marks were well known, noting that ‘Google’ is one of the world’s most valuable brands. The court found that Mr Weeks’ unauthorised use of the word ‘google’ in various social media account names, domain names and business names was likely to indicate a connection between his unrelated goods or services, and that for that reason the interests of Google were likely to be adversely affected.
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Importing trade-marked goods 7.54 Under Pt 13 of the Trade Marks Act, the owner of a registered trade mark may give written notice to the Chief Executive Officer of Customs (CEO) objecting to the importation of goods into Australia. If the importation infringes a registered trade mark, the goods can be seized by the CEO. The goods must contain a mark that, in the opinion of the CEO, is substantially identical with, or deceptively similar to, the registered trade mark. The registered owner of the trade mark must, within a defined period, bring an infringement action in respect of the seized goods, or the goods will be released. A problem that periodically occurs in the marketplace is parallel importation. This occurs where an importer buys trade-marked goods overseas and imports them into Australia. The goods are purchased quite legitimately from a person who has the right to use the mark in the country of purchase. However, the importer has no contractual authority to use the mark in Australia. The question is whether and in what circumstances the Australian licensee can prevent the importation or subsequent sale of the marked goods from that importer in Australia. The Trade Marks Act has recently been amended to ensure that parallel importation into Australia of genuine goods in these circumstances will not infringe the registered Australian trade mark for the goods. This is so even though the importation interferes with an exclusive licensee’s rights: Trade Marks Act s 122A. This can be described as the doctrine of ‘exhaustion of rights’. In other words, once the owner applies its mark to goods and puts them on the market, the trade mark owner has ‘exhausted’ its right to control further dealings with those goods.143
141 This means it was reasonably arguable — a lower threshold than a prima facie case. 142 [2018] FCCA 3150. 143 See E & J Gallo Winery v Lion Nathan Australia Pty Ltd (2010) 241 CLR 144; 265 ALR 645; 86 IPR 224; [2010] HCA 15.
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Dealing in second-hand trade-marked goods 7.55 Generally, selling goods second-hand with the original trade mark attached will not be an infringement of trade mark. Even if the original goods are substantially changed, an infringement of trade mark will not occur.
7.55C
Wingate Marketing Pty Ltd v Levi Strauss & Co (1994) 121 ALR 191; 28 IPR 193; (1994) ATPR 41-303 Facts: The Levi Strauss company manufactures jeans and is the registered proprietor of a number of trade marks, including LEVI’S. Wingate purchased second-hand Levi jeans from the US and imported them to Australia where they were marketed under the trade name REVISE with the Levi marks still attached. Some of the jeans were sold unaltered. Others were altered by Wingate in various ways including stonewashing, patching with American flags, and dyeing and cutting off the legs to make denim shorts. REVISE jeans were sold mainly in shops dealing in new clothes rather than in second-hand shops. Levi Strauss claimed infringement under the Trade Marks Act (as well as passing off and breach of the Trade Practices Act). Decision: The mark REVISE was deceptively similar to the registered mark LEVI’S. The conduct also amounted to passing off and a breach of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law). Levi Strauss also claimed that Wingate was infringing the Levi trade marks by selling altered and unaltered second-hand jeans bearing the various Levi brand names. It was held that there was no infringement, as the LEVI’s mark was not being used as a trade mark; that is, to indicate the origin or source of the goods.
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There are also offences created under the Trade Marks Act for altering, defacing, or adding to registered trade marks: Pt 14.
Defences to an Infringement Action 7.56 A person will not infringe a registered trade mark in the following circumstances. 1. The person uses in good faith their own name or place of business: Trade Marks Act s 122(1)(a). Angoves Pty Ltd v Johnson (1982) 43 ALR 349 7.56C1
Facts: The plaintiff was a well-known maker of wines and spirits. It was the registered proprietor of the trade mark ST AGNES which it used in the marketing of its brandy. The defendants were the owners of a retail liquor store, which was named the St Agnes Liquor Store. The plaintiff claimed that such use constituted an infringement of its ST AGNES trade mark. Decision: The use of the trading name ‘St Agnes Liquor Store’ constituted an infringement, being a mark substantially identical or deceptively similar to the trade mark ST AGNES. The defendants had used the mark in the course of trade in relation to brandy and other liquors in
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Chapter 7: Registration of Trade Marks respect of which the trade mark was registered. Using the mark on paper bags used in the store and in newspaper advertisements was using the mark as a trade mark. However, as the store was located in the St Agnes Shopping Centre, it was held that the defendant was using the name of his place of business in good faith — a defence to infringement. The action was therefore dismissed.
2. The person uses a sign in good faith to indicate some characteristic of goods or services: Trade Marks Act s 122(1)(b). The legislation indicates that the type of characteristic one might use without infringing another person’s trade mark will include signs used in good faith to indicate the kind, quality, quantity, intended purpose, value, and geographical origin of goods or services; the time of production of goods; or the time of rendering services. Pepsico Australia v Kettle Chip Co Pty Ltd (1996) 135 ALR 192; 33 IPR 161144 Facts: The Kettle Chip Co was the registered proprietor of the trade mark KETTLE for potato chips. Frito-Lay used the phrase ‘THINS — Double Crunch Kettle Cooked Potato Chips’ in connection with its Thins Potato Chips. It was sued for infringement of the KETTLE trade mark. Frito-Lay argued that its use of the term ‘kettle cooked’ described the cooking method of its potato chips and was not a use of the KETTLE mark as a trade mark.
7.56C2
Decision: The use of the words ‘kettle cooked’ in the context of the packaging was not use as a trade mark indicating the origin of the potato chips; rather, the words were descriptive of the process by which the chips were produced.
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Mainland Products Ltd v Bonlac Foods (NZ) Ltd [1998] 3 NZLR 341; 42 IPR 388; 8 TLCR 224 Facts: Mainland was the registered proprietor of the trade mark VINTAGE in respect of cheese. The defendant, Bonlac, marketed three cheddar cheese products in New Zealand, all under the ‘Bega’ brand. The three products had similar packaging with the trade mark BEGA prominently displayed along with the word ‘Mild’, ‘Tasty’, or ‘Vintage’ in a panel on the package. Mainland sought an injunction restraining Bonlac from infringing its trade mark by selling the cheese described as ‘Vintage’. Bonlac denied infringement on the ground that the word ‘Vintage’ was used descriptively and not as a trade mark.145 Decision: The issue is whether the word ‘Vintage’ as used by Bonlac is likely to be taken as use as a trade mark by persons (wholesalers, retailers, and consumers) to whom the product is presented in the course of trade. While Bonlac may have intended to use the word ‘Vintage’ as a description of a type of cheese and not as a trade mark, the word ‘Vintage’ in its normal
144 See also South Australian Brewing Co Pty Ltd v Carlton & United Breweries Pty Ltd (2001) 185 ALR 719; 53 IPR 90; [2001] FCA 902, where it was held that the use by the defendant of the word SHOWDOWN to describe an AFL football match between two Adelaide-based teams was a descriptive use and did not infringe the trade mark owned by the applicant. 145 The same defence failed in Mark Foy’s Ltd v Davies Coop & Co Ltd (1956) 95 CLR 190; 1A IPR 470; [1956] HCA 41, see 7.47C1.
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7.56C3
Marketing and the Law meaning gives no particular description of the character or quality of cheese (as opposed to wine, where it does have a particularly descriptive meaning). The use by Bonlac of clearly descriptive words (‘Tasty’ and ‘Mild’) in a similar fashion to its use of ‘Vintage’, would not dispel the perception of ‘Vintage’ being used as a trade mark among a substantial number of consumers. To those consumers the word ‘Vintage’ was being presented as a means of distinguishing the particular cheese from the equivalent types of cheese supplied by others, rather than being a mere description. In other words, it was being used as a trade mark by the defendant. An injunction was granted to Mainland.
3. The person uses the trade mark in good faith to indicate the intended purpose of goods (in particular as accessories or spare parts) or services: Trade Marks Act s 122(1)(c). This defence means that a manufacturer of brake linings, for example, would be entitled to describe its products as ‘suitable for use in FORD vehicles’, as long as the use of the trade mark does not suggest that the product (brake linings) is produced by Ford. 4. The person uses the trade mark for the purposes of comparative advertising: Trade Marks Act s 122(1)(d). Irving’s Yeast Vite v Horsenail (1934) 1B IPR 427; 51 RPC 110
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7.56C4
Facts: Irving’s was the registered proprietor of the trade mark YEAST-VITE, in respect of yeast tablets. Horsenail, a chemist, sold yeast tablets as ‘a substitute for Yeast-Vite’. He also displayed in his shop window a sign that said ‘Do not buy a name — the formula of patent medicine is anyone’s property — we have a substitute for Yeast-Vite’. Irving’s brought an action alleging infringement of its exclusive right to use the trade mark YEAST-VITE. Decision: Although the defendant had ‘used’ the trade mark YEAST-VITE, it had not used it ‘as a trade mark’; that is, to indicate the origin or source of his goods. Rather, the mark was being used by the defendant for the purposes of comparative advertising, clearly distinguishing his product from the plaintiff’s product. The court dismissed the allegation of infringement.
5. The person has a right pursuant to the Trade Marks Act to use the mark (s 122(1) (e)); the person would be entitled to register the mark if registration was applied for (s 122(1)(f)); the person uses a mark that is substantially identical or deceptively similar to a registered trade mark and the person would be entitled to register that trade mark if registration was applied for (s 122(1)(fa)); the person uses a sign in such a way that it is outside the exclusive rights granted to the registered owner of the mark (s 122(1)(g)); and the person uses only that part of a trade mark which is the subject of a disclaimer (s 122(2)).
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6. The person has continuously used an unregistered trade mark on similar or closely related goods or services prior to the registered owner’s registration: Trade Marks Act s 124.
Remedies for Infringement 7.57 The registered owner of a trade mark who successfully establishes infringement can seek an injunction which, if granted, may be subject to conditions imposed by the court; as well as damages or an account of profits at the plaintiff’s option: Trade Marks Act s 126(1). Additional damages may also be awarded if the infringement is flagrant or in order to deter similar infringements: Trade Marks Act s 126(2).
Unjustified threats 7.58 An action for unjustified threats can be brought by a person threatened with infringement proceedings: Trade Marks Act s 129(1). This is similar to provisions in the Copyright Act 1968 (Cth), Designs Act 2003 (Cth), and Patents Act 1990 (Cth). Additional damages may be awarded against a person making unjustified threats of trade mark infringement: s 129(2A). Mere notification of the existence of a registered trade mark does not constitute a threat: s 130A.
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Criminal liability 7.59 Part 14 of the Trade Marks Act includes a number of criminal offences. These include: • falsifying or removing a registered trade mark: Trade Marks Act s 145; • falsely applying a registered trade mark: Trade Marks Act s 146; • making a die (mould), drawing, possessing things, etc, for use in a trade marks offence: Trade Marks Act ss 147, 147A, and 147B; • selling, offering to sell, possessing or importing goods knowing they are marked with false trade marks: Trade Marks Act s 148; • aiding and abetting offences: Trade Marks Act s 150; and • falsely representing that a trade mark is registered: Trade Marks Act s 151. Many of the criminal offences are indictable offences carrying a penalty of up to five years’ imprisonment. Ly v The Queen (2014) 315 ALR 398; [2014] FCAFC 175 Facts: Ly owned and operated DVD World. The Australian Federal Police executed search warrants at Ly’s stores and his home and seized 216 Nintendo Wii games and approximately 61,000 DVDs (mostly of Asian films, but also music and games), many of which were multiple copies and the overwhelming majority of which were counterfeit. Representatives from
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7.59C
Marketing and the Law Nintendo Australia Pty Ltd, Television Broadcasts Ltd (Hong Kong), and Australian Screen Association confirmed that the copies were made without the consent of the respective copyright and trade mark owners. Ly entered guilty pleas in the County Court of Victoria to two offences: possessing infringing articles with the intention of selling them: Copyright Act s 123AJ(1); and exposing goods for sale on which registered trade marks had been applied without the owner’s consent: Trade Marks Act s 148(1). Ly had previously been convicted of similar offences. Maidment J imposed sentences of imprisonment for both offences — 12 months for the copyright offence and eight months for the trade mark offence — to be served concurrently with the possibility of release for good behaviour after eight months. Ly was granted special leave to appeal to the Full Court of the Federal Court. Decision: The appeal was dismissed. The Court referred to the serious nature of these offences, which was highlighted by the fact that the penalties include up to five years in prison or 550 penalty units ($93,500), or both. Kenny, Bennett, and Wigney JJ146 agreed with the trial judge that the ‘need for general deterrence is particularly acute in respect of offences, such as these, which are … difficult, time consuming and expensive to detect’ and which are offences of dishonesty. The evidence showed conduct that was ‘deliberate, flagrant, calculated and motivated by the prospect of substantial profits’. The offences were not isolated, but were part of a significant commercial enterprise. Taking this into account and considering his prior offences, there was no basis for the Court to intervene and allow the appeal.
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Amendment, Revocation, or Cancellation of Trade Marks 7.60 The Registrar of Trade Marks has the power to revoke the registration of a trade mark, without the need for court action, if the Registrar is satisfied that the mark should not have been registered and that it is reasonable to do so in the circumstances: Trade Marks Act s 84A. This step can only be taken when the registered owner has been notified within 12 months of registration and is given the opportunity to be heard. The decision to revoke can be challenged in the Federal Court: Trade Marks Act s 84D. A trader could presumably request the Registrar of Trade Marks to use its powers under s 84A to revoke a trade mark registration, but the Registrar does not have a duty to consider whether to do so: Trade Marks Act s 84A(6). A trader (or the Registrar) can also initiate court proceedings by applying for an order cancelling or amending an existing registration. Often, however, such an order is sought by way of a counter-claim by a defendant trader faced with an infringement action. The main grounds for amending or cancelling a registered trade mark are discussed below. 146 At [123].
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The trade mark has become descriptive 7.61 A trade mark becomes descriptive (generic) when the mark consists of or contains a sign that has become generally accepted within the relevant trade as the sign that describes or is the name of an article, substance, or service: Trade Marks Act ss 24 and 87 — in other words, the mark becomes a descriptive word and, as such, is no longer capable of distinguishing one product from another. This is a real concern because, if the trade mark becomes an everyday word used to describe the generic product, a third party may apply to have the registration removed from the Register.147 By way of example, WINDSURFER, ESCALATORS and ZIPPERS, now commonly used words, were once used to refer to specific manufacturers. The registered proprietor of a trade mark should thus exercise care in its use to avoid the possibility that the trade mark has become descriptive.
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Non-use of the trade mark 7.62 This ground can be used in two situations: first, when the applicant had no intention in good faith to use the mark at the time of the application (and it remains unused); or second, when the applicant has failed to use a trade mark for a continuous period of three years: Trade Marks Act s 92.148 The second ground cannot be relied upon until a period of three years has passed from the filing date: s 93. A registered owner can overcome any objections by establishing use of the mark, or use of a substantially identical mark to that registered. Even a ‘relatively small amount of use may be sufficient’: E & J Gallo Winery v Lion Nathan Australia Pty Ltd.149 The use must be ‘in the course of trade’: Toddler Kindy Gymbaroo Pty Ltd v Gym-Mark Inc.150 It is also possible to evade a non-use action by establishing that the non-use was due to genuine obstacles preventing use, although this is relatively difficult to satisfy: Woolly Bull Enterprises Pty Ltd v Reynolds;151 Karoun Dairies SAL v Karoun Dairies Inc.152
147 Another risk is that the mark may be used ‘descriptively’ and not ‘as a trade mark’ as required for an infringement action. See Australian Health & Nutrition Association Ltd (t/as Sanitarium Health Food Co) v Irrewarra Estate Pty Ltd (t/as Irrewarra Sourdough) (2012) 292 ALR 101; [2012] FCA 592, see 7.47C3. 148 R Conroy Pty Ltd v L’Oreal (2004) AIPC 92-007; E & J Gallo Winery v Lion Nathan Australia Pty Ltd (2009) 175 FCR 386; [2009] FCAFC 27. 149 (2010) 241 CLR 144; 265 ALR 645; 86 IPR 224; [2010] HCA 15 at 64. 150 (2013) 101 IPR 579; [2013] ATMO 15. 151 [2001] FCA 261. 152 [2013] ATMO 28.
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On any grounds which could have been used to oppose a trade mark 7.63 The Registrar of Trade Marks can refuse to register a trade mark for many reasons: see 7.30–7.39. A third party (or the Registrar) can also rely on most of these grounds in order to seek removal of a trade mark from the Register: • use of signs not allowed under the Trade Mark Regulations: reg 4.15;153 • failure of mark to distinguish; • use is scandalous or contrary to law; • use is likely to deceive or cause confusion due to a connotation in the mark; • mark is substantially identical or deceptively similar to another mark; • applicant not the owner of the mark; • applicant not intending to use trade mark; • trade mark is similar to one that has acquired a reputation in Australia; • trade mark contains or consists of a false geographical indication; • application was defective; or • application was made in bad faith. The following cases involve removal proceedings where some of these grounds were relied on. Unilever Australia Ltd v Karounas (2001) 52 IPR 361; [2001] FCA 1132
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7.63C1
Facts: RFC had registered the word REAL as a trade mark in relation to several goods and services, including take-away food. RFC claimed that Unilever had infringed the trade mark by using phrases such as ‘real soup’, ‘real beef’, ‘real chicken’, and ‘with real cream’ on the packaging of Continental chicken and beef stock and Rosella soups. Unilever counter-argued that the word ‘real’ was not capable of distinguishing and should be cancelled as a mark. Decision: The word ‘real’ is only capable of referring to the character and quality of the goods — in the sense that they are genuine or natural — and could not act as a ‘badge of origin’. The word is so descriptive that it is unregistrable. Other businesses might want to (and already do) use the word to describe the quality of their own goods. An order was made removing the defendant’s mark from the Register. (The court held that, even if the registration had been valid, Unilever’s use was a descriptive use rather than use as a trade mark, so no infringement would have taken place.)154
153 For example, ‘patented’ and ‘to counterfeit this is a forgery’. 154 For a recent example where this was found, see Australian Health & Nutrition Association Ltd (t/as Sanitarium Health Food Co) v Irrewarra Estate Pty Ltd (t/as Irrewarra Sourdough) (2012) 292 ALR 101; [2012] FCA 592, see 7.47C3.
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Berlei Hestia Industries v Bali Co Inc (1973) 129 CLR 353; 1 ALR 443; [1973] HCA 43 Facts: The plaintiff was the proprietor of the mark BERLEI, registered in respect of clothing, including brassieres. The defendant’s mark was BALI-BRA, registered in respect of the same goods. The plaintiff sought removal of the defendant’s trade mark from the Register on the grounds of confusion and deception. Decision: The two marks are phonetically alike. The plaintiff’s mark is commonly pronounced ‘Burley’ and the defendant’s mark is commonly pronounced ‘Barley’. Although the latter includes the expression ‘Bra’, which is descriptive of the goods to which it is applied, such inclusion does not distract from the phonetic similarity. Although the plaintiff’s goods are mass-produced and inexpensive compared to the defendant’s expensive specialty line goods, the likelihood of confusion is judged not by reference to how the marks have been used in the past, but by reference to the use which can properly be made of the marks. If the defendant were to apply its mark in future to goods of the kind manufactured by the plaintiff, there would be a real danger of confusion. An order was made removing the defendant’s mark from the Register.
Further reasons for amendments or cancellation 7.64 Additional grounds available in seeking removal of a trade mark from the Register include:155 • an entry of amendment was obtained by fraud, false suggestion, or misrepresentation; and • use of the mark at the time of application for rectification was likely to deceive or cause confusion.
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Defensive Trade Marks 7.65 As has already been noted, although it is possible to register a trade mark for more than one class (category) of goods or services, an applicant can only register as a trade mark a sign that is used, or intended to be used, on goods or services dealt with or provided in the course of trade by the applicant. Thus, to register a trade mark for a wide range of goods or services without the intention of actually using the mark on those goods or services would be a waste of time and money. However, a proactive mechanism to protect well-known trade marks from being used by other traders on goods or services not covered by the owner’s registration does exist. Such marks can be registered as defensive trade marks. If, because of the extent to which a registered trade mark has been used, it is likely that its use in relation to other goods or services will be taken to indicate that there is a connection between those other goods or services and the registered owner 155 Trade Marks Act 1995 s 88(2)(b)–(e).
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Marketing and the Law
of the mark, the trade mark may be registered by the owner as a defensive trade mark in respect of all of those other goods or services. This step can be taken even if the registered owner does not use or intend to use the trade mark in respect of those goods or services. A good example of a defensive trade mark is the HOLDEN trade mark.156 This mark is registered defensively in respect of automobile tyres. Holden produces motor cars. It does not make tyres and, therefore, cannot apply to register its trade mark under Pt 4 of the Trade Marks Act with respect to tyres. However, tyres are associated with motor cars to such an extent that, if anyone were to use the name HOLDEN in relation to tyres, many members of the community would quite likely assume that there was some connection with the Holden motor car company. For this reason, Holden is permitted to defend its trade mark with respect to car tyres by registering under Pt 17 of the Trade Marks Act. Holden, however, cannot prevent anyone using expressions such as ‘these tyres fit Holden cars’ or ‘designed to fit all types of Holden cars’.
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TABLE 7.8 EXAMPLES OF DEFENSIVE TRADE MARK REGISTRATIONS 157158159160161162163164 TRADE MARK
GOOD/SERVICE
APPLICANT
CHANEL
for jewellery
by Chanel Ltd157
SHELL
for candles
by Shell Brands International AG158
BAND-AID
for pharmaceuticals
by Johnson & Johnson159
BONDS
for lace and embroidery
by Pacific Brands Clothing Pty Ltd160
KLEENEX
for cosmetics
by Kimberly-Clark Worldwide Inc161
VISA
for travel agency services
by Visa International Service Association162
VOGUE
for perfumes and soaps
by Advance Magazine Publishers Inc163
JACK DANIEL’S
for playing cards
by Jack Daniel’s Properties Inc164
It is important to note that a mark cannot be registered defensively in order to obtain a universal and absolute monopoly in the mark. A mark can only be 156 Trade Mark Number 237704. 157 Trade Mark Number 201126. 158 Trade Mark Number 154323. 159 Trade Mark Number 155298. 160 Trade Mark Number 181472. 161 Trade Mark Number 192258. 162 Trade Mark Number 480299. 163 Trade Mark Number 540569. 164 Trade Mark Number 551252.
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registered defensively to prevent use on goods and services where the use is likely to make people think the goods or services have a connection with the registered proprietor.
Certification Marks 7.66 Part 16 of the Trade Marks Act allows associations or organisations to register marks which are designed to indicate that goods or services bearing the mark will meet a specified characteristic as laid down by the owner of that mark. Such marks, known as certification marks, are signs which distinguish goods or services in respect of origin, material, mode of manufacture, quality, accuracy, or some other characteristic, from goods or services not so certified: Trade Marks Act s 169. Well-known examples of certification marks include the WOOLMARK and the STANDARDS AUSTRALIA logo. The organisations owning these marks usually authorise or license particular traders to use the mark, provided they meet specified criteria, such as selling garments that are made from 100% pure wool, or which meet a standard specified by Standards Australia. Applications to register certification marks are determined on normal principles by the Trade Marks Office. However, once accepted, the application is forwarded to the Australian Competition and Consumer Commission, so that the draft rules governing use of the mark can be examined from a public interest perspective, and to ensure compliance with the Competition and Consumer Act 2010 (Cth).
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International Registration of Trade Marks 7.67 The Madrid Protocol,165 which Australia joined in July 2001, is a system for registering trade marks internationally. The majority of European countries, China, Japan, Russia, and the United States have also joined. Basically, the Madrid Protocol allows an international trade mark application to be filed, designating one or more of the contracting countries. An international application can now be filed in the Trade Marks Office, which will then transmit the application to the International Bureau of the World Intellectual Property Organisation (WIPO), where it will be checked for compliance with various formalities. Once the checking is completed, the International Bureau will register the trade mark and send details of the application to the designated countries. Each designated country then has a specified period of time in which to notify the International Bureau if it intends to 165 Protocol relating to the Madrid Agreement Concerning the International Registration of Marks (adopted at Madrid on 27 June 1989, as amended on 3 October 2006, and on 12 November 2007), available at .
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refuse protection, which must be based on existing grounds in that country’s trade marks legislation. It should be noted that, within the first five years, the outcome of the international application is tied to the fate of the application in the country of origin. Thus, if registration is refused in the original country of application, the international application is cancelled. In such an event, it is still permissible to apply for a normal application in any designated country within three months of the cancellation. The Madrid Protocol is not the only way of applying for a trade mark overseas. It is still possible to file an application directly with each country, which may sometimes be a better option, or the only option if the country of interest is not a signatory to the Madrid Protocol.
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Management of Trade Marks 7.68 A trade mark is or can be a valuable piece of property. Consequently, it should be protected by putting others on notice as to its registration. This can be done by putting the mark in quotation marks, by writing it in capitals or bold print, or by using a different colour, style, or size to the surrounding words. It can be done by placing the words ‘Registered Trade Mark’ or any recognisable abbreviation next to the mark, or in a footnote with an asterisk next to the mark. A system commonly used in Australia is the circle with a capital R in it: ®. There is, however, no requirement to use the ® symbol. If the trade mark is unregistered, the proprietor must be careful not to give the impression that it is registered. It is an offence under the Trade Marks Act to intentionally or recklessly misrepresent that a trade mark is registered: Trade Marks Act s 151. However, it is generally regarded as acceptable to use the letters TM in respect of an unregistered trade mark. Steps should be taken to prevent a mark from becoming generic. This can be done by adopting the usages described above, and by using the mark as an adjective and not as a noun or verb. For example, one should say, ‘Buy ESKY brand of cooler’ and not ‘Buy an ESKY’. The proprietor of the mark should take steps to prevent others, such as resellers, distributors, and the media, from using the mark in a generic manner. This will involve some form of monitoring. Finally, the proprietor of a mark ought to constantly monitor its competitors to ensure that no one is using or attempting to use marks that are similar. If others are using the mark, warnings ought to be issued immediately. However, a warning needs to be phrased carefully to avoid making an unjustified threat. If the warning does not result in others ceasing to use the mark, legal proceedings should be instituted. The reason for this is that a trade mark may be removed if it ceases to 326
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be distinctive as a result of the registered proprietor’s failure to take the necessary steps to protect it: see 7.61.
Comparison between Passing Off and the Trade Marks Act 7.69 The introduction of the trade marks legislation has certainly proved beneficial to marketers of goods or services. It has introduced a system of registration that allows marketers to take positive steps to secure ownership of distinctive brand names, business names, and logos. However, it should be recognised that the protection provided by the passing off action remains an important source of rights, particularly when protection is being sought for marks that have not or cannot be registered.
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TABLE 7.9 COMPARISON BETWEEN PASSING OFF AND THE TRADE MARKS ACT PASSING OFF
TRADE MARKS ACT
Registration
Not based upon registration
Must register mark to obtain rights under the Act
Form of protection
Protects ‘get-up’ (overall appearance) and image in addition to name of product or business
Protects registered mark (which can include packaging and labelling)
Area of protection
Depends upon extent of reputation; Protection may be confined to a state or a city
Protection usually Australia-wide
Limits on protection
All marks potentially protectable if reputation has been established using the mark
Not all marks are registrable — a mark must be capable of distinguishing goods or services from those of competitive traders.
Elements of proof
Need to prove reputation in the mark
Once registered, the mark is protected without the need to prove reputation in the mark; Actual use of the mark is not necessary, as long as there is a genuine intention to use it
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Marketing and the Law 166 TABLE 7.9 COMPARISON BETWEEN PASSING OFF AND THE TRADE MARKS ACT — cont’d
PASSING OFF
TRADE MARKS ACT
Burden of proof
Need to prove public confused or deceived by defendant; Must be an actual probability of deception leading to a passing off
Need only prove use of mark (as a trade mark) by a defendant in relation to goods or services in respect of which the mark is registered; If alleging deceptive similarity (confusion), only need to show that a number of persons will wonder if the two products come from the same source; it is sufficient if an ordinary person entertains a reasonable doubt166
Extent of protection
Rights to mark can potentially be protected by preventing use of goods or services offered in a different field of activity or trade
Rights to mark confined to the nominated class of goods or services or to closely associated goods and/or services (unless trade mark is well-known or registered as a defensive mark)
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Business and Company Names167 7.70 The Business Names Registration Act 2011 (Cth) controls the names under which companies, firms, and persons may carry on business, by requiring that such trading names (unless it is their personal or company name) be registered as business names. Prior to the enactment of the Business Names Registration Act, business names were regulated by each state and territory.168 This meant that, where trading occurred in more than one state or territory, the business name had to be registered under the laws of each one. The Business Names Registration Act has made compliance cheaper and easier as a result of each state and territory adopting the Commonwealth law or referring power to the Commonwealth. All previous state or territory based business names have now been automatically transferred to a central commonwealth national business names register. It is most important to realise that, while business name registration is necessary, it confers no proprietary rights in the name, nor does it protect the business or 166 See discussion in Gardenia Overseas Pte Ltd v The Garden Co Ltd (No 2) (1994) 29 IPR 485. 167 See ASIC, ‘Before you register a business name’, and ASIC, ‘Before you register a company’, both available at . 168 Business Names Act 1963 (ACT); Business Names Act 2002 (NSW); Business Names Act 2007 (NT); Business Names Act 1962 (Qld); Business Names Act 1996 (SA); Business Names Act 1962 (Tas); Business Names Act 1962 (Vic); Business Names Act 1962 (WA).
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company name in the sense of conferring a right to exclusive use, or provide the right to take an infringement action.169 Nevertheless, it is worthwhile outlining the nature of these Acts, contrasting their operation with the Trade Marks Act (in particular the registration of service marks), and comparing the protection granted at common law and by consumer protection legislation.
Definition of a business name 7.71 A business name is defined as the ‘name used, or to be used, in relation to one or more businesses’: Business Names Registration Act s 3. The concept of business includes trades, professions, a vocation, or a calling.
Purpose of the business names legislation 7.72 The Business Names Registration Act primarily serves as a means of identifying undisclosed principals participating in a business and how to contact them. This is achieved by the establishment of a public register of business names. The Business Names Register is administered by the Australian Securities and Investments Commission (ASIC). It is an offence (30 penalty units) not to register a business name, unless a business name consists only of the name or names of the persons carrying on the business, or a registered company name (provided the company name is the name under which the company carries on business), or a partnership with all of the partners’ names: Business Names Registration Act s 18.
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Refusal of registration 7.73 A business name will not be registered if it is considered undesirable — a term encompassing offensive and blasphemous names. A name will also not be registered if it is misleading as to the nature, objects, or purpose of the business, or in any other manner. Names that are identical or nearly identical will not be registered. Once accepted for registration, a business name remains in force for a period of one or three years, but may be renewed for further periods of one or three years.
Company names 7.74 A company is required to be registered under a corporate name or Australian Company Number (ACN): Corporations Act 2001 (Cth) s 117. A name is available and can be registered unless it is identical to an already reserved or registered company name, or to a name on the national business names register: Corporations Act s 147. A name will be considered identical to another, even if one is plural and the other singular. As with business names, a company name is unacceptable 169 Professional Liquor & Catering Enterprise Pty Ltd v Corporate Affairs Commission [1982] ACLD 563.
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Marketing and the Law
for registration if the name, in the opinion of ASIC, is undesirable, or likely to be offensive, to members or sections of the public: see Sch 6 to the Corporations Regulations 2001 (Cth). Also in line with the business names legislation, are the requirements that the name must appear in legible characters on any business letter, statement of account, invoice, official notice, publication, written advertisement, order for goods, or receipt issued or signed in connection with the business. The name must also be displayed in a conspicuous position outside every office or place in which business is carried on.170
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No rights conferred upon registration of registered business and company names 7.75 The Business Names Acts and the Corporations Act create no positive rights in relation to the use of registered business or company names. The business and company name registration regimes are neither a means of acquiring ownership of a name nor of protecting a name. Given that no proprietary rights are conferred upon registration, it follows that registration does not prevent a company trading under a corporate name,171 or a business trading under a business name,172 from being liable in passing off. Nor does registration provide any immunity against an action for infringement of a registered trade mark,173 or the possibility of breaching consumer protection legislation (such as the Australian Consumer Law) if use of the name is misleading or deceptive.174 The explanation for conflicts such as these rests with the registration procedure for company and business names, which does not take account of any prior usage of the name by another or of any existing registered trade mark covering the name. At times it has been suggested that the registration authorities for business and company names should cross-search the register of trade marks or allow trade mark owners to oppose the registration of conflicting names.175 However, the fundamental difficulty is that, while a trade mark is registered only in respect of particular goods or services, a business or company name is not restricted in this way. Since the trade mark system does not prevent someone else from registering the same mark for different goods or services (for example, APPLE is registered by different proprietors for use on sound recordings, computers, and clothing), 170 Corporations Act 2001 s 144. 171 Fletcher Challenge Ltd v Fletcher Challenge Pty Ltd [1981] 1 NSWLR 196; (1982) 5 ACLR 532. 172 BM Auto Sales Pty Ltd v Budget Rent A Car System Pty Ltd (1976) 12 ALR 363; 51 ALJR 254, see 6.9C. 173 Angoves Pty Ltd v Johnson (1982) 43 ALR 349, see 7.56C1. 174 Bradmill Industries Ltd v B & S Products Pty Ltd (1980) 53 FLR 385; (1980) ATPR 40-191; cf Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty (1978) 140 CLR 216; 18 ALR 639; 1B IPR 818, see 6.27C1; Chase Manhattan Overseas Corp v Chase Corporation Ltd (1986) 70 ALR 303; 8 IPR 569; (1986) ATPR 40-661 at 40-750. 175 See Productivity Commission, Inquiry Report, Intellectual Property Arrangements, No 78, 23 September 2016, Recommendation 12.1, available at .
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it would not be justifiable for trade mark registration to constitute an absolute barrier to the registration of a business or company name. Of course, as already noted, a trade mark owner is entitled to prevent a business or company from using a name in a way which infringes the trade mark. Conversely, it would be inappropriate to prevent a person from registering as a trade mark a name registered as a business or company name. A company or business may have no reputation, not be trading or, if it is, have no connection with any particular goods or services. It will be recalled, however, that a business or company can, under the Trade Marks Act, oppose, or apply to have removed, the registration of a conflicting trade mark if prior use and reputation in the mark in connection to the relevant goods or services can be demonstrated.
Internet Domain Names
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7.76 Domain names are site addresses on the internet. As is the case with business names and company names, a system of registration for commercial domain names exists in Australia (as well as overseas). It should be recognised that, as is the case with business name and company name registration, registration of a domain name gives no proprietary (ownership) rights to the domain name. If a reputation is established by the commercial use of a domain name, then the goodwill attached to that name can be protected under the laws of passing off. However, to maximise protection, consideration should be given to registering the domain name as a trade mark. Domain names are discussed in more detail at 19.60–19.66.
Marketing Advice 7.77 A trade mark or brand differentiates the goods or services of a particular trader from those of its competitors in the marketplace. Virtually everything else a trader does can be replicated by a competitor. Products can be copied. The uniqueness of packaging, labelling, and corporate colour schemes can be difficult to register as trade marks. The importance of a brand name in this scenario is obvious — the brand name can be the major differentiating feature between competing brands. The careful choice of an appropriate and protectable brand name for use in the marketplace is paramount. • Marketers would be unwise to adopt a completely descriptive (generic) name for a new product or business, as these are non-distinctive and almost impossible to protect under the Trade Marks Act. • On the other hand, adopting a completely coined or fanciful name necessitates substantial expenditure over an extended period to generate brand recognition. 331
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• The most appropriate route for the majority of brand users is the selection of a brand name that is associative or suggestive of the product or service, but which is both far from descriptive and far from totally abstract.176 In the branding continuum illustrated below,177 the associative or suggestive names are VISA for credit cards (associations with travel and freedom) and SUNSILK (associations with outdoors and shiny hair). Such names are invariably distinctive and, as such, more likely registrable as trade marks. FIGURE 7.2 BRANDING CONTINUUM
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Exxon adidas Kodak Schweppes Formica Sunsilk Visa Coca-Cola Betta Oven Chips Bitter Lemon
completely free standing
associative or suggestive
completely descriptive
Once a brand name is chosen, a full (name) clearance search should be conducted before making a commitment to the name.178 Registration under the Trade Marks Act should be sought at the earliest possible time. Once registered, a trade mark gives the registered owner exclusive use of the trade mark throughout Australia. A registered trade mark is personal property and is owned, which is not the case with business names, company names, and domain names (unless they too are registered as trade marks). Monitor your competitors and safeguard your trade marks by taking action against infringers. If you own a registered trade mark, you may sue for infringement if another person uses your trade mark, or a similar trade mark, on the same or similar goods or services, irrespective of whether or not you have established a reputation under the trade mark. The value and importance of trade mark registration from a marketing viewpoint is self-evident.
176 See J Murphy, Brand Strategy, Director Books, Cambridge, 1990; M Enright and B Clarke, ‘Enhancing Legal Aspects of Brand Protection in New Products’ (2001) 1 International Quarterly Journal of Marketing, nos 2, 3 & 4 at 211–224; and see the legal relevance excellently explained by Finkelstein J in BP plc v Woolworths Ltd (2004) 212 ALR 79; 62 IPR 545; [2004] FCA 1362 at [20]–[24]. 177 Murphy, Brand Strategy, above n 176. 178 A search should cover the Australian Business Register (for company names and business names), the Trade Marks Register, the registers of relevant domain name authorities, the Search for Australian Surnames database, and telephone and trade directories. A general search of the internet would also be advisable. See Stewart, Griffith, Bannister and Liberman, Intellectual Property in Australia, above n 1, at [18.28].
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Product Packaging and Labelling
8
Introduction ........................................................................................ 8.1 Why is it Important to Regulate Packaging and Labelling? ......... 8.2 Passing Off .......................................................................................... 8.3 Negligence ........................................................................................... 8.4 Australian Consumer Law — Pt 3-5 Liability for Goods with Safety Defects......................................................................... 8.5 Australian Consumer Law — Pts 3-3 and 3-4 Safety and Information Standards for Goods and Services.......................... 8.6 Product safety standards — Pt 3-3 .............................................. 8.7 Product information standards — Pt 3-4 ................................... 8.8 Penalties for non-compliance ....................................................... 8.9 Australian Consumer Law — Pt 3-1 Unfair Practices...................... 8.10 Common packaging and labelling representations ................... 8.11 A. Price reduction claims ............................................................. 8.12 B. Environmental or ‘green’ claims ........................................... 8.13 C. Origin claims .............................................................................. 8.14 i. ‘Made in’ claims ............................................................... 8.15 ii. ‘Product of’ claims ........................................................... 8.16 Deceptive Practices in Packaging Legislation ................................. 8.17 Trade Measurement Legislation ......................................................... 8.18 Overview ............................................................................................... 8.18 What functions does the trade measurement legislation perform? ....................................................................... 8.19 What are the general principles underpinning the Trade Measurement Acts? .................................................................8.20 Unit pricing ......................................................................................... 8.21 Food Legislation ....................................................................................... 8.22 333
Marketing and the Law
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What are the offences under the Food Acts? ........................... 8.23 The Food Standards Code ............................................................ 8.24 Health Star Rating system ........................................................... 8.25 Australian Consumer Law provisions applicable to food ........ 8.26 Poisons, Drugs, and Therapeutic Goods Legislation .................... 8.27 Dangerous Goods Legislation .......................................................... 8.28 Mutual Recognition Legislation — A Unified National Market? ........................................................................................... 8.29 Marketing Advice ............................................................................... 8.30
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Introduction 8.1 The presentation or appearance of a product in the marketplace is an extremely important part of the marketing mix. After all, the last thing a consumer usually sees before purchasing a product in the marketplace is the package and/or label on the product. The package or label might even be the decisive factor that determines the consumer’s ultimate decision to purchase a particular product. There is no unified system of laws governing packaging and labelling, but rather a range of federal and state laws which control various aspects of packaging and labelling.
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Why is it Important to Regulate Packaging and Labelling? 8.2 There are many reasons for imposing some controls over the way a product is packaged and labelled in the marketplace; for example:1 • Labels often perform an information function and should therefore be accurate and reliable. On occasions consumers will rely upon the information on the package or label ahead of statements made in advertisements and other promotional material. • Every purchaser of a product is exposed to the package or label used for the product, as opposed to other forms of advertising and promotion. • The package and label take on a more important role when the product is sold in self-serve outlets, a form of selling which continues to prevail in the marketplace. • Modern methods of packaging often make it impossible to inspect the product prior to purchase. This forces the consumer to rely on the packaging and the information provided upon it or upon the label. • Some products are inherently (or potentially) dangerous, so the need to package these products safely and provide accurate information relating to their use is critical. • The proliferation of package sizes and contents can make it very difficult for purchasers to compare competitive products. A degree of compulsory standardisation can help overcome this problem in the marketplace. • The adoption of a particular package or label in the marketplace by a trader which is extremely similar to that used by a competitor, may well confuse the purchaser and lead to an incorrect purchase being made.
1
See L Darvall, ‘The Trade Practices Act — Labelling provisions’ (1980) 5 Current Problems in Law, Leo Cussen Institute, Melbourne.
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Accordingly, there are three fundamental objectives in exercising some control over packaging and labelling in the marketplace: 1. to protect consumers from being exploited or misled; 2. to protect traders from unfair competition; and 3. to further community interest as a whole. These objectives can be achieved by a combination of laws which: • impose minimum packaging and labelling standards; • prohibit deceptive packaging and labelling practices; and • ensure that products are not dangerous and that consumers have sufficient information upon which to base rational purchasing decisions.
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TABLE 8.1 SUMMARY OF THE LAWS CONTROLLING PACKAGING AND LABELLING23
2 3
LAW
PURPOSE
APPLICATION TO PACKAGING AND LABELLING
Australian Consumer Law3 Pt 3-1
To protect consumers
Traders are required to meet product information and product safety standards
Australian Consumer Law Pts 3-3 and 3-4
To protect consumers from unsafe products and requiring certain information to be presented to consumers
Traders dealing in certain products can be required to provide certain information on packaging and labelling
Australian Consumer Law Pt 3-5
To protect persons from injury or loss
Traders are required to meet reasonable community expectations of safety when packaging and labelling products
Copyright Act 1968 (Cth)
To protect creators of material against unauthorised use
Provides legal remedies for artists or authors whose material might be used for product packaging (see Chapter 4)
Dangerous goods legislation (state and territory)
To protect the health and safety of persons
Imposes controls upon the packaging and labelling of non-poisonous but dangerous products
Food Standards and Food Acts (Uniform Model)
To protect consumers
Traders are required to provide information on food products and not to package and/or label food in a way that will mislead
Most states and territories also have legislation that impacts upon the packaging and labelling of agricultural products, tobacco products, contraceptives, and consumer goods, such as textiles, footwear, and furniture. The Australian Consumer Law is included as Sch 2 to the Competition and Consumer Act 2010 (Cth).
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Chapter 8: Product Packaging and Labelling TABLE 8.1 SUMMARY OF THE LAWS CONTROLLING PACKAGING AND LABELLING — cont’d LAW
PURPOSE
APPLICATION TO PACKAGING AND LABELLING
Common law of negligence
To protect persons from injury or loss
Traders are required to take reasonable care in packaging and labelling products
Common law of passing off
To protect traders from unfair competition
Traders are prevented from confusing consumers by imitating the package and/or labels of competitive products
Poisons legislation (state and territory)
To protect the health and safety of persons
Imposes controls upon the packaging and labelling of poisonous substances
Therapeutic goods (medicines) legislation (state and territory)
To protect consumers
Traders are required to provide certain information on labels of nonfood products
Trade Marks Act 1995 (Cth)
To protect other traders and/or consumers
Provides protection against the use of another’s trade mark in packaging
Trade Measurement Acts (Uniform Model)
To inform consumers
Traders are required to provide accurate information concerning the mass (weight) and measure of goods
Packaging is regulated as follows:
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FIGURE 8.1 PACKAGING REGULATIONS BAR CODE Not required by law, but most supermarkets will not stock products without it
USE-BY (OR BEST-BEFORE) DATE Required by law INGREDIENTS LIST Required by law
BRAND NAME AND LOGO May be protected by law
BATCH IDENTIFICATION MARK Required by law
REPRESENTATIONS Must not be (words and illustrations) misleading or deceptive PRODUCT NAME May be prescribed by law
BREAKFAST CEREAL 500g
SIZE OF PACKAGE Must not give a misleading impression as to quantity of contents
Product of Australia
STATEMENT OF QUANTITY Weight (mass) of contents, required by law
ORIGIN OF GOODS Terms ‘Product of ...’ and ‘Made in ...’ regulated by law
NUTRITIONAL INFORMATION Required by law where nutritional value is claimed NAME AND ADDRESS OF PACKER OR MANUFACTURER Required by law
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Passing Off 8.3 The laws of passing off are discussed in detail in Chapter 6. All traders must guard against choosing packages or labels that are liable to cause potential customers to associate their product with another trader’s product where no such association or connection exists: see John Haig & Co Ltd v Forth Blending Co Ltd;4 Lee Kar Choo t/as Yeen Thye Co v Lee Lian Choon t/as Chuan Lee Co;5 Reckitt & Colman v Borden Inc;6 Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd.7 The Australian Consumer Law can also apply to this type of conduct on the grounds that it could constitute misleading or deceptive conduct: see Sterling Winthrop Pty Ltd v R & C Products Pty Ltd;8 and Kettle Chip Co Pty Ltd v Apand Pty Ltd.9 Reckitt & Colman v Borden Inc (1990) 17 IPR 1; [1990] 1 All ER 873; [1990] 1 WLR 491 8.3C
Facts: Reckitt sold lemon juice under the name ‘Jif Lemon’, which was packaged in a plastic yellow container with the shape and size of a lemon. Borden, a competitor, introduced lemon juice, ‘ReaLemon’, in similar packaging that was slightly larger and had one flattened side. Reckitt brought a passing off action against Borden. Decision: Reckitt & Colman were able to show that the ‘get-up’ they had used for their lemon juice for about 30 years had become associated in the minds of many consumers specifically and exclusively with their lemon juice. The court also found that Borden’s packaging amounted to a representation that their juice was Reckitt & Colman’s lemon juice, and that a substantial number of consumers would have been misled into purchasing Borden’s juice, believing that it was ‘Jif’.
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The court awarded a permanent injunction preventing Borden from marketing lemon juice in a lemon-shaped container.
Negligence 8.4 The laws of negligence as they can apply to marketers are discussed in detail in 9.3–9.11. However, it is worth reiterating that all sellers and distributors of products owe a general duty to take reasonable care to prevent loss or injury in carrying out their role in the marketplace. This includes taking appropriate care in: • selecting packaging material: see Adelaide Chemical & Fertilizer Co Ltd v Carlyle;10 and 4 5 6 7 8 9 10
(1953) 70 RPC 259. [1967] 1 AC 602. (1990) 17 IPR 1; [1990] 1 All ER 873; [1990] 1 WLR 491, see 8.3C. [2002] FCAFC 157, see 6.11C2. (1994) ATPR 41-308. (1993) 119 ALR 156; 27 IPR 321; (1994) ATPR 41-287; [1993] FCA 819, see 6.31C. (1940) 64 CLR 514, see 9.10C2.
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• choosing label content and layout, incorporating adequate instructions for use and warnings: see Norton Australia Pty Ltd v Streets Ice Cream Pty Ltd.11
Australian Consumer Law — Pt 3-5 Liability for Goods with Safety Defects
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8.5 This Part of the Australian Consumer Law imposes liability upon manufacturers and importers of defective goods where these goods cause loss or damage. It is discussed further in 9.30–9.40. In determining whether goods are defective or not as safe as the public is generally entitled to expect, regard will be had to a number of matters including: • the packaging of the goods; and • any instructions or warnings accompanying the goods: Australian Consumer Law s 9(2). This means that different types of packaging (or information) may be required depending upon the use to which the goods are to be put. For example, certain products may need childproof or tamperproof packaging. In addition, dangerous or potentially hazardous goods may need to contain detailed instructions and warnings for the guidance of users.
Australian Consumer Law — Pts 3-3 and 3-4 Safety and Information Standards for Goods and Services 8.6 The laws of negligence and those imposed by Pt 3-5 of the Australian Consumer Law only impose a general duty upon traders to take care when packaging and labelling products. In other words, no minimum standards are specifically mandated for individual products. The power to impose minimum standards of this kind does exist in Pt 3-3, which also provides a system for prescribing (by regulation) national product safety standards. The legislation, and state equivalents, is described in detail in 9.48–9.62. It should be noted that the standards prescribed can directly determine how nominated products are packaged and/or labelled.
11 (1968) 120 CLR 635, see 9.11C.
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Product safety standards — Pt 3-3 8.7 The Australian Consumer Law provides that standards may be made in respect of particular goods and product related services where such a standard is reasonably necessary to prevent or reduce the risk of injury: ss 104 and 105. The standard prescribed may impose requirements, among other things, as to: • the packaging of goods; • the labelling of goods, in regard to the form and content of markings, warnings or instructions to accompany the goods;12 and • in relation to product related services, the form and content of warnings, instructions or other information about such services. The Federal Minister prescribes safety standards and can impose permanent bans on consumer goods and services related to products. The Australian Competition and Consumer Commission’s (ACCC) Product Safety Australia website13 provides regulatory information concerning the safety of products and services, and updates highlighting deficient and banned products. ACCC v Cotton On Kids Pty Ltd [2012] FCA 1428 8.7C
Facts: The Trade Practices (Consumer Product Safety Standards) (Children’s Nightwear and Paper Patterns for Children’s Nightwear) Regulations 200714 required that children’s pyjamas be labelled with the appropriate fire danger warning. The ACCC alleged that the Cotton On Kids items were not appropriately labelled and that Cotton On misled its customers by selling the nightwear with a ‘low fire danger’ label attached in contravention of the product safety standard.
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Decision: Cotton On was found to have breached various provisions, including what was then s 65C of the Trade Practices Act 1974 (Cth) and received a $1 million penalty.
Product information standards — Pt 3-4 8.8 The Australian Consumer Law provides that regulations may be proclaimed in respect of product information standards for particular goods or services where a standard is reasonably necessary to give persons using the goods or services information as to the quantity, quality, nature, or value of the goods or service in question: ss 134 and 135. The regulations may prescribe standards relating to the disclosure of information that impacts upon, among other things: • the packaging of goods or services; and 12 See ‘Mandatory standards’, at . See, for example, the safety standard for child restraints used in motor vehicles which details, amongst other things, the warning that the packaging of such items must contain. 13 See . 14 Note that from 1 January 2020 a new product safety standard will apply: the Consumer Goods (Children’s Nightwear and Limited Daywear and Paper Patterns for Children’s Nightwear) Safety Standard 2017.
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• the labelling of goods and services, by prescribing the manner and form in which the information is to be disclosed. ACCC v Smash Enterprises Pty Ltd [2011] FCA 375 Facts: Regulation 11 of the Trade Practices (Consumer Product Safety Standards) Regulations 1979 (Cth) required that bean bag covers have a warning label that read: ‘WARNING: Small Lightweight Beads Present a Severe Danger to Children if Swallowed or Inhaled’. Fantastic Furniture supplied over 4000 bean bag covers that did not have the required warning label. At the time, Fantastic was subject to an enforceable undertaking under s 87B of the Australian Consumer Law, arising from its failure to comply with the prescribed safety standard for bunk beds.
8.8C
Decision: Fantastic was found to have breached what was then s 65C of the Trade Practices Act 1974 (Cth) and received a $300,000 penalty.
Penalties for non-compliance 8.9 Failure to comply with consumer product safety standards is an offence under Div 1 of Pt 4-3 of the Australian Consumer Law. Failure to comply with consumer product information standards is an offence under Pt 4-4. Contraventions can result in the imposition of a fine not exceeding the greater of $10 million or three times the value of the benefit derived from the contravention or 10% of the annual turnover of the party in breach: Australian Consumer Law ss 203(9), 204(4), 194(8) and 195(4).
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ACCC v Ozsale Pty Ltd [2016] FCA 1049 Facts: The ACCC alleged that the online retailer Ozsale sold dangerous and unlabelled or incorrectly labelled children’s nightwear that did not comply with the relevant product safety standard. Some of the pyjamas sold by Ozsale, including the Orange Superhero pyjamas, did not have a fire hazard warning label at all. Other types of nightwear were labelled with an incorrect fire danger warning. Notwithstanding contact from the ACCC about these breaches, Ozsale continued to offer the non-compliant products for sale. Decision: The retailer admitted that it sold nightwear that did not comply with the product safety standard for children’s nightwear. Pecuniary penalties of $500,000 were imposed.
The courts may consider a number of factors in determining the extent of penalty for non-compliance with standards, including:15 • the level and nature of the risk to members of the public flowing from the contravention;
15 Re Button v Suregold Pty Ltd; Button v Panagopoulos; Button v Buzza (1988) ATPR (Digest) 46-035; [1988] FCA 203.
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8.9C
Marketing and the Law
• whether the contravention was inadvertent or intentional, and the degree of carelessness or recklessness, if any, which is involved; • the monetary benefit derived from the contravention; • the extent to which members of the public have been supplied with the noncomplying goods; • the prevalence and difficulty of detection of the contravention; • whether any and, if so, what efforts have been made to recall defective products and otherwise warn consumers; • the need for general deterrence; and • factors personal to the defendants, including the ability to pay a fine and any record of prior conviction.
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Australian Consumer Law — Pt 3-1 Unfair Practices 8.10 Part 3-1 of the Australian Consumer Law prohibits a range of specified unfair practices, in addition to the s 18 prohibition on misleading or deceptive conduct generally. This includes misleading or deceptive packaging and labelling. There is no pecuniary penalty imposed for a breach of s 18, as its primary purpose is to facilitate private civil actions. Section 18 is discussed generally in 10.15–10.22. Sections 29 and 33 of the Australian Consumer Law prohibit certain specific misrepresentations. Section 29 provides that persons must not make false or misleading representations about goods or services. Sections 33 and 34 prohibit misleading conduct as to the nature of goods and services: see 10.36–10.50 and 10.51. Such misrepresentations will often be made on packages or be included in labels attached to goods.
8.10C
ACCC v Cadbury Schweppes Pty Ltd (2004) 61 IPR 270; (2004) ATPR 42-001; [2004] FCA 51616 Facts: The respondent marketed cordials under the ‘Cottees’ brand name. It produced a ‘banana mango flavoured cordial’ in a two litre plastic container with a label carrying a colour photograph showing parts of three bananas and six mangoes. Also depicted was a caricature of a happy monkey holding a half-peeled banana, along with a banner containing the words ‘go bananas’. An overlapping panel contained the words ‘banana mango’ in large type, and underneath the words ‘flavoured cordial’ in smaller print. The respondent also marketed an ‘apple kiwi flavoured cordial concentrate’ in aluminium cans, carrying a photographic depiction of apples and kiwi fruit in the background. Again, the words ‘apple kiwi’ appeared in large print, with the words ‘flavoured cordial concentrate’ in smaller print underneath. 16 See also Wilkinson v Katies Fashions (Aust) Pty Ltd (1986) 67 ALR 137; (1986) ATPR 40-721, see 10.61C, and TPC v Golden Australia Paper Manufacturers Pty Ltd (1995) ATPR 41-370.
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Chapter 8: Product Packaging and Labelling Based on the fact that the products in question did not contain any extract of the fruit depicted on the labels, the ACCC alleged that the labels concerned made representations to the public that were misleading or deceptive, or likely to mislead or deceive (now s 18 of the Australian Consumer Law), falsely represented that the products were of a particular composition (now s 29(1)(a) of the Australian Consumer Law) and were liable to mislead the public as to the nature or characteristics of the products (now s 33 of the Australian Consumer Law). It sought a declaration of such, and an injunction. The respondent argued that the phrase ‘flavoured cordial’ prominently displayed on the labels of both products informed potential buyers that there was no real banana or mango in the one, or real kiwi fruit in the other. The list of ingredients on the label reinforced this fact. Decision: The respondent had breached all sections of the Trade Practices Act (now the Australian Consumer Law) as alleged by the ACCC. It was likely that a significant number of purchasers of cordial products, who would prefer to purchase a cordial flavoured by means of real fruit, would make their decisions on the basis of a fleeting impression from the labelling and packaging of the product, rather than consulting the ingredient list. The presence of pictures of real fruit on both these products would convey a representation that the product contained those fruit. This was further reinforced by the use of the words ‘banana mango’ and ‘apple kiwi’. The use of the phrase ‘flavoured cordial’ in smaller type than these words was insufficient to dispel the impression of real fruit, and in any event there were likely to be many people who would assume that a ‘flavoured cordial’ could be flavoured by the use of real fruit as a flavouring agent. The respondent did not take sufficient steps in its labelling to overcome the effect of the pictures of fruit.
Limited defences apply: see 10.57–10.62.
Common packaging and labelling representations
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8.11 Three specific forms of representation commonly found on packages and labels are: 1. price reduction claims; 2. environmental claims; and 3. origin claims.
A. Price reduction claims 8.12 Section 29(1)(i) of the Australian Consumer Law prohibits false or misleading representations with respect to the price of goods or services. Given the sensitivity of consumers to price reductions and discounts, retailers must be careful to ensure that any price reduction claims (dual pricing) made on labels or attached to products are not misleading. TPC v Cue Design Pty Ltd (1996) ATPR 41-475 Facts: Cue is a national manufacturer, designer, and retailer of fashion clothing. It placed dualpriced swing tags on its Christmas range of garments. For example, one garment carried the tag: price $52 $39
343
8.12C
Marketing and the Law The garments had never been offered for sale at the higher price. Cue claimed that the higher price was to indicate to customers the price that would have been charged if the Christmas pricing policy had not been introduced. The Commission prosecuted the retailer for making false or misleading representation with respect to the price of goods or services, under the previous provisions, equivalent to what is now Australian Consumer Law s 29(1)(i). Decision: The ‘natural and probable consequence of a dual-priced swing tag is that members of the buying public would assume that the garment had previously been offered for sale at the higher of the two prices and was now available at the lower price’. Therefore, there was a misrepresentation as to the price of the garments. The defendant was fined $37,500.
In contrast to cases where the retailer intends to ‘mark down’ the price displayed on goods and clearly crosses out the higher price, there can be other situations where more than one price is marked on goods for sale, usually inadvertently. Under the laws of contract, a retailer is legally entitled to inform prospective purchasers that a mistake has been made and to insist that the goods are only available at the higher price. However, the Australian Consumer Law applies to this type of ‘dual pricing’. If a product is labelled with more than one price attached, s 47 of the Australian Consumer Law requires that the goods be sold at the lower price. This includes situations where a price is ‘written, stamped or located wholly or partly over another price’. This is a strict liability pecuniary penalty provision with fines up to $5000 for corporations and up to $1000 for individuals: Australian Consumer Law s 165.
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B. Environmental or ‘green’ claims 8.13 Consumers are becoming more and more concerned with the environment, so many manufacturers are keen to take advantage of this by positioning their products as environmentally safe or friendly. Misleading or deceptive claims about the environmental attributes of a product that appear on packaging and labelling may breach the Australian Consumer Law by representing that the product has ‘performance characteristics’ or ‘benefits’ it does not have: Australian Consumer Law s 29(1)(g); or by misleading the public as to the ‘nature’ or ‘characteristics’ of the product: Australian Consumer Law s 33. The use of unqualified terms, such as ‘environmentally friendly’, ‘recyclable’, ‘energy efficient’ ‘green’, ‘nature’s friend’ or ‘environmentally safe’ or about effects for animals or the natural environment, on packaging can breach the Australian Consumer Law; for example, importing lead batteries from Europe labelled ‘recyclable’, when the batteries can only be recycled in Europe and not in Australia.17 Not only is conduct of this type of concern because of its potential to mislead customers, it is harmful to those producers who are genuinely improving their product’s environmental performance. Such efforts can be undermined by competitors making similar claims without any real basis for doing so. 17 See ACCC, Green Marketing and the Australian Consumer Law, 2011, available at .
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An example of ACCC action over ‘green’ claims was the action taken against BOC Gases. BOC Gases used an image of a frog, the ‘Ozone Care’ logo, and the words ‘green’, ‘green air conditioning’, and ‘environmentally preferred’ in relation to a product that contained a potentially ozone-depleting ingredient. After an investigation by the ACCC, BOC agreed to: • cease making unqualified representations; • clarify the environmental and performance comparisons; • cease using terms such as ‘environmentally preferred’ and general ‘green’ claims; and • remove the frog image and the ‘Ozone Care’ logo in relation to the product in question.18 As part of an international program, Standards Australia has introduced a standard for environmental claims labelling: AS 14021: 2018 Environmental labels and declarations — Self-declared environmental claims (Type II environmental labelling) (ISO 14021: 2016 MOD).19 The standard contains comprehensive guidelines to help determine the reasonableness of voluntary environmental claims and the evidence required to substantiate such claims, for both goods and services. The standard specifically addresses the right to use 16 common claims, such as ‘compostable’, ‘recyclable’, ‘reusable’, ‘refillable’ and ‘sustainable’; and deals with the correct use of symbols to convey environmental claims. Basically, all environmental claims must be accurate (not misleading), verifiable, and not likely to be misinterpreted. While the standard does not possess the force of law (being a guideline only), it will still obviously be used as an indicator by regulatory agencies such as the ACCC and the courts in assessing whether environmental claims are in breach of any laws.
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ACCC v Derodi Pty Ltd [2016] FCA 365 Facts: Derodi Pty Ltd purchased eggs from poultry farms and sold them to retailers and advertised them on various web and social media sites, with the cartons being labelled as containing ‘certified free range eggs’. The ACCC alleged this was misleading and deceptive in contravention of ss 18, 29(1)(a) and 33 of the Australian Consumer Law as it represented that the laying hens were able to move around freely in open range conditions on all or most days, when in fact this was not the case. Decision: The court found that the suppliers contravened ss 18 and 29(1)(a) of the Australian Consumer Law by misrepresenting that the eggs were of a particular quality, or have had a particular history and also were in breach of s 33 by conduct likely to mislead about the nature or characteristics of the eggs. A fine of $300,000 was imposed.
18 ACCC, ‘BOC Gases: misleading “Environmentally Friendly” claims’, media release, 5 August 1999, available at . 19 Copies of standards can be downloaded from the Standards Australia website, . There is a charge involved. It should be noted that the standard does not just apply to claims appearing on packaging, but also claims made in advertising, in reports and the like.
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8.13C
Marketing and the Law
Marketers should ensure that any claims of a ‘green’ nature: • are honest and truthful; • detail the specific aspect of the product or its production the claim relates to; • are expressed in a way that average members of the public will understand; • outline the significance of the claimed benefit; and • are able to be substantiated.
C. Origin claims 8.14 An important piece of information given on most packages and labels is the origin of the goods. As the ACCC notes, information given about the origin of goods, including on packaging and labelling, can readily sway the purchasing decisions of consumers.20 For example, those who wish to support Australian farmers may be more likely to buy tinned fruit labelled as ‘Product of Australia’ and those who wish to purchase a superior electronics product may be persuaded to purchase one packaged as ‘Made in Japan’. In recognition of this fact, the Australian Consumer Law specifically deals with false claims as to origin: Pt 5-3 and s 29(1)(k). False or misleading representations concerning the place of origin of goods will generally be covered by ss 18 and 29(1)(k). Such conduct can attract a penalty not exceeding the greater of $10 million or three times the value of the benefit derived from the contravention or 10% of the annual turnover of the party in breach; Australian Consumer Law s 151(5). ACCC v GIA Pty Ltd (2002) ATPR 41-902; [2002] FCA 129821
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8.14C1
Facts: The defendant traded under the name Tamar Knitting Mills out of Launceston, Tasmania. It manufactured knitted garments, which it sold by wholesale and, to a limited extent, by retail and mail order from its premises. Between 1998 and 2000 the defendant purchased polo shirts bearing collar labels containing the words ‘Made in China’. The defendant’s staff were instructed by the managing director to remove the original labels and replace them with the Tamar logo. In addition, a swing tag, of which there were two designs, was attached to the garments. One tag was triangular in shape and bore the word ‘Tasmanian’ with a drawing of a Tasmanian tiger, and the other was shaped as a map of Tasmania and contained the words ‘Made in Tasmania’. The defendant was prosecuted for breaching s 53(eb) of the Trade Practices Act (now s 29(1)(k) of the Australian Consumer Law). Decision: The defendant was convicted of having made a false or misleading representation concerning the place of origin of the mislabelled polo shirts. The decision of the managing director of the defendant company to relabel was described by the judge as ‘deplorable’ and as ‘deliberate and dishonest conduct designed to trick consumers’. As a deterrence of such ‘unpardonable commercial conduct’, a penalty of $50,000 was imposed on the company, and the managing director was personally fined $4000.
20 ACCC, ‘Country of Origin Claims and the Australian Consumer Law’, March 2019, available at . 21 See also TPC v Pacific Dunlop Pty Ltd (1994) ATPR 41-307.
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Misleading representations of origin are not always made directly. Indirect misrepresentations giving a false impression of origin can arise by the use of words, phrases, or scenes used on packages or labels; for example, the use of the Australian flag or a symbol of a native Australian animal, which consumers identify with Australia, to promote imported goods: see Re Yanx Registered Trade Mark; Ex parte Amalgamated Tobacco Corp; Sub nom Menzala Cigarette Co Ltd.22 The indiscriminate use of the word ‘Australia’, even without a direct claim as to the origin of goods, can also amount to a misrepresentation. Siddons Pty Ltd v Stanley Works Pty Ltd (1991) 99 ALR 497; 20 IPR 1; (1991) ATPR 41-111 Facts: The applicant and defendant were competing manufacturers of hard tools, including spanners and sockets. Stanley sold a $4.00 socket which was forged in Korea and finished in Australia. Indented into the metal surface of the socket were the words ‘STANLEY Australia’. It was alleged that the words suggested that the socket was ‘made in Australia’, which was untrue. Stanley argued that the words were simply intended to indicate that it was an Australian company. Decision: A majority of the court decided that the words ‘STANLEY Australia’ were capable of having more than one meaning, and that some members of the public would believe that the words indicated that the product was made in Australia.
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The socket is a simple device retailing for a little over $4.00, so it would generally be purchased without much thought. The immediate impression made by the product upon the purchaser’s mind therefore would impact upon the purchasing decision, so that some purchasers would be influenced to buy on the basis that the product was made in Australia by some entity called Stanley.
Part 5-3 of the Australian Consumer Law lays down the requirements that must be met where it is claimed that a product has been ‘grown in’, is the ‘produce of’, ‘made or manufactured’ in a particular country.23 Provided the criteria for meeting these claims are met, there will be no contravention of s 18 or s 29(1)(a) or (k) or s 151(1)(a) or (k): Australian Consumer Law s 255.
i. ‘Made in’ claims24 8.15 In order to meet general country of origin claims, such as ‘Made in Australia’, ‘Australian Made’ or ‘Manufactured in Australia’, the following requirement 22 (1951) 82 CLR 199; 1B IPR 504, see 7.34C1. 23 These provisions are designed to overcome difficult cases like ACCC v Lovelock Luke Pty Ltd (1997) 39 IPR 439; (1997) ATPR 41-594. 24 The use of logos to represent that goods originate from a particular country must meet similar criteria, subject to regulation: s 255. In particular, the Australian Made Campaign Ltd licenses its widely recognised green and gold stylised kangaroo logo (registered as a certification trade mark). The logo certifies that goods are made or grown in Australia. Producers using this certification mark must abide by the ‘Australian Made and Australian Grown’ provisions of s 255 of the Australian Consumer Law and the AMAG (Australian Made, Australian Grown) logo Code of Practice. See ‘Using the logo’, at .
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must be met: the goods must have been last substantially transformed in the claimed country of origin such that the identity, nature or essential characteristics of the goods resulting from one or more processes undertaken in the claimed country are fundamentally different from the imported ingredients or components; s 255(2). Simple steps, such as repackaging an imported product, will not constitute a ‘substantial transformation’ of that product, so a representation that such a product is ‘Made in Australia’ would be false.
8.15C
Nature’s Care Manufacture Pty Ltd v Australian Made Campaign Ltd (2018) 363 ALR 717; [2018] FCA 1936 Facts: Nature’s Care applied for a ruling that its fish oil with vitamin D capsules could be labelled as made in Australia pursuant to s 255 of the Australian Consumer Law. The fish oil used in the capsules was imported from Chile and the Vitamin D powder used in the capsules was imported from China. The actual capsules were made in Australia, using Australian water and gelatin powder but also using glycerol imported from Indonesia. Nature’s Care sold the product in Australia under its ‘Healthy Care Australia’ brand and the packaging also featured the well-known ‘Australian made and owned’ kangaroo logo. This case came about as a result of the ACCC publishing its view that mere encapsulation of imported ingredients did not meant that the capsules could be considered as made in Australia within the terms of s 255.
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Decision: The capsules were not substantially transformed in Australia so as to be legally labelled as ‘Made in Australia’ in compliance with s 255. The mixing of the imported fish oil and vitamin D powder did not fundamentally change the identity of these imported ingredients. The court then considered the glycerol imported in liquid form from Indonesia. Nature’s Care argued it was fundamentally different, being now in a gel capsule form. Whilst this was accepted, the court took the view that this did not make the capsules as a whole fundamentally different in their nature, identity or essential character from the fish oil, vitamin D3 and glycerol ingredients imported into Australia.
ii. ‘Product of’ claims 8.16 Representing that a good is a product or produce of a country requires that the following criteria be met: • each significant ingredient or component of the good must originate from that country; and • all, or virtually all, of the process of production or manufacture must take place in that country: Australian Consumer Law s 255(1). Origin claims that fall outside the ‘safe harbour’ defences in s 255 of the Australian Consumer Law will remain to be judged by the other misleading and deceptive practice provisions of the Australian Consumer Law, such as ss 18, 29(1)(k), 33 and 34, discussed above at 8.10.
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ACCC v Birubi Art Pty Ltd [2018] FCA 1595 Facts: Birubi sold boxed boomerangs and digeridoos featuring indigenous style images, symbols which were made in Indonesia. They were not labelled as being made in Indonesia and the ACCC argued that this created a misleading and deceptive impression on consumers who would think that the goods were made in or originated from Australia. The ACCC was concerned that the packaging of the goods created alleged implied representations by Birubi about provenance and characteristics of the goods. Decision: Whilst there were no claims on the packaging that could be judged as to whether they fell within the safe harbour defence (s 255 Australian Consumer Law), the court found that Birubi was in breach of various provisions of the Australian Consumer Law including ss 18, 29(1)(k) and 33. This was because of an implied representation given by the packaging of the goods that the boomerangs and didgeridoos were hand painted by Australian Aboriginal persons, when this was not the case.
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It should also be noted that the law recognises terms known as ‘geographical indicators’ (GIs), which are terms which identify goods as originating in a specific geographical territory, region, or locality known for a particular quality, reputation, or other characteristic. A well-known example is ‘Champagne’, previously used as a generic descriptor for sparkling wine. ‘Champagne’ is now a registered GI and may only be used in relation to wine that originates from the Champagne region in France. Likewise, a number of names for certain varieties of cheeses, including ‘stilton’ and ‘parmigiano reggiano’, are legally protected GIs. GIs are discussed further in Chapter 7.
Deceptive Practices in Packaging Legislation 8.17 The practice of ‘slack filling’ involves the part filling of opaque containers or packages so that customers may be misled as to the quantity of goods contained therein. Customers may be deceived with regard to the amount of product contained in a package by the use of thick walls, hidden cavities, or recesses which give a false perception of size; for example, the use of loose packing material in boxes of chocolate or the use of jars with excessively thick walls to market cosmetic cream. The conduct of ‘slack filling’ is dealt with by s 33 of the Australian Consumer Law, which specifically covers misrepresentations as to the quantity of goods, and the equivalent provisions in the state Fair Trading Acts. The National Trade Measurement Regulations 2009 impose very specific requirements in relation to the marking of measurements, such as weight, on goods. 349
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Trade Measurement Legislation Overview 8.18 Another legislative control over packaged goods, primarily designed to protect the consumer, is the National Measurement Act 1960 (Cth) and associated regulations and guidelines. In recognition of the need for consistency in efficient marketing of goods, the Commonwealth assumed administration of this legislation on 1 July 2010 and the National Measurement Institute (NMI)25 is now the responsible agency. Although ‘slack filling’ may still mislead the consumer in any event, the practice of requiring a written statement of mass (weight) or measure upon packaged goods can help lessen the impact of such a practice. The National Measurement Act provides for the establishment and use throughout Australia of uniform units of measurement and uniform standards of measurement in relation to physical quantities. However, the legislation specifically preserves existing state and territory trade measurement laws.
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What functions does the trade measurement legislation perform? 8.19 The trade measurement legislation fulfils a number of important functions: • it provides for standards of measurement which are the basis upon which weights and measures may be verified; • it provides for the verification and testing of weighing machines and instruments; • it limits the denominations of weights and measures which may be used in certain circumstances; • it regulates retail sales made by weight or measure; and • it specifies requirements for the packaging and sale of pre-packed goods. The overall objective is to ensure that weights and measures are accurate and that they are not improperly manipulated. In broad terms, the legislation contains provisions designed to ensure that packages are clearly marked with statements of the quantities of product contained in them.
What are the general principles underpinning the Trade Measurement Acts? 8.20 The general principles arising from the trade measurement legislation can be summarised as follows: 25 Refer to Department of Industry, Innovation and Science, ‘Buying and selling goods and services by weights and other measures’ available at .
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• Subject to exemptions specified in the Trade Measurement Regulations, goods sold in a pre-packaged state; that is, not packaged after being weighed in the presence of the purchaser, are required to be marked with statements as to their net mass (weight) or measure of their contents. • Subject to the exemptions set out in the Regulations, the requirement of marking with statements of mass or measure of contents is to apply to all prepacked goods. The marking is to be displayed clearly and conspicuously on the main display portion of the package. • Where a brand or name of the article appears on the package, the statement of quantity is to be placed in close proximity to such brand or name. The statement of mass or measure must be read in the same direction as the brand or name. • Except as otherwise authorised, statements of measurement are to be in the English language and are to be the legal units of measurement prescribed by the National Measurement Act. • The mass or measure stipulated on a package must not include the weight of the package itself. This is often indicated by using the word ‘net’, although use of such terminology is not mandatory. • There are prohibitions on expressions which relate to or qualify a statement of measurement on a package which do not comply with those set out in the Acts. • When an article has both inner and outer packages and is capable of being sold in both, a statement of quantity is to be placed on both. • Subject to exemptions in the Regulations, the name and address of the packer or the name and address of any person for whom the packing is done, is to be marked on packages so as to be readily visible and legible.26 Some goods are specifically exempted from the above requirements, including goods sold in packs below or above certain sizes. Subject to permissible deficiencies, the giving of short mass (weight) or short measure of packaged goods is an offence. An inspector may issue a Notice to Remedy in respect of certain breaches and a defence applies where the conditions specified in the Notice to Remedy period have been complied with during the remedy period, and the person takes all reasonable steps to remedy the matters that gave rise to the contravention.27
Unit pricing 8.21 The ability of consumers to make price or quantity comparisons can be facilitated through laws enforcing unit pricing; that is, a statement provided, at the point of sale, of the price of the goods per unit of measure (in terms of weight, 26 This is designed to assist in regulation, rather than to provide information to the consumer. 27 National Measurement Act 1960 (Cth) s 18JHA.
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volume, length, area, or number) corresponding to a basic unit in which the goods are generally sold or used. Mandatory unit pricing was introduced in Australia in 2009. The Unit Pricing Code28 is a mandatory industry code of conduct that is enforceable under s 51ACB of the Competition and Consumer Act 2010. The code applies to online retailers who sell a minimum range of food-based grocery items and ‘store based grocery retailers’, defined as being a retailer that: • sells a minimum range of food-based grocery items; • has more than 1000 square metres of floor space for displaying grocery items; and • uses its premises primarily for the sale of food-based grocery items.
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Retailers should use unit prices based on the most appropriate unit of measurement, typically the unit found on the packaging of the item. The unit price must be displayed in-store, in print advertising, and on websites. There is no requirement to include unit pricing in advertisements on television, radio, or similar media. The unit price must be: • prominent — it must stand out so that it is easily seen; • located in close proximity to the selling price of the item; • legible — it cannot be difficult to read; • unambiguous — the information in the unit pricing must be accurate and have a clear meaning; and • displayed in dollars and whole cents. Some items that grocery retailers may sell are exempt from the requirements of the Code and do not require unit pricing, including: • books, magazines, and stationery; • optical discs and magnetic storage devices; • photography items and equipment; • electrical items (other than batteries and light bulbs); • garden tools; • flowers (including fresh, dried, and imitation flowers); • furniture; and • hardware items. In some situations a retailer is also exempt from the requirement to display unit prices, including where grocery items are: • reduced in price due to packaging being damaged, perishable, and/or discontinued; • made up of different, bundled items that are sold together (eg, a soup pack consisting of carrots, potatoes, split peas; and stock), or promotional bundles; or 28 Set out in the Trade Practices (Industry Codes — Unit Pricing) Regulations 2009.
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• different items that are displayed with a single unit price (eg, a confectionery range may be sold at a single price, but each item in the range may be a different weight). Items with a reduced price that are simply on sale, are still required to have a unit price displayed. A breach of a prescribed industry code of conduct (such as the Unit Pricing Code) is also a breach of s 51ACB of the Competition and Consumer Act. Either the ACCC or other parties, such as industry participants, may bring a civil action for a breach of a prescribed industry code. Remedies for a breach of a prescribed industry code include: • declarations that conduct is in breach of the Competition and Consumer Act; • injunctions to prevent conduct or orders requiring some action to be taken; • damages; • rescinding, setting aside, or variation of contracts; • community service orders; and • corrective advertising orders. The ACCC publishes a guide for retailers outlining the key requirements on unit pricing.29
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Food Legislation 8.22 In order to establish more uniform regulation of food in Australia, the state, territory, Commonwealth, and New Zealand governments agreed30 to adopt a national set of food standards, known as the Australia New Zealand Food Standards Code.31 This code regulates many aspects of food, including labelling, composition, food safety, and other standards with which marketers concerned with marketing food products will be required to be familiar. Commonwealth legislation established Food Standards Australia New Zealand (FSANZ) and the Australia New Zealand Food Regulation Ministerial Council (ANZFRMC),32 but state governments administer and enforce the provisions of their respective Food Acts. These respective state or territory Acts and regulations incorporate the provisions of the uniform code.33 States have their own regulatory systems for enforcing laws, codes, and regulations. The Commonwealth is responsible for enforcement and regulation under Commonwealth legislation covering import, export, quarantine, and customs. 29 30 31 32
See ACCC, ‘Unit pricing: a guide for grocery retailers’, December 2010, available at . See ‘Food Regulation Agreement’ at . See ‘Food Standards Code’ at . See ‘Australia and New Zealand Ministerial Forum on Food Regulation’, August 2014, available at . 33 See ‘Food law, treaties and agreements’ at .
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The ANZFRMC is a body that consists of the Ministers responsible for food law in their respective states and territories. ANZFRMC considers food standards that are prepared and recommended by FSANZ, and also provides oversight in relation to the way that food standards are implemented and operate. FSANZ has been established to develop, modify as required, and review standards, and also provides advice to the ANZFRMC in relation to food standards. FSANZ is a small science-based organisation that also offers advice to food businesses who manufacture, process, cater, or handle food, and require assistance in understanding the requirements of the code.34 Broadly speaking, the Food Acts in the states and territories of Australia protect the consumer against inferior and unsafe food products, generally by ensuring that food (defined as any substance or thing used for human consumption) does not fall below a minimum standard.35 Control extends to the preparation and service of food and, naturally, its contents. Firms that breach these Acts are liable to criminal prosecution and penalties, usually by the imposition of a fine. Within each jurisdiction there is one or more agency responsible for food surveillance, charged with the task of ensuring the requirements of the Acts and Food Standards Code are met.
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What are the offences under the Food Acts? 8.23 There are a number of offences prescribed by the Food Acts. Broadly, the offences include:36 • handling or selling food that is unsafe or unsuitable — food is deemed unsafe if, amongst other things, it is likely to cause physical harm to a person who consumes it; and unsuitable if it is damaged, deteriorated or perished, or contains a foreign substance; • supplying any food not of the nature or substance demanded by the purchaser; • falsely describing food or selling falsely described food — food is falsely described if it does not comply with a prescribed standard; if it contains a substance or matter that diminishes or dilutes its properties compared with food of the represented nature; or if ‘any word, statement, device or design used in the packaging or labelling of the food, or an advertisement for the food, would create a false impression as to the nature or substance of the food, or the commercial value of the food, in the mind of a reasonable person’; and • producing or selling food not complying with the Food Standards Code. These offences will normally be strictly applied, without the need to prove a guilty mind, although there may be circumstances in which the defendant can argue 34 See ‘Our role in supporting nutrition-related public health’ at . 35 For details of the current Commonwealth and state food legislation see ‘Food law, treaties and agreements’ at . 36 See, for example, the Food Act 1984 (Vic).
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that in their defence reasonable precautions were taken and all due diligence was exercised to prevent the commission of an offence.
The Food Standards Code
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8.24 As mentioned at 8.22 above, substantially uniform food safety regulations or standards now operate in all states and territories. These standards form part of the Australia New Zealand Food Standards Code. The standards were gazetted by the Commonwealth in 2000, and have since been adopted by legislation in all states and territories and in New Zealand.37 The code is somewhat dynamic, in that there have been over 80 amendments to the Code since it was introduced, and its review and revision is ongoing, requiring marketers of food products to remain conversant with changes. There have also been a number of attempts by members of parliament to effect change, particularly in the area of place of origin labelling and disclosure of palm oil content.38 The Code contains comprehensive labelling requirements, designed to ensure that consumers have adequate information to enable them to make informed choices when purchasing food. Under ch 1 of the Code, unless specifically exempted,39 the following information must be provided on the package or label of food prepared for resupply in the marketplace: • the prescribed name of the food or, if there is none, a name or description sufficient to indicate the true nature of the food; • a lot identification mark indicating the batch from which the food was manufactured — important information in the event of a food recall; • the name and business ‘street’ address in Australia (or New Zealand) of the supplier, to assist with identification and notification when required;
37 The Australia New Zealand Food Standards Code (see Commonwealth of Australia Gazette, 24 August 2000), became operational on 20 December 2002. For details of the current food regulations in the various states, see ‘Food law, treaties and agreements’ at . 38 The Truth in Labelling Bill 2009, introduced into the Federal parliament, but not passed. The bill sought to amend the Food Standards Australia New Zealand Act 1991 to make consumers aware of the country of origin, the extent of genetic manipulation, and the chemical residues in food; the Imported Food Warning Labels Bill 2013 (Cth), introduced by Bob Katter MP; Greens Senator Christine Milne and her colleague Adam Bandt MP also unsuccessfully introduced bills into the Senate and the House of Representatives dealing with country of origin claims. See also ‘Proposals’ at which lists various proposals to change the Code and the fate of each. 39 Generally, unpackaged food is exempt from the labelling requirements of the Code, as is food made and packaged on the premises from which the food is sold, food packaged in the presence of the purchaser, whole or cut fresh fruit and vegetables in see-through packages, food delivered in a package (and ready for consumption) expressly ordered by the purchaser, and food sold at fundraising events. Nevertheless, the Code may still require that certain information be provided at the point of sale. Small packages (those with a surface area of less than 100 cm2) are exempted from some labelling requirements. See Australia New Zealand Food Standards Code Standard 1.2.1.
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Marketing and the Law
• any relevant mandatory warning and advisory statements and declarations, intended to advise and protect purchasers with food allergies, sensitivities, or intolerances to certain foods; • a list of ingredients — unless exempted, the label of a package of food must list all of the ingredients and compound ingredients (an ingredient that is itself made up of two or more ingredients, such as spaghetti, which is made up of flour, egg, and water), including additives used in the manufacture of food. The ingredients must be listed in descending order of their relative proportion by mass, and must be accurately named in sufficient detail to describe the ingredient; • a date mark — when, for health and safety reasons, a food should not be consumed after a certain date, a ‘use-by’ date is required; otherwise the date mark will usually be in the form of a ‘best-before’ date, unless the food has a shelf life exceeding two years. Sale of food after the expiration of a use-by date is prohibited; • directions for use or storage, mandatory where the information is necessary for public health and safety; for example, when certain conditions of storage are necessary to ensure that food will keep for the period indicated by the use-by or best-before dates; • percentage labelling, meaning that, on the labels of many foods, there must appear a declaration of the proportion (expressed as a percentage) of the ‘characterising ingredients and/or components’ contained in the food; for example, the amount of apple in an apple pie; • substantiated health, nutrition or related claims; for example, a nutrition content claim such as ‘low in fat’ needs to meet the conditions set out in the Standard. Claims about the health benefits of certain foods or ingredients, for example, ‘calcium is good for bones and teeth’, must comply with one of the pre-approved food health correlations set out in the Standard. The Standard also sets out conditions for claims about the presence of vitamins and minerals in certain special purpose foods, such as food for infants; and • a nutrition information panel, designed to provide consumers with information on the energy value in kilojoules for each serving and per 100g of the food, and quantities of protein, total fat, saturated fat, carbohydrate, sugars, and sodium in food. A nutrition information panel must be in a prescribed format and include the number of servings of the food in the package. With the exception of warning statements (which must be of a specified size), producers and sellers can use any type style and size when providing the above information. However, the information must be in English and be legible and prominent (in distinct contrast to the background of the label or package). This allows manufacturers flexibility in label design, while at the same time requiring them to ensure that information is clearly displayed and accessible to the consumer. 356
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In addition to these core information requirements, there are some other specific labelling requirements that may have to be included on some food products: • The presence of vitamins and minerals as they relate to nutrition content is regulated by the Standard. Claims made about the vitamin and mineral content of foods must comply with the Standard. • The use of processing aids in food manufacture (such as bleaching agents) is prohibited unless specifically permitted. • If foods have been genetically modified, they cannot be sold or used unless specifically permitted and subject to compliance with special conditions imposed (usually a statement on the label of the food that it has been ‘genetically modified’). • Along similar lines, food (or an ingredient in food) must not be irradiated unless expressly permitted in order to fulfil a technological need or food hygiene purpose, in which case the food must contain a statement on the label indicating that it has been treated with ionising radiation. The Food Standards Code also regulates how packaging must be labelled when food additives are used. Like other ingredients, food additives in most packaged food must be listed in the statement of ingredients on the label. Food additives are used to help the food keep longer, thereby extending its shelf life, or to improve the look or taste of food. An example is the additive beeswax which can be used as a coating to improve the look of certain fruit. Food additives are classified by both name and number. The food additive numbers are based on an international number system and can be used instead of the food additive name. The Food Standards Code provides that most additives must appear in the packaging ingredient list described by their standard name or their food additive number. For example, ‘beeswax’ or additive ‘901’. Food Standards Australia and New Zealand publishes a list of the food additive standard names and numbers40 and these can also be found in Schs 7 and 8 of the Code. The Food Standards Code similarly regulates labelling requirements when flavourings and enzymes are used in food products. The Food Standards Code also imposes particular additional labelling requirements for specific foods. Chapter 2 of the Code sets out minimum quality standards for a number of specific foods and ingredients. The standards are less prescriptive than former food standards for most foods, thereby giving more flexibility to food manufacturers. Standards exist for products such as meat and meat products, fish, edible oils, salt, honey, fruit and vegetable juices, infant food, soft drinks, sports food supplements, wine, spirits, and alcoholic beverages. The Code requires that specific additional information be provided on the label of some
40 See ‘Additives’ at .
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of these foods;41 for example, fruit and vegetable juices packaging must contain information about any juice blends contained in the product. The Food Standards Code also makes provision for imported food (which includes beverages and ingredients). The Code requires that packaging must clearly show the name and business address in Australia of the importer or seller.42 The Food Standards Code requires that packaging be safe and that it limit chemical seepage from packaging to the food contents.43 However, the Food Standards Code does not regulate the manufacture of packaging materials used for food,44 although there is a standard that provides that articles or materials may be placed in contact with food only if there is no possibility of them being swallowed or obstructing airways, or otherwise causing bodily harm if taken into the mouth.
Health Star Rating system 8.25 The Health Star Rating system is a voluntary front-of-pack labelling scheme that was endorsed by the Australia and New Zealand Food Regulation Ministerial Council in 2014. The Health Star Rating system website45 provides guidance and tools for food manufacturers and retailers applying the Health Star Rating system. The Health Star Rating system provides for food products to be given a nutritional rating out of five. The ratings are generated by entering product details, such as energy, saturated fat, total sugar, sodium, fibre, and protein into a calculator. The government indicated that it would fund marketing activity to support the voluntary Health Star Rating system and to inform consumers about it. At the time of writing the Health Star Rating Advisory Committee was in the process of finalising a review of the rating system.46
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Australian Consumer Law provisions applicable to food47 8.26 Up until 1 July 2018, the Food Standards Code regulated country of origin claims on food packaging. This part of the Code has now been repealed and country of origin labelling claims on packaged and unpackaged foods are now regulated by Country of Origin Food Labelling Information Standard 2016 under the Australian Consumer Law.48 Product Information Standards were discussed 41 For an excellent guide to these laws, see Food Standards Australia New Zealand, Overview and Application of Food Labelling and Information Requirements. User Guide to Standard 1.2.1 — Application of Labelling and Other Information Requirements, July 2014, available at . 42 See ‘Labelling requirements’ at . 43 See ‘P1034 — Chemical Migration from Packaging into Food’ at . 44 But see Australian Standard AS2070 – 1999, Plastic Materials for Food Contact Use. 45 See ‘About Health Star Ratings’ at . 46 See ‘Reviews of the Health Star Rating system’ at . 47 See ACCC, Food Labelling Guide and Food and Beverage Industry Food Descriptors Guide, available at . 48 The Australian Consumer Law is found in Sch 2 to the Competition and Consumer Act 2010 (Cth).
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more generally above at 8.8. The Country of Origin Food Labelling Information Standard 2016 sets out the country of origin information that must be provided for most food offered or suitable for sale at the retail level. For example, for most Australian food products, there is now a mandatory country of origin information labelling requirement setting out how and when a package can display the ‘Australian Made, Australian Grown’ kangaroo logo.49 Non-compliance with the mandatory origin labelling requirements set out in the Information Standard may be considered misleading or deceptive conduct in breach of, for example, s 18 or the Australian Consumer Law, and a breach of s 136 of the Australian Consumer Law which requires that a person must not supply goods that do not comply with an Information Standard. Even compliance with the Standard could still lead to liability; for example, if the food packaging features additional statements or images that suggest or create an impression that, on the whole, is misleading or likely to mislead or deceive consumers. In addition to the specific food Information Standard in the Australian Consumer Law, it is important to note that the provisions of the Australian Consumer Law (and mirroring state and territory legislation) prohibiting a wide range of misrepresentations apply more generally to claims made on food labels and packaging. The provisions of the Australian Consumer Law outlined at 8.10– 8.17, 10.36, 10.37, and 10.47, may be relevant to the following representations used on the packaging of food products: • the name, composition, proportion of ingredients, nature of ingredients, characterising ingredients, and flavour of food; • the ingredient source (place and region) and country of origin; • pictures; and • nutritional content. Any representations or claims must accurately reflect the contents of the product. Other types of conduct likely to breach the Act would be the wrongful use of endorsement logos (such as the red circle and large red tick used by the National Heart Foundation), wrongful claims (such as ‘fat free’ on labels that are not borne out by the contents specified in the nutrition panel), and failing to declare the presence of ingredients and additives in food, especially allergens.
Poisons, Drugs, and Therapeutic Goods Legislation 8.27 Most states and territories have legislation which contain provisions controlling the manufacture, labelling, and sale of poisons, drugs, and therapeutic 49 See ‘Country of origin food labelling’ at .
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substances.50 A detailed discussion of the regulations applicable to marketers of these products is beyond the scope of this work. A brief overview of some of the key legislation relevant to these sectors is set out below. TABLE 8.2 POISONS, DRUGS, AND THERAPEUTIC GOODS LEGISLATION JURISDICTION NAME OF ACT Cth
Therapeutic Goods Act 1989; Industrial Chemicals Act 2019
ACT
Medicines, Poisons and Therapeutic Goods Act 2008
NSW
Poisons and Therapeutic Goods Act 1966
NT
Medicines, Poisons and Therapeutic Goods Act 2012
Qld
Health Act 1937
SA
Controlled Substances Act 1984
Tas
Poisons Act 1971; Therapeutic Goods Act 2001
Vic Drugs, Poisons and Controlled Substances Act 1981; Therapeutic Goods (Victoria) Act 2010
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WA
Poisons Act 1964; Medicines and Poisons Act 2014
The various state and territory legislation regarding labelling is reasonably consistent by virtue of an agreement between the states and territories to adopt the Commonwealth Standard for the Uniform Scheduling of Medicines and Poisons (SUSMP).51 This is known as the Poisons Standard and it contains schedules classifying medicines and poisons for inclusion in the various state and territory Acts. Scheduling classifications are designed to set access levels for medicines and poisons (including agricultural, veterinary, domestic, and industrial chemicals) where there is a potential risk to public health and safety. Medicines and poisons are therefore classified according to the degree of control recommended over their availability to the public. The Poisons Standard also includes model provisions about containers and labels, a list of recommended product exemptions and recommendations about various other controls on drugs and poisons.
50 National standards for ingredient labelling of cosmetics has been introduced by the Trade Practices (Consumer Product Information Standards) (Cosmetics) Regulations 1991: see 9.71. 51 At the time of writing, the current edition was the Poisons Standard June 2019 (No 24), see and available at .
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Chapter 8: Product Packaging and Labelling
The Poisons Standard is included in state and territory legislation by reference or other means. It deals with a range of matters, including the labelling and packaging of poisons and controlled substances.52 The legislation specifies certain products or substances that cannot be produced or sold without consent, and regulates many aspects of the production and sale of poisonous and controlled substances, including packaging and labelling.53 Before drafting a label or designing a package for any preparation, it is necessary to determine the schedule classification for the preparation in question. This may be done by referring to the schedules in the Poisons Standard as adopted by the states and territories. However, some variations may occasionally occur owing to local circumstances, so the schedules of each jurisdiction should always be consulted to ensure compliance. The potency of poisons and controlled substances (including medicines) varies, and some substances are poisonous only if misused, or are harmful only in the hands of the inexperienced. Accordingly, the Acts classify substances, based upon their use and/or potency (toxicity), into various schedules. Schedules 5, 6, and 7 include various types of poisons that are classified according to their potency (toxicity), purpose of use, potential for abuse, safety in use, and need. Availability is increasingly restricted with each schedule, allied with stricter container and labelling requirements. For example, Sch 5 deals with substances with a low potential for causing harm, Sch 6 deals with poisons which have a moderate potential for harm and Sch 7 deals with dangerous poisons which have a high potential for harm. Schedules 2–4 deal with therapeutic goods (medicinal poisons) such as pharmacy medicines, pharmacy-only medicines, and prescription-only medicines. Schedule 8 deals with controlled drugs which, whilst available for use, require restriction on their manufacture, supply, and distribution to reduce the potential for abuse or dependence. Schedule 9 deals with prohibited substances which may be abused or misused and generally cannot be manufactured, sold or used without special permission and only for limited purposes. In general, the Acts and regulations provide that persons wishing to manufacture, sell, supply, or use poisons or controlled substances so classified, must ensure that the containers in which such substances are sold are of the prescribed specification and that prescribed labels are placed upon those containers. The principal 52 See ‘Labelling & packaging’ at . 53 The Therapeutic Goods Advertising Code (No 2) 2018 made under the Therapeutic Goods Act 1989 (Cth) requires that advertisements for specified therapeutic goods must be approved for compliance with the Code, but a label is generally not considered to be an advertisement. See ‘Therapeutic goods advertising code’ at . In Secretary, Department of Health v Peptide Clinics Australia Pty Ltd [2019] FCA 1107, the Federal Court found Peptide Clinics Pty Ltd in breach of, amongst others, the Therapeutic Goods Advertising Code, and ordered they pay $10 million for breaches of the mandatory rules for advertising of medicines, including the ban on advertising Poisons Standard Sch 4 prescription-only medicines to the public.
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provisions of the various Acts, which may impact upon packaging and labelling, can be summarised as follows:54 • Specified poisons and controlled substances must be packed in secure containers; for example, making them child-resistant. • Labels must be written in English characters that are durable and legible. • The Australian name and ‘street’ address of the manufacturer or distributor must be on the label. • Labels may be required to contain one or more of the following elements: the product name; the name of all the active ingredients and their quantity or proportion; batch number and expiry date; storage conditions; warning words — to warn the consumer of potential hazards, such as ‘caution’, ‘poison’, and ‘prescription only medicine’; – cautionary statements — indicating general precautions to be observed, such as ‘keep out of reach of children’, ‘can kill if swallowed’, ‘do not put in drink bottles’, ‘keep locked up’, and ‘burns skin and throat’; – safety directions — to be followed for safe use; – first aid instructions — to follow if poisoned; – dangerous goods classification symbols; and – directions for use — which must be clearly understandable and sufficient for the product to be used correctly. The place, size and appearance of warning words and cautionary statements on labels are specified. It is an offence to sell or supply a poison or controlled substance that is not labelled or packaged in accordance with the relevant requirements. Copyright © 2019. LexisNexis Butterworths. All rights reserved.
– – – – –
Dangerous Goods Legislation 8.28 There is, in all states and territories, wide ranging but not entirely consistent legislation designed to deal with non-poisonous dangerous goods, such as explosives, compressed and liquefied gases, flammable liquids, and the like.
54 See, for example, the Therapeutic Goods Order No 69 — General Requirements for Labels for Medicines 2017 made under the Therapeutic Goods Act 1989 (Cth).
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Chapter 8: Product Packaging and Labelling TABLE 8.3 DANGEROUS GOODS (SUBSTANCES) LEGISLATION JURISDICTION NAME OF ACT ACT
Dangerous Substances Act 2004
NSW Dangerous Goods (Road and Rail Transport) Act 2008; Explosives Act 2003; Work Health and Safety Act 2011 Sch 1 NT Dangerous Goods Act 1998; Transport of Dangerous Goods by Road and Rail (National Uniform Legislation) Act 2010 Qld Explosives Act 1999; Work Health and Safety Act 2011; Transport Operations (Road Use Management) Act 1995; Transport Infrastructure Act 1994 SA
Explosives Act 1936; Dangerous Substances Act 1979
Tas
Explosives Act 2012; Dangerous Goods (Road and Rail Transport) Act 2010
Vic
Dangerous Goods Act 1985
WA
Dangerous Goods Safety Act 2004
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Regulations passed in conjunction with these Acts govern the manufacture, storage, transport, sale, use, packaging, and labelling of these dangerous goods, with particular emphasis upon precautions against and warnings in the event of fire, explosion, leakage, and spillage. The Australian Dangerous Goods Code has been implemented in all jurisdictions in Australia and follows United Nations standards.55
Mutual Recognition Legislation — A Unified National Market? 8.29 As illustrated in this chapter, the regulation of products, encompassing packaging and labelling, is subject to a large body of legislation and regulations, most of them being state or territory based. More and more of these laws are being made uniform, or substantially so. Nevertheless, problems can still arise because of a lack of uniformity or harmony from one jurisdiction to another. Such problems are not conducive to the development of a national marketplace for the sale of goods. With this in mind, the Commonwealth government introduced the Mutual 55 Australian Code for the Transport of Dangerous Goods by Road and Rail (ADG Code), edition 7.5 at the time of writing, available at .
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Recognition Act in 1992. Among other things,56 the Act was designed to ensure that if goods57 are acceptable for sale in one state or territory, they should be able to be sold anywhere in Australia.58 Thus, if goods are in such a condition that they may lawfully be sold in one state or territory, then they can be imported into another state or territory (the second state) without the need to comply with certain requirements of the second state, including: • standards of the second state relating to the production, composition, quality, or performance of goods; • standards of the second state relating to packaging, labelling, date stamping, or age; and • other requirements preventing or restricting the sale of the goods in the second state.
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There are exceptions to these principles, meaning that sellers of goods in one state must, among other things, still comply with environmental standards and regulations affecting health and safety of the second state.59 As part of the overall scheme, ‘mutual recognition’ laws have also been passed and are operational in every Australian jurisdiction.60 This means that, in most instances,61 marketers of products are no longer required to meet the slightly different legal requirements of each state or territory when selling goods in those jurisdictions. It should also be noted that the Australian and New Zealand governments are continually working on the harmonisation of Australian and New Zealand laws,62 as evidenced by the adoption (or proposed adoption) of consistent food, poisons, and medicines regulations. This is designed to assist with the development of an Australasian marketplace for the sale of goods.
56 The legislation also applies to the registration of occupations. 57 ‘Goods’ is defined to mean goods of any kind and specifically includes a package containing goods or a label attached to goods. 58 In 1996 the Commonwealth, states and territories entered into a similar arrangement with New Zealand, which came into force on 1 May 1998, see the Trans-Tasman Mutual Recognition Act 1997 (Cth). 59 Particular goods can also be exempted from the legislation’s coverage. 60 Mutual Recognition (New South Wales) Act 1992 (NSW); Mutual Recognition (Victoria) Act 1999 (Vic); Mutual Recognition (Queensland) Act 1992 (Qld); Mutual Recognition (South Australia) Act 1993 (SA); Mutual Recognition (Western Australia) Act 2010 (WA); Mutual Recognition (Tasmania) Act 1993 (Tas); Mutual Recognition (Northern Territory) Act 1992 (NT); Mutual Recognition (Australian Capital Territory) Act 1992 (ACT). 61 Some laws or classes of laws are exempted from the coverage of the legislation, such as the Beverage Containers Act 1975 (SA): see Mutual Recognition Act (Cth) Sch 2. 62 See, for example, the Trans-Tasman Mutual Recognition Act 1997.
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Chapter 8: Product Packaging and Labelling
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Marketing Advice 8.30 The marketing of goods carries with it many responsibilities, including the need to comply with a multitude of legal obligations when designing the packaging and labelling of those goods. There are certain principles that a marketer must adhere to when making packaging and labelling decisions. • Ensure the legal compliance program includes a section devoted to packaging and labelling requirements. • Although the package or label often helps ‘sell’ a product, do not ‘oversell’. • Ensure that brand names, illustrations and photographs used, and claims made, on packages and labels do not give a false impression as to the actual quality, composition, capability, or safety of goods. • Ensure that the choice of packaging does not give a false impression as to the quantity of the contents, and that pre-packaged goods are accurately described in terms of the weight of the contents or the number of items inside the package. • Be accurate when stating the origin of the goods on a package or label. Avoid packaging designs that contain potential conflicting elements, such as an Australian image and a statement indicating that some of the contents are imported. • Even if impressed by a competitor’s packaging or labelling, do not imitate it. Such imitation may lead to customers being confused between the goods involved, and result in legal action being taken against you by your competitor. • Ensure that when marketing goods all potential risks associated with the use or handling of such goods are identified, and take reasonable steps to include adequate instructions for use and handling, as well as warnings, on the package or label of the product. • The instructions and warnings on packages and labels must be clearly worded, boldly displayed, and logically located. • If the product you market has inherent dangers or is poisonous, be aware of and comply with the statutory requirements laid down by state and territory dangerous goods, substances, and poisons legislation. • If producing or selling food for human consumption, ensure you comply with and provide all the information required by the state and territory Food Acts and Food Standards Code. • The complex and dynamic nature of regulation in many of these specialised areas require marketers to ensure current, informed advice is sought from suitable practitioners and regulatory bodies.
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Product Liability
19
Introduction.......................................................................................... 9.1 Liability of Suppliers under the Laws of Contract.......................... 9.2 Liability of Manufacturers and Suppliers under the Law of Negligence........................................................................................ 9.3 Manufacturer’s duty of care........................................................... 9.4 When is a duty of care breached by the manufacturer?........... 9.5 Was the damage within the scope of liability and caused by the breach?................................................................. 9.6 Avoiding liability for negligence..................................................... 9.7 Examples of negligence in the marketplace................................ 9.8 A. Omissions or defects in the production process............... 9.9 B. Defects in the design or specifications of the product..... 9.10 C. Defects in the marketing process....................................... 9.11 D. Failure to provide adequately safe systems.................... 9.12 Consumer Guarantees — Ch 3 Pt 3-2 (Div 1) of the Australian Consumer Law............................................................ 9.13 Liability of suppliers of goods...................................................... 9.13 A. Who is a consumer?............................................................ 9.14 B. Statutory guarantees relating to the supply of goods.................................................................................. 9.15 i. When is a supply ‘in trade or commerce’?.................... 9.16 ii. Guarantee of acceptable quality................................... 9.17 iii. Guarantee of fitness for any disclosed purpose............ 9.18 iv. Guarantee that goods correspond with description.... 9.19 v. Guarantee that goods correspond with sample.......... 9.20 vi. Guarantee that goods correspond with any warranty given................................................................. 9.21 C. Attempts to exclude or modify the statutory guarantees by the supplier.................................................. 9.22 367
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Marketing and the Law
D. Remedies available for breach of the statutory guarantees relating to goods.............................................. 9.23 i. What is a major failure?................................................. 9.24 ii. When may goods not be rejected?............................... 9.25 iii. Consequences of rejecting the goods........................... 9.26 iv. Steps a supplier is entitled to take to remedy the failure..................................................................... 9.27 E. Do statutory guarantees extend beyond the purchaser of the goods?................................................. 9.28 Possible reforms............................................................................. 9.29 Liability of manufacturers of goods............................................ 9.30 A. Manufacturer definition...................................................... 9.31 B. Consumer definition............................................................ 9.32 C. Supplier’s right of indemnity against the manufacturer.................................................................... 9.33 D. Guarantees owed to consumers by manufacturers........ 9.34 i. Guarantee that goods are of an acceptable quality...... 9.35 ii. Guarantee that goods comply with description.......... 9.36 E. Manufacturer’s ability to exclude liability for the statutory guarantees...................................................... 9.37 F. Defences to the statutory guarantees.............................. 9.38 G. Consumer’s rights of compensation against manufacturer.................................................................... 9.39 H. Attempts to modify the right to claim damages............ 9.40 Liability of suppliers of services................................................... 9.41 A. Consumer definition............................................................ 9.42 B. Exclusion and limitation clauses........................................ 9.43 C. Attempts to modify the statutory guarantees............... 9.44 D. Remedies available for breach of the statutory guarantees relating to services.......................................... 9.45 i. What is a major failure?................................................. 9.46 ii. The right to terminate a contract................................. 9.47 Goods with Safety Defects — Ch 3 Pt 3-5 of the Australian Consumer Law............................................................ 9.48 Objectives of Pt 3-5...................................................................... 9.49 Manufacturer definition for the purposes of Pt 3-5................ 9.50 Defective goods under Pt 3-5...................................................... 9.51 Determining whether a product is defective............................ 9.52 Manufacturer’s liability under Pt 3-5......................................... 9.53 Losses that cannot be claimed under Pt 3-5............................ 9.54 Defences available to a manufacturer....................................... 9.55 Limits to recovering damages under Pt 3-5.............................. 9.56 Attempts to exclude or modify the provisions of Pt 3-5........ 9.57 Time limit on actions under Pt 3-5............................................. 9.58 Liability of manufacturers............................................................ 9.59 368
Chapter 9: Product Liability
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A. Tort of negligence................................................................ 9.60 B. Part 3-2 Div 1 of the Australian Consumer Law ............. 9.61 C. Chapter 3 Pt 3-5 of the Australian Consumer Law........ 9.62 Criminal Liability for Product Safety and Information................ 9.63 Introduction.................................................................................... 9.63 Australian Consumer Law Pts 3-3 and 3-5................................ 9.64 Establishing product safety standards....................................... 9.65 Enforcing product safety standards............................................ 9.66 Warning the public about potentially dangerous goods......... 9.67 Banning potentially dangerous goods........................................ 9.68 Compulsory recall of products.................................................... 9.69 Voluntary recall.............................................................................. 9.70 Establishing product information standards............................. 9.71 Enforcing product information standards.................................. 9.72 Marketing Advice............................................................................... 9.73
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Marketing and the Law
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Introduction 9.1 Who is liable for the quality and safety of goods and services supplied in the marketplace? For example, if a customer purchases a pair of shoes from a department store and injures herself by falling down a flight of stairs as a result of a fracture in the heel of the shoe, what rights does the customer possess? Has the manufacturer of the shoes any responsibility in such circumstances? If the shoes were made overseas, is the importer responsible to the customer? Does the retailer or distributor who sold the product have any liability in such an event and, if so, does it have the right to recover against the manufacturer or person responsible for introducing the defect? Can the customer claim compensation for her injuries and for the value of the defective shoes? What if the defective product injures somebody other than the purchaser? For example, suppose a person buys a motor mower which is poorly designed, having no stone guard. A friend staying at the purchaser’s house mows the lawn and is injured by a stone thrown up by the mower. Does the innocent third party, the friend of the purchaser, have any rights to compensation? This chapter will concentrate on the liability owed by manufacturers, although the liability of distributors (especially retailers) will also be examined. The concentration on the liability of manufacturers is due to the fact that most recent reforms to the law are very much concerned with imposing liability upon manufacturers. Such developments represent the legal response to the mass production and mass distribution society in which we now live. It is no longer satisfactory for the law to look to the contract of sale as the most important source of a buyer’s rights. It is the manufacturer, not the retailer, that is in the best position to prevent defective goods from reaching the marketplace through quality control measures and, if necessary, to compensate consumers through product liability insurance. However, to understand the present day law, it is necessary to look at how and why the law has developed in the way it has. This necessitates a brief examination of the common law, with an emphasis upon its limitations from a consumer’s point of view. It is then fairly easy to understand and comprehend the changes introduced over the years, which are now consolidated in the Australian Consumer Law, which (as a Schedule to the Competition and Consumer Act 2010 (Cth)) is a single national law covering consumer protection and fair trading that applies in the same way nationally and in each state and territory. The chapter will be primarily concerned with the civil liability of manufacturers (and retailers to a lesser extent); that is, the obligation to pay compensation to those suffering loss or injury. However, there are also criminal laws that are not so much concerned with providing compensation, but are rather designed to impose minimum standards of product safety and information upon manufacturers and distributors. 370
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The structure of this chapter is as follows: • the civil liability of manufacturers and suppliers for: – breach of contract; and – negligence; • the additional civil rights and remedies (in comparison to the laws of contract) provided to consumers by Pt 3-2 of the Australian Consumer Law; • the additional civil rights and remedies (in comparison to the laws of negligence) provided by Pt 3-5 of the Australian Consumer Law; and • criminal liability for product safety under the Australian Consumer Law.
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Liability of Suppliers under the Laws of Contract 9.2 From the early 19th century, the courts required that goods supplied pursuant to a contract meet minimal quality standards. These obligations were imposed whether the purchaser raised the issue of quality or not. The courts simply presumed that a purchaser would reasonably expect products being purchased to be of reasonable quality and to perform satisfactorily. These implied contractual liabilities have protected purchasers by requiring that goods correspond with their contract description, be of merchantable (saleable) quality and be reasonably fit for the purpose specified by the buyer. These common law developments were eventually codified in the United Kingdom in the Sale of Goods Act 1893. These terms were in addition to any other express terms (such as product guarantees) which may have been agreed upon by the parties. The Sale of Goods Act (UK) was in due course adopted by all Australian states and, subject to amending legislation, still applies.1 However, a major drawback of the original legislation from a customer’s viewpoint was that it allowed a seller to exclude the implied terms so that the protection it gave could be taken away by a clearly worded exclusion clause contained in a contract for the sale of goods. In practice, many transactions were negotiated by parties who were not in an equal bargaining position. In recognition of this fact, the Australian Consumer Law now protects ‘consumers’ by providing them with the benefit of statutory consumer guarantees that cannot be excluded or modified. These guarantees are fully discussed below at 9.15. In ‘non-consumer’ transactions, a supplier is still free to contract out of these obligations. The other major limitation of the law of contract results from the privity of contract doctrine. The general rule established by the courts is that only a party 1
Sale of Goods Act 1954 (ACT); Sale of Goods Act 1923 (NSW); Sale of Goods Act 1972 (NT); Sale of Goods Act 1898 (Qld); Sale of Goods Act 1895 (SA); Sale of Goods Act 1896 (Tas); Goods Act 1958 (Vic); Sale of Goods Act 1895 (WA).
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to a contract can sue or be sued on a contract. This has important consequences in the marketplace. Only the customer will have rights in contract, because (subject to limited exceptions) only they are a party to the contract. Anybody else injured by the goods — perhaps received as a gift — will have no contractual rights. Most purchase transactions involving a consumer nowadays will be made from a retailer. This means that, if a good is purchased which is faulty or defective, rights under contract law can only be sought from the contractual supplier — usually the retailer.2 This is the case even if the fault in the good was introduced or caused by the manufacturer. Daniels & Daniels v White & Sons Ltd [1938] 4 All ER 258 Facts: Mr Daniels purchased a bottle of White’s lemonade from a retail publican, Mrs Tabard. Mr Daniels took the lemonade home, poured it into a jug, and shared the lemonade with his wife. Mr Daniels and his wife immediately became ill when they drank the lemonade, which contained a small quantity of carbolic acid. Mr Daniels sued the retailer in contract, arguing that the lemonade was not fit for its purpose (drinking). In addition, both Mr and Mrs Daniels sued the manufacturer (White & Sons) in negligence, an area of law discussed at 9.4. The negligence action was ultimately dismissed by the judge.
9.2C
Decision: Mr Daniels succeeded in his action against Mrs Tabard on the grounds of breach of contract. Even though the defect in the lemonade was clearly not the fault of Mrs Tabard, liability under contract law is strict; that is, there is no defence. It is simply a breach of contract to sell a good to a customer that is not fit for its purpose. Mr Daniels succeeded in this action because he purchased the lemonade. However, his wife did not have a contract with anyone. As the action for negligence against the manufacturer was unsuccessful, Mrs Daniels was left without a remedy.
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(It is unclear why the retailer (Mrs Tabard) did not sue the manufacturer (White & Sons) for breaching the contract between them.)
Liability of Manufacturers and Suppliers under the Law of Negligence 9.3 While consumers buying directly from manufacturers do have rights pursuant to the law of contract, the reality is that most manufacturers distribute their products through retailers, or use channels such as wholesalers. Thus, the manufacturer incurs no liability to the end consumer under contract law. As already alluded to above at 9.2, the limitations of relying upon contract law are many, including: 2
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Of course, if goods are purchased directly from the manufacturer, the manufacturer is responsible for those goods under the contract of sale.
Chapter 9: Product Liability
• A remedy can only be sought from the direct supplier of the defective goods (most often the retailer), even though some other party, invariably the manufacturer, has introduced the defect. • If the direct supplier goes into liquidation or cannot be found, or for some other reason cannot be sued, any contractual remedy is lost. • If someone other than the actual customer is injured (eg, a family member or a friend of the purchaser), the injured person, not being a party to the contract, has no contractual rights at all.
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In order to overcome these difficulties, the tort of negligence was gradually developed by the courts during the 20th century into an independent and vigorous legal right. At the beginning of the 21st century, as a response to growing restlessness about the level of damages being awarded in negligence cases, all Australian states and territories enacted legislation dealing with liability for negligence.3 In the main, these provisions reflect common law principles, and the negligence cases that have been decided over the years remain relevant to any discussion on negligence. The action for damages for negligence remains a common law action. A tort is a civil wrong other than a breach of contract. In other words, a person harmed by a defective product will be entitled to compensation, provided the necessary elements of an action in negligence can be proven, irrespective of the existence of a contract. The tort of negligence imposes liability upon the manufacturer or supplier of products negligently made, handled, or marketed. Establishing liability for negligence involves a three-step process, each of which must be established: 1. The manufacturer must owe a duty of care to the person suffering damage. 2. The manufacturer must breach that duty of care. 3. The damage suffered must be within the scope of liability and be caused by the breach.
Manufacturer’s duty of care 9.4 The process of developing a general principle of liability for imposition upon manufacturers or suppliers of products in the marketplace began in 1932 with the decision handed down by the House of Lords in Donoghue v Stevenson.4 Donoghue v Stevenson [1932] AC 562; [1932] SC (HL) 31 Facts: Mrs Donoghue, accompanied by a friend, entered a cafe in Paisley, Scotland. The friend purchased some ice cream and a bottle of ginger beer for Mrs Donoghue, who then consumed some of the ginger beer. The bottle containing the ginger beer was opaque. When the rest 3 4
See Civil Liability Act 2002 (NSW); Wrongs Act 1958 (Vic); Civil Liability Act 2003 (Qld); Civil Liability Act 2002 (WA); Civil Liability Act 1936 (SA); Civil Liability Act 2002 (Tas); Civil Law (Wrongs) Act 2002 (ACT). [1932] AC 562; [1932] SC (HL) 31, see 9.4C1.
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Marketing and the Law of the bottle was poured out, the remains of a decomposed snail emerged. The very sight of this caused Mrs Donoghue to suffer from shock. She also suffered severe gastroenteritis as a result of consuming the contaminated ginger beer. As Mrs Donoghue had not purchased the ginger beer, she could not sue the cafe proprietor in contract. She therefore sued Stevenson, the manufacturer of the ginger beer, alleging that he had been negligent in the manufacturing process. In the absence of a contract or evidence of fraud, Stevenson argued that no duty of care was owed by him to Mrs Donoghue. Decision: A manufacturer who sells a product: • in a form in which it is intended to reach the ultimate consumer; • where there is no reasonable possibility of intermediate examination; and • where the absence of reasonable care is likely to result in an injury to the consumer, owes a duty to the consumer to take such reasonable care. In this instance, the court referred the case back to the trial judge to determine whether reasonable care had been taken by the manufacturer. No determination was made, as the case was settled out of court following the death of Mr Stevenson, the manufacturer.
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This principle has been much implemented and expanded since 1932. These days the duty of care: • is owed to all persons within the foreseeable range of a product’s harmful effects; for example, to pedestrians and other road users as well as to the purchaser or user of a defective motor vehicle; • is owed by repairers, assemblers, hirers, distributors, importers, and retailers, as well as manufacturers; • encompasses all classes of goods and the provision of services; and • applies to property damage or replacement, as well as personal injury, and, in limited situations, to financial loss.5 However, it must be kept in mind that liability under negligence (in contrast to contract law) is not strict. A manufacturer does not owe a duty to every consumer. For example, a manufacturer does not, without more, owe a special duty to avoid harming abnormal persons. Levi v Colgate-Palmolive Pty Ltd (1941) 41 SR (NSW) 48; 58 WN (NSW) 63 Facts: Colgate-Palmolive distributed free samples of its products including bath salts. The plaintiff used the bath salts as directed and suffered considerable rash irritation. The irritation was due to her hypersensitivity caused by an allergy. The bath salts were perfectly safe to a person of normal sensitivity. The plaintiff sued Colgate-Palmolive in negligence.
9.4C2
5
It can be very difficult to establish that a duty of care was owed when the defendant has suffered economic loss only. However, the High Court has recognised that, in some limited circumstances, such a duty should be imposed upon manufacturers and suppliers, at least where the defendant knows that an individual or an identifiable class is reliant upon and/or vulnerable to the actions of the defendant; that is, there must be an assumption of responsibility on the part of the defendant: Perre v Apand Pty Ltd (1999) 198 CLR 180; 164 ALR 606; Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 205 ALR 522; [2004] HCA 16.
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Chapter 9: Product Liability Decision: A manufacturer owes no special duty to take extra precautions purely because there may be a possibility that persons of abnormally accentuated susceptibility may suffer. Of course, there may be special circumstances that give rise to a duty to take special precautions to protect abnormal persons known to be likely to be affected. In special circumstances, there may be a need to give appropriate warnings. Such circumstances did not exist in this case.
When is a duty of care breached by the manufacturer? 9.5 Negligence is the failure to use reasonable skill and care in the circumstances. In other words, liability is not strict. If reasonable skill and care is taken, there can be no breach. This was evidenced by the decision in Daniels & Daniels v White & Sons Ltd,6 where, despite the fact that the manufacturer had released a bottle of lemonade onto the market containing carbolic acid, the court concluded that, by virtue of having installed the most up-to-date bottle washing equipment and training and supervising staff in its use, the manufacturer had taken reasonable care in the circumstances. The accusation of negligence against the manufacturer was therefore dismissed. In determining whether reasonable care and skill has been exercised in any given case, relevant factors will include: • the nature of the defect; • the function of the person responsible for the defect; and • the use to which the article has been put.
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The basic test to be applied is now found in the Civil Liability Acts which have been passed in each state and territory7 and follows the test articulated by Mason J in the High Court of Australia in Wyong Shire Council v Shirt:8 In deciding whether there has been a breach of duty of care the tribunal of fact must first ask itself whether a reasonable man in the defendant’s position would have foreseen that his conduct involved a risk of injury to the plaintiff or to a class of persons including the plaintiff. If the answer be in the affirmative, it is then for the tribunal of fact to determine what a reasonable man would do by way of response to the risk. The perception of the reasonable man’s response calls for a consideration of the magnitude of the risk and the degree of the probability of its occurrence, along with the expense, difficulty and inconvenience of taking alleviating action and any other conflicting responsibilities which the defendant may have. It is only when these matters are balanced out that the tribunal of fact can confidently assert what is the standard of response to be ascribed to the reasonable man placed in the defendant’s position.
6 7 8
[1938] 4 All ER 258, see 9.2C. For example, Civil Liability Act 2002 (NSW) s 5B. (1980) 146 CLR 40 at 48; 29 ALR 217.
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Vacwell Engineering Co Ltd v BDH Chemicals [1971] 1 QB 88; [1969] 3 All ER 1681 Facts: Vacwell were producers of transistor devices. BDH manufactured and distributed chemicals, including the chemical boron tribromide. Vacwell had been a customer of BDH for a number of years. In 1965 Vacwell devised a use for boron tribromide in its manufacturing plant. Both BDH and Vacwell were aware that boron tribromide was dangerous in that it emitted a toxic vapour. What neither party knew was that it also exploded on contact with water. Although it was not widely reported, this property was to be found in the scientific literature extending from 1897 to 1938. Three books detailing the reaction were to be found in BDH’s library. In researching the chemical, however, BDH did not consult these older journals, but rather relied on more recent publications that did not refer to the explosive reaction with water.
9.5C
The chemical was supplied to Vacwell in ampoules, which bore the warning ‘harmful vapour’. While the ampoules were being washed in water so as to remove the labels, an explosion occurred which killed one physicist and seriously damaged Vacwell’s manufacturing plant. The physicist had accidentally dropped an ampoule into the sink, which broke and caused the boron tribromide to come into contact with the water. The resultant explosion shattered the other ampoules in the sink causing a massive explosion. Vacwell alleged negligence against the manufacturer. Decision: BDH was under a duty to take reasonable care to discover the major dangers of the chemicals that it sold and to give adequate warning of such dangers. BDH had failed to discharge this duty by failing to provide and maintain a system for carrying out adequate scientific research and by failing to make reasonable use of the scientific literature that was readily available to it on boron tribromide. It was reasonably foreseeable that the supply of the chemical without an appropriate warning could lead to contact with water and therefore an explosion, resulting in personal and property damage of the type that actually occurred.
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Was the damage within the scope of liability and caused by the breach? 9.6 Not all damage resulting from negligently produced goods is recoverable by a plaintiff. The damage must not only be a direct consequence of the negligent act, but must also be within the scope of liability (also referred to as reasonably foreseeable). A person ‘is not … expected to anticipate and guard against that which no reasonable man would expect to occur’.9 However, if a reasonable person, having the knowledge and experience to be expected of a manufacturer of the product in question, would have foreseen the damage that occurred, the manufacturer is liable, provided the damage is not purely economic. Damage to the product itself is usually regarded as pure economic loss and is generally not recoverable pursuant to the law of negligence. In some cases an award of damages will be reduced due to the plaintiff’s contributory negligence. The courts often have to apportion blame when both parties to an action have been careless. 9
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Tame v State of New South Wales; Annetts v Australian Stations Pty Ltd (2002) 191 ALR 449; 36 MVR 1; [2002] HCA 35 per Gleeson CJ, citing Greenland v Chaplin (1850) 155 ER 104 at 106 per Pollack CB.
Chapter 9: Product Liability
Avoiding liability for negligence 9.7 Liability for negligence can be avoided by a negligent provider of goods or services by an appropriately drafted exclusion clause inserted into a contract. However, invariably there will be no contractual relationship between the parties involved in a negligence action, so avoiding liability cannot usually be achieved in this way. Only the parties to a contract can be bound by an exclusion clause.
Examples of negligence in the marketplace 9.8 Most of the case law involving negligence can be grouped according to various forms of conduct.
A. Omissions or defects in the production process 9.9 Omissions or defects in the production process which result in the product not being produced as intended, are the most common form of negligence in the marketplace. The case of Donoghue v Stevenson,10 for example, is not an isolated example of foreign objects finding their way into food or drink. In America, an unenviable range of foreign objects and substances have been found in soft drink bottles, including the requisite snail, and resulted in litigation. Substances located include arsenic, kerosene, iodine, chlorine, caustic soda, acid, and varnish; life forms such as spiders and insects, ranging from a fly to a scorpion, a worm, a slug, a mouse, a rat, a bird, and a snake; and objects such as broken glass, pins, stones, matches, cigarettes, cigar butts, bandages, and contraceptive devices.11
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B. Defects in the design or specifications of the product 9.10 The specifications for a product or its design, may render it unsafe for its intended purpose. In other words, the form of the product may be unsafe; for example, coating a child’s toy with lead-based paint, manufacturing children’s garments using highly inflammable materials, or selling drugs or cosmetics which produce serious side effects. The duty to take reasonable care in the design of a product includes a duty to take care in choosing any component parts. Rasbora Ltd v JCL Marine Ltd [1977] 1 Lloyd’s Rep 645 Facts: Atkinson (on behalf of Rasbora Ltd) contracted with JCL, which was in the business of boat-building, to build a power boat. Upon completion, JCL handed the boat over to Atkinson and was aware that Atkinson intended to take the boat to sea. The electrical system was defective, causing the boat to catch fire. The boat was destroyed and Atkinson was injured. Rasbora sued Atkinson for breach of contract, that is, the implied condition that the boat be of merchantable quality, so Atkinson sued JCL for negligence. 10 [1932] AC 562; [1932] SC (HL) 31, see 9.4C1. 11 77 American Law Reports 2nd at 215–329.
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Marketing and the Law Decision: JCL (the defendant) owed a duty of care to Atkinson. When handing over the boat to Atkinson, they knew that he and his friends were going to sail at sea. Furthermore, JCL clearly appreciated that defective design or installation of the boat’s electric installations and circuits would be likely to result in an electrical fault and that such a fault could cause a fire. JCL was found to have been negligent.
It is not only the product itself that might be the cause of injury or damage. The packaging material specified might be unsuitable or defective. Adelaide Chemical & Fertilizer Co v Carlyle (1940) 64 CLR 51412 9.10C2
Facts: AC&F manufactured sulphuric acid, which was sold in earthenware jars. Each jar, when filled, weighed about 34 kg. Experiments (conducted for the court case) showed that the filled jars, when tilted and allowed to fall some 23 cm, invariably broke. Carlyle’s employer purchased some jars of sulphuric acid from AC&F. Carlyle was badly burned by sulphuric acid when one of the jars broke when being handled by him and he subsequently died. His wife sued AC&F for negligence. AC&F bought the jars from a reputable manufacturer. The cause of the accident was not entirely clear. Either the jar’s handle broke as it was being lifted or it slipped out of Carlyle’s grasp. Decision: The High Court accepted that sulphuric acid was within the category of goods dangerous in themselves. However, this did not mean that strict liability applied. The test was still negligence. The degree of care was that which a reasonably prudent person would exercise in the circumstances. AC&F was obliged to exercise all reasonable care to provide a vessel as durable and free from liability to break in the ordinary course of handling as was compatible with the conditions and exigencies of manufacture and trade. The court held that AC&F was negligent in using the jars without any proper examination of their suitability for the purpose.
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C. Defects in the marketing process 9.11 In releasing a product into the marketplace, a manufacturer may be negligent. Failing to adequately warn potential consumers of any risks or dangers associated with a product can amount to negligence. Norton Australia Pty Ltd v Streets Ice Cream Pty Ltd (1968) 120 CLR 635 9.11C
Facts: Severe damage was caused to Streets’ factory by fire. The fire was the result of an explosion caused by the vaporising of an adhesive substance that was being used in the process of insulating a coolroom in the factory. The adhesive contained a petroleum solvent that was readily volatile and the vapour given off was highly inflammable. Norton made the adhesive and sold it to the contractor who was performing the work. The day of the fire was hot and there was little or no movement of air in the room. A quantity of the adhesive was poured into a shallow tray, from which it was applied by rollers to sheets of foil which were then fixed to the ceiling by the adhesive. In another part of the coolroom, about 6 metres from
12 See also O’Dwyer v Leo Buring Pty Ltd [1966] WAR 67.
378
Chapter 9: Product Liability the tray, workmen were heating bitumen over a naked flame for the purposes of fixing cork tiles to the sheets of foil. While the work was proceeding, a sheet of foil coated with adhesive burst into flames. Fire immediately spread to other parts of the building. The drums in which the adhesive had been supplied bore the inscription: ‘CAUTION: HIGHLY INFLAMMABLE. For further information ask for the data sheet.’ The contractor had obtained the data sheet, which stated, inter alia, ‘Solvent: Petroleum Benzene Free. Inflammability: Highly inflammable, flash point below 73oF’. Streets sued Norton, alleging that it manufactured and distributed for sale a dangerous and highly inflammable substance for use in connection with the installation of insulating material, and that it had so negligently and unskillfully conducted itself in its failure to properly and adequately warn of the dangerous and highly inflammable nature of the material, that it caused a fire to occur in the plaintiff’s premises. Decision: The plaintiff succeeded at first instance and on appeal to the Supreme Court of New South Wales. Norton appealed to the High Court. The court held that Norton had discharged its duty of care as the manufacturer of a dangerous substance, by placing the warning on the drum. Norton could not have reasonably foreseen the negligent act of the contractor’s workers in using the adhesive in close proximity to a naked flame.
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In assessing the adequacy of such warnings, a court will generally consider: • the wording used; • the prominence or intensity of the warning; and • the location of the warning. A clear, easily observed warning attached to the product itself, rather than on external packaging or accompanying leaflets, will usually be deemed adequate. The separate requirements of the Australian Consumer Law must also be met when considering the adequacy of warning labels: see 9.17. Even the choice of a brand name can be an element in establishing negligence, as illustrated by a US case, Maize v Atlantic Refining Co.13 In this case, an inconspicuous label appeared on the product cautioning about the inhalation of fumes from the product. The warning advised that the product should be used in well-ventilated places only. However, the court held that this warning was counteracted by more conspicuous words on the label describing the product by its trade name, ‘Safety-Kleen’.
D. Failure to provide adequately safe systems 9.12 There is no requirement in negligence to provide absolutely safe premises or completely safe systems of work. The law of negligence requires that firms respond reasonably to the presence of risks. This often involves the development of adequate systems — such as the regular cleaning of public spaces — to manage risks.
13 352 Pa 51 (1945).
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Strong v Woolworths Ltd [2012] HCA 5 9.12C
Facts: Woolworths operated both a supermarket and a Big W store at the Centro shopping centre in Taree in NSW. As permitted by the lease, Big W would conduct ‘sidewalk sales’ in the area immediately outside its shop. Mrs Strong, an amputee who used crutches, was walking through pot plants in this sales area outside Big W at lunchtime. There was a chip on the floor. Her crutch made contact with the chip, causing her to fall and sustain injury. Was Woolworths liable? There was no question that they (or one of their agents) had dropped the chip which caused Mrs Strong to fall. But had they maintained an adequate system of cleaning to pick up the chip and prevent falls? The owners of the shopping centre (Centro) employed cleaners to clean the public areas on a 20 minute rotation, but this did not include the ‘sidewalk sales’ area. This area was the responsibility of Woolworths. There was evidence that the sidewalk area had not been inspected since the sales area was set up that day (ie, four and a half hours previous).
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Decision: It was agreed that Woolworths did not have a system in place for the regular inspection and cleaning of the area where Mrs Strong fell. They argued, however, that, as it was impossible to know when the particular chip had fallen on the ground, the plaintiff couldn’t prove that their failure to have an adequate system in place had caused her loss. The chip may have been on the ground for 20 minutes (and so would have been picked up by an adequate cleaning system) but may only have been on the ground for five minutes (and so wouldn’t have been picked up). The High Court rejected this argument and said that the correct question to ask was whether, on the balance of probabilities, the chip had been on the floor for more than say 15 or 20 minutes before Mrs Strong fell. Because there was no evidence of when exactly the chip fell, it was open to the Court to find, on the balance of probabilities, that the failure of Woolworths to maintain an adequate system of cleaning had caused Mrs Strong’s loss, and thus they were liable in damages.
Consumer Guarantees — Ch 3 Pt 3-2 (Div 1) of the Australian Consumer Law Liability of suppliers of goods 9.13 While the common law principles of contract and negligence still have an important role to play in protecting the user or consumer of defective goods, there is no doubt that the remedies provided by the common law are somewhat limited and that the laws are subject to severe restrictions. In particular, it will be recalled that the privity of contract doctrine (confining rights to the purchaser of defective goods only) and the freedom of contract doctrine (entitling a contracting supplier to exclude or modify liability for defective goods) can potentially have a major impact upon consumers who suffer loss or injury as a result of buying or using defective products. 380
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Prior to the Australian Consumer Law being passed, consumers were given statutory rights against sellers (generally, retailers) by incorporating into the sale contract certain obligations (terms) which could not be excluded by the seller. But the consumer still had to sue for breach of contract. Similar obligations were also imposed on manufacturers. This former scheme of consumer protection by implied contractual terms arose from the Trade Practices Act 1974 (Cth) and various state Acts relating to sales of goods or services. The introduction in 2011 of a statutory scheme of product guarantees by the Australian Consumer Law has changed the situation. Although the obligations remain quite similar, the consumer no longer sues for breach of contract. Instead, the action is for breach of a statutory guarantee. As was the case under the former Trade Practices Act, liability under these Australian Consumer Law statutory guarantees cannot be excluded, restricted, or modified. Furthermore, responsibility for some of the statutory guarantees is not confined to the contracting supplier — a consumer may be entitled to claim directly against a manufacturer of the defective goods, even though no contract exists between the consumer and manufacturer. And finally, it is not just the purchasing consumer who can claim for a breach of these product guarantees. Any person to whom the consumer gives the goods in question as a gift can also claim against the supplier. The other important change made by the Australian Consumer Law is in the area of remedies. Because the Australian Consumer Law is a national scheme, the statutory guarantees and remedies (which are now quite specific and clear) are the same throughout Australia. The Australian Consumer Law provides the buyer of consumer goods with certain rights against the supplier of those goods. Those rights are called guarantees. If a guarantee is not complied with, the consumer has remedies as set out in the Australian Consumer Law.
A. Who is a consumer? 9.14 For the purposes of suing a direct supplier under the Australian Consumer Law, s 3 provides that a person will be a consumer if, and only if: • the price of the goods or services acquired does not exceed a prescribed amount (presently $40,000);14 or • if the price exceeds this amount, the goods or services were of a kind ‘ordinarily acquired for personal, domestic or household use or consumption’; or • the goods are a commercial road vehicle or trailer.
14 The 2017 Review of the Australian Consumer Law recommended this be increased to $100,000. The Ministers for Consumer Affairs considered this recommendation, and asked officials to undertake a regulatory impact assessment of this proposal to inform future decision making. This is ongoing and the legislation may change as a result of this process: see Australian Consumer Law Review, Final Report, 2017, available at .
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It is important to emphasise, however, that a person does not qualify as a ‘consumer’ if the goods were acquired, or represented as being acquired: • for the purpose of re-supply; or • for the purpose of using them up or transforming them, in trade or commerce, in the course of production or manufacture; or • for repairing or treating other goods or fixtures on land. So the foregoing is a two-part test: the goods or services must fit into (at least) one of the first three categories, and must not fit into any of the latter three categories. As can be seen, where the price of the goods exceeds the prescribed amount, a person can still qualify as a ‘consumer’ if the goods are ‘of a kind ordinarily acquired for personal, domestic or household use or consumption’. This limitation means that many commercial parties will also be seen as consumers, but also raises difficulties, as the wording used is not easy to interpret. For example, carpet used commercially in a night club is a product that is ordinarily acquired for personal use, so that even if it were acquired for commercial use, this would not prevent the purchaser from qualifying as a consumer: see Carpet Call Pty Ltd v Chan.15 In Bunnings Group Ltd v Laminex Group Ltd16 the Court clarified the way in which this test operates, and indicated that the test is not based on how the category of goods is ordinarily used, but on looking at the specific goods in question, and how they are ordinarily used. As the word ‘ordinarily’ means ‘commonly’ rather than ‘principally’, the classification of the essential character of the goods will be relevant, but not determinative. In the Bunnings case the Court needed to consider whether or not foil laminate installed as insulation in a number of Bunnings warehouses was a consumer good. It was clearly in excess of $40,000. The first question the Court asked was, is foil laminate (the good in question) a good ordinarily acquired for personal, domestic or household use or consumption? They answered this question by saying that it was commonly used commercially, but was also suitable for residential buildings. Because the foil laminate was not exclusively used commercially, the Court believed it could be said to be commonly used for residential use, and thus of a kind ordinarily acquired for personal, domestic or household use. Bunnings was therefore a consumer within the meaning of the Act. It should be noted that the Australian Consumer Law covers not only a sale of goods, but also the lease or hire of goods. Wherever there is a reference in this section of the chapter to the ‘seller’ or ‘supplier’ of goods, it also means the ‘hirer’ or ‘lessor’ of goods. Furthermore, in addition to those items normally regarded as goods, the Australian Consumer Law defines goods to include:17 15 (1987) ASC 55-553; (1987) ATPR (Digest) 46-025, see 9.18C2. 16 (2006) 230 ALR 269. 17 Australian Consumer Law s 2.
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• • • • • • •
ships, aircraft, and other vehicles; animals including fish; minerals, trees, and crops, whether on, under or attached to the land or not; gas and electricity; computer software; second-hand goods; or any component part of, or accessory to, goods.
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B. Statutory guarantees relating to the supply of goods 9.15 Where a person supplies goods to a consumer: • there is a guarantee that the supplier has a right to sell or dispose of the property in the goods: Australian Consumer Law s 51; • there is a guarantee that the buyer has the right to undisturbed possession of the goods: Australian Consumer Law s 52; • there is a guarantee that the goods are free from any security, charge, or encumbrance not disclosed in writing before the contract was made: Australian Consumer Law s 53. This means the goods are not mortgaged or charged in any way; • there is a guarantee that the goods are of acceptable quality: Australian Consumer Law s 54; • there is a guarantee that the goods are fit for any disclosed purpose, and for any purpose for which the supplier represents that they are reasonably fit: Australian Consumer Law s 55; • there is a guarantee that, where the goods are sold by description, the goods correspond with the description: Australian Consumer Law s 56; • there is a guarantee that, where the goods are sold by reference to a sample or demonstration model, the goods correspond with the sample or demonstration model in quality, state, or condition: Australian Consumer Law s 57; and • there is a guarantee that the supplier will comply with any express warranty given or made by the supplier: Australian Consumer Law s 59(2). Except for the first three guarantees: • all other guarantees do not apply to auction sales; and • all other guarantees apply only where there is a supply to a consumer ‘in trade or commerce’. We will now consider the concept of ‘in trade or commerce’ and then expand on the more important guarantees.
i. When is a supply ‘in trade or commerce’? 9.16 The goods must be supplied ‘in trade or commerce’ for any of the guarantees in ss 54–59 of the Australian Consumer Law to apply. The effect of this requirement is that private contracts will usually not be subject to most of the Australian 383
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Consumer Law. For example, if X sells her car to Y, provided X is not in the business of buying and selling cars or is not selling the car as part of a business, the contract is not made ‘in trade or commerce’. Would it be any different if X sold her car to a car dealer that buys and sells cars for profit? Would this be ‘in trade or commerce’? The answer is ‘no’ because it is irrelevant that the buyer acquired the goods (the car) in the course of business. The important issue is whether the seller sold the goods ‘in trade or commerce’.
ii. Guarantee of acceptable quality 9.17 The consumer has an action against the supplier where the goods are not of acceptable quality: Australian Consumer Law s 54. Section 54 reads as follows: (1) If: (a) a person supplies, in trade or commerce, goods to a consumer; and (b) the supply does not occur by way of sale by auction, there is a guarantee that the goods are of acceptable quality.
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(2) Goods are of acceptable quality if they are as: (a) fit for all the purposes for which goods of that kind are commonly supplied; and (b) acceptable in appearance and finish; and (c) free from defects; and (d) safe; and (e) durable, as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of the goods), would regard as acceptable having regard to the matters in subsection (3). (3) The matters for the purposes of subsection (2) are: (a) the nature of the goods; and (b) the price of the goods (if relevant); and (c) any statements made about the goods on any packaging or label on the goods; and (d) any representation made about the goods by the supplier or manufacturer of the goods; and (e) any other relevant circumstances relating to the supply of the goods. …
Note the requirements of subs (1) already discussed: supply of goods must occur in trade or commerce, to a consumer, and auction sales are excluded. The supplier is not responsible for defects pointed out to the consumer before sale — this may be done by way of a notice displayed with the goods. Nor is the supplier responsible for defects caused by the consumer’s carelessness. Finally, where the consumer examines the goods prior to sale, the supplier is not responsible for any defects that the examination ought reasonably to have revealed. 384
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Paisley v Aitchison trading as Dean Cars (Civil Claims) [2012] VCAT 1483 Facts: Paisley bought a Kia Carnival from Aitchison. The vehicle was eight years old and had travelled almost 80,000 km. The price was $12,500. Paisley complained about a number of matters, including a flat battery, a fuel gauge that gave an incorrect reading, an oil leak, and a defective windscreen wiper. Aitchison remedied all these defects at no cost to Paisley. Paisley sought to rescind the contract for breach of s 54 of the Australian Consumer Law (goods not of acceptable quality).
9.17C1
The issue was whether the car was of acceptable quality and, if not, whether the defects amounted to a major failure to comply with the guarantee under s 54 of the Australian Consumer Law. Decision: In considering whether the vehicle was of acceptable quality, the car must be compared to a similarly aged and used vehicle. In this case the defects did not mean that the car was not of acceptable quality. Therefore, there was no breach of s 54 of the Australian Consumer Law. The Tribunal also held that, even if the car was not of acceptable quality, none of the defects amounted to a major failure.
In contrast, a used car that continually overheated and stalled, probably because of a cracked cylinder head in the engine, was not of acceptable quality. The defect was a major failure to comply with the s 54 guarantee. The buyer was entitled to reject the car: see Barratta v TPA Pty Ltd (Civil Claims).18 The scope of protection provided to consumers by this statutory guarantee is similar to the previous law, which implied a contractual promise of ‘merchantable quality’. The case below is one in which a consumer might now argue that the goods were not of acceptable quality.
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Grant v Australian Knitting Mills (1935) 54 CLR 49; [1935] AC 85 Facts: Dr Grant bought some woollen underwear manufactured by Australian Knitting Mills (AKM) from John Martin’s retail store in Adelaide. The day after first wearing the underwear, he contracted dermatitis. The illness was extremely serious and lasted for approximately a year. The court found that the dermatitis was caused by residual chemicals in the underwear, allegedly due to negligence in the manufacturing process. Grant sued John Martin for breach of contract. One of his arguments was that the goods were not of merchantable quality. (Grant also sued AKM for negligence: see 9.4.) Decision: In relation to the claim against John Martin, the court held that the goods, as sold, were not of merchantable quality. (If facts similar to those in Grant’s case occurred today, the purchaser would argue that the goods were not of acceptable quality, as guaranteed under s 54 of the Australian Consumer Law. Would such an argument succeed? The answer depends perhaps on whether it has now become normal practice for purchasers to wash newly purchased clothing prior to wearing it. A prudent manufacturer would, of course, include a warning on the packet, and this could protect both the manufacturer and the retailer.)
18 [2012] VCAT 679.
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iii. Guarantee of fitness for any disclosed purpose 9.18 If the consumer makes known the purpose for which goods are required and the consumer relies on the seller’s skill in choosing the appropriate goods, then the consumer has an action against the supplier if the goods are not reasonably fit for that purpose. The goods must also be reasonably fit for any purpose for which the supplier represents that they are reasonably fit. In this regard, s 55 of the Australian Consumer Law reads as follows: (1) If: (a) a person (the supplier) supplies, in trade or commerce, goods to a consumer; and (b) the supply does not occur by way of sale by auction; there is a guarantee that the goods are reasonably fit for any disclosed purpose, and for any purpose for which the supplier represents that they are reasonably fit. (2) A disclosed purpose is a particular purpose (whether or not that purpose is a purpose for which the goods are commonly supplied) for which the goods are being acquired by the consumer and that: (a) the consumer makes known, expressly or by implication, to: (i) the supplier; or (ii) a person by whom any prior negotiations or arrangements in relation to the acquisition of the goods were conducted or made; or (b) the consumer makes known to the manufacturer of the goods either directly or through the supplier or the person referred to in paragraph (a)(ii). …
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Dawson v Pacific Chase Investments (General) [2012] NSWCTTT 432 9.18C1
Facts: Dawson bought a horse to use in harness racing. The purpose was known to the seller. Later it was discovered that the horse had laryngeal hemiplegia which made it wholly unsuitable for racing. Neither the seller nor Dawson was aware of the problem. Dawson had inspected the horse before sale, but did not have a vet check the horse. Dawson sought to reject the horse and the seller refused. The issue was whether the Australian Consumer Law applied; thus, whether the horse was of acceptable quality (s 54) and fit for the purpose of harness racing (s 55). Decision: This was a consumer contract for the sale of a good within the meaning of the Australian Consumer Law. Although the buyer inspected the horse, the inspection did not and would not have revealed the defect. The horse was therefore neither of acceptable quality nor fit for the buyer’s disclosed purpose. The buyer was entitled to reject the horse.
The guarantee does not apply if the circumstances show that the consumer did not rely on, or that it was unreasonable for the consumer to rely on, the skill or judgment of the supplier or the manufacturer or other person. 386
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Carpet Call Pty Ltd v Chan (1987) ASC 55-553; (1987) ATPR (Digest) 46-025 Facts: Chan sought a number of quotes for the supply of carpet for his nightclub. Eventually, Carpet Call’s quote for $68,839 was accepted. During negotiations, Chan explained to Carpet Call that he wanted a carpet of good quality, grey in colour, capable of withstanding heavy human traffic, and generally suitable for a big nightclub catering for young upmarket patrons. The carpet supplied was rated as heavy duty domestic. Chan refused to pay the full amount of the purchase price after certain areas of the carpet became unsightly as a result of cigarette burns, stains, and extraordinary customer abuse. Chan would have been better off buying a patterned carpet, as the stains and burns would not have been so obvious. Carpet Call had failed to advise Chan of this. Carpet Call sued for the unpaid purchase price. In his defence, Chan argued that the carpet was not reasonably fit for the purpose for which it had been sold. Decision: The Supreme Court of Queensland held that the contract was a consumer contract because the goods were of a type ordinarily purchased for personal, domestic, or household use. They did not lose that character by being purchased in this case for commercial use. Thomas J said: In my view ‘carpet’ is a commodity, or goods, ordinarily acquired for domestic consumption, and it did not lose that description by reason of a commercial rating, or some quality, which makes it last longer than other carpet normally supplied for use in a domestic setting. However, there was insufficient evidence to establish that the buyer had relied on the seller’s skill to supply a carpet that would camouflage the staining caused by the patrons’ use. Therefore, Carpet Call succeeded in its claim for the full purchase price.
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iv. Guarantee that goods correspond with description 9.19 The consumer has an action against the supplier if the goods do not correspond with the description by which they are sold. In this regard, s 56 of the Australian Consumer Law reads as follows: (1) If: (a) a person supplies, in trade or commerce, goods by description to a consumer; and (b) the supply does not occur by way of sale by auction; there is a guarantee that the goods correspond with the description. (2) A supply of goods is not prevented from being a supply by description only because, having been exposed for sale or hire, they are selected by the consumer. …
This guarantee only applies where the goods were ‘sold (or otherwise supplied) by description’. Although decided under the previous law, the following case provides a useful illustration of the courts’ approach to the meaning of this phrase.
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Beale v Taylor [1967] 3 All ER 253; [1967] 1 WLR 1193 9.19C
Facts: The seller advertised a car for sale as a ‘Herald convertible, white, 1961 …’. The buyer inspected the car before purchase. Later, the buyer took the car to a garage and was told that the car was in fact two cars welded together (a shady practice still occurring today, producing what is often referred to as a ‘cut and shut’ vehicle). The rear was a 1961 Herald, but the front was an earlier model. Because of the welding, the car was unroadworthy. The buyer sued for breach of the implied condition that the car did not correspond with the description by which it was sold. Decision: The Court of Appeal held that although the buyer inspected the car, it was still a sale by description. As the car did not match that description, there was a breach of the requirement that the goods match the description by which they were sold.
Section 56(2) of the Australian Consumer Law provides that goods might be considered to have been supplied by description even where the goods have been exposed for sale or hire, and are selected by the consumer. Section 56(3) provides that goods can be taken to have been both supplied by description and by sample or by demonstration, in which event both guarantees under ss 56 and 57 will apply.
v. Guarantee that goods correspond with sample
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9.20 Where goods are sold by reference to a sample or demonstration model, the consumer has an action against the supplier if the goods do not correspond with the sample or demonstration model in quality, state, or condition. This guarantee also ensures that the buyer has a reasonable opportunity to inspect the goods supplied, in order to compare them with the sample. In this regard, s 57 of the Australian Consumer Law reads as follows: (1) If: (a) a person supplies, in trade or commerce, goods to a consumer by reference to a sample or demonstration model; and (b) the supply does not occur by way of sale by auction; there is a guarantee that: (c) the goods correspond with the sample or demonstration model in quality, state or condition; and (d) if the goods are supplied by reference to a sample — the consumer will have a reasonable opportunity to compare the goods with the sample; and (e) the goods are free from any defect that: (i) would not be apparent on reasonable examination of the sample or demonstration model; and (ii) would cause the goods not to be of acceptable quality. …
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vi. Guarantee that goods correspond with any warranty given 9.21 If either a supplier or a manufacturer supplies goods to a consumer, there is a guarantee that they will comply with any express warranty given or made by them in relation to the goods: Australian Consumer Law s 59. An ‘express warranty’ is defined to include any undertaking, assertion, or representation in relation to the quality, state, condition, performance, or characteristics of the goods, as well as to the availability of related services, parts, or replacements given or made in connection with the promotion or supply of goods: Australian Consumer Law s 2. The operation of s 59(1) focuses on warranties given by manufacturers. This addresses the privity of contract issue and allows consumers to legally enforce warranties given by manufacturers. The operation of s 59(2) seems to be primarily aimed at the promotional activities of suppliers, encompassing any statements made in advertisements in any medium and statements included in point-of-sale literature. However, in order for an undertaking, assertion, or representation to be an express warranty, it must have a ‘natural tendency’ to induce persons to acquire the goods being promoted. In other words, the section appears to accept that ‘puffery’ (ie, the use of self-evident exaggeration) is permissible, as puffery does not usually have the natural tendency to induce ‘reasonable’ consumers to rely upon it, even though an advertisement, for example, might contain material that is literally untrue. This provision reinforces the unfair practices provisions of the Australian Consumer Law: see Chapter 10.
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C. Attempts to exclude or modify statutory guarantees by a supplier 9.22 Suppliers are generally not permitted to exclude, restrict, or modify the statutory guarantees. Any attempt to do so is void: Australian Consumer Law s 64. However, the obligations can be modified or limited under certain circumstances. This step can only be taken in relation to ‘goods or services of a kind not ordinarily acquired for personal, domestic or household use or consumption’, where the supplier is permitted to limit liability to the replacement or repair (or cost of replacement or repair) of the goods, but only if it is fair and reasonable to do so: Australian Consumer Law s 64A. Motorcycling Events Group Australia Pty Ltd v Kelly [2013] NSWCA 361 Facts: The defendant, David Kelly, was participating in a motorcycle training session run by the appellant at Eastern Creek Raceway. He was injured when he was struck by another rider, participating in a more advanced training session. The appellant argued that their liability to pay compensation was successfully limited by an exclusion clause in their contract which provided:
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Marketing and the Law The Applicant/Guardian hereby releases and indemnifies [the appellant] … from any claims or liability for death, personal injury or property damage howsoever caused as a condition of acceptance to partake in the event. The relevant question for the Court was whether or not this clause would protect against the defendant’s action that the appellant’s services had not been rendered with due care and skill (then Trade Practices Act s 74, now Australian Consumer Law s 60). Decision: The Court held that the exclusion clause was void because of the operation of what is now Australian Consumer Law ss 64 and 64A.
Note that there have been changes to the statute since this case and now providers of recreational services may limit (but not completely exclude) their liability under s 139A of the Competition and Consumer Act. Recreational service includes any sporting activity or any other activity that involves a significant degree of physical exertion or physical risk and is undertaken for the purposes of recreation, enjoyment, or leisure. To include such a clause in the contract, the service provider must give reasonable notice of the clause to the consumer of the service.
D. Remedies available for breach of the statutory guarantees relating to goods 9.23 The remedies available to the consumer where one of the statutory guarantees has not been complied with are set out in the Australian Consumer Law at Pt 5-2. The remedies depend first on whether the failure to comply is a major failure or not.
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TABLE 9.1 REMEDIES FOR BREACH OF STATUTORY GUARANTEES TYPE OF FAILURE TO COMPLY WITH GUARANTEES
REMEDIES
QUALIFICATION
• Sometimes goods may not Major failure • Notify the supplier that goods be rejected. (see definition below) are rejected; or • Procedures for rejecting • sue for compensation for any goods must be followed. reduction in value of goods below price paid or payable; and • sue for damages for any loss or damage caused by failure to comply with guarantee, provided such loss or damage was reasonably foreseeable.
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REMEDIES
QUALIFICATION
• Supplier has options as • Provided the failure can be to how guarantee is to be remedied, require supplier to remedied. remedy the failure within a reasonable time; or • if supplier refuses or fails to comply: – have failure remedied by third party and sue supplier for reasonable costs of doing so; or – notify the supplier that goods are rejected.
i. What is a major failure?
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9.24 The definition of a major failure is set out in s 260 of the Australian Consumer Law. A failure to comply with a guarantee is a major failure if: • the goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure; or • the goods depart significantly from the description or sample or model by which they were sold; or • the goods are substantially unfit for either their normal purposes or any disclosed purpose, and they cannot easily and within a reasonable time be remedied to make them fit for such a purpose; or • the goods are not of acceptable quality because they are unsafe.
ii. When may goods not be rejected? 9.25 There are time limits on the right to reject goods. If goods are to be rejected, this must be done within the rejection period. The rejection period starts when the goods are supplied and finishes when the defect should have become apparent. The time at which the defect should have become apparent depends on a variety of factors set out in s 262(2) of the Australian Consumer Law, including the type of goods and the use to which they are likely to be put. There are also physical limits on the right to reject goods. The goods may not be rejected if they have been: • lost, destroyed, or disposed of by the consumer; or • damaged after being delivered to the consumer for reasons not related to their state or condition at the time of supply; or • attached to, or incorporated in, any real or personal property and they cannot be detached or isolated without damaging them. 391
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iii. Consequences of rejecting goods 9.26 If the consumer notifies the supplier that the goods are being rejected, the consumer must return the goods. If this cannot be done except at significant cost to the consumer, the supplier must, within a reasonable time, collect the goods at the supplier’s expense. If the consumer has rejected the goods, the consumer may require the supplier either: • to provide a refund, or • to replace the goods with goods of the same type and value. The choice is up to the consumer. Any replacement goods are subject to the statutory guarantees. The supplier cannot require the consumer to take goods (other than replacement goods) instead of a refund.
iv. Steps a supplier is entitled to take to remedy a failure 9.27 In terms of s 261 of the Australian Consumer Law, if the breach of a statutory guarantee is not a major one, the supplier may remedy the breach by: • repairing the goods; or • replacing the goods with goods of an identical type; or • providing the consumer with a refund.
E. Do statutory guarantees extend beyond the purchaser of goods? 9.28 If a person acquires goods from a supplier and gives them to another person as a gift, the receiver of the gift obtains the same rights as the acquirer in relation to the goods: Australian Consumer Law s 266.
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Possible reforms 9.29 The Australian Consumer Law Review19 proposed several changes to the operation of these remedies. For example, Proposal 1 suggested that where a good failed to meet a consumer guarantee within a short specified period of time, a consumer should be entitled to the remedies of refund or replacement without needing to prove a ‘major failure’. These proposals are currently subject to Regulatory Impact Assessment, which will inform future decision making (and legislative change) in this area. The Review also flagged the need to consider whether or not the consumer guarantees were fit-for-purpose for purely digital products and emerging technologies.
Liability of manufacturers of goods 9.30 The Australian Consumer Law requires manufacturers to provide guarantees to consumers, similar to those imposed on suppliers, thus creating a scheme of 19 See Australian Consumer Law Review, Final Report, above n 14.
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liability which ensures that some of the risk of compensating those who may have suffered loss or damage as a result of defects in goods will be borne by the person who is, in most cases, better able to exercise quality control over the goods, and also to insure against liability at the lowest possible cost. The rationale is that liability for defects in goods should more often than not be borne by the manufacturer rather than the retailer because of modern methods of packaging, labelling, distribution, and promotion of goods: Zaravinos v Dairy Farmers Co-operative Ltd & Pure-Pak Australia20 per Lockhart J.
A. Manufacturer definition 9.31 The obligation to comply with some specific statutory guarantees under the Australian Consumer Law is imposed upon the ‘manufacturer’: Australian Consumer Law s 7. The term ‘manufacturer’ includes: • persons who actually manufacture the goods; • own branders; that is, persons who represent themselves or allow themselves to be represented as the manufacturer of goods (for example, where a distributor sells goods under its own private label); • assemblers; that is, persons who put together and sell products under their own name using parts made by others; and • importers; that is, persons who import goods into Australia where the actual manufacturer of the goods has no place of business in Australia.
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B. Consumer definition 9.32 The manufacturer must provide specified statutory guarantees to ‘consumers’. The definition of consumer can be found in s 3 of the Australian Consumer Law, and has already been discussed at 9.14. In order for these statutory obligations to come into force, there must have been ‘a supply of goods to a consumer’ by a supplier. Thus, the statutory obligations do not operate in favour of any member of the public who happens to be injured as a result of a defective product. The right to claim compensation is only given to the consumer who acquires the goods, or to the person who receives the goods as a gift from that consumer. Thus, if a defective product causes injury or damage not to the consumer, but to a member of the consumer’s household, or a guest of the consumer, or to a total stranger, those persons are unable to seek compensation for breach of these statutory guarantees. Instead, the injured person would be obliged to seek remedies under the general law of negligence or under Pt 3-5 of the Australian Consumer Law: see 9.48.
C. Supplier’s right of indemnity against a manufacturer 9.33 Where a consumer brings an action against the supplier (usually a retailer) for failure to comply with a statutory guarantee and is successful, the Australian 20 (1985) 59 ALR 603; (1985) ATPR 40-559.
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Consumer Law allows the supplier the right of indemnity against the manufacturer if the failure to comply was due to the manufacturer: s 274. In other words, any compensation that the supplier has to provide to the consumer can be claimed from the manufacturer. In practice, this will mean that if the consumer does not sue the manufacturer, the supplier will need to take steps to have the manufacturer joined as a party to the action. The obligation to indemnify the supplier is non-avoidable, at least where the goods are ‘of a kind ordinarily acquired for personal, domestic or household use or consumption’: Australian Consumer Law s 276. However, the manufacturer’s liability to indemnify the supplier in relation to defective ‘non-consumer’ type goods can be limited to the replacement or repair (or cost of replacement or repair) of the goods, but only if it is fair and reasonable to do so: Australian Consumer Law s 276A.
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D. Guarantees owed to consumers by manufacturers 9.34 A consumer may sue the manufacturer for damages where: • the goods are not of acceptable quality: Australian Consumer Law s 271(1); or • the goods do not correspond with the description applied to the goods by or with the consent of the manufacturer: Australian Consumer Law s 271(3); or • the manufacturer fails to comply with its obligations to provide repair facilities and spare parts under s 58 of the Australian Consumer Law: Australian Consumer Law s 271(5). Section 58 requires the manufacturer to guarantee that it will take reasonable action to ensure that facilities for repair of the goods, and parts for the goods, are reasonably available for a reasonable period after the goods are supplied. To be liable, the manufacturer must have acted unreasonably in failing to meet this guarantee, with the result that the consumer suffers damage. In determining if a manufacturer has taken reasonable action, a court will have regard to all the circumstances of the case and, in particular, circumstances that may be beyond the control of the manufacturer, such as a strike at the manufacturer’s factory preventing the production of spare parts: see Panasonic Australia Pty Ltd v Burstyner.21 This obligation protects the consumer from being left with goods rendered useless because of the lack of spare parts or the absence of adequate repair facilities. The manufacturer does not have to personally provide such facilities; the existence of independent repairers is quite adequate. Liability depends upon the information, or lack of information, given to the consumer at or before the time of purchase. If the manufacturer, or someone on its behalf, informs consumers before they acquire the goods that no repair facilities or spare parts will be available or that they will be available from a limited number of outlets or for a limited time, the manufacturer only has to abide by that advice; or 21 (1993) ASC 56-214; (1993) ATPR 41-224.
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• the manufacturer fails to comply with an express warranty given by the manufacturer under s 59(1) of the Australian Consumer Law: Australian Consumer Law s 271(5). Section 59(1) requires the manufacturer to guarantee that any goods manufactured by it will comply with any express warranty given or made by it in relation to those goods. The definition of an express warranty has been outlined at 9.21. Section 59(1) seems to be aimed at the promotional activities of manufacturers, covering any statements made in advertisements in any medium, statements included in brochures and point-of-sale literature, as well as statements appearing on labels and packages. The first two mentioned ‘guarantees’ are the most likely to be relied upon by a consumer and will be expanded upon below.
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i. Guarantee that goods are of an acceptable quality 9.35 The statutory definition of ‘acceptable quality’ (see Australian Consumer Law s 54(2)) has already been outlined and discussed at 9.17. This definition calls for the quality of the goods in question to be measured against what is objectively reasonable to expect (in terms of fitness for purpose, acceptability of appearance, and finish, safety, and durability) having regard to any statements or representations made in relation to the goods by the manufacturer, the price charged, and any other relevant circumstances. Most importantly, the task of determining whether goods are of ‘acceptable quality’ is made by looking at all the relevant facts from the point of view of a ‘reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of the goods)’. In other words, the judgment of determining whether goods are of acceptable quality at the time of supply is made by according consumers knowledge of the actual state of the goods. The manufacturer will not be liable to compensate a consumer if: • the consumer was the cause of the goods becoming (or failed to take reasonable steps to prevent the goods becoming) of unacceptable quality; and the goods were damaged by abnormal use: Australian Consumer Law s 54(6); or • the reasons for the goods being of unacceptable quality were specifically drawn to the consumer’s attention prior to the sale: Australian Consumer Law s 54(4); or • the consumer examined the goods before the sale and the unacceptable quality of the goods ought to have been revealed by the examination: Australian Consumer Law s 54(7). Clearly minor defects or flaws in goods do not necessarily mean that a good is not of acceptable quality; for instance, a loose connection in the radio of a car detected after the car has left the factory. However, a major defect, such as widespread rust in the body of the car, clearly renders the goods unacceptable in terms of quality. 395
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Cases under the previous law dealing with manufacturers’ responsibilities for unmerchantable goods are likely to be a good guide to how the Australian Consumer Law will operate.
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9.35C
Medtel Pty Ltd v Courtney (2003) 198 ALR 630; (2003) ATPR 41-939; [2003] FCAFC 151 Facts: As a result of a heart condition, the plaintiff (Courtney) had a pacemaker inserted. A pacemaker generates an electrical impulse that assists the heart to function. It has two main components: a battery to provide the power source; and electronic circuitry to produce the electrical impulses. The pacemaker inserted into the plaintiff was manufactured in the US and imported and distributed in Australia by the defendant, who operated a business of marketing and distributing medical devices. The pacemaker was branded in Australia with the defendant’s business name ‘Telectronics’. The pacemaker was from a batch that subsequently had an unacceptably high failure rate, resulting from the use of unsuitable solder during the manufacturing process, which caused some pacemakers to short circuit and cease to operate. Although the defendant’s pacemaker was still functioning properly, medical advice deemed it appropriate to surgically remove and replace the pacemaker because of the risk of premature failure. The replacement surgery was free of charge to Courtney, but Courtney sued the defendant, seeking compensation because the pacemaker was not fit for purpose or of merchantable quality (in terms of the Australian Consumer Law, the allegation would now be that the goods were not of ‘acceptable quality’). Decision: The Full Federal Court found as follows. • The pacemakers were ‘goods’ as defined, being goods of a kind ordinarily acquired for the personal use of the patients in whom they have been implanted. • The defendant was deemed to have manufactured the goods as a consequence of applying its business name to the goods and because it had imported the overseas-made goods into Australia. • The plaintiff had acquired the goods as a ‘consumer’. • The goods were not of merchantable (acceptable) quality. Even though the plaintiff’s pacemaker had not failed, it was the prospect that the pacemaker was in a defective physical condition and would lead to premature failure that led to the loss and damage suffered by the plaintiff. The goods were not as fit for the relevant purpose as was reasonable to expect at the time of their supply to the consumer. The defendant was ordered to pay the plaintiff $9,998.20 in compensation, which included $7,500 for pain, suffering, and loss of enjoyment of life.
ii. Guarantee that goods comply with description 9.36 Where the goods are supplied to a consumer by description applied to the goods by the manufacturer (or with the consent of the manufacturer), and the goods do not correspond to that description, causing loss or damage to the consumer, the consumer is entitled to compensation from the manufacturer: Australian Consumer Law s 271(3). The description may be applied to the goods themselves by the manufacturer, or to the packaging or labelling, or it may be 396
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used in promotional material. For example, a claim on a label that wallpaper is washable when such is not the case, would be a misdescription.
E. Manufacturer’s ability to exclude liability for the statutory guarantees 9.37 Any term of a contract attempting to exclude, restrict, or modify liability imposed by this part of the Australian Consumer Law is void: Australian Consumer Law s 276(1). However, it is important to realise that liability to consumers under the statutory guarantees can be limited by the manufacturer pursuant to s 271(6) of the Australian Consumer Law: see 9.40. In addition to protecting consumers, s 276 of the Australian Consumer Law also protects suppliers from losing their right of indemnity against a manufacturer. As noted at 9.33, manufacturers are obliged to indemnify suppliers who incur losses as a result of the manufacturer’s failure to comply with its obligations: Australian Consumer Law s 274; although for ‘nonconsumer’ type goods, liability can be modified: Australian Consumer Law s 276A.
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F. Defences to the statutory guarantees 9.38 The manufacturer has a number of statutory defences. Thus, the manufacturer will not be liable for the unacceptable quality of goods or the failure of the goods to correspond with description if the problem was caused by someone other than the manufacturer or its employees, or the problem was due to some cause independent of human control after the goods left the control of the manufacturer: Australian Consumer Law s 271(2) and (4). The manufacturer will also not be liable for the unacceptable quality of goods if the goods are unacceptable only because the price charged by the retailer is above the manufacturer’s recommended retail price (or the average retail price) for the goods: Australian Consumer Law s 271(2). The manufacturer will not be liable for failure to provide repairs and spare parts if the manufacturer has taken reasonable steps to ensure that the consumer would be given notice (before sale to the consumer) that repair facilities and spare parts might not be available, or might not be available after a specified period: Australian Consumer Law s 58(2).
G. Consumer’s rights of compensation against manufacturer 9.39 A consumer is entitled to recover damages for any reduction in the value of the goods resulting from the failure to comply with a statutory guarantee: Australian Consumer Law s 272. This includes the lower of the price paid (or payable) by the consumer for the goods, or the average retail price of the goods at the time of supply. This means that, if the consumer has paid an unusually high price to a supplier for the goods, this will not impact upon the manufacturer, who will only have to pay compensation based on the ‘average’ retail price at the time of supply. In addition to the reduction in value of the goods, any reasonably foreseeable loss 397
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or damage suffered by the consumer is recoverable. Without in any way limiting such a claim, the cost of inspecting and returning the goods to the manufacturer is taken to be a reasonably foreseeable loss. A consumer wishing to claim for damages must do so within three years after the day on which the consumer first became aware, or ought reasonably to have become aware, that the guarantee to which the action relates has not been complied with: Australian Consumer Law s 273.
H. Attempts to qualify the right to claim damages 9.40 When a consumer purchases goods, a manufacturer may provide an express warranty to repair or replace goods that do not comply with any of the statutory obligations owed by the manufacturer: Australian Consumer Law s 271(6). In such cases, the consumer’s right to sue for damages is restricted unless the manufacturer fails to honour its warranty within a reasonable time.
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Liability of suppliers of services 9.41 Part 3-2 Div 1B of the Australian Consumer Law provides for the following statutory guarantees in relation to the supply of services, in trade or commerce, to a consumer: • a guarantee that services will be rendered with due care and skill: Australian Consumer Law s 60; • a guarantee that services supplied (and any materials supplied in connection therewith) will be reasonably fit for the purpose specified by the consumer: Australian Consumer Law s 61(1); • a guarantee that services supplied (and any materials supplied in connection therewith) will be of such a state, quality, or condition as might reasonably be expected so as to achieve the result desired by the consumer: Australian Consumer Law s 61(2); and • a guarantee that, where no time for the supply of services is fixed, they will be supplied within a reasonable time: Australian Consumer Law s 62. ‘Services’ is broadly defined to cover the provision in the course of trade or commerce of any rights, benefits, privileges, or facilities, including those provided pursuant to the performance of work, as well as the provision of, or the use or enjoyment of facilities for amusement, entertainment, recreation, or instruction: Australian Consumer Law s 2. It would be a rare contract for services that is not covered by the legislation. Thus, the work involved in repairing a car or watch, in dry cleaning clothing, or in the installation of electric lighting must be completed with due care and skill and in reasonable compliance with any standard or result specified by the consumer. The definition is also wide enough to cover the provision of many commercial services. However, some services are not subject to the statutory guarantees, including: • contracts for the supply of goods or the performance of work under a contract of service: Australian Consumer Law s 2; 398
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• a contract for or in relation to the transportation or storage of goods for the purposes of a business, trade, profession, or occupation carried on or engaged in by the person for whom the goods are transported or stored: Australian Consumer Law s 63; • insurance contracts: Australian Consumer Law s 63; and • the supply of gas, electricity, or telecommunications services: Australian Consumer Law s 65. The standard with which services must be rendered (with due care and skill) is quite similar to the obligation owed at common law, although the supplier’s liability in respect of the guarantees to comply with the purpose or result specified by a consumer are stricter, and a breach is less difficult to establish. The supply of services must be to a ‘consumer’ for the statutory guarantees to be applicable.
A. Consumer definition 9.42 For the purposes of suing a direct supplier of services under the Australian Consumer Law, s 3 provides that a person will be a consumer if, and only if: • the price of the services acquired did not exceed a prescribed amount (presently $40,000);22 or • where the price exceeds the prescribed amount, the services were of a kind ordinarily acquired for personal, domestic, or household use or consumption.
B. Exclusion and limitation clauses
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9.43 Any attempt by the repairer or service person to modify or exclude the statutory guarantees is void (ineffective): Australian Consumer Law s 64; and may also amount to an offence punishable by fine: Miller v Fiona’s Clothes Horse of Centrepoint Pty Ltd.23 Note the comments at 9.22.
C. Attempts to modify the statutory guarantees 9.44 The obligations owed pursuant to the statutory guarantees outlined above can be modified or limited under certain circumstances. This step can only be taken in relation to ‘services of a kind not ordinarily acquired for personal, domestic or household use or consumption’: Australian Consumer Law s 64A. Of course, if such services exceed the prescribed amount (presently $40,000), no statutory guarantees exist in relation to them; so it is only when services up to a value of $40,000 are involved that any modification of liability is relevant. The difficulty in determining whether services (or goods) are of such a kind, is discussed at 9.14. The effect is to allow service providers to reasonably limit their liability for breach of implied terms in relation to ‘non-consumer’ type services. For instance, a supplier 22 Subject to change. 23 (1989) ATPR 40-963.
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will generally be liable for a breach of its obligations not only for the replacement or the cost of repair of goods, or for the re-performance of services, but also for any consequential loss or damage suffered by a consumer. For example, if a carpet cleaning service is inadequately performed, the provider would not only be obliged to refund the contract price, but would also usually be liable to pay compensation for any damage caused to a carpet during the service. However, when the contract is not for the supply of ‘services of a kind ordinarily acquired for personal, domestic or household use or consumption’ the supplier’s liability may be limited to: • the re-performance of the services; or • the payment of the cost of re-performing the services. Even this modification of liability is conditional. First, a term so limiting liability must be included in the contract and, second, it must be, in the circumstances, fair and reasonable for the supplier to rely on it. In determining whether a limitation clause is fair and reasonable, a court is required to have regard to a series of matters, including the relative bargaining power of the parties and the availability of the services from alternative sources. The onus is upon the consumer to establish that the modification or limitation of the supplier’s liability ought not to apply in a given case.
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9.44C
Mayne Nickless Ltd (t/as M SS Alarm Services (Reg’d)) v Crawford (1992) ASC 56-188 Facts: The defendant installed a ‘dialler’ intruder alarm system in the plaintiff’s dress shop at a cost of $1150. A representative of the defendant informed the retailer that a back-up system existed if someone cut the telephone line. The contract contained a clause excluding liability for any condition, warranty, or representation given or made by the defendant to the extent permitted by the Trade Practices Act (now the Australian Consumer Law). A few years after the installation, thieves broke into the premises, severed the wiring between the system’s control box and sensors and the Telecom cord, and made off with most of the garments on the premises. No alarm sounded and no call or ring was received at the place where the defendant had its base. The plaintiff suffered loss and sued the defendant for breach of warranty implied by s 74 of the Trade Practices Act (now a statutory guarantee imposed by s 61 of the Australian Consumer Law). The plaintiff claimed that the particular purpose — that is, the protection of the premises against burglary — had been made known to the defendant and that there was an implied warranty (a guarantee) that the services provided by the defendant and any materials supplied in connection with those services would be reasonably fit for that purpose. Decision: The defendant had provided ‘services’ within the meaning of that word in s 74 of the Trade Practices Act. As the retailer had paid less than $40,000 for the installation of the alarm system, the plaintiff was a ‘consumer’ who had made known to the defendant the particular purpose for which the service was provided. As such, the defendant was obliged to supply services and materials which were reasonably fit for that purpose. This it had failed to do. The defendant was required to do more to protect the premises than it did. If it could offer no better security than that given by its proposed system, it should have said so. If there was a better system, it should have recommended its installation. If more could have been done to improve the system which it installed, it should have been done. In this case, the wires could have been contained in heavy metal casing, which would have been ‘a reasonable deterrent to thieves’.
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Chapter 9: Product Liability Section 68 of the Trade Practices Act (now s 64 of the Australian Consumer Law) generally renders exclusion clauses void. However, where services are not ‘of a kind ordinarily acquired for personal, domestic or household use or consumption’, a supplier is permitted to limit liability to ‘the supplying of the services again’ or ‘the payment of the cost of having the services supplied again’ if to do so is fair and reasonable in the circumstances. Thus, although it was held that s 74 of the Trade Practices Act had been breached, the Full Court referred the issue of damages back to the trial judge for consideration.
D. Remedies available for breach of the statutory guarantees relating to services 9.45 The remedies available to the consumer where one of the statutory guarantees has not been complied with are set out in the Australian Consumer Law Pt 5.2. As with the supply of goods, the remedies depend first on whether the failure to w not. TABLE 9.2 REMEDIES
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TYPE OF FAILURE TO COMPLY WITH GUARANTEES
REMEDIES
Major failure (see 9.46)
• Terminate the contract and receive a refund for the balance of the contract; or • sue for compensation for any reduction in value of services below price paid or payable; and • sue for damages for any loss or damage caused by failure to comply with guarantee, provided such loss or damage was reasonably foreseeable.
Not a major failure
• Provided the failure can be remedied, require the supplier to remedy the failure at no cost and within a reasonable time; or • if the supplier refuses or fails to comply: – have failure remedied by third party and sue supplier for reasonable costs of doing so; or – terminate the contract and receive a refund of fees paid.
i. What is a major failure? 9.46 The definition of a major failure in relation to services is set out in s 268 of the Australian Consumer Law. A failure to comply with a guarantee is a major failure if:
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• the services would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure; or • the services are substantially unfit for their normal purpose, and they cannot easily and within a reasonable time be remedied to make them fit for such a purpose; or • the services and any product resulting from the services, are unfit for the purpose made known by the consumer, and the services cannot easily and within a reasonable time be remedied to make them fit for such a purpose; or • the services and any product resulting from the services, are not of such a nature, or quality, state, or condition, that they might reasonably be expected to achieve the purpose made known by the consumer, and the services cannot easily and within a reasonable time be remedied to make them fit for such a purpose; or • the supply of the services creates an unsafe situation.
ii. The right to terminate a contract
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9.47 Termination of a contract takes effect from the time termination is made known to the supplier (whether by words or conduct). Following termination, the consumer may take action against the supplier for a refund of money or any other consideration provided. Where goods are supplied with the service and the consumer has terminated the services contract, the consumer is taken to have rejected the goods. The consumer must then return the goods unless this is not possible without significant cost to the consumer. In such cases the supplier must collect the goods at the supplier’s expense: Australian Consumer Law s 270.
Goods with Safety Defects — Ch 3 Pt 3-5 of the Australian Consumer Law 9.48 While consumers have an insatiable demand for new and more complex products, they also demand greater product safety and, where they consider that the appropriate level of safety has not been met, they demand the right to pursue the manufacturer for compensation. The law of negligence and manufacturers’ liability for statutory guarantees under Pt 3-2 (Div 1) of the Australian Consumer Law do not fully meet community expectations in this regard. Furthermore, there is clearly a major limitation in the application of Pt 3-2 (Div 1), in that it operates only in favour of a ‘consumer’; that is, the person who has actually acquired the goods from a supplier, or who has acquired ownership by way of a gift from such a person. Any other person suffering loss or damage, such as a member of the 402
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consumer’s household or a guest, or even a total stranger, has no rights under Pt 3-2 (Div 1). Therefore, Pt 3-5 has been included in the Australian Consumer Law, adding further to the complexity of product liability law. Part 3-5 imposes an additional liability upon manufacturers of defective products.
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Objectives of Pt 3-5 9.49 Part 3-5 of the Australian Consumer Law provides a regime of strict liability, whereby a person who is injured or suffers loss as a result of a defective product has a right to compensation against the manufacturer without the need to prove negligence on the part of the manufacturer. The idea of a strict liability regime is that it concentrates on the objective nature of the product, rather than the behaviour of the producer. Negligence, on the other hand, concentrates on the behaviour of the producer. The result of this concentration on behaviour is that proving negligence tends to be an expensive exercise for a plaintiff. This is especially so where the allegation involves a design defect, as opposed to a manufacturing defect or a failure to warn. The plaintiff faces a costly and complex task in convincing a court that a manufacturer has been negligent in its design choices. One of the objectives of Pt 3-5 of the Australian Consumer Law is to redistribute the burden of explaining an accident. Part 3-5 gives rights in addition to other rights which a plaintiff may have against manufacturers under the Australian Consumer Law or at common law. The general effect will be that plaintiffs injured by defective products, especially if such persons had not purchased the goods (such as the plaintiff in Donoghue v Stevenson)24 or obtained the goods by way of a gift from the purchaser, will now sue relying on Pt 3-5 of the Australian Consumer Law. Of course, an injured person can now sue for damages under both the tort of negligence and Pt 3-5 of the Australian Consumer Law. However, the injured person is only entitled to be compensated once.
Manufacturer definition for the purposes of Pt 3-5 9.50 The term ‘manufacturer’ is defined in the same way as under Pt 3-2 (Div 1): Australian Consumer Law s 7; see 9.31. The term therefore includes: • actual manufacturers; • component part manufacturers; • assemblers; • own branders; that is, persons holding themselves out as the manufacturer by own branding; and • importers, where the actual manufacturer is located overseas and has no business operations in Australia. 24 [1932] AC 562; [1932] SC (HL) 31, see 9.4C1.
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The definition is further extended to cover ‘unidentified manufacturers’. A person can request a supplier, such as a retailer, to give details of the corporate manufacturer of the goods or the supplier of the goods to the supplier. If the request is not complied with within 30 days, the supplier is deemed to have manufactured the goods: Australian Consumer Law s 147. This means that a person injured by a defective product will not be deprived of compensation just because the manufacturer or importer is unknown.
Defective goods under Pt 3-5 9.51 For the purposes of Pt 3-5, goods have a defect if their safety is not such as persons generally are entitled to expect: Australian Consumer Law s 9. In other words, the assessment of goods as defective is based on objective community expectations, and not on the subjective expectations of the person injured. In determining the extent of the safety of goods, guidelines are set out in the Australian Consumer Law: s 9(2). Regard is to be given to all relevant circumstances, including: (a) the manner in which, and the purposes for which, the goods have been marketed; (b) the packaging of the goods; (c) the use of any mark in relation to the goods; (d) any instructions for, any warnings in respect to, doing or refraining from doing anything with or in relation to the goods; (e) what might reasonably be expected to be done with or in relation to the goods; and (f) the time when the goods were supplied by the manufacturer.
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Guideline (a) means that:25 [An] untrained consumer cannot expect to receive detailed instructions when purchasing a product only meant for use by trained persons. Similarly, consumers are entitled to expect a high degree of safety from goods that are marketed in a manner depicting simplicity and safety.
Guidelines (b)–(d) relate to presentation:26 [They] require factors such as the packaging, markings, instructions and warnings to be taken into account. In relation to goods which are known by the manufacturer to be potentially hazardous, instructions and warnings are particularly crucial, as it is through these sources that the manufacturer can detail the nature and extent of the potential hazard and provide adequate instructions to assist consumers in avoiding that hazard. Similarly, the general presentation of the product can influence consumer expectations by exaggerating safety aspects or minimising reference to possible risks. 25 Explanatory Memorandum accompanying these laws when originally introduced into the Trade Practices Act as Pt VA. 26 Explanatory Memorandum as note 11.
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It may be added that warnings carried on a label will not exonerate a manufacturer that otherwise promotes the product as safe: see Maize v Atlantic Refining Co.27 In another US decision, Steven v Parke, Davis & Co,28 warnings about the dangers of an antibiotic were rendered ineffective by vigorous over-promotion causing doctors to prescribe the drug where it was not warranted. Guideline (e) relates to the use to which the goods are put or reasonably likely to be put. This may require the manufacturer to detail the specific consequences of a misuse that can be reasonably expected. Guideline (f) makes it clear that the critical time for determining if goods are defective is that at which the goods were put into circulation by the manufacturer. It also recognises that goods may deteriorate and become less safe over time. The list of guidelines should not be regarded as exclusive. Other factors that may be relevant in determining whether goods have a defect include: • the price of the product; • the nature of the product; and • community knowledge of the product; for example, the community expects and accepts a degree of risk with respect to the use of inherently dangerous goods such as tobacco, guns, and knives.
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Determining whether a product is defective 9.52 The test for whether a good is defective is one of community standards based upon consumer expectations. Thus, a good is not defective if it is inherently unsafe and needs to be used with care. Matches are not defective because they must be used carefully to avoid a risk of fire. The community knows and expects this.29 A good is only defective if its safety is not such as persons generally are entitled to expect. This test is not free of criticism. For example, the joint report of the Australian and Victorian Law Reform Commissions specifically rejected a test based upon a general standard.30 The uncertainty of the standard portrayed has been clearly outlined as follows:31 No one can know in advance, with any certainty, how safe goods must be if they are not to be found defective. The existence of a ‘defect’ cannot be determined until after someone has suffered loss and brings a claim against the manufacturer. Such
27 352 Pa 51 (1945), see 9.11. 28 9 Cal 3d 51 (1973). 29 See for example Cook v Pasminco Ltd [2000] FCA 677 where a claim for relief in relation to noxious gases emitted by a smelter was struck out, on the basis, among other reasons, that the emissions were unsafe because they were true to their nature, not because they had a defect. The community expected that lead and sulphur dioxide gases would be noxious — and therefore they were not defective goods within the meaning of the legislation. 30 Product Liability, LRC Report No 51, LRCV Report No 27 (AGPS, Canberra, 1989) at pp 16–17. 31 J Goldring, LW Maher, J McKeough and G Pearson, Consumer Protection Law, 5th ed, Federation Press, Sydney, 1998, at [417].
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a requirement leads to a degree of imprecision which both prevents the law from providing effective incentives for the producer of goods which are less likely to cause loss, and increase the chance of protracted and costly litigation.
The consumer expectations test immediately invites the criticism that consumers are often not in a position to form accurate expectations. This is particularly so in relation to complex technology. Not only will expectations be inaccurate, but they will differ widely among consumers. What type of consumer should the courts take into account in assessing ‘expectations’? Should the consumer be imbued with ‘reasonable expectations’? Is a manufacturer entitled to assume that the consumer will use a reasonable amount of care in using the product? Is the manufacturer entitled to assume that the consumer will take reasonable steps to acquaint himself or herself with the nature of the product? Is the manufacturer entitled to disregard the illiterate, the naive, the less than well educated? Although a product may be aimed at a narrow target audience, it may, nevertheless, have the capacity to injure far beyond that range. Will the producer be responsible for those who suffer abnormal reactions to the product (for example, drugs)? The answer is probably not. If the producer is aware of the possibility of abnormal reactions, will the producer be under a duty to warn of that danger? Does Pt 3-5 of the Australian Consumer Law cover situations where the product is safe, but the promotional literature or instruction manual is defective? If so, does the injured person have to show reliance upon that defective instruction? How would this affect the bystander who is injured by such a product? What if the product is defective only because of a combination of factors, none of which standing alone would make the product defective? The test is probably wide enough to cover the situation where a product is unsafe only because of a combination of factors, none of which standing alone would be sufficient to render the product defective. An example of this type of situation is the US case of McCormack v Hankscraft Co.32 In this case the defendant produced a water vaporiser. The plaintiff alleged that the product was defective because of a combination of factors. First, the defendant represented that the product was ‘tip proof’, which it was not. Second, there was proof that the danger of scalding could have been readily avoided by a better design of the lid. The court agreed that these two factors taken together meant that the product was defective. It is fairly apparent from this brief discussion that the test for determining whether a product is defective under Pt 3-5 is unpredictable. Of course, any test short of absolute liability is likely to suffer from unpredictability. Many of the issues raised above are yet to be addressed. At first glance, there has been a surprising dearth of case law since the introduction of these laws 32 278 Minn 322 (1967).
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in 1992 as Pt VA of the Trade Practices Act. However, this is no doubt in part due to the inevitability of the outcome of many claims, given the strict liability regime that is now in place. The result is that in many cases manufacturers are acknowledging liability to consumers, especially where a defective product has affected a number of consumers, and entering into settlement schemes as a means of avoiding expensive court proceedings. An example of this can be seen in Dowdell v Knipsel Fruit Juices Pty Ltd,33 where one element of the case was dealt with by a court-approved settlement scheme. This involved an admission on the part of a manufacturer that it had (without negligence or fault on its part) released into the marketplace fruit juice which was contaminated with salmonella bacteria. The manufacturer acknowledged that it was strictly liable to pay those who had suffered illness as a result of consuming contaminated orange juice. The case then became a dispute between the manufacturer and the orange grower and supplier as to which party should ultimately bear the costs involved in compensating the injured consumers. A proposal flowing from the Australian Consumer Law Review34 (proposal 6) which is currently being studied by all Australian governments is to introduce a general safety provision which would require traders to ensure the safety of a product before it enters the market. Penalties would apply for breach of this provision.
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Manufacturer’s liability under Pt 3-5 9.53 Liability arises where a person in trade or commerce supplies defective goods manufactured by it and, as a result, specified types of loss are suffered. Any person who suffers any of the following types of loss as a result of a defective product can claim against the manufacturer: • personal injury to an individual: Australian Consumer Law s 138; • loss suffered by a person other than the individual (for example, a dependant) as a result of the individual’s injuries or death: Australian Consumer Law s 139; • loss suffered as a result of damage to goods (not being the defective goods) which are of a kind ordinarily acquired for personal, domestic, or household use: Australian Consumer Law s 140; or • loss suffered by a consumer or intended consumer as a result of damage or destruction of land, buildings, or fixtures ordinarily acquired for private use: Australian Consumer Law s 141.
33 [2003] FCA 851. 34 See Australian Consumer Law Review, Final Report, above n 14.
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9.53C1
Glendale Chemical Products Pty Ltd v ACCC (1998) 90 FCR 40; (1999) ATPR 41-672 Facts: The defendant, Glendale, purchased caustic soda in bulk from a manufacturer, and then packaged and labelled the product under its own name. It distributed ‘Glendale Caustic Soda’ through retailers. Barnes bought the product to unblock his shower drain. The label advised that the caustic soda be dissolved in water before being poured down the drain, and that users ‘always wear rubber gloves and safety glasses when handling caustic soda’. Although Barnes had read the label, he followed the advice of a friend who told him to pour boiling water down the drain and then to pour in the caustic soda. The label did not contain a warning against the use of hot water. In fact, caustic soda is extremely reactive when mixed with hot water. After he followed his friend’s advice, a column of water rushed out of the pipe and burned Barnes’ face and eyes. He was not wearing safety glasses.
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The Australian Competition and Consumer Commission (ACCC) brought proceedings against Glendale for breach of Pt VA of the Trade Practices Act (now Pt 3-5 of the Australian Consumer Law), seeking compensation for Barnes’s loss (as well as a number of remedial orders). Barnes also alleged negligence on the part of Glendale. Decision: To be liable under Pt VA (now Pt 3-5), three elements had to be satisfied: • Had Glendale supplied goods ‘manufactured by it’? Even though Glendale did not produce caustic soda and clearly stated on the label that it merely packaged the product, the definition of manufacturer explicitly includes any person that allows its name, brand, or mark to be applied to goods it supplies. • Did the goods have a ‘defect’? Goods have a defect if their safety is not such as persons generally are entitled to expect. In determining whether goods are defective, factors such as the provision of appropriate instructions and warnings are relevant. Glendale argued that the product did not contain a defect because it would have been safe if used as directed. However, the court held that the product was defective because it failed to provide a warning against a use that was foreseeable and could cause harm. While the product did contain a warning, the warning did not advise of the danger of adding hot water to caustic soda. The lack of such a warning was a ‘defect’. • Was the defect the ‘cause’ of Barnes’s loss? As the evidence established that Barnes would not have used the product as he did, had the label instructed him not to use hot water, the defect was the cause of Barnes’s loss. It was also found that Barnes had not contributed to his own injuries. This was because Barnes’s method of use was not unreasonable and Glendale had been negligent by virtue of its failure to discharge its duty to warn users of caustic soda’s inherently dangerous characteristics.
Thomas v Southcorp Australia Pty Ltd [2004] VSC 34 9.53C2
Facts: In June 1995 the Thomases had a licensed plumber install a gas-operated ducted ‘Vulcan’ heater in their house in Mitcham, Victoria. After it had been installed there were problems with the heater, which required a number of service calls. In May 1997 a fire occurred at the Thomases’ house, which caused substantial damage to the home and many of its contents were damaged or destroyed. No one was at home at the time. The source of the fire was traced to the heater. The heater had been automatically activated by a remote control that was set to come on when the temperature fell below a certain level. The high temperature cut-out switch on the heater was dysfunctional, which resulted in the heater discharging dangerously hot air.
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Chapter 9: Product Liability As a consequence, the ducting ignited and the resulting flames spread from the ducting to a cavity through which the fire entered the house. The Thomases sued the manufacturer of the heater for breach of Pt VA of the Trade Practices Act (now Pt 3-5 of the Australian Consumer Law), seeking compensation for the damage to the house and contents relying on s 75AG (now s 140) and s 75AF (now s 141). Decision: The Victorian Supreme Court held that the defendant was liable. The safety of the heater was not such as persons generally are entitled to expect, meaning that there was a ‘defect’ in the heater. Persons generally — the public at large — are entitled to expect that a gas heater will not operate in the way in which the judge found the heater did operate, so as to cause a significantly destructive fire. The defendant was required to compensate the plaintiffs under s 75AF of the Trade Practices Act for the loss or damage to the contents of the house that fell within the category of ‘goods of a kind ordinarily acquired for personal, domestic or household use’; and under s 75AG for the loss suffered as a result of the destruction or damage to the house. (A claim lodged by Mrs Thomas for psychological damage based on negligence — an action under the common law but not covered by the legislation — was dismissed on the grounds that the defendant had taken reasonable steps during manufacture to ensure the safe operation of the heaters it produced.)
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Losses that cannot be claimed under Pt 3-5 9.54 There are certain types of loss that cannot be recovered under Pt 3-5 of the Australian Consumer Law: • Part 3-5 does not apply to a loss recoverable under workers’ compensation laws or a law that gives effect to an international agreement: Australian Consumer Law s 146. • Damage to commercial property is excluded: Australian Consumer Law s 141. It is assumed that commercial users can protect themselves from risks through their business arrangements. • Damage to the defective goods themselves is excluded: Australian Consumer Law s 140. This is because compensation for such damage is already provided for under Pt 3-2 Div 1 of the Australian Consumer Law. • In the case of loss suffered as the result of an individual’s injuries or death, damages are not recoverable if the loss comes about because of a business or professional relationship: Australian Consumer Law s 139. Thus, the death of a partner that leads to a loss of business for a partnership is a loss for which the surviving partners have no claim.
Defences available to a manufacturer 9.55 Under s 142 of the Australian Consumer Law, defences available to the manufacturer include the following: 409
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Marketing and the Law
• The defect in the goods that is alleged to have caused the loss did not exist at the time of supply by the actual manufacturer. • The defect in the goods existed only because of compliance with a mandatory standard applicable to the goods. The meaning of mandatory standard is defined by s 2 of the Australian Consumer Law. It must be imposed by law, such as under Pts 3-3 and 3-4 of the Australian Consumer Law, and not merely by Standards Australia or some other industry or advisory body: see 9.65. Of course, the defence of compliance with a mandatory standard only applies to those elements of the product to which the mandatory standard relates. • The state of scientific or technical knowledge at the time when the goods were supplied by their actual manufacturer was not such as to enable the defect to be discovered: Graham Barclay Oysters Pty Ltd v Ryan.35 This is the development risks defence. There is considerable debate as to whether the manufacturer ought to be liable for these defects. How do we judge the state of scientific or technical knowledge at any given time? Must the knowledge in question be knowledge in use within the industry; or is it sufficient that the knowledge was available but not in use? How relevant is the question of the cost of implementing state of the art knowledge? This was a critical question in Drake v Mylar Pty Ltd36 which dealt with injuries arising from a defective piece of timber used in the construction of a carport. There were devices available at the relevant time which may have been able to identify the defective timber prior to sale, however there was evidence that they were not commercially available and that the computing power available did not allow any analyses to be done in real time. The court accepted this evidence and found that the defence succeeded. • The goods were comprised in other goods (the ‘finished goods’) and the defect is attributable only to: – the design of the finished goods; or – the markings on or accompanying the finished goods; or – the instructions or warnings given by the manufacturer of the finished goods. Other defences which implicitly exist are as follows. • The manufacturer did not supply the product. • The product was not supplied in trade or commerce. • The product was not defective. • The product was not the cause of the plaintiff’s loss.37
35 (2000) 177 ALR 18; [2000] FCA 1099, see 9.55C. 36 [2011] NSWSC 1578. 37 J Kellam, A Practical Guide to Australian Product Liability, CCH, Sydney, 1992.
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Graham Barclay Oysters Pty Ltd v Ryan (2000) 177 ALR 18; [2000] FCA 1099 Facts: A number of persons, including Ryan, contracted hepatitis A in early 1997 as a result of consuming oysters grown in Wallis Lake, New South Wales. The oysters were grown by Graham Barclay Oysters Pty Ltd (Barclay). It is well known that oysters are prone to viral infections and that the danger of viral infection increases after rainfall, due to effluent contamination. Therefore, all oysters go through a depuration process prior to being released on to the market. It was recognised, however, that this process is not infallible. Nor is there any absolute test for determining the presence of the hepatitis A virus in any given oyster. The only viable test was ‘flesh testing’, which results in the destruction of the oyster. Consequently, only samples can be tested in this way. The problem with sample testing is that the absence of infection in a sample oyster does not guarantee that oysters grown nearby are not contaminated. In November 1996, the Wallis Lake area experienced heavy rainfall. Barclay suspended harvesting during November, but commenced again in December. Even though Barclay could not be sure that the oysters were free of infection, when they went back on to the market there was no warning to potential buyers that the oysters might be infected. Ryan (and others) consumed some of the oysters and became ill. Ryan sued Barclay for damages relying on s 75AD of the Trade Practices Act (now s 138 of the Australian Consumer Law) and negligence. Decision: The Full Court of the Federal Court held that the oysters were defective within the meaning of the Trade Practices Act Pt VA (now Pt 3-5 of the Australian Consumer Law), but that the state of scientific or technical knowledge at the time when the oysters were supplied by Barclay was not such as to enable the defect to be discovered. There was no practicable method of directly detecting the presence of human viruses in shellfish at the time. The only method available (flesh-testing) was in its infancy and still being developed as a testing procedure in 1996. The testing method required laboratory expertise and was too expensive for routine monitoring of viral contamination of oysters. Furthermore, not only did the test destroy the oyster, it was not a reliable guide. Therefore, it could not be said that scientific knowledge was such as to enable the virus to be detected.
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(The claim based on negligence was successful, but an appeal to the High Court against this finding was upheld.38)
Limits to recovering damages under Pt 3-5 9.56 The only damage that is recoverable under Pt 3-5 of the Australian Consumer Law is damage that was ‘caused’ by the defective product. This raises problems of remoteness of damage and foreseeability. It is likely that the manufacturer will only be liable for damage that is foreseeable, as in the tort of negligence: see Carey-Hazell v Getz Bros & Co (Australia) Pty Ltd.39 The amount of damages that a plaintiff may be awarded for non-economic loss (pain and suffering, loss of amenities of life, loss of expectation of life, and disfigurement) and loss of earning capacity are now regulated by Pt 3-5 of the 38 See Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540; 194 ALR 337; [2002] HCA 54. 39 (2004) ATPR 42-014; [2004] FCA 853, and see 9.6.
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Australian Consumer Law. The maximum amount of damages for non-economic loss is $250,000 (adjusted for inflation). The maximum for loss of earnings is twice average gross weekly earnings.
Attempts to exclude or modify provisions of Pt 3-5 9.57 The provisions of Pt 3-5 may not be excluded or modified: Australian Consumer Law s 150. Therefore, while anything written on the package or a label may be taken into account in determining whether the goods are safe, a manufacturer cannot simply escape liability by using a disclaimer.
Time limit on actions under Pt 3-5 9.58 An action may be brought at any time within three years after the time the person becomes aware, or ought reasonably to have become aware, of the alleged loss, the defect, and the identity of the person who manufactured the goods. Furthermore the action must be commenced within 10 years of the supply of the goods by the manufacturer: Australian Consumer Law s 143.
Liability of manufacturers 9.59 The overall liability of manufacturers under the common law and pursuant to the Australian Consumer Law is summarised in the following flowcharts.
A. Tort of negligence
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9.60 The purpose of the tort of negligence is to compensate persons who are injured or suffer losses as a result of products which have been negligently designed, manufactured, or packaged.
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Chapter 9: Product Liability FIGURE 9.1 THE ELEMENTS OF THE TORT OF NEGLIGENCE
Elements Before a manufacturer will be liable to compensate a person who is injured by, or suffers a loss as a result of, a product, the injured person (the plaintiff) must establish each of the three elements that make up the tort of negligence.
(1) Manufacturer owed a duty of care to the plaintiff The plaintiff is in such a position with respect to the manufacturer that the manufacturer ought to realise that, if reasonable care is not taken in producing and marketing a product, it could cause injury to a person in the plaintiff’s position (the neighbour test).
(2) Manufacturer breached that duty Manufacturer failed to exercise the level of care in: • designing; or • manufacturing; or • packaging; or • testing the product, that a reasonably prudent person would exercise in similar circumstances.
(3) Breach caused damage
The injured person – the plaintiff – is entitled to compensation.
The loss or injury suffered by the plaintiff was caused by the manufacturer’s negligence and was of a type that was within the scope of liability.
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B. Part 3-2 Div 1 of the Australian Consumer Law 9.61 The purpose of Pt 3-2 Div 1 of the Australian Consumer Law is to compensate persons for losses caused by the manufacturer’s failure to comply with the obligations set out in ss 54, 56, 58, and 59. The liability elements of Pt 3-2 Div 1 are set out in ss 271–276.
413
Marketing and the Law FIGURE 9.2 LIABILITY ELEMENTS OF AUSTRALIAN CONSUMER LAW PT 3-2 DIV 1
A person
in trade or commerce
supplies (or leases or hires) goods to the value of $40,000 or, if above that value, goods of a kind normally acquired for personal, domestic, or household use or consumption
and the reseller supplies the goods to a consumer:
that were manufactured, assembled, branded, or imported by the person
to a reseller
The person owes obligations to the consumer by virtue of s 271 The statutory guarantees are to ensure that: • goods are of an acceptable quality; • goods correspond with description; • reasonable repair facilities and spare parts are available; • all express warranties are complied with.
The consumer, or person who acquires the goods as a gift from the consumer, may seek compensation for damages resulting from the breach of any guarantee.
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C. Chapter 3 Pt 3-5 of the Australian Consumer Law 9.62 The purpose of Ch 3 Pt 3-5 of the Australian Consumer Law is to compensate persons for losses caused by defective products without the need to prove negligence. The elements of Pt 3-5 are set out in ss 138–150.
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Chapter 9: Product Liability FIGURE 9.3 MANUFACTURER’S LIABILITY
A person
in trade or commerce
supplies (leases or hires) goods
manufactured (assembled, branded, or imported) by the person
Goods are defective
Defect in goods causes damage
Goods are defective where their safety is not such as persons generally are entitled to expect. Factors to examine include: • purpose of goods; • packaging and marks; • instructions and warnings; • alternative uses; • time of supply; • price; • nature of goods; • community knowledge.
Compensation is available for: • injuries to person; • loss suffered by third party as a result of injuries to injured person (not including losses suffered as a result of a business relationship); • damage to other goods and losses therefrom, provided the other goods are ‘consumer goods’; • damage to non-commercial land.
Defences
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• no defect at time of supply; • manufacturer complied with mandatory standard; • development risks defence; • defect in a component part is attributable to design, or label content, of finished product.
Criminal Liability for Product Safety and Information Introduction 9.63 Legislation imposing criminal liability for the safety of products and information provided in relation to products has traditionally been piecemeal. Prior to the Commonwealth government entering the field, product safety was basically dealt with by virtue of ad hoc standards established by state authorities in respect of a limited range of consumer products. The need for more consistent and wide ranging legislation in this field recognises the fact that safety features are not 415
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strong selling points in relation to most goods, and that legislative intervention is sometimes necessary to ensure that minimum safety and information requirements are universally observed.
Australian Consumer Law Pts 3-3 and 3-5 9.64 A system for prescribing national product safety and information standards was established in 1986 by the inclusion of Div 1A into Pt V of the Trade Practices Act. These provisions are now found in Pt 3-3 of the Australian Consumer Law. The federal system is supported by complementary, but not always uniform, state and Territory legislation.
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TABLE 9.3 SUPPLEMENTARY STATE AND TERRITORY LEGISLATION REGARDING PRODUCT SAFETY STATE/ TERRITORY
LEGISLATION
ACT
Fair Trading (Consumer Affairs) Act 1973 Pt 4
NSW
Fair Trading Act 1987 Pt 3; Pt 4 Div 1
NT
Consumer Affairs and Fair Trading Act 1990 Pt IV Div 14
Qld
Fair Trading Act 1989 Pt 4 Div 12
SA
Trade Standards Act 1979
Tas
Sale of Hazardous Goods Act 1977
Vic
Fair Trading Act 1999 Pt 3
WA
Consumer Affairs Act 1971
The scheme included in Pt 3-3 of the Australian Consumer Law is broadly outlined as follows. The responsible Minister40 may: • proclaim compulsory consumer product safety and information standards; • issue public warning notices concerning goods with safety-related defects; • ban the supply of unsafe consumer goods for a period of 18 months (which can be renewed) and in due course convert it to a permanent ban; and • order suppliers to recall (or repair, replace, or refund the price of) consumer goods with safety-related defects. The offences relating to product safety and information are prescribed by Pt 4-3 of the Australian Consumer Law, and the provisions are enforced by the ACCC. The Consumer Affairs Division of the Commonwealth Department of the Treasury administers Pt 3-3 of the Australian Consumer Law. Its role encompasses: 40 See Meeting 22, Ministerial Council on Consumer Affairs Meeting, 4 December 2009, available at .
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• the development of mandatory standards; • the monitoring and enforcement of mandatory standards; and • the enforcement of product bans and recalls. The Consumer Affairs Division in liaison with the ACCC and state and Territory fair trading or consumer affairs agencies develops national policy on the product safety provisions of the Australian Consumer Law.
Establishing product safety standards 9.65 The Australian Consumer Law provides that regulations may be proclaimed in respect of particular goods where the standard is reasonably necessary to prevent or reduce the risk of injury: Australian Consumer Law s 104. A standard may impose requirements as to: • the performance, composition, contents, methods of manufacture or processing, design, construction, finish, or packaging of goods; • the testing of goods; and • the form and content of markings, warnings, or instructions to accompany the goods.
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The Ministerial Council of Consumer Affairs (MCCA) is made up of Ministers of all Commonwealth, state, and Territory governments, and New Zealand ministers responsible for fair trading and consumer protection laws. It has established four standing committees, including the Standing Committee of Officials of Consumer Affairs (SCOCA) and the Consumer Products Advisory Committee. These Committees have been established to: • provide advice on consumer product safety policy matters; and • assist in the conduct of reviews of Australasian product safety standards, bans, and recalls. The aim is to achieve the uniform adoption of Australasian-wide standards. The Trade Practices (Consumer Product Safety Standards) Regulations and the Consumer Goods Safety Standards Regulations cover such products as flotation and swimming aids for children, balloon-blowing kits, elastic luggage straps, selfbalancing scooters and disposable cigarette lighters. Other mandatory standards have been produced for motor vehicle child restraints, portable fire extinguishers, protective helmets for motor cyclists, pedal bicycles and reflectors, children’s night clothes, vehicle jacks and ramps, and so on. The ACCC provides a very useful guide to product safety laws.41 The provisions in the Australian Consumer Law also allow governments to make standards for and ban product-related services considered unsafe, and to introduce safety and information standards for services. 41 See ACCC, ‘Product safety’, October 2018, available at .
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Suppliers are also required to report consumer goods and product-related services that are associated with the death or serious personal injury or illness of any person: Australian Consumer Law ss 131 and 132.
Enforcing product safety standards 9.66 A corporation or a person is prohibited, in trade or commerce, from supplying goods of a kind intended to be used, or which are likely to be used, by a consumer, if the goods do not comply with an existing consumer product safety standard: Australian Consumer Law s 106. Contravention of the provision is an offence, for which a maximum fine of the greater of $10 million, or three times the benefit received, or 10% of the annual turnover in the past 12 months for a corporation and $500,000 for a person can be imposed: Australian Consumer Law s 195. The supplier liable for prosecution can be anyone involved in distribution, including the manufacturer,42 importer,43 wholesaler,44 and retailer.45 The following case deals with the prosecution of a manufacturer. BMW Australia Ltd v ACCC [2004] FCAFC 167 9.66C1
Facts: BMW labelled the vehicle jacks that it supplied with its new motor vehicles with a warning that differed from the wording used in the mandatory standard. The prescribed product safety standard required vehicle jacks to be labelled: ‘WARNING: DO NOT GET UNDER A VEHICLE THAT IS SUPPORTED ONLY BY A JACK: USE VEHICLE SUPPORT STANDS’.
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BMW considered that the design of the BMW 318i made it unsuitable to be supported by vehicle support stands, so it varied the warning on its vehicle jacks as follows: ‘WARNING: DO NOT GET BODILY UNDER A VEHICLE THAT IS SUPPORTED BY A JACK!’ BMW was prosecuted for supplying goods not complying with a prescribed consumer product safety standard in breach of s 65C of the Trade Practices Act (now s 106 of the Australian Consumer Law). BMW denied liability and argued that it had used words ‘to the same effect’ as the mandatory warning. Decision: The Full Federal Court ruled that, in omitting the reference to vehicle support stands and the word ‘only’, BMW’s warning was not ‘to the same effect’ as the mandatory warning. Accordingly, it was in breach of s 65C. The matter was referred back to the primary judge for reconsideration of appropriate orders to be made, which originally had involved an injunction and a recall order. No fine was imposed.
42 Clarke v Pacific Dunlop Ltd (1989) ATPR 40-983; Gardam v Splendid Enterprises Pty Ltd (1987) 33 A Crim R 123; (1987) ATPR 40-779. 43 See Hamlyn v John Sands Ltd (1985) ASC 55-393; (1985) ATPR 40-554 and ACCC v MNB Variety Imports Pty Ltd (1998) ATPR 41-617, where an importer was fined for failing to label children’s buoyancy aids with the prescribed warning; see also Hamlyn v Moppet Grange Pty Ltd (1984) ATPR 40-439 where children’s night clothes were not properly labelled by an importer, and McInnes v Global Imports Pty Ltd (1993) ASC 56-199; (1993) ATPR 41-206. 44 Miller v Cunningham’s Warehouse Sales Pty Ltd (1994) ATPR 41-321. 45 Hamlyn v Norman Ross Stores Pty Ltd; Waltons Stores (Interstate) Ltd (1984) ASC 55-378; (1985) ATPR 40-514; O’Bryen v Coles Myer Ltd (1993) ATPR 41-209; and ACCC v Hungry Jacks Pty Ltd (1996) ATPR 41-538.
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The following case deals with the prosecution of an importer and retailer. ACCC v Dimmeys Stores Pty Ltd (1999) ATPR 41-716; [1999] FCA 1175 Facts: Starite Distributors imported bicycles from Hong Kong that were sold under the brand name ‘Star Wheel’. They were BMX-styled and designed to look like off-road bicycles. The bicycles were distributed through the retailer Dimmeys Stores Pty Ltd. The bicycles did not comply with the mandatory consumer product safety standard for pedal bicycles, failing to carry the required warning that they were not designed for off-road use or stunting. The bicycles proved to be substandard in many respects, such as being fitted with a back pedal brake only, instead of the mandatory two brakes, and not being fitted with a bell and wheel reflectors. No manual for use or maintenance was provided. When contacted by the ACCC, Dimmeys withdrew the bicycles from sale and conducted a full product recall. Both the importer and retailer (which were related companies) were prosecuted for supplying goods not complying with a prescribed consumer product safety standard in breach of s 65C of the Trade Practices Act. Both defendants pleaded guilty. Decision: Both companies were convicted. As Weinburg J observed: [The] offences committed by Starite and Dimmeys must … be regarded as being extremely serious. The conduct of the defendants has resulted in a significant number of defective bicycles being supplied to children, among the most vulnerable members of our community. The appearance of these bicycles is calculated to entice those who use them into still more danger. It may fairly be said that each of the bicycles supplied was, and is, an accident waiting to happen.
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The court accepted that the breach was due to carelessness and lax management, rather than a deliberate attempt to flout the relevant standards, and that Dimmeys had cooperated fully with the ACCC and spent approximately $25,000 in publicising the defects as part of the recall process. Having regard to all the circumstances, Starite was fined $30,000 and Dimmeys Stores $60,000.46
Warning the public about potentially dangerous goods 9.67 Where there is a possibility that consumer goods will be supplied to the public which will or may cause death or physical injury, a variety of steps can be taken, namely: • prescribing a product safety or information standard; • declaring goods to be unsafe and banning their supply; or • making an order that the goods be recalled. Before taking these steps, the goods involved must obviously be investigated. However, because of the potential danger to the public, the designated Minister has the power to publish a notice warning the public that a product is under 46 Dimmeys apparently did not heed the lesson sufficiently well, as it has since been convicted of selling children’s nightwear that failed to comply with the relevant consumer product safety standard, and was fined $190,000: ACCC v Dimmeys Stores Pty Ltd (2001) ATPR 41-811; [2001] FCA 299.
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investigation and may be dangerous: Australian Consumer Law s 129. The warning notice may also specify the risks involved in using the goods in question. Once investigations are completed, the Minister is usually obliged to publish a notice announcing the results of the investigation and any steps, if any, that will be taken in relation to the goods.
Banning potentially dangerous goods 9.68 The Minister may by public notice declare goods to be unsafe goods and place either a permanent or interim ban on the goods, where it appears that they are of a kind that will or may cause injury to any person: Australian Consumer Law ss 109 and 114. Usually the opportunity exists for a supplier to request a conference before such a declaration is made, but where there is an imminent risk of death, serious illness, or serious injury, the notice will be published without delay. The power to declare goods unsafe has been exercised many times in relation to such products as hunting slings, knife belts, drink containers, numerous children’s novelty toys, jewellery, rubber erasers that smelt and tasted like food, attaché cases fitted with an anti-theft device delivering an electric shock, snake-bite kits, cosmetics, and tinted headlight covers. Once goods have been declared unsafe, it is an offence to supply such goods for intended consumer use (or where they are likely to be used by a consumer): Australian Consumer Law s 118. Clarke v New Concept Import Services Pty Ltd (1982) 2 TPR 183, (1982) ATPR 40-284
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9.68C
Facts: The Minister proclaimed certain novelty balloons to be unsafe goods. The defendant, an importer/wholesaler, subsequently sold the balloons to a side-show operator who gave them away as prizes. The defendant was prosecuted. Decision: The defendant was guilty of the offence of supplying goods declared unsafe.
Anyone who supplies a banned product is also liable to a person who suffers loss or damage as a result. An interim ban remains in force for 60 days and can be extended by 30 days by the responsible Minister: Australian Consumer Law s 111. During this time, a consumer product safety standard may be prescribed for the product.
Compulsory recall of products 9.69 The Australian Consumer Law gives the designated Minister the power to compulsorily demand the recall of particular goods: Australian Consumer Law s 122. Suppliers of consumer goods may be subject to such an order:
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• if the Minister considers the goods are of a kind which will or may cause injury to any person; • if the goods do not comply with an existing prescribed product safety standard; or • if the goods have been banned as being unsafe, and in addition it is considered that the supplier has not taken satisfactory action to prevent the goods from causing injury to any person. In fact, the Minister can take alternative procedures to a product recall and, instead, require the supplier to publish to the public the nature of the defect or danger, the circumstances in which the use of the goods may be dangerous, or the procedure for disposing of the goods. Furthermore, the supplier may be required to inform the public that it will repair the goods, replace them, or refund their price, and, in so doing, be required to bear any transportation or other costs involved). However, should a recall be deemed necessary, the Minister has the power to give directions as to how the recall is to be effected, including placing time limits on the recall. Before a recall order is made, a supplier has the right to request a conference in order to present its case on the necessity of a recall, unless the Minister considers it necessary to enforce the order to avoid the imminent risk of death, serious illness, or serious injury. A supplier must comply with a product recall order: Australian Consumer Law s 127; and it is an offence not to do so: s 199. A person suffering loss or damage as a result of non-compliance with a recall order is entitled to recover damages: Australian Consumer Law s 127(3).
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Voluntary recall 9.70 It is not necessary to wait until a compulsory recall notice has been issued. Part 3-3 Div 3B provides for the voluntary recall of consumer goods which may cause injury to a person. Where a supplier voluntarily recalls goods because they will or may cause injury to any person, it is required to notify the Minister in writing of that action within two days. The notice must identify the goods that are subject to recall, and set out the nature of the defect in, or the dangerous characteristics of, the goods, and other information as specified in s 123 of the Australian Consumer Law. The ACCC has produced a very helpful guide to managing recalls.47 Draft legislation is currently being circulated for comment which would introduce a statutory definition of ‘voluntary recall’ and increase the penalties for failure to notify a voluntary recall. This gives effect to Proposal 7 of the Australian Consumer Law Review.48
47 ACCC, Consumer product safety recall guidelines, December 2015, available at . 48 See Australian Consumer Law Review, Final Report, above n 14.
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Establishing product information standards 9.71 Part 3-4 of the Australian Consumer Law makes provision for the giving of information to the consumer on a compulsory basis. This is designed to provide the consumer with information in order to encourage more rational purchasing decisions and to make better use of products.49 Under the Australian Consumer Law, regulations may be proclaimed in respect of product information standards where a standard is reasonably necessary to give persons using goods information about the goods in question: ss 134 and 135. The regulations may prescribe standards relating to the disclosure of information concerning the performance, composition, contents, design, construction, finishing, or packaging of the goods, or relating to the manner and form in which the information is to be disclosed. A standard prepared by Standards Australia for the care labelling of fabrics has been adopted as a product information standard (pursuant to s 135 of the Australian Consumer Law).50 This standard was primarily introduced to help consumers and cleaners determine the proper care for a variety of fabrics commonly purchased by consumers, including clothing, household textiles, furnishings, upholstered furniture, bedding, piece goods, and yarns. Other standards exist for cosmetics (ingredient listing) and tobacco products (health warnings).
Enforcing product information standards
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9.72 Where standards have been prescribed under the Australian Consumer Law, it is an offence for a corporation to supply goods that have not complied with such standards: Australian Consumer Law s 203.51 Also, a person who suffers loss or damage in consequence of a failure to comply with such standards may be entitled to recover damages. However, to date, little use has been made of these provisions.
Marketing Advice 9.73 The marketing of goods and services in the ‘strict liability’ world of today carries with it many responsibilities. However, there are steps that a sensible marketer can take that will minimise potential exposure to legal action.
49 There have traditionally been specific provisions relating to particular classes of goods, such as the requirement in most states that footwear be marked with the materials used and the name of the manufacturer, that furniture be marked with the manufacturer’s name or registration number, and that textile products be labelled with a statement of their composition. 50 Care Labelling Information Standards (AS 157–1982), as amended. 51 See Hamlyn v Mark Foy’s Pty Ltd (1982) ATPR 40-316, where the labelling instructions on clothing were held to be inadequate and the retailer was fined.
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• Devise a Quality Assurance Program designed to ensure compliance with common law obligations and the Australian Consumer Law. • Ensure that, when marketing goods or services, all potential risks associated with the provision of such goods and services are identified and carefully considered, and take reasonable steps to remove or minimise such risks. The expense involved in doing so should be weighed against the likelihood of users being harmed. • Ensure that any Quality Assurance Program incorporates checks that a product safety or information standard or a banned product category is not applicable to any products being marketed. • Review all instructions for use and any warnings given in relation to any product before releasing it onto the market. The instructions and warnings should be clearly worded, boldly displayed, and logically located. • Ensure that brand names, business names, and advertising material utilised do not give a false impression as to the actual quality or safety of products. • Do not under any circumstances attempt to exclude or limit liability for the legal obligations of quality and suitability of ‘consumer’ goods or services owed under the Australian Consumer Law. • Establish a formal complaints handling system and ensure that a senior person is made responsible for it. Studies have revealed that dealing with customer complaints swiftly and effectively can preserve brand loyalty. Effective complaints handling includes the use of free-call numbers, adequate staffing, and computerised data to identify the cause of dissatisfaction. • If you become aware of a problem with your product, act quickly. It is always better if you manage the problem by way of a voluntary recall, rather than being pushed into a compulsory recall. Consider the way in which Cuisinart voluntarily handled the recall of its food processor blades52 and maintained consumer confidence, compared to the actions of Thermomix. By failing to inform its customers of problems with its product and initiate a recall, Thermomix was fined $4.6 million — and lost valuable goodwill and consumer confidence in its products.53 The best laid plans and programs do not guarantee that a defective product will not reach the marketplace, so make sure product liability insurance is taken out. Adhering to the principles outlined above should ensure that premiums are kept to a minimum.
52 See ‘Conair Australia Pty Ltd — Cuisinart Food Processors’, 21 January 2017, available at . 53 See ‘Thermomix ordered to pay penalties of more than $4.6 million’, media release, 11 April 2018, available at .
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Advertising
10
Introduction to Advertising Regulation.......................................... 10.1 The role of advertising................................................................... 10.1 Persons with a stake in advertising regulation.......................... 10.2 Outline of chapter......................................................................... 10.3 Overview of the Australian Consumer Law.................................. 10.4 Historical background................................................................... 10.4 Creation of the Australian Consumer Law................................ 10.5 How does the framework operate?............................................ 10.6 Misleading or Deceptive Advertising............................................... 10.7 Background matters...................................................................... 10.8 A. Is the conduct ‘in trade or commerce’?............................ 10.9 B. How does a corporation engage in conduct?................ 10.10 The test for applying s 18 to advertising................................... 10.11 A. Step 1: Who is the relevant audience?............................ 10.12 B. Step 2: What impression is being conveyed to the relevant audience?................................................. 10.13 C. Step 3: Does the impression created lead the ordinary reasonable representative into error?............. 10.14 General principles applying to s 18............................................ 10.15 A. Conduct must be judged as a whole............................... 10.16 B. There is no requirement that anyone actually be misled or deceived.............................................................. 10.17 C. Intention is largely irrelevant........................................... 10.18 D. The distinction between confusion and deception...... 10.19 E. Can an advertisement carry multiple messages?.......... 10.20 F. Disclaimers in advertising.................................................. 10.21 G. Can a false advertisement be cured at point of sale?....... 10.22 Examples of misleading or deceptive conduct....................... 10.23 A. Opinions and exaggerations............................................. 10.23 B. Predictions........................................................................... 10.24 425
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C. Silence.................................................................................. 10.25 D. Scientific claims.................................................................. 10.26 E. Comparative advertising................................................... 10.27 F. Country of origin claims.................................................... 10.28 G. Using celebrities to promote products........................... 10.29 H. Sponsorship and ambush marketing............................... 10.30 I. Sales material and consumer rights................................ 10.31 J. Gathering information about consumers....................... 10.32 Penalties for False Advertising...................................................... 10.33 Introduction.................................................................................. 10.33 A. Differences between civil and criminal matters............ 10.34 B. Representations about future matters........................... 10.35 Misrepresentations under s 29 or s 151.................................... 10.36 A. Section 29(1)(a) — standard, quality, value or grade, composition, style or model, particular history, or particular previous use of goods................................. 10.37 B. Section 29(1)(b) — standard, quality, value, or grade of services............................................................................ 10.38 C. Section 29(1)(c) — newness of goods............................ 10.39 D. Section 29(1)(d) — agreement to acquire goods or services............................................................................ 10.40 E. Section 29(1)(e) — purported testimonial about goods or services................................................................ 10.41 F. Section 29(1)(f) — testimonials...................................... 10.42 G. Section 29(1)(g) — sponsorship, approval, performance characteristics, accessories, uses, or benefits of goods or services.............................. 10.43 H. Section 29(1)(h) — sponsorship, approval, or affiliation......................................................................... 10.44 I. Section 29(1)(i) — price of goods or services................ 10.45 J. Section 29(1)(j) — availability of facilities for repair or spare parts........................................................................... 10.46 K Section 29(1)(k) — place of origin of goods.................. 10.47 L. Section 29(1)(l) — need for goods or services.............. 10.48 M. Section 29(1)(m) — contract rights of consumers....... 10.49 N. Section 29(1)(n) — requirement to pay for contractual right................................................................ 10.50 Conduct under s 33 or s 155, and s 34 or s 156...................... 10.51 A. Misleading conduct in relation to goods......................... 10.51 B. Misleading conduct in relation to services..................... 10.52 Pricing conduct under s 47 or s 165, and s 48 or s 166......... 10.53 A. Multiple pricing................................................................... 10.53 B. Single price to be stated in certain circumstances....... 10.54 Liability of Advertising Agencies, the Media, and Accessories....... 10.55 Advertising agencies, the media, and primary liability.......... 10.55 426
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Chapter 10: Advertising
Liability as an accessory............................................................. 10.56 Defences........................................................................................... 10.57 Exemption for information providers (media outlets)........... 10.58 Defence to a civil penalty action............................................... 10.59 Special defence for publishers................................................... 10.60 Defence of reasonable mistake of fact.................................... 10.61 Defence of taking reasonable precautions and exercising due diligence.............................................................. 10.62 The Regulator’s Powers.................................................................. 10.63 Undertakings................................................................................ 10.63 Substantiation notices................................................................ 10.64 Public warning notices................................................................ 10.65 Infringement notices................................................................... 10.66 Court Orders.................................................................................... 10.67 Fines............................................................................................... 10.67 Injunctions.................................................................................... 10.68 Corrective advertising................................................................. 10.69 Compliance and education programs....................................... 10.70 Community service orders.......................................................... 10.71 Orders enforcing undertakings given to the ACCC................ 10.72 Orders disqualifying persons from managing corporations................................................................................. 10.73 Compensation.............................................................................. 10.74 Self-Regulation................................................................................ 10.75 Introduction.................................................................................. 10.75 Assessing the pros and cons of self-regulation....................... 10.76 Self-regulation of advertising in Australia............................... 10.77 AANA Code of Ethics.................................................................. 10.78 Advertising and television and radio stations......................... 10.79 Marketing Advice............................................................................. 10.80
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Introduction to Advertising Regulation The role of advertising 10.1 Advertising plays an essential role in a market economy by disseminating product information to potential consumers. On the basis of this information, consumers are able to make efficient choices. However, if the information is incorrect, consumers will make the wrong choices and, far from serving a useful economic and social function, advertising becomes wasteful and inefficient. Sales are diverted from those products which consumers would have chosen if they had been correctly informed. Advertising is useful because it can make it easier for new firms to enter a market. However, it can also be used as a mechanism to reinforce market power. New producers may be dissuaded from entering a market because of the barriers created by excessive advertising budgets. Such advertising is economically inefficient. Advertising is now so pervasive and plentiful that it has become part of the fabric of life.1 However, this pervasiveness merely increases advertising’s power to injure when it happens to be crass, disturbing, or exploitative. People are often offended by tasteless advertising, hurt by intrusions upon their privacy, and exploited by subtle appeals to their weaknesses. No one suggests that advertising can or should be banned, but some sort of control is justified.
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Persons with a stake in advertising regulation 10.2 Advertisers should be aware that an advertising campaign can have an impact on a diverse range of interests. Not all these interests will be charmed by the advertiser’s message. Some may feel so aggrieved as to look for redress, for example: • consumers who buy the wrong product or pay too much because of misleading information; • competitors who lose sales because of misleading advertising; • celebrities whose ability to profit from endorsements is restricted by unauthorised use of their personality (image, name, or voice); • community groups whose values are outraged by tasteless, discriminatory, sexist, racist, or aggressive advertising; • community groups whose frailties are exploited by opportunistic and emotive advertising; • people who have their reputation degraded by unsubstantiated slurs on their character; 1 See Re Media Council of Australia (No 2) (1987) 88 FLR 1; (1987) ATPR 40-774 at 48,430.
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• people whose privacy is attacked by unauthorised use of photographs or other material; and • artists, writers, and musicians whose original compositions are taken and used for creating an advertisement without authorisation.
Outline of chapter
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10.3 Current advertising regulation is a mixture of law and self-regulation, although the two are not mutually exclusive. In Australia the law is concerned basically with ensuring truth in advertising.2 Concerns based on culture and good taste are essentially the province of self-regulation. The law is found in the Australian Consumer Law.3 Self-regulation is to be found in various firm and industry codes of conduct. This chapter is concerned primarily with the law and will consider: • an overview of the Australian Consumer Law; • misleading or deceptive advertising — being a general provision that results in injunctions or damages, but not civil or criminal penalties; • specific types of false or misleading advertising, where breaches may result in civil penalties or criminal fines; • liability of advertising agencies, the media, and accessories; • defences available to the advertiser; • regulatory powers of the Australian Competition and Consumer Council (the ACCC) and state regulators; • court orders; and • self-regulation of advertising.
Overview of the Australian Consumer Law Historical background 10.4 Consumer protection has traditionally been the responsibility of the states, not the Commonwealth. In 1974, the Trade Practices Act 1974 (Cth) changed this to some extent by introducing a range of consumer protection laws that applied to trading and financial corporations.4 Because the majority of modern businesses are operated by corporations, the effect was to apply the Commonwealth’s consumer laws to a large proportion of Australian firms. Nevertheless, important
2 3 4
Laws aimed at regulating or banning specific types of advertising (eg tobacco) exist, but are beyond the scope of this chapter. The Australian Consumer Law is included as Sch 2 to the Competition and Consumer Act 2010 (Cth). The provisions in the Trade Practices Act 1974 were limited to trading and financial corporations for constitutional reasons.
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gaps existed; for example, partnerships and sole traders. Additionally, even where the Commonwealth had jurisdiction, that jurisdiction was generally shared. This meant that both Commonwealth and state laws applied to the same conduct. Problems arose where the state laws and the Commonwealth laws were not uniform, which unfortunately happened all too often.
Creation of the Australian Consumer Law 10.5 In 2008 the Council of Australian Governments (COAG) agreed that a uniform consumer protection law should apply throughout Australia. For constitutional reasons, the framework to achieve this is a little complicated. First, a set of consumer protection laws was set out in a schedule to the Trade Practices Act. This set of laws is referred to as the Australian Consumer Law. Each state and the Commonwealth parliament then used their separate legislative power to pass individual laws, known as application Acts. These Acts5 apply the Australian Consumer Law to all conduct within the jurisdiction of each state and the Commonwealth government. This effectively provides a national and uniform scheme of regulation with a common set of obligations for businesses operating anywhere in Australia, and a common set of protections for their customers. Because the states and the Commonwealth have different legislative powers there are some small differences in how the law is applied, but the practical effect is a common scheme of universal application. Finally, the name of the Trade Practices Act was changed to the Competition and Consumer Act 2010 (Cth). The Australian Consumer Law is included as Sch 2 to this Act.
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How does the framework operate? 10.6 As a result of the Australian Consumer Law, all firms in Australia are subject to the same set of consumer laws and the same set of regulatory and judicial powers apply. Thus, firms which engage in breaches of the Australian Consumer Law will face the same set of penalties and remedies, no matter where in Australia the breach occurred. Most of the cases discussed in this chapter were decided under the Trade Practices Act. These cases are still relevant for our understanding of the law today. It should be noted that s 18 of the Australian Consumer Law was previously s 52 of the Trade Practices Act; s 29 of the Australian Consumer Law was previously s 53; s 33 of the Australian Consumer Law was previously s 55; and s 34 of the Australian Consumer Law was previously s 55A. When we work with legislation, we presume that if parliament passes new legislation (the Australian Consumer Law) in the same form as earlier legislation (the Trade Practices Act provisions), and that these laws have been considered by the courts, parliament endorses and 5
For example, the Fair Trading Act 1987 (NSW) at Pt 3 Div 2.
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agrees with the interpretation given by the courts. Otherwise they would amend the legislation or change the definitions. That is why the older cases are still a good guide as to the meaning of the provisions in the Australian Consumer Law.
Misleading or Deceptive Advertising 10.7 Section 18 of the Australian Consumer Law prohibits misleading or deceptive conduct. The remedies for a breach of s 18 include injunctions, damages, and corrective advertising. These remedies are not confined to consumers (as defined in s 3 of the Australian Consumer Law): Concrete Constructions (NSW) Pty Ltd v Nelson.6 Section 18, however, does not attract criminal or civil penalties (ie, fines). Criminal and civil penalties are discussed later in the chapter, and can apply to specific misrepresentations such as those contained in s 151 of the Australian Consumer Law, which mirror the civil provisions relating to the same conduct found in s 29. The Australian Consumer Law applies to all industries and products other than financial services.7 This section of the chapter will discuss: • background matters; • the test for applying s 18 of the Australian Consumer Law; • some general principles applying to s 18; and • common examples of misleading or deceptive advertising.
Background matters
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10.8 Two preliminary matters relevant to s 18 of the Australian Consumer Law (and indeed to most of the consumer provisions) need some explanation.
A. Is the conduct ‘in trade or commerce’? 10.9 Section 18 of the Australian Consumer Law (and all the consumer provisions) applies only to conduct that occurs ‘in trade or commerce’. The expression ‘in trade or commerce’ is very broadly defined in the Australian Consumer Law,8 and includes any business or professional activity (whether or not carried on for profit). Courts have held that the phrase is to be given a fairly wide meaning;9 however, it does not cover all activities of a firm. The test, articulated by the majority of the High Court of Australia in Concrete Constructions (NSW) Pty Ltd 6 7 8 9
(1990) 169 CLR 594; 92 ALR 193; 17 IPR 39; [1990] HCA 17. Financial services are covered by the Australian Securities and Investments Commission Act 2001 (Cth). Identical obligations exist but they are enforced through a different regulatory framework. See s 2. Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 22 ALR 621; 36 FLR 134; Larmer v Power Machinery Pty Ltd (1977) 14 ALR 243; 29 FLR 490; (1977) ATPR 40-021.
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v Nelson10 is that for conduct to be ‘in trade or commerce’ and thus caught by the section, it must have a trading or commercial character — and that simply because an activity is carried on by a commercial business does not mean that it will be in trade or commerce. As a rough guide, ask is the conduct directly concerned with the money-making activities of the business (as all commercial advertising is). If yes, it is likely to be conduct in trade or commerce. The example given by the High Court is that driving a truck which bears a competitor’s name to a work site to mislead customers may be conduct in trade or commerce but the same driver indicating that they will turn left, and then not doing so, would not be in trade or commerce. The first example is directly connected with the commercial activities of the business; the second is not. Conduct which has been found not to be in trade or commerce includes misleading instructions given by a foreman to one of the firm’s employees;11 misleading material provided by a firm to an industry regulator, and material provided to the public as part of a political debate.12 An electoral advertisement made for a political party is an example of an advertisement which would not be regarded as in trade or commerce;13 a person who advertises their own car, house,14 or other possession for sale in a newspaper or magazine is not acting in trade or commerce, although the newspaper or magazine is; as is a party such as a real estate agent acting for an owner in the sale of a house.15 Nevertheless, most advertisements or other promotional conduct made by manufacturers, distributors, or retailers in respect of their goods or services are likely to satisfy the test of being ‘in trade or commerce’. A notice on a swimwear designer’s personal Facebook page that her swimsuit designs had been copied by a rival, was made ’in trade or commerce’: Madden v Seafolly Pty Ltd.16 Even where an advertisement is run by an industry association rather than by an individual trader, it may be in trade or commerce: see Tobacco Institute (Aust) Ltd v Australian Federation of Consumer Organisations Inc.17
B. How does a corporation engage in conduct? 10.10 Given that most businesses are run as corporations, and given that corporations can only act through human agents, it is necessary to understand when the corporation will be responsible for the acts of its officers, employees, or other agents. 10 (1990) 169 CLR 594; 92 ALR 193; 17 IPR 39; [1990] HCA 17. 11 See Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594; 92 ALR 193; 17 IPR 39; [1990] HCA 17. 12 See Village Building Co Ltd v Canberra International Airport Pty Ltd (2004) 210 ALR 114; (2004) ATPR 42-019; [2004] FCAFC 240. 13 For a case involving a statement of policy by the Minister for Primary Industry, see Unilan Holdings Pty Ltd v Kerin (1992) 107 ALR 709; (1992) ATPR 41-169. 14 O’Brien v Smologonov (1983) 53 ALR 107; 2 IPR 68; (1983) ATPR 40-418 and Williams v Pisano [2015] NSWCA 177. 15 Argy v Blunts & Lane Real Estate Pty Ltd (1990) 26 FCR 112; 94 ALR 719. 16 (2014) 313 ALR 1; [2014] FCAFC 30. 17 (1992) 111 ALR 61; 24 IPR 529; (1993) ATPR 41-199, see 10.23C2.
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There are two issues here: were the actions done the actions of the corporation? And, if it is necessary to determine (eg, if the question is, has a criminal offence been committed?), what was the state of mind of the corporation? The common law generally regards a corporation as responsible for the actions of its directors, employees, and agents. This is made even clearer by the legislation. At 10.5 above, it was noted that there are slight differences between the Australian Consumer Law as it operates in the states and in the Commonwealth due to the application laws and their different jurisdictions. The Commonwealth law is directed at corporations, and so it is in the Commonwealth application law that a clear statement of the responsibility of corporations is found. The Competition and Consumer Act, which applies the Australian Consumer Law as a law of the Commonwealth, provides at s 139B(2) that all acts done by directors, servants, or agents of a corporation, where they are acting within the scope of their actual or apparent authority, will be regarded as the actions of the corporation. This will also be true of the acts of other persons where those persons were acting at the direction of or with the consent of the corporation’s directors, servants, or agents, provided the direction or consent was within the scope of the actual or apparent authority of the director, servant, or agent: Competition and Consumer Act s 139B(2). There is a similar test for corporate state of mind in s 139B(1). This establishes that when a director, employee or agent engages in conduct on behalf of a corporation, the law will regard that conduct as the conduct of the corporation. If that conduct is in breach of the law, then the corporation will be liable.
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The test for applying s 18 to advertising 10.11 ’A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead or deceive’: Australian Consumer Law s 18. To mislead or deceive means to lead into error.18 Therefore, misleading or deceptive conduct, whether in advertising or otherwise, will normally involve some form of misrepresentation.19 Depending on the circumstances, the misrepresentation may be conveyed by words, graphical representations, pictorial images, action sequences, or even by silence. The representation may take the form of a statement of fact, an opinion, or a prediction and may appear on a billboard, in a newspaper, on television or radio, on the internet, on a personal Facebook page, on a label, or on the product packaging.20 To determine whether any particular advertisement is misleading or deceptive, it is first necessary to have a clear idea of the conduct said to constitute the breach. 18 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; 42 ALR 1; 1A IPR 684; (1982) ATPR 40-307 at [8] per Gibbs CJ. 19 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177; (1982) ATPR 40-303, see 6.32C. 20 ACCC v Internic Technology Pty Ltd (1998) 42 IPR 225; (1998) ATPR 41-646.
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It is then necessary to apply a three-step approach: 1. Identify the relevant audience. 2. Determine the message or impression being conveyed to an ordinary or reasonable representative of the relevant audience. 3. Determine whether that message or impression caused, or would likely cause, a reasonable member of that audience to be lead into error.
A. Step 1: Who is the relevant audience? 10.12 In order to understand what any advertisement means, it is necessary to view it in the light of the relevant audience. The relevant audience is those persons likely to be influenced by the conduct, not just the persons to whom the advertiser aimed the conduct. In considering the target audience, a distinction is made between conduct that is directed to specific individuals and conduct directed to the general public: Campbell v Backoffice Investments Pty Ltd.21 In the marketing context, this distinction could be illustrated, for example, by the conduct of a salesperson on the one hand, and advertising on the other. As was held in Butcher v Lachlan Elder Realty Pty Ltd,22 where the conduct is directed to an individual, as typically occurs in the sales context: [I]t is necessary to consider the character of the particular conduct of the particular agent in relation to the particular purchasers, bearing in mind what matters of fact each knew about the other as a result of the nature of their dealings and the conversations between them, or which each may be taken to have known.
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In some circumstances, the court may have to carefully consider whether to characterise the conduct as being directed at specific individuals or the general public.23 Hansen Beverage Co v Bickfords (Australia) Pty Ltd (2008) 251 ALR 1; 79 IPR 174; [2008] FCAFC 18124 10.12C
Facts: Hansen was a beverage company based in the USA that had sold the Monster Energy drink in a number of countries (but not Australia) for approximately six years. The primary target market for energy drinks is 18- to 30-year-old males. Hansen had relied heavily on indirect marketing methods, such as sponsorship, selling clothing and merchandise carrying the Monster Energy brand, and online marketing. Bickfords, an Australian beverage manufacturer, launched their own energy drink, also called Monster. The Bickford product had the same name and ingredients, and was packaged in a can of the same size and in the same colours as the Hansen product.
21 (2009) 238 CLR 304; 257 ALR 610; 73 ACSR 1; [2009] HCA 25. 22 (2004) 218 CLR 592; 212 ALR 357; [2004] HCA 60. 23 Australian Securities and Investments Commission v National Exchange Pty Ltd (2003) 202 ALR 24; 47 ACSR 128; [2003] FCA 955; .au Domain Administration Ltd v Domain Names Australia Pty Ltd (2004) 207 ALR 521; 61 IPR 81; [2004] FCA 424. 24 See also 6.6C.
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Chapter 10: Advertising Hansen brought an action for misleading and deceptive conduct (and passing off). Decision: The court recognised the value of indirect marketing such as sponsorship, noting that: [I]ndirect brand advertising … can establish reputation as well as, if not better than, direct advertising. After all, everyone knows that James Bond drives an Aston Martin, Janis Joplin wanted to own a Mercedes Benz and Audrey Hepburn had breakfast at Tiffany’s. The primary judge held that Hansen had to establish a reputation among the 18- to 30-yearold male target market in order to succeed. On appeal, it was held that a broader view should be taken and that the correct question, on the facts of this case, was ‘whether a not insignificant number of persons in the Australian community, in fact or by inference, have been misled or are likely to be misled, even if those persons are mostly or exclusively extreme sports enthusiasts’.
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For example, in running a television advertisement, the advertiser may have a fairly exact target audience in mind. Television, however, is a very imprecise targeting medium and many more persons than the exact target audience are likely to view and be influenced by the advertisement. The relevant audience is often referred to as the relevant section of the public. In any particular case, the relevant section of the public against whom the conduct is to be judged will depend on the whole circumstances of the case including: • the nature of the product involved; • the price of the product; • the type of person who normally buys the product; and • the medium used to convey the relevant conduct (eg, the label, the packaging, or the advertisement). An advertisement for an electric kettle has the potential to influence a much greater number of people than an advertisement for a new Ferrari sports car, even though more people may actually read the Ferrari advertisement. Even children may take an interest in the Ferrari advertisement, but no-one is likely to suggest that we ought to include children amongst the relevant section of the public when interpreting an advertisement about Ferraris. An advertisement which appears on television is likely to influence a wider range of potential buyers than an advertisement which appears in the Australian Financial Review. Words used in a television advertisement for health insurance must be interpreted according to the understanding of the general public (the target audience) and not according to any special industry usage.25 The same applies to information contained on a product label. On the other hand, a promotional video produced for the purposes of instructing retailers about a product must be judged 25 St Lukes Health Insurance v Medical Benefits Fund of Australia Ltd (1995) ATPR 41-428, see 10.22C, where a health insurance company used the expression ‘excess’ in one of its television advertisements.
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against persons who work in the relevant industry and not against ordinary members of the public to whom the video was never shown.26
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B. Step 2: What impression is being conveyed to the relevant audience? 10.13 The contents of an advertisement or a label can mean different things to different people, even within the relevant audience. Even a product name can send different messages to different people. This is because the relevant audience is likely to include a wide spectrum of personality types, including the sceptical and the gullible, the astute and the ignorant, the sophisticated and the unsophisticated. It will also include persons who differ markedly in their knowledge of the product. Therefore, the issue is whether the particular conduct should be judged against any member of the relevant audience or whether some persons should be excluded? Are advertisers entitled to assume that the relevant audience will know something about their product? Are advertisers entitled to assume that the relevant audience will take reasonable care when interpreting advertisements? Or must advertisers accept that their advertisements are going to be judged in the light of the least knowledgeable and least discerning member of the audience? In Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd,27 the members of the High Court were divided on which test to apply. Chief Justice Gibbs felt that conduct should be tested against those members of the relevant section of the public who take reasonable care of their own interests. Justice Mason considered that conduct should be tested against ordinary members of the relevant audience. The approach of Gibbs CJ is now the preferred approach. In Campomar Sociedad, Limitada v Nike International Ltd,28 the High Court said that, in cases where representations are made to the public, the conduct is tested against an ‘ordinary or reasonable’ representative of the class of prospective purchasers. In GlaxoSmithKline Australia Pty Ltd v Reckitt Benckiser (Australia) Pty Ltd (No 2)29 Foster J said:30 The tendency of the conduct or representation to mislead or deceive is to be considered or tested against the ordinary or reasonable members of the class to whom the representation was made or the conduct directed … The focus on ordinary or reasonable members of the relevant class of consumers means, in effect, that possible extreme, unreasonable or illogical reactions can be put to one side.
The following useful approach to applying s 18 of the Australian Consumer Law, with adjustments to allow for the High Court decision in Campomar Sociedad,
26 Hoover (Australia) Pty Ltd v Email Ltd (1991) 104 ALR 369; (1991) ATPR 41-149. See also Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd [2006] FCAFC 22. 27 (1982) 149 CLR 191; 42 ALR 1; 1A IPR 684; (1982) ATPR 40-307, see 5.32C. 28 (2000) 202 CLR 45; 169 ALR 677; [2000] HCA 12, see 6.30C. 29 [2018] FCA 1. 30 At [22].
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Limitada v Nike International Ltd, was developed by Deane and Fitzgerald JJ in Taco Co of Australia v Taco Bell Pty Ltd:31 First, it is necessary to identify the relevant section (or sections) of the public (which may be the public at large) by reference to whom the question of whether conduct is, or is likely to be, misleading or deceptive falls to be tested … Second, once the relevant section of the public is established, the matter is to be considered by reference to an ‘ordinary or reasonable’ representative of the class of prospective purchasers … Thirdly, evidence that some person has in fact formed an erroneous conclusion is admissible and may be persuasive but is not essential. Such evidence does not itself conclusively establish that conduct is misleading or deceptive or likely to mislead or deceive. The Court must determine that question for itself. The test is objective. Finally, it is necessary to inquire why proven misconception has arisen … The fundamental importance of this principle is that it is only by this investigation that the evidence of those who are shown to have been led into error can be evaluated and it can be determined whether they are confused because of misleading or deceptive conduct on the part of the respondent.
Therefore, an advertisement (directed at the public) will mean whatever an ‘ordinary or reasonable’ member of the relevant section of the public thinks it means.
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ACCC v TPG Internet Pty Ltd (2013) 250 CLR 640; 304 ALR 186; [2013] HCA 54 Facts: TPG is a provider of telephone and internet services to Australian customers. One of the services provided by TPG is an asymmetric digital subscriber line (ADSL) broadband service known as ‘ADSL2+’. In 2010 it advertised widely through television, radio, internet, and newspapers to provide customers with unlimited ADSL2+ for $29.99 per month. This offer only applied, however, if the customer bundled the ADSL2+ service with a home telephone line from TPG at an additional $30 per month for a minimum of six months. This condition was referred to in the advertisements, but not as prominently as the $29.99 offer. The ACCC alleged that the advertisements were misleading or deceptive. Decision: The advertisements must be understood in the light of an ordinary reasonable member of the relevant public. The relevant public includes those who are inexperienced in purchasing internet services as well as those who are experienced. The dominant message of the advertisements was that ADSL2+ was available at $29.99 per month. This was not in fact true. The extra conditions were not sufficiently displayed to overcome this false representation. As the majority of the High Court said, ‘The tendency of TPG’s advertisements to lead consumers into error arose because the advertisements themselves selected some words for emphasis and relegated the balance to relative obscurity’. TPG was ordered to pay a fine and an injunction was granted. 31 (1982) 42 ALR 177; (1982) ATPR 40-303 at 43,751–43,752, see 6.32C. See also Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45; 169 ALR 677; [2000] HCA 12; .au Domain Administration Ltd v Domain Names Australia Pty Ltd (2004) 207 ALR 521; 61 IPR 81; [2004] FCA 424; LED Technologies Pty Ltd v Elecspess Pty Ltd (2008) 80 IPR 85; [2008] FCA 1941.
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Marketing and the Law
The ordinary reasonable representative will take more care when purchasing an expensive item, such as a lounge suite,32 than an inexpensive item, such as a toilet cleanser.33 It is unlikely that he or she would carefully read the fine print on a can of baked beans or pause in a busy supermarket to analyse the subtle differences between a $5 bottle of Pine-O-Cleen disinfectant and a similarly shaped and labelled bottle of Pine Action disinfectant sitting next to it.34 Advertisers whose conduct is aimed at children, or advertisers whose conduct is aimed at sections of the community with particular sensitivities such as the aged or the chronically infirm, must accept that ordinary or reasonable members of these relevant audiences are unlikely to put the advertiser’s conduct under much scrutiny: see Interlego AG v Croner Trading Pty Ltd.35
C. Step 3: Does the impression created lead the ordinary reasonable representative into error? 10.14 Once it has been determined what the relevant conduct means to the relevant audience, it is a matter of assessing whether the message or impression conveyed to the relevant section of the public would lead them into error. It is not a question of whether or not the statements are true, or whether or not the advertiser acted honestly.36 The question is whether the impression caused a reasonable representative to be lead into error. If yes, then there is a breach of s 18 of the Australian Consumer Law.
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General principles applying to s 18 10.15 The key to s 18 of the Australian Consumer Law is that any claims made about products (as judged by the relevant section of the public) must not be misleading. To take a straightforward case, as the relevant section of the public has a particular notion of what ‘Lemon Cheesecake’ is, it would be misleading or deceptive to describe a lemon cheesecake flavoured ice cream (Peters Drumstick Gold) as ‘Lemon Cheesecake’: MacPhee v Peters Foods Australia Pty Ltd (in liq).37
A. Conduct must be judged as a whole 10.16 Conduct must be judged as a whole.38 This is particularly important for advertisements, especially television advertisements. It would be unfair to divide up a television advertisement and examine each part out of context. 32 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; 42 ALR 1; 1A IPR 684; (1982) ATPR 40-307, see 5.32C. 33 R & C Products Pty Ltd v Hunters Products Pty Ltd (1988) ATPR 40-839. 34 Sterling Winthrop Pty Ltd v R & C Products Pty Ltd (1994) ATPR 41-308. 35 (1992) 111 ALR 577; 25 IPR 65; (1993) ATPR (Digest) 46-098, see 6.36C. 36 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216. 37 (2004) 60 IPR 51; [2003] FCA 1528, see 6.27C1. 38 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592.
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Decor Corporation Pty Ltd v Bo-Water Scott Ltd (1985) 5 IPR 288; (1985) ATPR 40-58739 Facts: Decor Corp marketed a very well-known and successful BYO wine cooler. BowaterScott manufactured Sorbent toilet paper. Bowater-Scott produced a series of television advertisements in which Decor’s wine cooler was used as a prop. The advertisements were ‘shot in a restaurant where a couple arrives holding a BYO cooler with the letters BYO prominently displayed on the cooler. When at the table to which they are shown, a waiter removes the top of the cooler and is taken aback by the sight of a roll of Sorbent toilet paper. The advertisement then proceeds with its theme of extolling the virtues of Sorbent toilet tissue.’ Decor complained that the advertisement harmed the image of its product by suggesting that the Decor cooler could and should be used to carry toilet paper; that the Decor cooler was not a prestigious or quality product; that Decor approved of Sorbent toilet paper. Decor sought an injunction for breaches of ss 52, 53(c), and 55 of the Trade Practices Act 1954 (now ss 18, 29(1)(g) and 33 of the Australian Consumer Law) and the tort of injurious falsehood. Decision: The injunction was refused. The advertisement should be viewed as a whole and should not be taken too literally. When the advertisement is considered as a whole, viewers would not see the wine cooler as anything but a prop used to highlight the defendant’s product. The advertisement was not making any of the statements claimed by Decor.
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Equally, an advertisement may be misleading and deceptive even though its constituent parts, when analysed closely and carefully, are accurate. If the overall impression or dominant message created is false, the advertisement is deceptive: see ACCC v TPG Internet Pty Ltd.40 This has been a problem in consumer services where products (and their pricing) are complex and competition has been strong: see, for example, in relation to telecommunications, Telstra Corporation Ltd v Optus Communications,41 and in relation to health insurance, Medical Benefits Fund of Australia Ltd v Cassidy; John Bevins Pty Ltd v Cassidy.42 Sometimes it is very difficult to portray complex products accurately in a simple advertisement.
B. There is no requirement that anyone actually be misled or deceived 10.17 It is not essential to produce evidence to show that any person was actually misled. Section 18 of the Australian Consumer Law prohibits conduct that is likely to mislead or deceive. On the other hand, evidence that persons have been misled does not prove that conduct is misleading or deceptive.43 Any such evidence is merely persuasive and it is up to the applicant to show that the person was misled by the defendant’s conduct and not by that person’s own misconceptions,44 or by 39 40 41 42 43 44
See also Stuart Alexander and Co (Interstate) Pty Ltd v Blenders Pty Ltd (1981) 37 ALR 161, see 10.27C3. (2013) 250 CLR 640; 304 ALR 186; [2013] HCA 54, see 10.13C. (1996) 26 IPR 515; (1997) ATPR 41-541. (2003) 205 ALR 402; (2003) ATPR 41-971; [2003] FCAFC 289, see 10.56C2. McWilliams Wines Pty Ltd v McDonald’s Systems (Aust) Pty Ltd (1980) 33 ALR 394; (1980) ATPR 40-188. Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45; 169 ALR 677; [2000] HCA 12, see 6.30C.
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Marketing and the Law
the conduct of some third party beyond the control of the defendant.45 Ultimately, it is a question for the court to determine whether the conduct is misleading or deceptive. Survey evidence is admissible to assist the court, but great care must be taken in framing the questions and ensuring that the survey is properly conducted. Those conducting the survey should be prepared, if necessary, to give evidence as to how the survey was carried out. Surveys are best used to prove that persons have actually been misled; a survey which shows that consumers claim they would have been misled is not admissible.46 Reckitt & Colman Products Ltd v Borden Inc47 (a passing off case) provides an example of an admissible survey. Interviewers stationed themselves in supermarkets and asked customers who had bought the defendant’s product, what they had bought. The results showed that a significant number who had bought the defendant’s lemon juice believed they had bought the plaintiff’s. If the interviewers had led the customers in any way, the survey would have been inadmissible. For example, it would have been a leading question for interviewers to ask: ‘Is that [the plaintiff’s] lemon juice you have just bought?’
C. Intention is largely irrelevant 10.18 There is no mental element involved in a breach of s 18 of the Australian Consumer Law. Consequently, it is no defence to claim that the misleading advertising was unintentional.48 Nor is it a defence for the advertiser to claim that it took reasonable precautions to ensure that the advertisement was not misleading or deceptive.49 Yorke v Ross Lucas Pty Ltd (1983) 46 ALR 319; 68 FLR 268; [1983] FCA 14
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10.18C
Facts: Yorke purchased a business partly on the basis of turnover figures provided by the vendor, Treasureway Stores Pty Ltd. The figures were given by the vendor to his agent, Ross Lucas Pty Ltd, who passed them on to Yorke. The figures were incorrect. Yorke sued the agent, Ross Lucas Pty Ltd, and the vendor, Treasureways Ltd, for damages for misleading or deceptive conduct. Decision: The court held that, even though the agent, Ross Lucas Pty Ltd, was not aware, and had no reason to suspect, that the information was inaccurate, the agent had engaged in misleading or deceptive conduct.
45 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; 42 ALR 1; 1A IPR 684; (1982) ATPR 40-307, see 5.32C. 46 Interlego AG v Croner Trading (1992) 111 ALR 577; 25 IPR 65; (1993) ATPR Digest 46-098, see 6.36C. 47 (1990) 17 IPR 1; [1990] 1 All ER 873; [1990] 1 WLR 491, see 8.3C. 48 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre (1978) 140 CLR 216; 18 ALR 639; 1B IPR 818, see 6.27C1. 49 See Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; 42 ALR 1; 1A IPR 684; (1982) ATPR 40-307, see 5.32C.
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Equally, an intention to deceive cannot by itself prove a breach of s 18 of the Australian Consumer Law.50 However, intention to deceive may make it easier to prove the deception.51 That is, proof of an intention to mislead might lead a court to infer more readily that conduct is misleading or deceptive.52 This is based on the idea that the person who best knows its trade is the trader itself. Thus, if there is evidence suggesting that a trader deliberately set out to create a false impression through its advertising, the court is more disposed to reach the conclusion that the conduct was deceptive: see Apand Pty Ltd v Kettle Chip Co Pty Ltd.53 A good example is Twentieth Century Fox Film Corp & Matt Groening Productions Inc v South Australian Brewing Co Ltd & Lion Nathan Pty Ltd.54
D. The distinction between confusion and deception 10.19 Mere confusion by itself does not amount to a breach of s 18 of the Australian Consumer Law: McWilliams Wines Pty Ltd v McDonald’s Systems (Aust) Pty Ltd;55 Campomar Sociedad, Limitada v Nike International Ltd.56 However, it is often a very short step between confusion and deception.57 It would be unwise to attempt to build a promotional strategy around the difference between confusion and deception. If a firm thinks that its advertising is likely to confuse, it should not be surprised if, having proceeded with the advertising, a court holds that the confusion amounted to deception. Where the advertiser deliberately sets out to take advantage of confusion, the court will be even more prepared to find for the applicant: Twentieth Century Fox Film Corp & Matt Groening Productions Inc v South Australian Brewing Co Ltd & Lion Nathan Pty Ltd.58
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E. Can an advertisement carry multiple messages? 10.20 An advertisement means what an ordinary or reasonable representative of the relevant section of the public thinks it means. It is possible that an advertisement may convey different messages to different (but ordinary or reasonable) members of the relevant public. A good example (albeit in the context of product packaging)
50 Apand Pty Ltd v Kettle Chip Co Pty Ltd (1994) 30 IPR 337; (1994) ATPR 41-353 at 42,603, see 6.31C; Irish Distillers Ltd v S Smith & Son Pty Ltd (1986) 7 IPR 509; (1987) ATPR 40-756. 51 Bridge Stockbrokers Ltd v Bridges (1984) 57 ALR 401; 5 IPR 81; (1985) ATPR 40-502. 52 Apand Pty Ltd v Kettle Chip Co Pty Ltd (1994) 30 IPR 337; (1994) ATPR 41-353 at 42,603, see 6.31C. 53 (1994) 30 IPR 337; (1994) ATPR 41-353, see 6.31C. 54 (1996) 66 FCR 451; 34 IPR 225; [1996] FCA 1484, see 6.45C. 55 (1980) 33 ALR 394; (1980) ATPR 40-188, see 7.53. 56 (2000) 202 CLR 45; 169 ALR 677; [2000] HCA 12, see 6.30C. See also Hornsby Building Information Centre v Sydney Building Information Centre (1978) 140 CLR 216; 18 ALR 639; 1B IPR 818, per Stephen J, see 6.27C1. 57 See Shoshana Pty Ltd v 10th Cantanae Pty Ltd (1987) 79 ALR 279; 11 IPR 249; (1988) ATPR 40-851 at 49,171, per Burchett J; Pacific Dunlop Ltd v Hogan (1989) 87 ALR 14; 14 IPR 398; (1989) ATPR 40-948 at 49,821–49,822, see 10.29C. 58 (1996) 66 FCR 451; 34 IPR 225, see 6.45C.
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is Siddons Pty Ltd v Stanley Works Pty Ltd.59 If one of those messages is misleading, the advertisement is unlawful.
F. Disclaimers in advertising 10.21 Any disclaimer is one of the factors to be considered in determining whether the relevant audience will be misled or deceived. A disclaimer which is not appropriate to the circumstances will not cure otherwise deceptive conduct: for example, Hutchence v South Sea Bubble Co Pty Ltd.60 Thus, while an asterisk (indicating a disclaimer) may work in some cases,61 this will not always be so. In Medical Benefits Fund of Australia Ltd v Cassidy; John Bevins Pty Ltd v Cassidy,62 Stone J said that ‘[t]he qualifying material [including an asterisk] must be sufficiently prominent to prevent the primary statement being misleading and deceptive or likely to mislead or deceive’. See also ACCC v Target Australia Pty Ltd.63 Newton-John v Scholl-Plough (Australia) Ltd (1986) 11 FCR 233; (1986) ATPR 40-697 10.21C
Facts: The defendant advertised its range of Maybelline cosmetics in an advertisement which contained a colour photograph of a woman with a considerable resemblance to Olivia NewtonJohn, the plaintiff. At the top of the advertisement in very large and striking letters were the words: ‘Olivia? No, Maybelline!’. The plaintiff alleged passing off, claiming that a significant number of people would assume the photograph was one of her and, as a consequence, that she was in some way associated with the advertisement, even if in a subliminal way.
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Decision: The alleged association between the plaintiff and the defendant’s cosmetics was immediately negatived by the direct words ‘No, Maybelline’. The casual reader would gain the impression that the advertisement had made use of the plaintiff’s reputation to the extent of gaining attention, but not to the extent of making any suggestion of an association. The action was dismissed.
G. Can a false advertisement be cured at point of sale? 10.22 Where an advertisement is misleading and deceptive, it is not generally sufficient for the advertiser to rely on a disclaimer which appears on the product and is only seen by the customer at the point of sale, nor is it generally sufficient to explain the true state of affairs at the time of sale. See ACCC v TPG Internet Pty Ltd,64 where Murphy J said: 59 (1991) 99 ALR 497; 20 IPR 1; (1991) ATPR 41-111, see 8.14C2. 60 (1986) 64 ALR 33; 6 IPR 473; (1986) ATPR 40-667, see 6.43C1. 61 See, for example, George Weston Foods Ltd v Goodman Fielder Ltd (2000) 49 IPR 553; [2000] FCA 1632; Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd [2006] FCAFC 22. 62 (2003) 205 ALR 402; (2003) ATPR 41-971; [2003] FCAFC 289, see 10.56C2. 63 (2001) ATPR 41-840; [2001] FCA 1326, see 10.45. 64 (2013) 250 CLR 640; 304 ALR 186; [2013] HCA 54, see 10.13C.
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Chapter 10: Advertising It is well established that if an advertisement is misleading, the fact that the consumer will learn the true position prior to entering a contract does not mean that there has been no contravention of the Act. It is not to the point that any misleading impression created by an advertisement may or will be corrected before any contract is made. The misleading conduct occurs at the time of publication65 … Further, the regime is concerned to proscribe conduct which is likely to mislead, not just with whether consumers have been misled. It is intended to also prevent the potential misleading of consumers …
St Lukes Health Insurance v Medical Benefits Fund of Australia Ltd (1995) ATPR 41-428 Facts: Medical Benefits Fund of Australia Ltd (MBF) advertised its medical insurance on television. The advertisement conveyed a false impression about the medical fees that were covered by the insurance. St Lukes sought an injunction for a breach of s 52 of the Trade Practices Act 1954 (now s 18 of the Australian Consumer Law). MBF argued that the exact situation was explained to potential insurers before they took out the insurance and, therefore, MBF had not engaged in misleading and deceptive conduct. Decision: The advertisement was a breach of s 52. Explaining the true situation at the point of sale did not cure the false advertisement. An injunction was granted.
Examples of misleading or deceptive conduct
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A. Opinions and exaggerations 10.23 A trader is entitled to puff up its own product, provided it does not mislead or deceive. Statements such as ‘If you like X, you’ll love our product’, ‘We think our product is as good as X. Try it and see!’, and ‘It’s not X, but we think it’s as good, and it’s half the price’ will normally be regarded as puffery.66 So would comments such as ‘tastiest’, ‘sweetest’, and ‘most enjoyable’ and expressions such as ‘a taste sensation’ and ‘a whole new experience’. A construction company was permitted to advertise ‘If you don’t get Collier to build your home, you won’t be getting the best deal’, particularly as other builders used similar hyperbole.67 However, the advertiser must take care. Statements and opinions which the advertiser may regard as mere puffs or mere exaggerations might be regarded as misleading and deceptive by the courts.
65 St Lukes Health Insurance v Medical Benefits Fund of Australia Ltd (1995) ATPR 41-428, see 10.22C. 66 Sabre Corp Pty Ltd v Laboratories Pharma-A-Care Pty Ltd (1995) 31 IPR 445; (1995) ATPR 41-396. 67 Collier Constructions Pty Ltd v Foskett Pty Ltd (1991) 97 ALR 460; 19 IPR 44.
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Budget Rent-A-Car System Pty Ltd v Dewhirst (1984) ATPR 40-485 10.23C1
Facts: This case involved a dispute between two large rental car agencies, Budget and Hertz. Hertz advertising brochures contained a number of statements about the Hertz Club Key card: • ‘While other car rental companies simply offer you a discount, we offer you a Club Key card.’ • ‘It [the card] puts you way ahead even before you start, because it works like no other card.’ • ‘The key to a wider range of vehicles.’ In fact, the Hertz card operated in much the same way as the Budget card with similar benefits and access to much the same range of cars at similar prices. Budget sought an injunction for misleading and deceptive conduct. Hertz argued that the comments made in the brochures were mere exaggerations not likely to be taken seriously by the public. In other words, Hertz argued that they were mere puffs. Decision: Davies J accepted that these statements had an effect in the market place and, as they were capable of being objectively tested, they should not be regarded as mere puffing. As the statements were not accurate, they were likely to be misleading or deceptive. An interlocutory injunction was granted.
In Bateman v Slatyer,68 Burchett J set out the circumstances in which an opinion may be misleading and deceptive: It is of course clear law that a statement of opinion cannot be regarded as false or misleading, or as misleading and deceptive, simply because it turns out to be incorrect … But such an opinion may convey that there is a basis for it, that it is honestly held, and when it is expressed as the opinion of an expert, that it is honestly held upon rational grounds involving an application of the relevant expertise.
Tobacco Institute (Aust) Ltd v Australian Federation of Consumer Organisations Inc (1992) 111 ALR 61; 24 IPR 529; (1993) ATPR 41-199 Copyright © 2019. LexisNexis Butterworths. All rights reserved.
10.23C2
Facts: The Tobacco Institute took out certain prominent newspaper advertisements denying that passive smoking had any injurious effects. In part the advertisement read: And yet there is little evidence and none which proves scientifically that cigarette smoke causes disease in non-smokers. The Tobacco Institute argued that it was merely the writer’s opinion that there was little or no scientific evidence linking cigarette smoke and disease in non-smokers. Decision: Some sections of the public who might be influenced by the advertisement would, not unreasonably, believe that the advertisement was a factual statement to the effect that little or no such scientific evidence existed. On balance this was false, as overwhelming evidence to this effect did exist. The scientific evidence linking cigarette smoke and disease in non-smokers could not be described as ‘little’. The court decided that the advertisement was misleading or deceptive.
68 (1987) ATPR 40-762 at 48,257.
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It is not sufficient to give an opinion honestly; the opinion must also be supported by the facts. In R & C Products Pty Ltd v S C Johnson & Sons Pty Ltd,69 the manufacturers of a brand of insecticide voluntarily agreed to remove from their television commercial the phrase ‘and it’s the most dramatic breakthrough in fly killing I’ve ever seen’, when the evidence suggested that it was no better in this regard than its competitors.
B. Predictions 10.24 A trader who lies when making a prediction (a representation about something in the future) is of course liable under s 18 of the Australian Consumer Law if the prediction does not come true.70 But can a trader ever be liable for a prediction if the trader has an honest belief in the prediction? The answer is yes, but only if the trader did not have reasonable grounds for making the prediction.71 This is the combined effect of s 18 and s 4 of the Australian Consumer Law and covers the situation where advertisers make plausible but unjustified claims for their products. Section 4(1) provides that ‘if a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the person does not have reasonable grounds for making the representation, the representation is taken … to be misleading’. Section 4(2) places the onus on the person to prove they had reasonable grounds. What amounts to reasonable grounds is a question of fact. For example, generally a retailer is entitled to rely on information supplied by a reputable manufacturer.
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ACCC v Danoz Direct Pty Ltd (2003) 60 IPR 296; [2003] FCA 881 Facts: Danoz, a retailer, promoted (and sold) its products using television (‘advertorials’ and ‘infomercials’), post, and a website. One of the products it promoted was the ‘abTronic’, a rubber and vinyl pad with concealed electrodes which, when worn by a person, transmits electronic stimulation into the body causing the muscles to contract. The ACCC alleged that Danoz’s promotion of the product misrepresented to consumers that the abTronic would improve muscle tone, size, and strength; and cause weight loss, reduce body fat, and improve the ‘tone’ of musculature. The ACCC claimed breaches of ss 52 and 53(c) of the Trade Practices Act (now ss 18 and 29(1)(g) of the Australian Consumer Law). Danoz claimed that it had relied on material and instruction manuals supplied by the wholesaler/ importer. The evidence specifically denied that the abTronic had the capacity to reduce weight. In relation to muscle tone and strength, the material suggested that, while the abTronic could achieve these outcomes, it did not establish that it would achieve these outcomes. Decision: Section 51A of the Trade Practices Act (now s 4 of the Australian Consumer Law) required Danoz to adduce evidence that it had reasonable grounds for making the predictions
69 (1994) ATPR 41-234, see 6.37C. 70 This has always been the view of the common law as well. 71 McGrath v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230.
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Marketing and the Law about the abTronic that appeared in its television and other promotional material. Otherwise the advertisements were misleading. Danoz’s advertisements were unequivocal: the abTronic would improve muscle tone and strength and reduce weight. It had no reasonable grounds for these assertions. The court ordered corrective advertising and a compliance program.
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C. Silence 10.25 This is one of the most difficult issues under s 18 of the Australian Consumer Law. On the one hand, s 18 is not meant to be a law requiring traders to disclose everything about a product. This would be costly and impractical. For example, see Ryan v Great Lakes Council,72 where the court rejected the proposition that the sale of oysters without any warning of possible viral contamination amounted to an implied representation that they were uncontaminated. On the other hand, it is clear that there are circumstances where a trader by remaining silent is conveying a false message to the relevant section of the public. For example: • To ‘announce an opera as one in which a named and famous prima donna will appear and then to produce an unknown young lady bearing by chance that name will clearly be to mislead and deceive.’73 The advertisement is literally true, but conveys another meaning which is untrue. • An advertisement for a new painkilling drug could be misleading if the scientific paper upon which the advertisement was based was quoted out of context in such a way as to suggest results that the scientific paper did not claim.74 • A television advertisement that relied upon a visual comparison of two products would be deceptive if, unknown to the audience, the products were not alike and the visual demonstration was carefully staged to show results that did not reflect the true state of affairs.75 • A construction company that advertised homes at $45 per week was engaging in misleading conduct where the $45 per week only lasted for a relatively short period of time, to be replaced by long-term finance pursuant to which the purchaser would have to pay about $75 per week.76 In deciding whether to include any particular information in an advertisement or other promotional material, the firm must ask whether leaving that information out will create a false impression in the minds of ordinary or reasonable members 72 (1999) ATPR 46-191; [1999] FCA 177. 73 This example was given by Stephen J in Hornsby Building Information Centre v Sydney Building Information Centre (1978) 140 CLR 216 at 17,690; 18 ALR 639; 1B IPR 818, see 6.27C1. 74 Sterling Winthrop Pty Ltd v Boots Co (Aust) Pty Ltd (1995) 32 IPR 361; (1995) ATPR 41-433, see 10.26C2. 75 See Makita (Australia) Pty Ltd v Black & Decker (Australasia) Pty Ltd (1990) 18 IPR 270; (1990) ATPR 41-030, see 10.27C2. 76 Henderson v Pioneer Homes Ltd (No 2) (1980) 29 ALR 597; (1980) ATPR 40-159.
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of the relevant audience. It has been suggested that one way of approaching this issue of whether to reveal information or not is to ask whether ordinary members of the relevant audience would reasonably expect in the circumstances to be told that information.77
D. Scientific claims 10.26 Firms must be careful when using scientific evidence to substantiate claims. Consumers are more likely to take product claims seriously if the advertiser supports the claim with scientific proof. Consumers often do not have the knowledge or skill to assess scientific claims properly. Even if the skills existed, the consumer may not have access to the scientific material to allow any meaningful evaluation to be done. For these reasons, the courts impose a serious obligation on advertisers not to misrepresent scientific findings.78 Colgate Palmolive Pty Ltd v Rexona Pty Ltd (1981) 37 ALR 391; (1981) ATPR 40-242 Facts: Colgate had 60% of the market for toothpaste. Rexona launched a major campaign to capture a significant slice of the market with a new toothpaste called ‘Aim’. The advertising for Aim was centred around a substance called ‘citraden’, which was not found in other toothpastes. Colgate argued that the advertisements falsely claimed that citraden was innovative; that scientific tests proved that citraden offered better protection against decaycausing plaque; that Aim was a significantly better toothpaste than others on the market; and that Aim had the approval of the dental profession.
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Most of the scientific material relied upon by Rexona consisted of unpublished reports and tests which had not been subjected to independent scientific clinical trials. Even the published material was criticised on the basis of the methodology used and on its relevance to Rexona’s claims. Colgate sought an injunction for breaches of ss 52, 53(a), (b), and (c), and 55 of the Trade Practices Act (now ss 18, 29(1)(a), (c), and (g), and 33 of the Australian Consumer Law). Decision: The court accepted that the advertisements made the claims suggested by Colgate and that there was sufficient evidence that these claims were unproven or unsubstantiated. The court granted an interim injunction. Lockhart J said: The importance of the evidence of … [the] expert witnesses is that, until the claims made in the Rexona advertising material extolling the virtues of Aim toothpaste and citraden are scientifically substantiated by tests which are published to the dental profession, scientists and the public, they should not be made. It is not only commonsense; it is right. (During the case, Rexona advised the court that, if an interim injunction were granted, it would be forced to abandon the advertising campaign. This, in fact, occurred.)
77 This seems to be the result from Demagogue Pty Ltd v Ramensky (1992) 110 ALR 608; (1993) ATPR 41-203. 78 See ACCC v Danoz Direct Pty Ltd (2003) 60 IPR 296; [2003] FCA 881, see 10.24C; Jansen Pharmaceutical v Pfizer Pty Ltd (1986) ATPR 40-654; Tobacco Institute (Aust) Ltd v Australian Federation of Consumer Organisations Inc (1992) 111 ALR 61; 24 IPR 529; (1993) ATPR 41-199, see 10.23C2; Duracell Australia Pty Ltd v Union Carbide Australia Ltd (1988) ATPR 40-918.
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Care must be taken even where the advertisement is directed to those within the trade. Sterling Winthrop Pty Ltd v Boots Co (Aust) Pty Ltd (1995) 32 IPR 361; (1995) ATPR 41-433 10.26C2
Facts: Sterling Winthrop distributed a paracetamol pain-relieving drug called ‘Panadol’. Boots produced a competing product called ‘Nurofen’. An advertisement for Nurofen, directed towards pharmacists and medical professionals, quoted from a scientific paper which claimed that the side effects from the drug were indistinguishable from the side effects of paracetamol. Sterling Winthrop argued that this was misleading and deceptive because the quote was taken out of context. The results in the scientific paper were based on one dose of Nurofen only. The paper said nothing at all about the side effects from more than one dose. The advertisement, however, used the scientific quote in a way that suggested that the same result applied to a number of doses of Nurofen. Decision: Tamberlin J granted an interlocutory injunction. The target audience (‘trained pharmacists or other specialists or distributors’) could interpret the advertisement in the way claimed by Sterling Winthrop. Therefore, the advertisement was capable of being misleading and deceptive. It is ‘misleading to make a statement which implies that there is an adequate foundation in scientific knowledge to justify it when taken in its context the scientific statement quoted does not provide a proper foundation’.
See also GlaxoSmithKline Australia Pty Ltd v Reckitt Benckiser (Australia) Pty Ltd (No 2)79 at 10.27C5. An advertisement may make a scientific claim implicitly. Thus, using shots of laboratories, test tubes, white-coated technicians, and charts can easily create the impression among ordinary members of the relevant section of the public that the verbal message is supported by scientific evidence.
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E. Comparative advertising 10.27 There are no special laws governing comparative advertising. It is perfectly legitimate unless it conveys misleading messages to the relevant section of the public.80 However, the advertiser has to be careful. In Duracell Aust Pty Ltd v Union Carbide Aust Pty Ltd81 Burchett J noted that: In the area of comparison advertising … particular care is required. An unfair comparison may, quite simply because it is unfair, be misleading. It may mislead a consumer into thinking … that a choice may be made on grounds which are not truly valid …
79 [2018] FCA 1. 80 Stuart Alexander and Co (Interstate) Pty Ltd v Blenders Pty Ltd (1981) 37 ALR 161, see 10.27C3; Gillette Australia Pty Ltd v Energizer Australia Pty Ltd (2002) 193 ALR 629; 56 IPR 1; [2002] FCAFC 223, see 10.27C4. 81 (1988) ATPR 40-918.
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Comparative advertising can be very persuasive: it can turn what would otherwise be regarded as self-evident exaggerations or clever parodies into facts.82 Hanimex Pty Ltd v Kodak (Australasia) Pty Ltd (1982) 74 FLR 447; (1982) ATPR 40-287 Facts: Fuji brand film, made by Hanimex, is sold in a green box. Kodak ran a radio advertisement involving an imaginary family named the Kendalls. In the advertisement, Mrs Kendall is crying because the film she brought home was not Kodak. Mr K: Of course it’s not Kodak … Kodak film is in a yellow box and this is bright green. Mrs K: I know (sob) the photo dealer gave it to me when I left your film for processing. And (sob) … and (sob) I just accepted it (sob). Mr K (coldly): Without a protest, Diane? Mrs K: Oh Bob, I’m so ashamed. Mr K: Calm yourself … We will return this other film … In our unending quest for quality in all things photographic we must never accept less than Kodak. Hanimex argued that the advertisement was a breach of ss 52, 53(c), and 53(f) of the Trade Practices Act (now s 18 and s 29(1)(g) and (l) of the Australian Consumer Law). (It also argued defamation and injurious falsehood.) Kodak sought to have the case thrown out on the basis that the advertisement was no more than mere puffery and that Hanimex could not possibly succeed.
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Decision: The court refused to throw the case out. Hanimex’s argument was not so untenable that it could not possibly succeed. In other words, Kodak’s advertisement was capable of being misleading and deceptive. The matter did not proceed, as Kodak changed its advertising.
It is difficult to lay down guidelines for comparative advertising because ultimately each case depends on its own facts. Generally, however, advertisers should ensure that: • when comparing products they compare like with like,83 or otherwise make the comparison clear to consumers;84 • test results are truly presented;85 • appropriate tests are used and that they are conducted in a manner that reflects accepted industry practice;86 and • results of any mock-up tests accurately reflect what is likely to happen under real conditions.87 82 TPC v Telstra Corp Ltd (1993) ATPR 41-256; Telstra Corporation v Optus Communications (1996) 26 IPR 515; (1997) ATPR 41-541. 83 See Hospitals Contribution Fund of Australia Ltd v Switzerland Australia Health Fund Pty Ltd (1987) 78 ALR 483; (1988) ATPR 40-846. 84 See Gillette Australia Pty Ltd v Energizer Australia Pty Ltd (2002) 193 ALR 629; 56 IPR 1; [2002] FCAFC 223, see 10.27C4. 85 See Makita (Australia) Pty Ltd v Black & Decker (Australasia) Pty Ltd (1990) 18 IPR 270; (1990) ATPR 41-030, see 10.27C2. 86 Duracell Australia Pty Ltd v Union Carbide Australia Ltd (1991) 104 ALR 369; (1988) ATPR 40-918. Hoover (Australia) Pty Ltd v Email Ltd (1991) 104 ALR 369; (1991) ATPR 41-149. 87 See
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Makita (Australia) Pty Ltd v Black & Decker (Australasia) Pty Ltd (1990) 18 IPR 270; (1990) ATPR 41-030 10.27C2
Facts: Black & Decker produced a television advertisement, called the ‘torture test’, which depicted the superior performance of its power drill over an unidentified drill which looked suspiciously like a Makita. The drills were mounted facing each other and linked by a shaft. The Makita drill was started first and then the Black & Decker. In the advertisement the Black & Decker drill quickly reversed the action of the other drill causing it to smoke. What Black & Decker did not make clear from the advertisement was that: • its drill was more powerful to begin with; • it took a number of unsatisfactory tests before Black & Decker got the result it wanted; • the Black & Decker drill also began to smoke; and • the time frame in which the demonstration took place was deliberately shortened, thus enhancing the apparent superiority of the Black & Decker drill. Decision: The court stated that comparisons should be between like products and that tests should not be conducted or depicted in such a way as to give a false impression of the results. The court granted an injunction and ordered corrective advertising.
Although comparative advertising will be closely scrutinised, the courts will not try to draw distinctions or find messages that are impossibly fine and precise, particularly where the medium is television.88 Stuart Alexander and Co (Interstate) Pty Ltd v Blenders Pty Ltd (1981) 37 ALR 161
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10.27C3
Facts: Stuart Alexander distributes imported Moccona coffee and Blenders distributes Andronicus coffee. Blenders produced a television advertisement for instant coffee which showed a Moccona jar of coffee filled to overflowing with silver coins and the Andronicus jar only half filled. A voice-over announced that, ‘Some imported coffees come in a beautiful jar, but they cost the earth’. Moccona claimed that this created the misleading impression that Moccona was twice as expensive as the advertiser’s product. In fact, Moccona was considerably more expensive — on average about 50% more expensive — but was not double the price. Decision: In rejecting Moccona’s claim, Lockhart J said: I think a robust approach is called for when determining whether television commercials of this kind are false, misleading or deceptive. The public is accustomed to the puffing of products in advertising. Although the class of persons likely to see this commercial is wide, it is inappropriate to make distinctions that are too fine and precise. As the commercial lasts for only 30 seconds and various things happen during its screening, it is difficult to measure with precision the difference in price that is said to exist between Moccona and Andronicus instant coffees. It is true that, by looking at the building up of coins in the jars, the pile of coins in the Moccona jar appears to be about twice as high as it does in the Andronicus jar. But in all the circumstances, when looked at broadly, the 88 See Stuart Alexander and Co (Interstate) Pty Ltd v Blenders Pty Ltd (1981) 37 ALR 161, see 10.27C3; Hoover (Australia) Pty Ltd v Email Ltd (1991) 104 ALR 369; (1991) ATPR 41-149; Decor Corporation Pty Ltd v Bo-Water Scott Ltd (1985) 5 IPR 288; (1985) ATPR 40-587, see 10.16C; Narhex Australia Pty Ltd v Sunspot Products Pty Ltd (1990) 18 IPR 535; (1990) ATPR 41-036.
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Chapter 10: Advertising commercial is not false, misleading or deceptive in respect of the prices of the two coffees. The overall impression is that Moccona is considerably more expensive than Andronicus, and this it is.
An advertisement that clearly identifies the products being compared and does no more than invite the customer to make his or her own price or quality comparisons is not misleading. Gillette Australia Pty Ltd v Energizer Australia Pty Ltd (2002) 193 ALR 629; 56 IPR 1; [2002] FCAFC 223 Facts: Gillette and Energizer make batteries. The largest-selling battery is the Energizer ‘Eveready Super Heavy Duty’ battery, which is not an alkaline battery. Energizer make at least four other batteries that are more powerful than the Eveready Super Heavy Duty battery. Gillette produced an advertisement for its Duracell alkaline battery. The advertisement shows a race between a bunny powered by a Duracell battery and a bunny powered by a battery with no name. The Duracell bunny wins the race despite the fact that the nonDuracell bunny is replaced on two separate occasions by a look-alike bunny. The voice-over is as follows: Which lasts longer? Duracell Alkaline or Eveready Super Heavy Duty batteries? While Duracell Alkaline keeps on running, Eveready Super Heavy Duty just can’t keep up. Uh oh, no matter what they try it won’t help. With up to three times more power, Duracell always beats Eveready Super Heavy Duty.
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A superscript claims that the Duracell lasts three times longer than the Eveready Super Heavy Duty. The superscript also states that Eveready Super Heavy Duty is cheaper than Duracell. At trial Energizer was granted an injunction on the basis of a breach of ss 52 and 53(a) of the Trade Practices Act (now ss 18 and 29(1)(a) of the Australian Consumer Law). Gillette appealed. Decision: There was no breach. There are no special rules governing comparative advertising. The Act does not impose an obligation that comparative advertising be fair. It is sufficient that it not be misleading. The advertisement makes it clear that the comparison is being made with the Eveready Super Heavy Duty. The thrust of the advertisement was to compare the power of the two batteries. This was done truthfully. Heerey J said: A consumer, informed by the advertisement … that the Duracell battery lasts three times longer than the Eveready Super Heavy Duty battery, can make his or her decision at the point of sale whether the extra power of the Duracell is worth the higher price. I do not see how it could be said that such a consumer has been misled or deceived. Indeed, it would be inconsistent with the policy and objectives of the Trade Practices Act (now the Australian Consumer Law) to restrict a trader from publicising, truthfully, a feature of its product which is superior to the same feature of a competitor’s product. If consumers buy more of a better product then the cost of producing that product can be spread over more items, thus resulting in lower consumer prices (at least this will be so in a competitive market, of the kind that exists in the present case). The competitor will have the incentive to provide products of equal quality, or further reduce prices, or both.
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GlaxoSmithKline Australia Pty Ltd v Reckitt Benckiser (Australia) Pty Ltd (No 2) [2018] FCA 1 10.27C5
Facts: GlaxoSmithKline are the manufacturers of Panadol, and their competitor Reckitt Benckiser makes Nurofen. Reckitt ran a print, outdoor ad and TV campaign claiming that Nurofen was ‘better’ or ‘superior to’ paracetamol type products, such as Panadol, in relieving headaches such as tension headaches, and provided faster relief for common headaches than products such as Panadol. Their campaign was supported by graphs purporting to show the increased effectiveness of Nurofen. These graphs were based on a scientific study of the comparative efficacy of ibuprofen and paracetamol. GlaxoSmithKline argued that the representations made in this advertising campaign were misleading and in breach of ss 18, 29(1)(a) and (g) of the Australian Consumer Law. Decision: The court noted that there was conflicting scientific evidence, and for Reckitt to rely on only one study as the foundation for its claims was misleading. The balance of scientific evidence actually outweighed Reckitt’s claims. A permanent injunction was granted. (Note, Reckitt Benckiser appealed this decision to the Full Federal Court, and lost.)
F. Country of origin claims 10.28 These are discussed as part of packaging requirements: see 8.10–8.17.
G. Using celebrities to promote products 10.29 Care must be taken to ensure that consumers are not deceived by sponsorship or endorsement claims that are not true. Some such claims may amount to a form of passing off. In particular, see Talmax Pty Ltd v Telstra Corp Ltd.89
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Pacific Dunlop Ltd v Hogan (1989) 87 ALR 14; 14 IPR 398; (1989) ATPR 40-948 10.29C
Facts: Paul Hogan became an international celebrity following the release of the film Crocodile Dundee in 1986, which film Hogan created and starred in. Pacific Dunlop, which manufactured Grosby shoes, produced a television advertisement which was a take-off of the knife scene in the film Crocodile Dundee. In the film, Mick Dundee and his companion are confronted by New York muggers demanding his wallet. The companion says of one of the muggers: ‘He’s got a knife’. Dundee then produces his own much larger hunting knife with the statement: ‘That’s not a knife — (pause) That’s a knife’. The defendant’s television advertisement used similar characters in a similar setting, but one where the companion says to Dundee: ‘Mick, give him your wallet. He’s wearing leather shoes.’ Dundee retorts: ‘You call those shoes. Now these are leather shoes — Grosby leather, soft, comfortable, action-packed leather.’ Dundee then kicks the knife out of the mugger’s hand. The character in the advertisement was dressed in the distinctive manner of Paul Hogan in the film, but did not look like Hogan. The advertisement was totally unlike Hogan’s normal advertisements. Hogan and others sued for passing off and breach of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law).
89 [1997] 2 Qd R 444; (1996) 36 IPR 46; (1996) ATPR 41-535, see 6.43C2.
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Chapter 10: Advertising Decision: By a majority, the court upheld the injunction granted at first instance. Essentially, the majority of the Court accepted that persons would mistakenly believe that Hogan had approved of the advertisement or consented to the use of his creation. Sheppard J (dissenting) posed the following question: ‘Would the portrayal of an advertisement evocative of the knife scene in the film lead a significant number of those seeing the broadcast and the posters to think that Mr Hogan had assented to the adaptation of the knife scene from the film?’ His Honour was of the opinion that the advertisement was so bad that no-one would believe it was connected with Hogan.
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H. Sponsorship and ambush marketing 10.30 Closely related to celebrity advertising is sponsorship marketing. There has been an enormous growth in recent years in this form of promotional spending. The effectiveness of such marketing activity was recognised in Hansen Beverage Co v Bickfords (Australia) Pty Ltd.90 While any event of significance may attract sponsorship dollars, the events of greatest importance are the major sporting and cultural events. At the top of the tree internationally are the Olympic Games and the soccer World Cup. On a slightly less lofty plane, it is quite common for tours by cultural icons, such as a major rock group, to be sponsored. The advantages to be gained by tapping into such popularity are obvious. By the same token, the disadvantages in watching a rival exploit the popularity are also obvious. It would be misleading and deceptive conduct to claim a sponsorship that does not exist. Trying to cash in on major events has become such a popular pastime that marketers have even given it a name. It is commonly called ‘ambush marketing’. Ambush marketing was originally defined as the practice by which an advertiser tries to associate itself with a particular event without paying the sponsorship fees. Organisers of major events who depend on sponsorship dollars for funding tend to call it by the even more pejorative expression ‘parasite’ marketing. Ambush marketing has two benefits for the ambusher. First, there is the direct benefit of being associated with a popular event. Secondly, if a rival is an official sponsor, it weakens that rival’s sponsorship by confusing the public as to who the sponsor is. In this form, ambush marketing is illegal in that it is likely to mislead ordinary or reasonable members of the relevant audience to believe that the advertiser ‘sponsors’ the event, or that the advertiser has the approval of or some association with the organisers of the event. Ambush marketing has now been given a wider meaning. It refers to all manner of activities by which an advertiser can intrude upon public consciousness surrounding an event, including:91 90 (2008) 251 ALR 1; 79 IPR 174; [2008] FCAFC 181, see 6.6C and 10.12C. 91 These forms were suggested by T Meenaghan, ‘Ambush Marketing: Immoral or Imaginative Practice?’ (1994) 34 Journal of Advertising Research 77.
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Marketing and the Law
• sponsoring the broadcast of the event, usually via television. Provided the advertisements do not use insignia belonging to the event (eg, the Olympic rings), it is difficult to see how this is illegal unless it can be said that a significant number of viewers would believe that running an advertisement during a telecast of an event means that the advertiser is an official sponsor of the event. This seems unlikely; • sponsoring something or someone associated with the event. For example, in 1988 Fuji sponsored the US swimming team, thus giving it the right to exploit the Olympic connection in its advertising, provided it was restricted to the swimming team. Fuji’s main rival, Kodak, was the official Olympic sponsor. Fuji, at a fraction of the cost, was able to take some gloss off Kodak’s ‘exclusive’ rights. Once again, this should be perfectly legal, provided the advertising is careful not to suggest sponsorship of the Games as opposed to sponsorship of the team;92 • buying advertising time around the broadcast of the event. It is difficult to see that this will be unlawful unless the advertiser creates an advertisement that is itself misleading; and • other ambush strategies, such as providing free trips to the Olympic Games for relatives of the athletes, hiring space near the event venue for promotional activities,93 and even parodying a song that inevitably suggested a link to the event.94 American Express ran a campaign along the lines, ‘If you’re travelling to Lillehammer [site of the 1994 Winter Olympic Games] you’ll need a passport but you don’t need a Visa’. Visa is a competitor of American Express and was the official sponsor for the Games. During the Barcelona Olympics, GMH advertised it would give a Golden Holden to any gold medal winner — even though Toyota had paid for the exclusive rights to be the car sponsor. Each of these forms of ambush marketing can be conducted legally, provided care is taken to avoid suggestions that the advertiser sponsors or is officially associated with the event. Many countries that host major sporting events enact specific anti-ambush marketing legislation. In order to be considered as a viable host, a nation must be able to demonstrate that sufficient steps have been taken to protect sponsors’ interests. Australian examples of such event-specific legislation are the Sydney 2000 Games (Indicia and Images) Protection Act 1996 and the Melbourne 2006 Commonwealth Games (Indicia and Images) Protection Act 2005, which prohibited the use for commercial purposes of certain expressions and images relating to these events. This legislation extended the protections in the Olympic Insignia 92 In the 1990 World Cup, Pepsi sponsored the Brazilian football team, one of the most popular and successful teams, whilst Coca-Cola was the official worldwide sponsor of the World Cup itself. 93 Nike did this at the Seoul Olympics in 1988. 94 Foster’s showed an advertisement during the Rugby World Cup in the United Kingdom that was based on a parody of the tune used by the English rugby team and supporters.
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Protection Act 1987 (Cth) which prohibited the unlicensed use in advertising of symbols and phrases associated with the Olympics, if such use would suggest to a reasonable person that the advertiser is a sponsor. In 2014, the Major Sporting Events (Indicia and Images) Protection Act 2014 (Cth) came into effect following an earlier review of ambush marketing legislation. This Act controls the commercial use of indicia and images associated with three major international sporting events taking place in 2015 and 2018: the Asian Cup 2015, the Cricket World Cup 2015, and the Gold Coast 2018 Commonwealth Games. The Major Sporting Events (Indicia and Images) Protection Act mirrors the regulations to protect sponsorship and licensing revenue under the Sydney Olympics and Melbourne Commonwealth Games legislation. Key provisions of the Act include: • each listed event has a list of nominated words and phrases that are protected; • exemptions are provided to allow for the provision of information, or for criticism, or for review; • potential remedies include injunctions, damages, corrective advertisement, and the seizure of goods. The Major Sporting Events (Indicia and Images) Protection Act does not include criminal offence provisions. These may be dealt with through existing legislation, such as the Trade Marks Act 1995 and the Copyright Act 1968. The states have also introduced ambush marketing laws. For instance, the Major Sports Facilities Act 2001 (Qld), as amended by Amendment of Major Sports Facilities Act 2001 (Qld), essentially prevents advertising ‘in airspace, or on a building or other structure, that is within sight of a major sports facility during a declared period’, unless the advertising has been authorised by a state government body. Advertising may only be approved if the government is satisfied the display is appropriate for the declared event, having regard to the following:95 Copyright © 2019. LexisNexis Butterworths. All rights reserved.
(a) any effect of the advertisement on the organisation or staging of the event; (b) whether or not there are any commercial arrangements about the advertisement with the Authority or the event’s organiser; (c) whether or not the advertisement is consistent with other advertisements approved for the event and the arrangements mentioned in paragraph (b); (d) any effect of the advertisement on how the facility is perceived by persons intending or likely to stage events at the facility in the future.
Exceptions are provided for advertisements that are a ‘logo, symbol or similar matter displayed on a building or other structure on more than a temporary basis’ or ‘on an aircraft [that] is in transit as part of a scheduled commercial flight’. The Victorian parliament has enacted a number of laws in relation to significant sporting events held in that state, including the Commonwealth Games 95 Major Sports Facilities Act 2001 (Qld) s 30G(2).
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Arrangements Act 2001, the World Swimming Championships Act 2004, and the Australian Grands Prix Act 1994. Victoria also has the Major Events (Aerial Advertising) Act 2007, specifically prohibiting unauthorised aerial advertising over specified major sporting events held in and around the state capital, Melbourne. Events protected under this legislation include the Australian Football League (AFL) Grand Final (a uniquely Australian code of football traditionally only played in the southern states), the Boxing Day Test (a five day cricket match), the Australian Formula One Grand Prix, and horseracing events (the Caulfield Cup, Cox Plate, and the Melbourne Cup). There is similar legislation dealing specifically with aerial advertising in the state of Western Australia.96 The Major Sporting Events Act 2009 (Vic), claimed during parliamentary debate to be ‘the most comprehensive major sporting event-related legislation in the world’,97 provides that the relevant Minister may make an order declaring an event (or a venue) to be a ‘major sporting event’, and hence subject to the Act. In determining whether to make such an order, the Minister must be satisfied that the event is in the public interest and is a major event at an international, national, or state level. Other factors to be considered by the Minister include the event’s size, likely spectator numbers and media coverage, projected economic impact, the contribution of the event to the state’s international profile as a host of major events, the experience and expertise of the event organiser, and other operational and organisational factors such as traffic and security plans. The Major Sporting Events Act (Vic): • prohibits unauthorised advertising on buildings, structures, and vessels; • makes it a criminal offence to possess ‘prohibited items’, such as flags or banners larger than one metre square and commercial quantities of items that could reasonably be used for commercial purposes; • empowers the Minister to declare specified logos, images, or references relating to an event to be protected, if these images etc are sufficiently connected to the identity and conduct of the event and their misuse is likely to adversely affect the event’s commercial arrangements; • prohibits a person from engaging in conduct that falsely suggests a sponsorship, approval, or affiliation with an event, organiser, or associated activity; and • prohibits the unauthorised broadcast, telecast, or transmission of sound or images of an event (subject to some exceptions, including not for profit, criticism or review, parody or satire, and reporting of news).
96 Major Events (Aerial Advertising) Act 2009 (WA). 97 Victoria, Parliamentary Debates, Legislative Assembly, 26 February 2009, 502–504 (James Merlino, Minister for Sport, Recreation and Youth Affairs).
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Despite all this legislation, it is still possible for a clever marketing campaign — which is aware of the legal limits — to gain an association with a major sporting event it has not paid to promote. Australian Olympic Committee, Inc v Telstra Corporation Ltd [2016] FCA 857 Facts: The 2016 Olympic Games were held in Rio de Janeiro. Optus was the official telecommunications sponsor and Channel 7 had the sole broadcast rights in Australia. Telstra had previously been an Olympics sponsor, but had no sponsorship agreements with the Australian Olympic Committee in respect of the Rio games. Instead they entered into an arrangement with Channel 7 that: • Telstra would sponsor Channel 7’s broadcast of the Olympics; and • Channel 7 would give Telstra customers premium access to their app ‘Olympics on 7’, and Telstra could promote this access to its customers. Telstra ran an advertising campaign (including TV, print, POS and digital media) which promoted the ability to watch the Games through the ‘Olympics on 7’ app. Their ads used the song ‘I go to Rio’ and featured footage of people watching sporting events on their phones. The brief given to Telstra’s marketing team was clear: they could not promote an official association with the Olympics, but they could distinguish themselves from official Olympic sponsors (including their major competitor Optus) by exploiting their association with the Channel 7 app. The Australian Olympic Committee alleged that Telstra’s conduct was in breach of ss 18 and 29, and further was an unlawful use of protected Olympic expressions (see s 36 Olympic Insignia Protection Act 1987 (Cth)). Decision: The Federal Court found that while Telstra succeeded in its marketing brief — it fostered a connection between its brand and the Rio Games — it did not breach the legislation.
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The use of Olympic expressions in the Olympic Insignia Protection Act 1987 (Cth) is subject to a reasonable person test.98 The court held that while Telstra’s ads may have created some uncertainty about the nature of their connection with the Games, it did not go as far as suggesting to the reasonable person that they were a sponsor. Therefore, its campaign did not breach the Act. The court applied the same reasoning in respect of the s 18 claim. The Telstra ads may have caused confusion as to who was sponsoring the Olympic Games, but did not reach the threshold of leading its audience into the error of believing that they were actually sponsoring the Rio Games. While the Court acknowledged that some of Telstra’s ads were borderline, none actually conveyed the representation that Telstra was associated with an official Olympic body. An important factor in this decision was that the visual references were to Rio and people watching sport, and that none of the ads showed any Olympic symbols, teams or athletes, and that all references to the Olympics were in the context of the broadcast, not the Games. This is an example of where a disclaimer can be useful in ensuring that conduct is not misleading. Later versions of the ads carried the disclaimer: ‘Telstra is not an official sponsor of the Olympics’. The Court found that this was ‘sufficient to erase or reverse any impression that Telstra did sponsor an Olympic body.’ The Australian Olympic Committee appealed this decision to the Full Federal Court, and lost.99 The Full Court agreed that the hypothetical reasonable person would see the ads as 98 See Olympic Insignia Protection Act 1987 s 30. 99 [2017] FCAFC 165.
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I. Sales material and consumer rights 10.31 Advertisers, marketers and traders have to be careful not just about major advertising campaigns, but all communications with customers. These include point of sale material, such as ‘No refund’ signs. The Australian Consumer Law creates a set of consumer guarantees which, by law, cannot be excluded. Any statements which mislead consumers as to the full extent of their rights — such as No Refund or No Exchange (when in certain circumstances the consumer law provides or refunds and exchanges) — will be in breach of s 18 (and also s 29(1) (m)). As the examples in Table 10.1 indicate, this operates very broadly.
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TABLE 10.1 CASE EXAMPLES: MISLEADING CONSUMERS ABOUT THEIR RIGHTS COMPANY
CONDUCT
PENALTY
Hewlett-Packard100
Sections 18 and 29(1)(m)
$3 million
Call centre staff using official scripts and guidelines indicated: • remedies at discretion of HP; • consumers need to have product repaired instead of replaced; • warranty period limited to express term; consumers required to pay for anything outside of this; • products purchased online could only be returned if HP agreed. Valve101 (online video game retailer; operates the Steam platform)
Sections 18 and 29(1)(m) Subscription agreements and refund policies displayed on website and provided in online chats were misleading because consumers were told: • no right to a refund; • statutory guarantees re acceptable quality had been excluded
100 ACCC v Hewlett-Packard Australia Pty Ltd [2013] FCA 653. 101 ACCC v Valve Corporation (No 3) [2016] FCA 196.
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$3 million
Chapter 10: Advertising TABLE 10.1 CASE EXAMPLES: MISLEADING CONSUMERS ABOUT THEIR RIGHTS — cont’d COMPANY
CONDUCT
PENALTY
LG (electronics manufacturer)102
Sections 18 and 29(1)(m)
$160,000
Jetstar103
Sections 18 and 29(1)(m)
Representations to two customers on telephone complaining about faulty TVs — no rights other than warranty rights Statements on website: • some fares not refundable; • refunds only available on more expensive fares. (Misleading because refunds available, eg if flight delayed and Jetstar responsible)
Fitbit104
Sections 18 and 29(1)(m)
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Representations on website and in manual that: • remedies for defective products were time limited; • replacement products have limited warranty; • consumer responsible for costs of returning defective products; • Fitbit not liable for any loss or damage; • membership fees renew automatically
$1.95 million NOTE: Undertakings also sought and received from Qantas, Virgin and Tiger Air
• No financial
penalty (unless undertaking breached) • Double manufacturer’s warranty period • Amend all manuals and websites directed at Australian consumers to clarify ACL rights; • Introduce a compliance program, among other matters.
As of June 2019 new regulations have been introduced which require mandatory wording in relation to the supply of goods and services.105
J. Gathering information about consumers 10.32 As marketing becomes increasingly sophisticated and as online marketing allows for increasing customisation and targeting of individual consumers, gathering accurate data becomes more important for marketers. It is critical that this information is gathered lawfully. 102 ACCC v LG Electronics Australia Pty Ltd [2018] FCAFC 96. 103 ACCC v Jetstar Airways Pty Ltd [2019] FCA 797. 104 Enforceable undertaking: see ‘Fitbit (Australia) Pty Limited’ on the Undertakings register at . 105 Details of mandatory wording are available at ‘Warranties against defects’ at .
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Marketing and the Law
The ACCC has commenced legal action against Google106 arguing that they have misled consumers about how and if their location data was turned off. The ACCC are arguing that Google did not properly inform Android smartphone users about how much data they would be providing to Google; and that advice about switching off location data was incomplete. This meant that while consumers may have thought they had turned off location data, advertisers and other Google services still knew where the user was. This action follows the handing down of the ACCC’s Final Report in the Digital Platforms Inquiry.107 This was a broad inquiry, concerned only in part with consumer law, but it did identify an issue that consumers are not adequately informed about how their data is collected and used and have little control over the huge range of data collected. Whether or not this constitutes misleading or deceptive conduct will be tested in this current litigation.
Penalties for False Advertising
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Introduction 10.33 Advertising that contravenes the Australian Consumer Law may result in severe penalties. A breach of s 18 will only lead to civil penalties, but breaches of other provisions may be civil or criminal. This depends on the type of proceedings brought by the regulatory authority (eg, the ACCC). Thus, if the ACCC decides to seek more than just an injunction,108 it must first elect whether to pursue the matter as a civil penalty case or whether to pass the matter on to the Commonwealth Director of Public Prosecutions (DPP) to determine whether a criminal case ought to be launched. Civil penalty cases will be run by the ACCC (or the relevant state regulatory authority). Criminal cases will be handled by the relevant DPP. The civil penalty provisions (relevant to false advertising) are found in Pt 3-1 of the Australian Consumer Law and the criminal provisions are found in Pt 4-1. These provisions are essentially mirror images of each other.
106 See the Notice of Filing of 29 October 2019, Australian Competition and Consumer Commission v Google Australia Pty Ltd at . 107 See ‘Digital platforms inquiry’ at . 108 If the regulatory authority seeks only an injunction, it would normally bring the case under s 18 of the Australian Consumer Law.
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Chapter 10: Advertising TABLE 10.2 THE CORRESPONDING CIVIL AND CRIMINAL PROVISIONS OF THE AUSTRALIAN CONSUMER LAW
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PROVISION
CIVIL PT 3–1
CRIMINAL PT 4–1
Misleading representations about standard, quality, value or grade, composition, style or model, particular history, or particular previous use of goods
s 29(1)(a)
s 151(1)(a)
Misleading representations about standard, quality, or value or grade of services
s 29(1)(b)
s 151(1)(b)
Misleading representations about newness of goods
s 29(1)(c)
s 151(1)(c)
Misleading representations about agreement to acquire goods or services
s 29(1)(d)
s 151(1)(d)
Misleading representations purporting to be a testimonial from someone
s 29(1)(e)
s 151(1)(e)
Misleading representations concerning testimonials
s 29(1)(f)
s 151(1)(f)
Misleading representations about sponsorship, approval, performance characteristics, accessories, uses, or benefits of goods or services
s 29(1)(g)
s 151(1)(g)
Misleading representations about sponsorship, approval or affiliation
s 29(1)(h)
s 151(1)(h)
Misleading representations about price of goods or services
s 29(1)(i)
s 151(1)(i)
Misleading representations about availability of facilities for repair, spare parts
s 29(1)(j)
s 151(1)(j)
Misleading representations about place of origin of goods
s 29(1)(k)
s 151(1)(k)
Misleading representations about need for goods or services
s 29(1)(l)
s 151(1)(l)
Misleading representations about contract rights of consumers
s 29(1)(m)
s 151(1)(m)
Misleading representations about requirement to pay for a contractual right
s 29(1)(n)
s 151(1)(n)
Misleading representations about sale of land
s 30
s 152
Misleading representations about employment
s 31
s 153
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Marketing and the Law TABLE 10.2 THE CORRESPONDING CIVIL AND CRIMINAL PROVISIONS OF THE AUSTRALIAN CONSUMER LAW — cont’d PROVISION
CIVIL PT 3–1
CRIMINAL PT 4–1
Misleading conduct to which industrial property convention applies
s 33
s 155
Certain misleading conduct in relation to services
s 34
s 156
Multiple pricing
s 47
s 165
Single price to be specified in certain cases
s 48
s 166
There is also a third option. Instead of bringing a civil penalty case, the ACCC may decide to issue an infringement notice. This is like an on-the-spot fine, and it is discussed at 10.66.
A. Differences between civil and criminal matters
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10.34 Civil proceedings give rise to orders for injunctions, damages, and civil penalties; criminal proceedings give rise to fines. The amount of civil penalty that the court can impose is similar to the fine that can be imposed in a criminal case. There is a difference in the level of proof required in a civil proceeding as opposed to a criminal proceeding. A civil case must be proved on the balance of probabilities, although the court can take into account the gravity of the matters alleged and the seriousness of the consequences.109 A criminal case must be proved beyond reasonable doubt. Thus, it is harder to prove a criminal matter. It is likely, therefore, that the regulatory authority will only bring criminal cases where the matter is both significant and clear-cut.
B. Representations about future matters 10.35 A representation about a future matter is taken to be misleading unless the firm is able to produce evidence that it had reasonable grounds for making the representation: Australian Consumer Law s 4, discussed above at 10.24 in relation to s 18 of the Australian Consumer Law.
Misrepresentations under s 29 or s 151 10.36 Section 29 of the Australian Consumer Law provides that a corporation shall not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the 109 Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34; TPC v Nicholas Enterprises Pty Ltd (No 2) (1979) 26 ALR 609; (1978) ATPR 40-126, see 13.10C.
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supply or use of goods or services, make a false or misleading representation about the matters listed in s 29(1)(a)–(n). Section 151 of the Australian Consumer Law contains mirror criminal provisions. In determining whether a firm has made a representation covered by s 29 or s 151, the same methodology that was applied to s 18 applies: see 10.11. Thus, a representation means whatever an ordinary or reasonable member of the relevant section of the public thinks it means. Of course, in the case of a criminal proceeding under s 151, this must be proved beyond reasonable doubt. If the message is false, then the representation is a misrepresentation. Liability for a breach of s 29 or of s 151 is strict: there is no requirement to establish intention. In other words, as with s 18, the representor’s intention is largely irrelevant: Given v CV Holland (Holdings) Pty Ltd.110
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A. Section 29(1)(a) — standard, quality, value or grade, composition, style or model, particular history, or particular previous use of goods 10.37 Section 29(1)(a) of the Australian Consumer Law prohibits false or misleading representations that goods are of a particular standard, quality, value or grade, composition, style or model, or have a particular history or particular previous use.111 ‘Standard’ usually suggests that a level recognised as a model for imitation or measurement has been reached. For example, falsely suggesting that a microwave oven112 or a range of fire extinguishers113 has complied with the standards set by the Standards Association of Australia or the Yachting Association of Australia respectively would amount to offences. Representing that ex-rental cars are in fact exexecutive cars also involves false claims that the vehicles in question are of a particular standard.114 Falsely representing that a baby’s cot met Australian standards when in fact it failed on at least 15 counts to do so, infringed s 29(1)(a): ACCC v Skippy Australia Pty Ltd,115 where Skippy was fined $350,000. Representing that a margarine was ‘# 1 Recommended’ when there was no objective support for the representation was a misrepresentation: Unilever Australia Ltd v Goodman Fielder Consumer Foods Pty Ltd.116 ‘Quality’ refers to an ‘attribute, property, special feature. The nature, kind or character [of something]’.117 Thus, describing shoes with slight flaws in them as ‘top quality’,118 or advertising that a ‘Hi-Frequency Electronic Repeller’ repels
110 (1977) 15 ALR 439; (1977) ATPR 40-029. A more complete list of cases decided under the various subsections is found in R Steinwall, Annotated Competition and Consumer Legislation, LexisNexis, 2018. 111 The criminal provision is s 151(1)(a) of the Australian Consumer Law. 112 Hartnell v Sharp Corporation of Australia Pty Ltd (1975) 5 ALR 493; (1975) ATPR 40-003. 113 Given v Snuffa Pty Ltd; Quinn (1978) ATPR 40-083. 114 Eva v Southern Motors Box Hill Pty Ltd (1977) 15 ALR 428; (1977) ATPR 40-026. 115 [2006] FCA 1343. 116 [2009] FCA 1305. 117 Given v C V Holland (Holdings) Pty Ltd (1977) 15 ALR 439; (1977) ATPR 40-029 at 17,386. 118 MacFarlane v John Martin & Co Ltd (1977) ATPR 40-034.
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Marketing and the Law
insects when there is no repellent effect at all,119 are false representations as to the quality of the products in question.120 ‘Value’ was added to the list of misrepresentations as a result of the decision in Ducret v Chaudhary’s Oriental Carpet Palace Pty Ltd121 in order to ensure that representations which implied that goods were of a particular value were accurate. A retailer of imported carpets had advertised a rug as ‘Usually $4,675, Sale Price $1,759, Now Only $407’. This was held in the circumstances not to be a representation as to the standard or quality of the rug. ‘Grade’ is a term which could be used as a synonym for ‘standard’ or ‘quality’. Thus, an advertisement which failed to disclose that the advertised goods were ‘seconds’ or ‘shopsoiled’ would, according to the Commission, be an example of a false representation as to the true grade of goods.122 A false reference to some identifiable and objectively administered scheme of classification would also be an offence. For example, it would be a breach of s 29(1)(a) to advertise one grade of eggs as another grade contrary to the classification scheme administered by the Victorian Egg Board. ‘Composition’ overlaps with the terms ‘quality’, ‘standard’, and ‘grade’. For example, a retailer who described furniture made out of particle board with a pine veneer as ‘solid pine’ and ‘natural pine’ furniture was making a false representation as to the ‘quality’ and the ‘composition’ of the goods.123 The main reason behind the introduction of the term ‘composition’ was to prohibit deceptive labelling: see Wilkinson v Katies Fashions (Aust) Pty Ltd.124 A pie manufacturer which sold its pies as ‘pure beef’, when at least one batch had contained sheep meat as well as beef, was making a false representation as to quality and composition.125 Advertising rings with no silver as ‘silver rings’ would clearly offend the section,126 as would selling a wine as a 1991 Cabernet Sauvignon when it contained other varieties and vintages.127 It is a misrepresentation to describe a lemon cheesecake flavoured ice cream as ‘Lemon Cheesecake’.128 ‘Style’ has not been closely considered by the courts. In Ducret v Chaudhary’s Oriental Carpet Palace,129 a retailer of imported carpets who described a rug as a ‘Shah Prayer Rug’, when in fact it was an inferior type of rug called an ‘Afghan Runner’, was held to have made a misrepresentation as to the style of goods. 119 Doolan v Magnamail Pty Ltd (1982) ATPR 40-276. 120 See also Adams v Eta Foods Ltd (1987) 78 ALR 611; (1987) ATPR 40-831. 121 (1987) 76 ALR 183; (1987) ATPR 40-804. 122 Trade Practices Commission, Consumer Protection Advertising Guidelines, Information Circular No 10, 20 June 1975. 123 Doolan v Magnamail Pty Ltd (1982) ATPR 40-276. See also J A Booth & Co v Fraser (1953) NSWR 566, which was decided under a forerunner to the Trade Practices Act prohibitions. 124 (1986) 67 ALR 137; (1986) ATPR 40-721, see 10.61C. 125 Adams v Eta Foods Ltd (1987) 78 ALR 611; (1987) ATPR 40-831. 126 Thompson v Magnamail Pty Ltd (No 1) (1977) ATPR 40-032. 127 Von Berg v Trade Practices Commission (now known as the ACCC) (1997) ATPR 41-545. 128 MacPhee v Peters Foods Australia Pty Ltd (in liq) (2004) 60 IPR 51; [2003] FCA 1528, see 10.15. 129 (1987) 76 ALR 183; (1987) ATPR 40-804.
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Chapter 10: Advertising
‘Model’ has also not been considered often. A 1965 car described as a 1968 model was held to be a breach.130 Advertising a car for sale at $39,990 would be misleading if the car pictured in the advertisement was actually a more expensive model costing $49,990.131 ‘Particular history’ has a fairly clear meaning. Once again there is potential for overlap with other sections. There seems to be at least three areas where the history of a good becomes important to prospective purchasers. First, it has considerable importance to the retail car industry, where sales of secondhand vehicles comprise a significant proportion of total sales. Consumers often base their purchasing decisions on such factors as the number of kilometres travelled, the number and characteristics of previous owners, or the service history of the vehicle. Because of the importance of these factors to the consumer, retailers ought not to falsely represent or advertise these details. This is so even though the retailer does not falsely represent the general condition of the vehicle. Falsely advertising a motor vehicle as a model made in a particular year is falsely representing the particular history of that vehicle. Winding back the odometer on a secondhand car is also falsely representing the car’s history.132 Second, the history of a good has importance where consumers make buying decisions based on the place where a good is made. The classic case is falsely advertising that imported goods are ‘Made in Australia’.133 This advertising can be implicit as well as explicit. ACCC v Birubi Art Pty Ltd134 concerned the supply of boomerangs, didgeridoos and other products featuring aboriginal designs. These products were all made in Indonesia. There were no explicit claims that these goods were made in Australia, but the court found that the nature of the products and their labelling implicitly conveyed false or misleading representations to reasonable consumers. Third, the history of goods is of importance where consumers make buying decisions on the basis of the way in which a product is produced. For example, consumers may be particularly attracted to goods that are advertised to be ‘handmade’ as opposed to ‘machine-made’, or goods, such as some foreign carpets, which are advertised as having been made without child labour. ‘Particular previous use’ would prohibit an advertisement stating that cars are ex-executive models when in fact they were previously leased to a carrental company, even though this may well also involve a false or misleading representation as to the ‘standard’ and history of the cars. 130 Ransley v Spare Parts & Reconditioning Co Pty Ltd (1975) ATPR 40-055. 131 ACCC v Nissan Motor Company (1998) ATR 41-660. 132 Finger v Malua Motors Pty Ltd (1978) ATPR 40-061. 133 Korczynski v West Lofts (Aust) Pty Ltd (1985) 62 ALR 225; (1986) ATPR 40-643. See also Siddons Pty Ltd v Stanley Works Pty Ltd (1991) 99 ALR 497; 20 IPR 1; (1991) ATPR 41-111, see 8.14C2, and Barton v Croner Trading Pty Ltd (1985) 5 IPR 59; (1985) ATPR 40-525. See also s 75AZC(1)(i) of the Australian Consumer Law. 134 [2018] FCA 1595.
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Marketing and the Law
B. Section 29(1)(b) — standard, quality, value, or grade of services 10.38 Section 29(1)(b) of the Australian Consumer Law prohibits false or misleading representations that services have a particular standard, quality, value, or grade.135 The considerations with respect to standard, quality, value, and grade that have already been discussed at 10.37 in relation to goods, also apply to services. A service that falsely claimed to be a government service, would be a misrepresentation as to the standard or quality of that service.136 Misrepresenting the terms of a mortgage would be a misrepresentation under s 29(1)(b).137
C. Section 29(1)(c) — newness of goods
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10.39 Section 29(1)(c) of the Australian Consumer Law prohibits false or misleading representations that goods are new. ‘New’ is an ambiguous expression, and its meaning in any particular case will depend on the relevant section of the public. In Annand and Thompson Pty Ltd v Trade Practices Commission138 the court considered that there were five possible meanings to the term ‘new’ in relation to motor vehicles: 1. that the vehicle is not secondhand; 2. that it is a current, and not a superseded model; 3. that it has not been used to any significant extent; 4. that it is of recent origin; and 5. that if it has been damaged, the damage has been effectively repaired and it is otherwise ‘as new’. ‘New’ can mean ‘novelty’ or ‘invention’ in the sense of promoting a new washing powder as possessing a ‘new and improved’ formula. If in fact the washing powder has not been materially changed, but rather has simply been put in a new package, an offence will have been committed. ‘New’ can also mean ‘recently produced’ or ‘of recent origin’, although of course this depends on the circumstances and varies from case to case.139 For example, infrequent technological developments in a given market may justify claims of ‘newness’ for a longer period of time. In Henderson v Bowden Ford Ltd,140 a motor car dealer pleaded guilty to selling an unused but superseded Ford motor vehicle with a 20-month-old compliance plate as a ‘new’ vehicle. Finally, ‘new’ can mean that goods are in ‘mint condition’, in the sense of not being secondhand, used, refurbished, repaired, or rebuilt. However, care must
135 The criminal provision is s 151(1)(b) of the Australian Consumer Law. 136 ACCC v Optell Pty Ltd (1998) 41 IPR 49; (1998) ATPR 41-640. 137 ACCC v Wizard Mortgage Corp Ltd (2002) ATPR 41-903; [2002] FCA 1317. 138 (1979) 25 ALR 91. 139 Advertising Guidelines, Information Circular No 10, 1975, p 15. 140 (1979) ATPR 40-129.
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be taken when using ‘new’ in this sense. An advertising claim that goods are ‘new’, when ordinary members of the relevant public would have expected the description ‘as new’, probably amounts to a breach of s 29(1)(c). Photocopiers which have been previously hired out and have had their copy counting meters turned back are not ‘new’ in the commercial sense, even if they have had only limited use and are covered by a five-year product warranty.141 Advertisers should be careful therefore to consider how a claim of ‘newness’ will be understood by the relevant section of the public. It is possible that claims of ‘newness’ may mean one thing to one section of the relevant public and another thing to another section. In such cases, both interpretations must be correct.
D. Section 29(1)(d) — agreement to acquire goods or services 10.40 Section 29(1)(d) of the Australian Consumer Law prohibits false or misleading representations that a particular person has agreed to acquire goods or services. ACCC v Adepto Publications Pty Ltd [2013] FCA 247 Facts: Adepto carried on business under three business names — The National Emergency Relief Guide, The Underprivileged Children’s Guide, and The Volunteer Organisations Guide. Under the guise of these publications it operated a scam designed to trap unwary small business proprietors. The scam involved tricking small businesses into believing that they had ordered advertising in the publications, when in fact they had not. To induce proprietors to place advertisements, Adepto falsely represented that it had affiliations to certain charities. Adepto also made false representations concerning the extent of the distribution of publications in which the advertisements were to be published.
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Decision: Adepto’s conduct breached ss 18, 29(1)(d), (g), and (h), and 40 of the Australian Consumer Law. Adepto was fined $500,000, its manager $150,000, and its office manager $100,000.
E. Section 29(1)(e) — purported testimonial about goods or services 10.41 Section 29(1)(e) of the Australian Consumer Law prohibits false or misleading representations that purport to be a testimonial by any person relating to goods or services. This applies to both fake testimonials and genuine testimonials that are misrepresented. By virtue of s 29(2), a representation about a testimonial is taken to be misleading unless evidence is produced to the contrary.
141 Rodrigues v ABE Copiers Pty Ltd (1983) ATPR 40-379.
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10.40C
Marketing and the Law
ACCC and Citymove Pty Ltd (2011) Infringement notice proceedings142 10.41C
Facts: Citymove provided removal services in metropolitan areas across Australia. It was also the registered owner of a moving review website. Citymove admitted that testimonials published on the website were false or misleading, as they were presented as testimonials from genuine consumers when they were not. The ACCC investigated and ascertained that the testimonials had been copied from an unrelated review website and that details such as usernames, ratings, and the name of the removal company were altered and then published on the Citymove website. Outcome: Citymove Pty Ltd paid a $6,600 infringement notice and provided a courtenforceable undertaking.
Unfortunately this was not the end of Citymove’s dealings with the ACCC.143 Four years later they were again issued with infringement notices — this time totalling $30,600 — in relation to ‘customer’ testimonials on Google+ and on YouTube. The allegation was that these customer identities had been fabricated — as was indicated by the same testimonials appearing on different review sites, under different customer names. Note that the second penalty was almost five times the size of the first penalty. Attitude to compliance is an important factor in setting the amount of the penalty. Social media is critically important in marketing, but also gives rise to considerable challenges to ensure all statements, including those posted by others visiting your site, are not misleading. Useful advice is provided by the ACCC.144
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F. Section 29(1)(f) — testimonials 10.42 Section 29(1)(f) of the Australian Consumer Law prohibits false or misleading representations concerning a testimonial by any person, or a representation that purports to be a testimonial by any person, relating to goods or services. By virtue of s 29(2), a representation about a testimonial is taken to be misleading unless evidence is produced to the contrary.
G. Section 29(1)(g) — sponsorship, approval, performance characteristics, accessories, uses, or benefits of goods or services 10.43 Section 29(1)(g) of the Australian Consumer Law prohibits representations that goods or services have sponsorship, approval, performance characteristics, accessories, uses, or benefits they do not have. Most of the passing off cases would come under this provision because the essence of those cases is that the advertiser claims that the product has the approval, sponsorship, or endorsement of a particular 142 See ‘ACCC: Removalist admits publishing false testimonials’, 9 November 2011, available at . 143 See ‘Removalist company pays penalties for alleged false or misleading online testimonials’, 30 July 2015 at . 144 See ACCC, ‘Social media’ at .
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Chapter 10: Advertising
person or company. If this is not true, it is a breach of s 29(1)(g). See Hutchence v South Sea Bubble Co Pty Ltd;145 Pacific Dunlop Ltd v Hogan;146 ACCC v Adepto Publications.147 False claims that goods have been ‘approved’ by the Standards Association will be a breach of s 29(1)(g). For example, in Hartnell v Sharp Corporation of Australia Pty Ltd,148 Sharp falsely advertised that some of its microwave ovens had been approved by the Standards Association of Australia. It would be a breach of s 29(1)(g) to falsely claim that a welding machine149 or an electric crockpot150 had been ‘approved’ by the appropriate electricity authorities when such was not the case. It is also a breach to falsely suggest that goods comply with some non-existent standard or regulation. See Barton v Croner Trading Pty Ltd,151 where it was claimed that plush toys exceeded ‘all Australian Safety Regulations including the Inflammability Act’. No such Act existed. ‘Performance characteristics’ covers a wide range of advertising claims. Such characteristics should be demonstrable by recognised testing procedures or by a usage survey conducted under normal conditions over a reasonable period. Thus, if operating a machine at its maximum claimed capacity imperils the user, it would be misrepresenting the machine’s performance characteristics.152 It may be a breach to run a television advertisement showing a four cylinder car towing a seven metre boat, when a seven metre yacht was beyond the vehicle’s legal towing capacity. It is a misrepresentation as to performance characteristics to falsely advertise that fire extinguishers had been tested for efficiency by the NSW Board of Fire Commissioners when, in fact, the fire extinguishers had failed the test.153 In ACCC v Jetplace Pty Ltd,154 the respondent created false dating profiles which it posted to its dating website. This falsely represented that the dating service had performance characteristics and benefits that it did not have. The court ordered injunctions, a compliance program, corrective advertising, and costs. It is an offence to advertise goods at a particular price which do not include the ‘accessories’ claimed in the advertisement: Eva v Mazda Motors (Sales) Pty Ltd.155 For example, it may be a breach of s 29(1)(g) to advertise a gas barbecue with a gas cylinder attached when there is an extra charge for the cylinder. The additional cost of any accessories depicted in an advertisement should be stated clearly. Advertisers must be careful not to convey the impression that their goods have 145 (1986) 64 ALR 33; 6 IPR 473; (1986) ATPR 40-667, see 6.43C1. 146 (1989) 87 ALR 14; 14 IPR 398; (1989) ATPR 40-948, see 10.29C. 147 [2013] FCA 247, see 10.40C. 148 (1975) 5 ALR 493; (1975) ATPR 40-003. 149 Larmer v Power Machinery Pty Ltd (1977) 14 ALR 243; 29 FLR 490; (1977) ATPR 40-021. 150 Larmer v Dome Lighting Products (1978) ATPR 40-070. 151 (1984) 54 ALR 541; (1984) ATPR 40-470. 152 See Ransley v Black & Decker (A/Asia) Pty Ltd (1978) 3 TPR 138; 2 TPC 343. 153 Given v Snuffa Pty Ltd (1978) ATPR 40-083. 154 [2010] FCA 759. 155 (1977) ATPR 40-020.
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uses or benefits they do not have: see ACCC v Danoz Direct Pty Ltd;156 Medical Benefits Fund of Australia Ltd v Cassidy; John Bevins Pty Ltd v Cassidy.157 In Thompson v Riley McKay Pty Ltd (No 3),158 the defendant advertised for sale in a large circulation magazine a product described as a ‘Golden Replica of the 400 Day Clock’. In fact, the product did not operate as a clock at all. This was a misrepresentation. Falsely claiming that a product is ‘environmentally safe’ would be a representation that the product has benefits it does not have. In Dawson v World Travel Headquarters Pty Ltd,159 World Travel operated a travel agency. It advertised a tour as 16 days in duration, when in fact it was only 15 days. This was a false representation that a service had benefits it did not have.
H. Section 29(1)(h) — sponsorship, approval, or affiliation 10.44 Section 29(1)(h) of the Australian Consumer Law prohibits representations that a corporation has sponsorship, approval, or affiliation it does not have. This is similar to s 29(1)(g), except the focus is on the corporation rather than on the product. Sponsorship and approval have the same meaning as under s 29(1)(g): see ACCC v Adepto Publications.160
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I. Section 29(1)(i) — price of goods or services 10.45 Section 29(1)(i) of the Australian Consumer Law prohibits misrepresentations concerning the price of goods or services. Given the sensitivity of consumers to price reductions and discounts, advertisers must be careful to ensure that their price claims are accurate. As with all representations, it is necessary to consider how the advertisement will be understood by the relevant section of the public. This will depend on such matters as the nature of the product, the advertising medium, and the target audience. Special care must be taken that any price reductions or sale prices reflect the truth. To advertise goods or services for sale at $295 without indicating that GST is not included could be misleading.161 TABLE 10.3 EXAMPLES OF FALSE OR MISLEADING REPRESENTATIONS AS TO PRICE ADVERTISEMENT
REALITY
Reduced from …
Product never offered for sale at the higher price
50% off
Never been offered for sale at 100% price
Was $50, now only $30
Never been offered for sale at the higher price
156 (2003) 60 IPR 296; [2003] FCA 881, see 10.24C. 157 (2003) 205 ALR 402; (2003) ATPR 41-971; [2003] FCAFC 289, see 10.56C2. 158 (1980) ATPR 40-175. 159 (1981) ATPR 40-240. 160 [2013] FCA 247, see 10.40C. 161 ACCC v Signature Security Group Pty Ltd (2003) ATPR 41-908, [2003] FCA 3. See also ACCC v TPG Internet Pty Ltd (2013) 250 CLR 640; 304 ALR 186; [2013] HCA 54, see 10.13C.
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Chapter 10: Advertising TABLE 10.3 EXAMPLES OF FALSE OR MISLEADING REPRESENTATIONS AS TO PRICE — cont’d ADVERTISEMENT
REALITY
Special price – only $10
$10 is the regular price
2 for the price of 1
No evidence of single sales
Reduced – only $9.99
Normal price is $10
$10 – recommended price $15
Recommended price never followed in practice
$10 – list price $15
List price never followed in practice
Goods from $10
Only one available at $10; rest considerably more
Special liquidation price
Price is normal price
Special clearance price
Price is normal price
Special closing down price
Price is normal price
Sest v Copperart Pty Ltd (1989) ATPR 40-945 Facts: A retailer of brass and copper decorative and functional objects ran a television campaign promoting a ‘no nonsense, half price sale’. It claimed all its prices were ‘50% off regular prices’. The substantial price savings were based on artificially inflated recommended retail prices or fictitious regular prices. The Trade Practices Commission brought an action alleging breach of s 53(e) of the Trade Practices Act (now s 29(1)(i) of the Australian Consumer Law). The retailer argued that the statements were the ‘usual sort of puffery which consumers become accustomed to hearing on television’.
10.45C1
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Decision: The representations were false, as the advertisements of ‘savings’ on the ‘recommended retail price’ were designed to induce potential customers to believe they were ‘getting a good deal’. It was not accepted that the majority of potential customers (which amounted to thousands) would regard the advertisements as ‘puffery’. The retailer was fined $90,000, and a director described as the ‘driving force’ on the sales side of the company fined $14,500.
Ascot Four Pty Ltd v ACCC (2009) 255 ALR 441; [2009] FCAFC 61 Facts: Ascot advertised jewellery in its sales catalogue using a price sign that showed two prices — one that was crossed out (the strike-through price) and another that was considerably lower (the sale price). Ascot had never sold the jewellery at or near the strike-through price before the sale. The ACCC claimed that Ascot had misrepresented that there would be a saving of the difference between two prices, when in fact no saving existed. Ascot argued that the strike-through price sign simply meant that the jewellery had been offered at the strikethrough price and there was no evidence it had not been so offered. Decision: The court agreed with the ACCC. In the circumstances, the advertising conduct conveyed to a significant section of ordinary and reasonable consumers the mistaken idea that, prior to the sale, they would have paid the strike-through price. Therefore, the sales catalogue carried the mistaken message that the consumer would be saving money by buying at the sale price.
For a similar case, see Jewellery Group Pty Ltd v ACCC.162 162 [2013] FCAFC 144.
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Care must be taken when relying on disclaimers in advertising. In ACCC v Target Australia Pty Ltd,163 Target used television advertisements to announce ‘a massive 25% … off every stitch of clothing’. A disclaimer lasting 1.5 seconds was shown at the end of the advertisement, stating that the offer did not extend to accessories, which includes ties, scarves, gloves, hats, underwear, socks, or hosiery. The court held that this was a breach. See also ACCC v TPG Internet Pty Ltd.164
J. Section 29(1)(j) — availability of facilities for repair or spare parts 10.46 Section 29(1)(j) of the Australian Consumer Law prohibits misrepresentations concerning the availability of facilities for the repair of goods or of spare parts for goods. This section was inserted to provide additional protection to purchasers of expensive equipment, such as farmers and truck owner-operators. Advertisements which promote the availability of repair facilities or spare parts as an inducement to buy a particular brand of goods, for instance, in promoting trucks and farm machinery, must ensure that any representations made are accurate.
K. Section 29(1)(k) — place of origin of goods 10.47 Section 29(1)(k) of the Australian Consumer Law prohibits misrepresentations concerning the place of origin of goods. See the discussion at 8.14–8.16.
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L. Section 29(1)(l) — need for goods or services 10.48 Section 29(1)(l) of the Australian Consumer Law prohibits misrepresentations concerning the need for any goods or services. Given that advertising focuses on promoting the ‘needs’ of consumers, this provision may seem to have potentially wide application. However, it is clear that, when advertisements express a ‘need’ as a self-evident expression of the advertiser’s opinion for example, ‘You need Blogg’s Shampoo’ — no offence is committed. This is trade puffery. However, when the ‘need’ is expressed as a positive assertion of fact — such as advertising that people wishing to be treated by the doctor of their choice would ‘need’ to subscribe to a particular medical benefits table when such was not the case,165 or a company marketing fire extinguishers by falsely representing in advertising brochures that fire extinguishers must be fitted adjacent to each exit door of caravans166 — the law is breached. It would also be a breach to disseminate correspondence falsely intimating that suppliers wishing to supply goods or services to the government must pay a fee to be registered in a non-existent purchasing guide.167 163 (2001) ATPR 41-840; [2001] FCA 1326, see 10.45. 164 (2013) 250 CLR 640; 304 ALR 186; [2013] HCA 54, see 10.13C. See also Global One Mobile Entertainment Pty Ltd v ACCC [2012] FCAFC 134. 165 Keehn v Medical Benefits Fund of Australia Ltd (1977) 14 ALR 77; (1977) ATPR 40-047. 166 Given v Snuffa Pty Ltd (1978) ATPR 40-083. 167 ACCC v Optell Pty Ltd (1998) 41 IPR 49; (1998) ATPR 41-640.
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M. Section 29(1)(m) — contract rights of consumers 10.49 Section 29(1)(m) of the Australian Consumer Law prohibits misrepresentations concerning the existence, exclusion, or effect of any condition, warranty, guarantee, or remedy. This means that the nature and extent of warranties and guarantees given in relation to goods or services should be clearly stated, for if there are undisclosed conditions, s 29(1)(m) may well be breached. For instance, unconditional money-back guarantees must be honoured. Thus, where a television advertisement for sunglasses offers an unconditional five-year guarantee on the product, but the swingtag attached to the sunglasses limits the guarantee to the frames alone (specifically excluding the lens), and only if the damage occurs during normal usage, there would be a breach of s 29(1)(m). This was held to be the case when a manufacturer of electronic calculators issued an advertising brochure stating that its calculators had a 12-month warranty whereas a stub inside the box gave a 90-day warranty only.168 ACCC v Gordon Superstore Pty Ltd [2014] FCA 452; ACCC v Mandurvit Pty Ltd [2014] FCA 464 Facts: These two cases involved Harvey Norman franchisees located in Mandurah, WA and Gordon, NSW and stemmed from representations made orally by staff to customers, including that the store did not have to provide a refund if a large appliance was sold, or where an item was under warranty from the manufacturer, and that consumers were required to pay postage and handling charges if a faulty item was sent to the manufacturer or repairer.
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Decision: The court held that such conduct was a breach of s 29(1)(m) (among other provisions) of the Australian Consumer Law. Penalties of $50,000 were ordered, as were compliance programmes and the display of notices advising consumers of their rights.
Section 29(1)(m) is extremely important for retailers because of the widespread use of signs claiming that no refunds will be made or that refunds will only be made in limited circumstances. The problem with such signs is that they misstate the law. The Australian Consumer Law gives consumers the right to return goods in certain circumstances.169 The retailer is not permitted to exclude or modify those rights: see Miller v Fiona’s Clothes Horse of Centrepoint Pty Ltd.170 Offering to exchange goods is not sufficient. In ACCC v Skippy Australia the retailer advertised ‘Stock Clearance, No Refunds, Exchange Only’. This was a breach of s 29(1)(m) and the retailer was fined $10,000.
168 Ballard v Sperry Rand Australia Ltd (1975) 6 ALR 696; (1975) ATPR 40-006. 169 See 9.15–9.21. 170 (1989) ATPR 40-963.
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Nationwide News Pty Ltd v ACCC (1996) 142 ALR 212; 37 IPR 391; (1997) ATPR 41-543 10.51C2
Facts: Nationwide News publishes the Daily Telegraph Mirror in Sydney. An advertisement appeared in that paper as follows: ‘Free mobile phone for every reader. *Conditions apply. Don’t miss Monday’s Telegraph Mirror’. The reference to conditions was in considerably smaller print than the rest of the advertisement. It was a condition of the offer (revealed in the Monday edition) that anyone accepting it must take out a service contract with a service provider at a cost of $2,294.90. The ACCC claimed that this breached s 53(e) of the Trade Practices Act (now s 29(1)(i) of the Australian Consumer Law) and s 53(g) (now s 29(1)(m)). At trial it was held that there was no breach of s 53(e), as the phone itself was free, but that s 53(g) had been breached. Nationwide News appealed. Decision: The word ‘Free’ when used in advertising can have a magnetic effect and accordingly can easily mislead where it is not used accurately. Advertisers must be careful to qualify the use of the word when in fact there are any charges associated with an offer. Nationwide’s advertisement was likely to be understood as an offer to obtain a mobile phone without first having to outlay, or undertake to outlay, any money. This was not correct. The use of the disclaimer ‘*Conditions apply’ was not sufficient to cure the misrepresentation. Nationwide had made a false representation about the effect of a condition or right.
See also Table 10.1 at 10.31.
N. Section 29(1)(n) — requirement to pay for contractual right
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10.50 Section 29(1)(n) of the Australian Consumer Law prohibits misrepresentations concerning a requirement to pay for the rights or remedies made available to the consumer by law (including under the Australian Consumer Law). For example, a consumer has certain statutory rights and remedies where goods are not of satisfactory quality. It would be a breach of s 29(1)(n) for the seller to represent that the consumer has to pay for these rights.
Conduct under s 33 or s 155, and s 34 or s 156 A. Misleading conduct in relation to goods 10.51 Section 33 of the Australian Consumer Law prohibits misrepresentations with respect to the nature, the manufacturing process, the characteristics, the suitability for their purpose, or the quantity of any goods. The criminal provision is s 155 of the Australian Consumer Law. ‘Manufacturing process’ covers claims that goods are handmade when in fact they are machine-made,171 or claims by a trader that goods have been tested during manufacture when they have not.172 Clearly, the reference to ‘the suitability for their purpose’ requires that goods or services be fit for the purpose for which they 171 Kirshenboim v Salmon & Gluckstein Ltd [1898] 2 QB 19. 172 Lennox v Megray Pty Ltd & Gaggino (1985) 6 IPR 543; (1986) ATPR 40-640.
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would normally be used, as well as for any special purpose claimed for them by the firm. ACCC v Apple Pty Ltd [2012] FCA 646 Facts: In early 2012, Apple promoted an iPad tablet that they referred to as ‘iPad with WiFi + 4G’. This promotion took place via the company’s website, on display computers in stores, and through other promotional material. ‘4G’ was the term used to identify ‘4th Generation’ mobile telephone networks, offering greater data speed. The Apple product was unable to connect to Telstra’s 4G network. The ACCC raised the matter with Apple a number of times, but Apple continued the conduct. The ACCC then brought an action against Apple, claiming that Apple had impliedly represented that the iPad could connect directly to the Telstra LTE (4G) mobile data network in Australia, in breach of s 33 of the Australian Consumer Law. Decision: The court found that Apple had breached s 33 and fined the company $2.25 million and ordered Apple to pay costs of $300,000. Apple provided enforceable undertakings to advise consumers that the iPad was not compatible with current Australian 4G LTE networks.
Section 33 also prohibits misleading conduct with respect to the ‘quantity’ of goods. There is no apparent equivalent to this particular misrepresentation (‘quantity’) under s 29 of the Australian Consumer Law. A misrepresentation as to the quantity of goods would include a statement that stocks are limited when they are in plentiful supply, or statements that there is a reasonable amount of stock when there is, in fact, very little.
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B. Misleading conduct in relation to services 10.52 Section 34 of the Australian Consumer Law prohibits misrepresentations with respect to the nature, the characteristics, the suitability for their purpose, or the quantity of any services. The criminal provision is s 155 of the Australian Consumer Law. For example, in Doherty v Traveland Pty Ltd,173 Traveland Pty Ltd, a travel agency, continued to advertise in its brochure a 13-day trip to Bali and Singapore after the trip had been reduced to 11 days. This was a breach because the public would be misled as to the quantity of the services (the trip).174 See also Medical Benefits Fund of Australia Ltd v Cassidy; John Bevins Pty Ltd v Cassidy.175
Pricing conduct under s 47 or s 165, and s 48 or s 166 A. Multiple pricing 10.53 Section 47 of the Australian Consumer Law prohibits a firm from supplying goods in trade or commerce if the goods have more than one price displayed and the price is higher than the lowest displayed price. The displayed price includes 173 (1982) ATPR 40-323. 174 See also Dawson v World Travel Headquarters Pty Ltd (1981) ATPR 40-240. 175 (2003) 205 ALR 402; (2003) ATPR 41-971; [2003] FCAFC 289, see 10.56C2.
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prices displayed on a display stand or in a catalogue. The criminal provision is s 165 of the Australian Consumer Law.
B. Single price to be stated in certain circumstances 10.54 Section 48 of the Australian Consumer Law prohibits a firm from making a representation about an amount that, if paid, would constitute a part of the consideration for goods or services, unless the firm prominently specifies the allinclusive price as a single figure. The all-inclusive price (called the ‘single price’) includes all charges levied by the seller and all taxes, duties, fees, etc imposed on the transaction. The provision is directed at a trader advertising that a consumer may buy a product for a particular (usually low) price without disclosing the total price payable. For example, $295 plus GST would breach s 48; so would $295 plus GST of $29.50. The total price must be expressed as a single price (sometimes called ‘drip pricing’). See ACCC v TPG Internet Pty Ltd.176 ACCC v Le Sands Restaurant and Le Sands Café Pty Ltd t/as Signature Brasserie [2011] FCA 105 10.54C
Facts: Le Sands operated a restaurant where it provided its customers with a menu that listed the prices for the various dishes. At the bottom of the menu was the following: ‘10% surcharge on Sundays and 15% Public Holidays’. The ACCC claimed this was a breach of s 48 of the Australian Consumer Law and issued an infringement notice imposing a penalty of $6,600. Le Sands failed to pay the penalty, although it did change its menu to reflect the full price to be paid on Sundays and public holidays.
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Decision: Le Sands had breached s 48. The court imposed a pecuniary penalty of $15,000.
Where the seller is aware that a delivery charge will apply, the seller must also specify the minimum delivery charge that is likely to be paid by the seller. The criminal provision is s 166 of the Australian Consumer Law.
Liability of Advertising Agencies, the Media, and Accessories Advertising agencies, the media, and primary liability 10.55 Advertising agencies play a major role in the creation and dissemination of advertising material. It might be expected therefore that they take some responsibility for ensuring that advertising is not misleading or deceptive.
176 (2013) 250 CLR 640; 304 ALR 186; [2013] HCA 54, see 10.13C.
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The trend in recent cases, however, has been not to impose primary liability on the advertising agency. Provided advertising agencies make sure that they get their clients to sign off on any campaign, it is difficult to envisage them being liable as a principal: see Cassidy v Saatchi & Saatchi Australia Pty Ltd.177 Of course, advertising agencies may still be liable as an accessory. The difference is that, to prove accessory liability, it is necessary to establish an element of knowledge. This is not necessary to establish primary liability. In ACCC v Nissan Motor Company (Australia) Pty Ltd & Thomas Wightman178 both the advertiser, and their advertising agent were found liable. The case concerned ads for a Nissan Patrol RX Turbo Diesel — where the picture showed a more expensively optioned vehicle than would be available for the low advertised price, and there were misleading statements about ‘end of year’ savings. Both Nissan and their advertising agent knew that the wrong picture was being used — the right one couldn’t be accessed in time — so the agent, Wightman, said this could be cured by using a disclaimer: ‘picture for illustration purposes only’. This was in fine print and ran vertically up the right hand side of the advertisement. Both parties pleaded guilty and agreed that consumers could be led into the error of thinking the advertised vehicle would be available at the advertised price. Nissan was fined, and found to have primary liability. Their advertising agent, Wightman, was liable as an accessory. The court accepted that Wightman believed that the disclaimer added to the ad:
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… would have the consequence that no breach of the law occurred. However, that belief was the result of a want of adequate thought or consideration of the circumstances on his part. In the advertising industry, advertising agents are ‘gatekeepers’ who have a responsibility to consider whether advertising material prepared by them for their clients, complies with consumer protection legislation.
So clearly, advertising agents and marketers may be liable personally, and the level of knowledge is not actually what they did know, but what a responsible and informed marketer should know about the law, and their legal responsibilities. Media proprietors may also be liable for misleading advertising they carry, but only if the circumstances are such that ordinary or reasonable members of the relevant section of the public would conclude that the advertisement was the product of, or was endorsed or adopted by, the media proprietor. In Google Inc v ACCC,179 the High Court held that ordinary or reasonable members of the public would understand advertisements appearing on the Google search engine site as advertisements attributable to the advertiser and not as something that was attributable directly or indirectly to Google. Therefore, Google did not engage in misleading or deceptive advertising just because the advertisements were misleading. 177 (2004) ATPR 41-980; [2004] FCAFC 34. 178 [1998] ATPR 40-660; [1998] FCA 1048. 179 (2013) 249 CLR 435; 294 ALR 404; 99 IPR 197; [2013] HCA 1, see 6.34C.
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Liability as an accessory 10.56 A person who is an accessory to a breach of s 18 of the Australian Consumer Law may be ordered to pay damages: Australian Consumer Law s 236. A person who is an accessory to a contravention of the Australian Consumer Law other than s 18, may be fined and ordered to pay damages: Australian Consumer Law s 224 (pecuniary penalty). An accessory is any person aiding, abetting, procuring, counselling, inducing, attempting to induce, conspiring in, or being knowingly concerned in a breach of the Australian Consumer Law: Australian Consumer Law s 224. Thus, the marketing manager responsible for a deceptive advertising campaign could be held liable as an accessory to the firm. A person will only be liable as an accessory if that person knew that the advertising was false, although it is not necessary to prove that the person was aware that the advertising was in breach of the Australian Consumer Law. Yorke v Lucas (1985) 158 CLR 661; 61 ALR 307; [1985] HCA 65
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10.56C1
Facts: Lucas was the managing director of a company (which was a licensed land agent) which acted as agent for the seller of a business. Lucas told the buyer, Yorke, that the weekly turnover of the business during a period preceding the sale was $3500. This was not correct. Lucas got the information from his client, the seller. Lucas was not aware and had no reason to suspect that the information concerning the turnover was incorrect. The buyer sued the seller, the land agent (Lucas’s company), and Lucas personally for breaches of s 52 of the Trade Practices Act (now s 18 of the Australian Consumer Law). Lucas was found not liable and Yorke appealed to the High Court. Decision: To be liable as an accessory it was necessary to establish that Lucas had intentionally participated in the breach. To form the requisite intent Lucas must have knowledge of the essential matters which go to make up the offence whether or not he knows that those matters amount to a crime. Thus, in the case of a contravention of s 52, the mere making of representations on behalf of a corporation, without knowledge of their falsity, could not constitute ‘involvement’ in misleading or deceptive conduct contravening s 52. Thus, although ‘Lucas was aware of the representations — indeed they were made by him — he had no knowledge of their falsity and could not for that reason be said to have intentionally participated in the contravention’. This followed from the fact that Lucas did not know the actual turnover figures. Therefore, Lucas was not liable.
Wilful blindness is to be treated as satisfying the requirement of intention. In Giorgianni v R,180 a case involving accessory liability in a criminal matter, Gibbs J commented that ‘wilful blindness, the deliberate shutting of one’s eyes to what is going on, is equivalent to knowledge’. However, wilful blindness requires more than negligence or even recklessness, and is very difficult to prove.
180 (1985) 156 CLR 473; 58 ALR 1; [1985] HCA 29.
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Medical Benefits Fund of Australia Ltd v Cassidy; John Bevins Pty Ltd v Cassidy (2003) 205 ALR 402; (2003) ATPR 41-971; [2003] FCAFC 289 Facts: MBF is a health insurance company. Its advertising agency, John Bevins (Bevins), prepared a series of health insurance advertisements for MBF (television and billboards). Some of the advertisements incorrectly suggested that MBF would waive the normal waiting period for pregnant women. However, both MBF and Bevins knew that ‘waiting periods did apply in the case of pregnancy’. The advertisements contained disclaimers. In the television advertisements these appeared at the bottom of the screen in fine print; on the billboards an asterisk directed attention to the disclaimer which was at the foot of the billboard in small print. The ACCC (Cassidy) brought an action against MBF for misleading or deceptive conduct. The ACCC also brought an action against Bevins for being an accessory to MBF (ie, that Bevins had been, directly or indirectly, knowingly concerned in, or a party to, the contravention by MBF). At trial, both MBF, as a principal, and Bevins, as an accessory, were found liable. The disclaimers were inadequate to overcome the misleading message appearing in the bulk of the advertisements. Bevins was liable as an accessory because it was aware of the contents of the advertisements (having created them). According to the trial judge, it was irrelevant that there was no evidence to suggest that Bevins knew or intended the advertisements to be misleading. MBF and Bevins appealed. Decision: The MBF appeal was dismissed. However, the court unanimously upheld Bevins’s appeal. According to the majority, accessory liability would only arise if it was shown that Bevins knew of the facts which constituted the conduct of MBF which contravened the Act. This meant that it had to be shown that Bevins knew the contents of the advertisements as published, and that Bevins knew that members of the public might interpret the advertisements in a way that was misleading. Certainly Bevins knew the contents of the advertisements (having created them), but the evidence found by the trial judge meant that the second element had not been proved. There was no evidence that Bevins knew that some members of the public might be misled.
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Defences 10.57 The Australian Consumer Law provides for certain exemptions and defences.
Exemption for information providers (media outlets) 10.58 An information provider is anyone who operates a business providing information, and includes radio and television stations, and newspaper and magazine publishers. The advertising provisions (s 18 as well as the civil and criminal provisions of the Australian Consumer Law) do not apply to prescribed information providers.181 This is an exemption, rather than a defence. It simply means that media outlets cannot be held liable for misleading or deceptive content carried by the media. 181 See Australian Consumer Law ss 19 (relating to s 18), 38 (civil penalty provisions), and 160 (criminal provisions). This exemption was inserted to overcome the decision in Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 55 ALR 25; (1984) ATPR 40-463, in which it was held that a newspaper could be liable for misleading or deceptive conduct for comments and opinions appearing in the newspaper. See also Advance Hair Studio Pty Ltd v TVW Enterprises Ltd (1987) 77 ALR 615; 10 IPR 97; (1987) ATPR 40-816.
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There are two important exceptions. Media outlets remain liable for: • misleading or deceptive advertisements (whether the advertisement is for others or for the media outlet itself);182 and • misleading or deceptive content (in connection with the supply or promotion of goods or services) disseminated by the media outlet pursuant to an arrangement with the supplier or someone associated with the supplier. In ACCC v Channel Seven Brisbane Pty Ltd,183 the issue was whether Channel Seven was liable for false information broadcast in its Today Tonight program. The case has important ramifications for all media, but particularly for television stations which commonly screen advertorials and infotainment segments. ACCC v Channel Seven Brisbane Pty Ltd (2009) 239 CLR 305; 255 ALR 1; [2009] HCA 19 10.58C
Facts: The case involved the broadcast of two episodes of Today Tonight containing segments concerning a business called ‘Wildly Wealthy Women’. The business offered to train women to make money out of real estate investment. The segments contained a number of misleading representations, including misleading claims about the wealth and assets of the two women. The segments were broadcast pursuant to a contractual arrangement between Channel Seven and a marketing representative acting for the two women. Channel Seven broadcast the segments in return for exclusivity; the arrangement did not involve the payment of any money for the broadcasting of the segments. The ACCC brought an action against Channel Seven. Channel Seven argued that it was protected by the information providers’ exemption. The Full Federal Court agreed with Channel Seven. The ACCC appealed to the High Court.
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Decision: The High Court held in favour of the ACCC. The information providers’ exemption did not cover a media outlet for material disseminated pursuant to an agreement.
Defence to a civil penalty action 10.59 If, in an action for a pecuniary penalty, the court is convinced that the person acted honestly and reasonably and, having regard to all the circumstances of the case, ought fairly to be excused, the court may relieve the person either wholly or partly from liability to a pecuniary penalty: Australian Consumer Law s 226.
Special defence for publishers 10.60 Section 209 of the Australian Consumer Law provides a special defence for persons involved with publishing advertisements. This defence applies only to criminal proceedings and is available where:
182 For this reason, the exemption did not apply in Google Inc v ACCC (2013) 249 CLR 435; 294 ALR 404; 99 IPR 197; [2013] HCA 1, see 6.34C. 183 (2009) 239 CLR 305; 255 ALR 1; [2009] HCA 19, see 10.58C.
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• a person is in the business of publishing or arranging for the publication of advertisements; and • that person received the advertisement in the normal course of business; and • the person did not know and had no reason to suspect that publication of the advertisement would breach the Australian Consumer Law. Clearly the defence is relevant to all media proprietors: see United Telecasters Queensland Ltd v Guthrie.184 It would also apply to internet sites that carry advertising and to advertising placement agencies. However, the defence probably does not apply to the advertising agency that ‘creates’ the advertisement. Nor will it apply where the advertising agency or media proprietor was aware or ought to have been aware that the advertisement contained misleading or deceptive material.
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Defence of reasonable mistake of fact 10.61 This defence applies only to criminal proceedings. In such cases it is a defence if the defendant establishes that the contravention was caused by a reasonable mistake of fact, including a mistake of fact caused by reasonable reliance on information supplied by another person: Australian Consumer Law s 207(1). What is a reasonable mistake? A mistake means an error and a reasonable mistake means an error made without negligence or carelessness. An ‘honest’ mistake is not necessarily a reasonable mistake. On the other hand, a mistake which can only be detected by technology which is not generally available is probably a reasonable mistake: see Adams v Eta Foods Pty Ltd.185 If the defendant intends to rely on a mistake of fact caused by reliance on information supplied by another person it is necessary to show: • the other person was not a director, employee or agent of the defendant: Australian Consumer Law s 207(2); and • the mistake was reasonable. The defendant must show that it relied on the information from a third party. Thus, a wholesaler which had not bothered to read the manufacturer’s label could not rely on s 85(1) of the Australian Consumer Law when it turned out that the manufacturer’s label contained a misrepresentation as to the standard of the goods: Gardam v George Wills & Co Ltd (No 1).186 A defendant cannot rely on advice given by a third party if the third party had not been provided with the full facts. In such circumstances the reliance would not be reasonable: see ACCC v Murray.187 A retailer cannot always
184 (1978) 18 ALR 531; (1978) ATPR 40-062, see 10.62C. 185 (1987) 78 ALR 611; (1987) ATPR 40-831. 186 (1988) 82 ALR 415; 12 IPR 194; (1988) ATPR 40-884. 187 (2002) ATPR 41-899; [2002] FCA 1252.
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rely on a manufacturer’s label: see Wilkinson v Katies Fashions (Australia) Pty Ltd;188 TPC v Golden Australia Paper Manufacturers.189 When preparing an advertisement it is not necessarily safe just to rely on information supplied by a third party. For example, an advertising agency may have to check information that is in the public domain. Thus, in Guthrie v Doyle Dane & Bernbach Pty Ltd190 the court held that an agency had not acted reasonably in relying only on its client’s advice about sales tax. Nevertheless in most cases the agency would not be expected to check its client’s information unless there were other reasons to doubt it. If appropriate checks have been made then the defence will apply even if better checks were available: see Thorp v CA Imports Pty Ltd.191 Wilkinson v Katies Fashions (Australia) Pty Ltd (1986) ATPR 40-721 10.61C
Facts: Katies, a retailer of women’s clothing, sold garments to which the supplier had attached a label mis-stating the content of the material from which the garments were made. A prosecution under s 53(a) of the Trade Practices Act was brought (now s 29(1)(a) of the Australian Consumer Law). Decision: Katies has breached s 53(a) by falsely representing the ‘composition’ of the garments. Katies was unable to rely on the defence that it had reasonably relied on information supplied by the manufacturer, because simple and inexpensive checks were available for checking the fibre content of the garments. The court suggested that Katies could have obtained from a responsible officer of the supplier a written statement as to the fibre content, and then compared that statement against the labels on samples of the clothing.
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Defence of taking reasonable precautions and exercising due diligence 10.62 The defence under s 208 applies only to criminal proceedings. It has two parts. First, the contravention must be due to the act of another person or an accident or some other cause beyond the defendant’s control; and second, the defendant must have taken reasonable precautions and exercised due diligence to avoid the contravention. Both parts of the defence must be proved by the defendant. Taking reasonable precautions and exercising due diligence normally means: • setting up a system for detecting possible breaches of the Australian Consumer Law; • putting in place reasonable procedures for avoiding those breaches; and • monitoring the procedures.
188 (1986) 67 ALR 137; (1986) ATPR 40-721, see 10.61C. 189 (1995) ATPR 41-370. 190 (1977) 16 ALR 241; (1977) ATPR 40-037. 191 (1989) 16 IPR 511; (1990) ATPR 40-996.
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On the basis of the decision in Adams v Eta Foods Pty Ltd192 it would appear that the defence under s 208 is only available if the precautions are directed to avoiding the actual contravention that occurred. United Telecasters Queensland Ltd v Guthrie (1978) 18 ALR 531; (1978) ATPR 40-062 Facts: United Telecasters, a television station, ran an advertisement for a car dealer which falsely claimed that certain sales tax deductions applying to motor vehicles would end on 30 April. The advertisement was examined by the sales service manager of United Telecasters, whose job included the vetting of advertisements. This officer was experienced in advertising and passed the advertisement without making any checks. After the advertisement was shown, the sales manager at United received a complaint from a viewer who pointed out that the advertisement was false in respect of the sales tax claims. The advertisement was shown again. An action was brought against United Telecasters. In its defence United Telecasters pleaded that it had taken reasonable precautions and exercised due diligence to avoid the contravention. United Telecasters also pleaded the publishers’ defence under s 85(3) of the Trade Practices Act (now s 209 of the Australian Consumer Law). Decision: The majority held that there was no requirement for United Telecasters to check the contents of the advertisement with a government department prior to the advertisement going to air for the first time. However, there was no adequate system for handling complaints about the advertisements. There was no system for ensuring that complaints received during the evening viewing hours, were forwarded to the vetting officer. Consequently, the system of handling complaints did not amount to taking reasonable precautions or exercising due diligence and, therefore, this defence failed. (The defence under s 85(3), however, succeeded.)
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Undertakings 10.63 The ACCC (or any state regulator) is empowered to accept written undertakings from a firm alleged to have breached the Australian Consumer Law: s 218. These undertakings may include a requirement to reimburse customers, to implement a compliance program, or to publish corrective advertising.
Substantiation notices 10.64 The ACCC (or any state regulator) may require a firm that has made a claim or representation, to provide information and/or documents that substantiate the claim or representation: Australian Consumer Law s 219. A firm that fails to comply with a substantiation notice or provides false or misleading information to the ACCC is liable to a pecuniary penalty. Failure to respond to a substantiation
192 (1987) 78 ALR 611; (1987) ATPR 40-831.
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notice also gives the ACCC the right, if it deems it in the public interest, to issue a public warning notice.
Public warning notices 10.65 The ACCC (or any state regulator) may issue a warning notice to the public about the conduct of a person if the ACCC: • has reasonable grounds to suspect a breach of the Australian Consumer Law; • is satisfied that a member or members of the public will suffer a detriment; and • is satisfied that it is in the public interest to issue the public warning.
Infringement notices 10.66 The ACCC can also issue infringement notices for suspected contraventions of the civil pecuniary penalty provisions of the Competition and Consumer Act (including the Australian Consumer Law), as an alternative to proceedings. An infringement notice is a little like an ‘on-the-spot’ fine for businesses and business people. The fines are set out in s 134C of the Competition and Consumer Act. The ACCC may issue an infringement notice when there are reasonable grounds to believe the person has contravened an infringement notice provision. The amount of a fine depends on the person being fined (ie, a larger fine for a company listed on the stock exchange than for an unlisted company, and more for an unlisted company than for a natural person), and on the offence.193 Fines are expressed in penalty units, and are subject to indexation every three years.194 One penalty unit is currently $210 (but is due to be increased in July 2020).
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TABLE 10.4 INFRINGEMENT NOTICE PENALTIES OFFENCE
LISTED COMPANY
UNLISTED COMPANY
PERSON
Pt 3-1 (there are exceptions)
600 penalty units
60 penalty units
12 penalty units
10 penalty units
2 penalty units
s 47(1) multiple pricing 10 penalty units
Court Orders Fines 10.67 A breach of s 18 of the Australian Consumer Law does not attract fines, but the other provisions discussed in this chapter do. The fines may be pursuant to a civil penalty proceeding (brought by the ACCC, and called civil pecuniary penalties) or a criminal proceeding. In each case the maximum financial penalty 193 Sections 32(1), 35(1), 36(1)–(3), 40, and 43 of the Australian Consumer Law. 194 Crimes Act 1914 (Cth) s 4AA.
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is the same.195 The maximum penalties differ for corporations and individuals. The table below sets out the sections and the relevant maximum fine. The court will decide on the actual amount which cannot exceed these maximum figures. Financial penalties may be ordered in conjunction with other orders.
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TABLE 10.5 MAXIMUM FINES OFFENCE
CIVIL PENALTY PROVISIONS MAXIMUM FINE FOR COMPANY/ (PERSON)
False or misleading representations
s 29(1)(a)–(n) the greater of: s 151(1)(a)–(n) the greater of: $10 $10 million OR three million OR three times the benefit times the benefit received OR 10% received OR 10% of annual turnover of annual turnover in the preceding in the preceding 12 months/ 12 months/ ($500,000) ($500,000)
CRIMINAL PROVISIONS MAXIMUM FINE FOR COMPANY/(PERSON)
Misleading conduct as to goods
s 33
the greater of: $10 million OR three times the benefit received OR 10% of annual turnover in the preceding 12 months/ ($500,000)
s 155
the greater of: $10 million OR three times the benefit received OR 10% of annual turnover in the preceding 12 months/ ($500,000)
Misleading conduct as to services
s 34
the greater of: $10 million OR three times the benefit received OR 10% of annual turnover in the preceding 12 months/ ($500,000)
s 156
the greater of: $10 million OR three times the benefit received OR 10% of annual turnover in the preceding 12 months/ ($500,000)
Multiple pricing
s 47
$5000/ ($1000)
s 165
$5000/ ($1000)
Single price
s 48
the greater of: $10 million OR three times the benefit received OR 10% of annual turnover in the preceding 12 months/ ($500,000)
s 166
the greater of: $10 million OR three times the benefit received OR 10% of annual turnover in the preceding 12 months/ ($500,000)
195 The fines for a civil proceeding are set out in s 224 of the Australian Consumer Law. The fines for a criminal proceeding are set out in the relevant section making the conduct an offence (ie, ss 151, 155, 156, 165 and 166 of the Australian Consumer Law).
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Section 224(2) of the Australian Consumer Law requires that the court have regard to all relevant matters, including: • the nature and extent of the act or omission and any loss or damage suffered as a result of the act or omission; • the circumstances in which the act or omission took place; and • whether the person has previously been found by a court to have engaged in any similar conduct. Having regard to these objectives, the court must ensure that the penalty reflects the actual facts of the case. Thus, the court should take into consideration: • the importance of the misrepresentation in any transaction; • the degree to which the misrepresentation departed from the truth; • the degree of wilfulness or carelessness in making the misrepresentation; • how widely the misrepresentation was spread; and • whether the defendant had taken any and what steps to counteract the misrepresentation.196
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Injunctions 10.68 The interim injunction plays an important role in the regulation of advertising and promotional conduct. Interim injunctions are granted to ensure that the status quo is maintained until the matter has come to trial. In many advertising cases, the decision to grant or not grant an interim injunction is often the end of the matter. Advertising campaigns often cannot wait the six or more months before trial. When determining whether to grant an interim injunction, the court must be satisfied that there is a serious question to be tried, that the balance of convenience favours the grant of interim relief, and that damages will not be an adequate remedy. See Tooheys Pty Ltd v Coopers Brewery Ltd,197 in which the court refused an application by Tooheys (brewer of a beer called Tooheys New) for an interim injunction to prevent the release of Coopers ‘New Draught’ beer. The interim injunction was refused on the grounds that the damage and inconvenience likely to be caused to Coopers outweighed the inconvenience and hardship asserted by Tooheys. In considering the balance of convenience, the relative strength of the applicant’s case on the merits can be taken into account. Colgate Palmolive Pty Ltd v Smithkline Beecham Holdings (Australia) (1997) 39 IPR 147; (1997) ATPR 41-579 10.68C
Facts: Colgate successfully launched a new toothpaste which contained peroxide. Smithkline marketed Colgate’s main rival toothpaste, ‘McLeans’. A new McLeans toothpaste was released and, 196 Barton v Gary Lai Pty Ltd (1984) ATPR 40-495; ACCC v Nissan Motor Company (1998) ATPR 41-660. See also Smithers J in TPC v Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 49-091. 197 [2003] FCA 148.
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Chapter 10: Advertising as part of the advertising campaign, it was claimed that McLeans contained ‘No peroxide’ and ‘No harsh abrasives’. Colgate claimed that McLeans was engaging in misleading and deceptive conduct. Decision: For the purposes of an interlocutory proceeding Lockhart J was prepared to accept that the statement ‘no peroxide’ could carry the representation that ‘it is desirable not to have peroxide in toothpaste’. The representation was incorrect, as dentists have for many years used peroxide. He was also prepared to accept that the statement could carry the representation that, as Colgate contains peroxide, it is harmful to teeth. This representation was not correct, as the level of peroxide in Colgate was well within acceptable levels. However, the comment ‘no harsh abrasives’ was not deceptive. Despite determining that there was a prima facie case that the McLeans campaign was deceptive, Lockhart J refused an injunction pending the hearing of the case on the basis that the balance of convenience did not favour such an order. Colgate’s case was not strong. Further, the cost to McLeans in lost advertising expenses and repackaging costs, together with the potential for loss of market share this may cause, did not warrant an interlocutory injunction.
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Corrective advertising 10.69 The court may order corrective advertising under s 224, s 246 (a nonpunitive order), or s 247 (a punitive adverse-publicity order) of the Australian Consumer Law. Corrective advertising will only be ordered if it is appropriate in the circumstances having regard to the nature and likely effect of the advertisement and of the corrective advertising. The purpose of corrective advertising is to protect and educate consumers, not to punish the defendant: Hospitals Contribution Fund of Australia Ltd v Switzerland Australia Health Fund Ltd.198 Thus, in David Golf & Engineering Pty Ltd v Austgolf Corporation Pty Ltd,199 corrective advertising for a circular which misstated a rival’s prices was refused because the evidence first showed that the prices in the circular would be out of date by the time any corrective advertising was released and, second, the advertiser had already taken steps to inform its customers of the correct price comparisons. In ACCC v Virgin Mobile Australia Pty Ltd (No 2),200 corrective advertising was ordered because it would ‘assist in drawing [the contravention] to the attention of consumers generally who may have acquired Virgin Mobile packages or may be contemplating doing so’ and would serve ‘the positive function of alerting consumers to the obligation imposed on Virgin Mobile to disclose those things’, namely the cash price and minimum cost of the phone package. In ACCC v Hungry Jack’s,201 Hungry Jack’s, as part of a large promotional campaign which included significant television and radio advertising, sold sunglasses to the public which should have carried the warning that the sunglasses 198 (1987) 78 ALR 483; (1988) ATPR 40-846. 199 (1993) ATPR 41-207. 200 [2002] FCA 1548. 201 (1996) ATPR 41-538.
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were not suitable for driving. Hungry Jack’s made changes to its advertising to show the appropriate warning. However, because of the safety issue involved, the court ordered specific corrective advertising in both print and on television. In ACCC v Prouds Jewellers Pty Ltd (No 2),202 the court ordered Prouds to publish the following notice in 12 newspapers: CORRECTIVE ADVERTISEMENT Order of the Federal Court of Australia A correction from Prouds The Federal Court has declared that our promotion of 17 items of jewellery in two catalogues published in 2006 entitled ‘Summer of Love’ (for a promotion commencing 29 January 2006) and ‘Love You Mum’ (for a promotion commencing 23 April 2006) were misleading or deceptive or likely to mislead or deceive. The reason the Federal Court made this declaration is that the catalogues advertised the 17 items of jewellery as having a ‘was’ price and a ‘now’ price in circumstances where we had not offered the items of jewellery for sale at the ‘was’ price for a reasonable period immediately prior to the catalogue promotions. The 17 items are …
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Compliance and education programs 10.70 Compliance programs and education programs may be ordered as part of an injunction or an order: Australian Consumer Law s 246 (non-punitive orders). Any program must be appropriate to the circumstances and directed to the breaches that have occurred.203 The ACCC has published a range of information on compliance programs. Compliance programs are discussed at 1.43–1.48. In ACCC v Jetplace Pty Ltd,204 the court ordered injunctions, a compliance program, corrective advertising, and costs for breaches of ss 52 and 53(c) of the Trade Practices Act (now ss 18 and 29(1)(c) of the Australian Consumer Law).
Community service orders 10.71 Under s 246 of the Australian Consumer Law, the court may make a community service order, including: • an order requiring a person who has made false representations to make available a training video which explains advertising obligations under this Act; and • an order requiring a person who has engaged in misleading or deceptive conduct in relation to a product to carry out a community awareness program to address the needs of consumers when purchasing the product. 202 (2008) ATPR 42-230; [2008] FCA 476. 203 ACCC v Z-Tek Computer Pty Ltd (1997) 148 ALR 339; (1997) ATPR 41-580. 204 [2010] FCA 759.
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Orders enforcing undertakings given to the ACCC 10.72 The ACCC is empowered to accept written undertakings from a firm alleged to have breached the Australian Consumer Law: see 10.63. Such undertakings are enforceable in court. The court may order the firm to comply with the undertaking, to pay any financial benefit to the state, and to pay compensation to any person injured by the failure to comply with the undertaking. The ACCC went to court to enforce an undertaking in ACCC v StoresOnline International Inc.205
Orders disqualifying persons from managing corporations 10.73 Where a person has breached certain provision of the Australian Consumer Law, including those relating to false and misleading representations or the pricing provisions, the court may make an order disqualifying the person from acting as a manager of a corporation for a period that the court considers appropriate: Australian Consumer Law s 248.206
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Compensation 10.74 The court may award damages to persons who have suffered losses by conduct in contravention of the Australian Consumer Law. In general, however, individual consumers do not seek damages because of the cost and risk involved. The ACCC may apply to the court on behalf of one or more persons injured by conduct in contravention of the Australian Consumer Law for compensation: Australian Consumer Law s 237. Consumers may bring a class action for damages, the requirements for which are set out in Pt IVA of the Federal Court of Australia Act 1976 (Cth). A class action may be brought on behalf of seven or more persons who have claims against the same person, provided the claims are in respect of, or arise out of, the same or related circumstances, and the claims have a substantial common issue of law or fact. A class action may not be settled without court approval. There is no requirement to receive consent from the class members prior to action. However, any person who is a member of the class of injured consumers may opt out of the case, but not after the matter has been settled.
205 (2007) ATPR 42-196; [2007] FCA 1597. 206 See, for example, ACCC v Stott [2013] FCA 88.
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Self-Regulation Introduction 10.75 To complete the discussion on advertising it is necessary to look at the question of self-regulation.207 Self-regulation occurs where an industry sets certain standards for itself. These standards are not laws. Any penalty for breaching the standards depends on the agreement of the parties involved. Why have any self-regulation if there are laws that deal with advertising? Selfregulation is often a means of heading off legislative regulation. Thus, an industry will voluntarily assume certain minimum standards of conduct in the hope that to do so will obviate the necessity of passing laws regulating such conduct.
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Assessing the pros and cons of self-regulation 10.76 Self-regulation has its good and its bad points. On the positive side, selfregulation can save costs by setting up a more efficient enforcement mechanism than can be achieved by government authorities and the court system. The costs are borne directly by the industry and not by taxpayers. Because the regulations are created and enforced by the industry itself, there is often a greater awareness of and commitment to those regulations than with a system imposed from outside. Some forms of regulation are more amenable to industry codes than legislative enforcement. For example, it may be quite difficult as a political exercise to draw up a legislative regime dealing with good taste in advertising. This may be achieved much more simply by a non-legislative regime that does not have to face the political hurdle. There are also a number of inherent dangers in self-regulation. By its very nature self-regulation means a denial of competition. It is run by the industry itself. This adds to the market power of those in the market and can make it difficult for new firms to enter. Under these circumstances consumers are likely to suffer. Care must be taken to ensure that a self-regulatory scheme does not become an anticompetitive weapon. However, ensuring that self-regulation does not become a weapon for competitive oppression may create its own problems. By weakening the power of the regulators, it becomes more difficult to achieve the objectives of the self-regulatory scheme. Where those objectives are desirable, it may be a difficult task to balance the needs of free competition against the effectiveness of the self-regulation. Finally, self-regulation may lack credibility with consumers and, if that is the case, it may be ineffective. Consumers often see self-regulation as a cynical move to head off legislation.208 207 For more detailed information see The AANA Advertising Regulatory Guide, available at . 208 See J Collinge and B Clarke, Law of Marketing in Australia and New Zealand, 2nd ed, Butterworths, Sydney, 1989, pp 301–303.
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Self-regulation of advertising in Australia
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10.77 The main broad-based, self-regulatory mechanism governing advertising in Australia is that operated by the Australian Association of National Advertisers (AANA).209 Its Code of Ethics is designed to apply to all advertising, whether published or broadcast other than via the internet, direct mail, or point of sale. The Code of Ethics is administered by an independent body, the Advertising Standards Bureau (ASB), which was established in 1998 and is funded voluntarily by the industry through the Australian Advertising Standards Council (AASC). The ASB administers the Code through the Advertising Standards Board and the Advertising Claims Board. The Advertising Standards Board, which has 14 independent members, handles complaints from the public. It deals with matters such as the discriminatory portrayal of people, concern for children, use of language, portrayal of violence, portrayal of sex, sexuality and nudity, and health and safety. It does not concern itself with such issues as truth, accuracy, or legality of advertisements. Disputes between advertisers are handled by the Advertising Claims Board on a cost recovery basis. In addition to the Code of Ethics, the ASB currently administers the following product specific industry codes: • FCAI Voluntary Code of Practice for Motor Vehicle Advertising (2004); • Food and Beverages Advertising and Marketing Communications Code (2006); • Advertising and Marketing Communications to Children Code (2008); • ABAC Responsible Alcohol Marketing Code (2009); • Environmental Claims in Advertising and Marketing Code (2009); and • Wagering Advertising Code (2016). The Advertising and Marketing Communications to Children Code provides, for example, that all advertisements aimed directly at children aged 14 or under must comply with the standards set out in the Code.
AANA Code of Ethics 10.78 The AANA Code of Ethics provides the following: SECTION 1 COMPETITOR COMPLAINTS 1.1 Advertising or Marketing Communication shall comply with Commonwealth law and the law of the relevant state or territory. 1.2 Advertising or Marketing Communication shall not be misleading or deceptive or be likely to mislead or deceive. 1.3 Advertising or Marketing Communication shall not contain a misrepresentation which is likely to cause damage to the business or goodwill of a competitor.
209 This replaced the previous scheme operated by the Media Council of Australia (MCA). For a full discussion of how the MCA system worked, see Re Media Council of Australia (No 2) (1987) 88 FLR 1; (1987) ATPR 40-774.
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Marketing and the Law 1.4 Advertising or Marketing Communication shall not exploit community concerns in relation to protecting the environment by presenting or portraying distinctions in products or services advertised in a misleading way or in a way which implies a benefit to the environment which the product or service does not have. 1.5 Advertising or Marketing Communication shall not make claims about the Australian origin or content of products advertised in a manner which is misleading. SECTION 2 CONSUMER COMPLAINTS
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2.1 Advertising or Marketing Communication shall not portray people or depict material in a way which discriminates against or vilifies a person or section of the community on account of race, ethnicity, nationality, gender, age, sexual preference, religion, disability, mental illness or political belief. 2.2 Advertising or Marketing Communication shall not employ sexual appeal: (a) where images of Minors who appear to be Minors, are used; or (b) in a manner which is exploitative and degrading of any individual or group of people. 2.3 Advertising or Marketing Communication shall not present or portray violence unless it is justifiable in the context of the product or service advertised. 2.4 Advertising or Marketing Communication shall treat sex, sexuality and nudity with sensitivity to the relevant audience. 2.5 Advertising or Marketing Communication shall only use language which is appropriate in the circumstances (including appropriate for the relevant audience and medium). Strong or obscene language shall be avoided. 2.6 Advertising or Marketing Communication shall not depict material contrary to Prevailing Community Standards on health and safety. 2.7 Advertising or Marketing Communication shall be clearly distinguishable as such to the relevant audience.
Advertising and television and radio stations 10.79 No person may operate a television or radio station without a licence. Any licence that is granted is subject to conditions, including a condition that prohibits tobacco advertising and a condition that restricts the advertising of medicines: see Broadcasting Services Act 1992 (Cth). Licences are also granted on condition that the licence holder comply with the Australian Broadcasting Authority’s Code of Practice. This deals primarily with Australian content requirements. The Broadcasting Services Act also provides that the various types of broadcasters, in consultation with the Australian Broadcasting Authority, should develop and comply with codes of practice regulating the broadcasting of material including advertisements. The codes should be designed to ensure that programs reflect community standards and concerns, protect children, promote accuracy, prevent such practices as ‘subliminal perception’ broadcasting, and provide a 492
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method for handling complaints: Broadcasting Services Act s 123. These codes of practice are in addition to the legal requirements imposed on all advertisers. As a consequence, the Federation of Australian Commercial Television Stations (FACTS) has introduced the Commercial Television Industry Code of Practice. The code covers all types of television programming, including commercials. The Federation of Australian Radio Broadcasters has developed the Commercial Radio Codes of Practice. The Outdoor Advertising Association of Australia has a Code of Ethics for outdoor poster advertising.
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Marketing Advice 10.80 Interpretations under ss 18, 29, 33, and 34 of the Australian Consumer Law can be very subjective. For that reason it is essential that careful consideration be given to all aspects of any particular advertisement, even if there is only a small doubt as to its validity. The following factors should be considered: • Interim injunctions can be obtained quickly. If an interim injunction is granted; it is often not worthwhile pursuing the matter. • Always consider the litigious disposition of those likely to complain about the conduct. Some companies are aggressively protective of what they believe are their exclusive rights. Upset one of these companies and expect to have a fight. • Consider the damage that could be done to the corporate image by publicity surrounding an allegation of false advertising. It might well be perceived by the public that the firm is engaging in sharp practices even where there is no criminal prosecution. This kind of publicity can be damaging and difficult to overcome, even if the ultimate result is favourable. • If a legal battle is likely to eventuate, consideration must be given to the costs, both tangible and intangible, of fighting the case. Many hours will be lost preparing for the case, but perhaps the biggest danger comes from management being distracted and diverted from the business of competing successfully. • If an advertisement or packaging is misleading or deceptive, it may well have to be totally destroyed. This can be expensive. • Develop and implement a compliance policy that works for your firm.210
210 See 1.43–1.49 and ACCC, 2019 Compliance and Enforcement Policy and Priorities, February 2019, available at .
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Selling Techniques
11
Introduction ....................................................................................... 11.1 Promotional Selling Techniques ...................................................... 11.2 Market games and competitions ................................................. 11.3 Trade (business) promotion lotteries and games ..................... 11.4 A. Is a permit required to conduct a trade promotion lottery or game? ................................................................... 11.5 B. Can the legislation or the need to obtain a permit for a trade promotion be avoided? ................................... 11.6 C. What conditions apply to the conduct of a trade promotion? ................................................................. 11.7 Unfair Selling Techniques ................................................................. 11.8 Misleading gift promotions .......................................................... 11.9 A. Failing to provide gifts or prizes as promoted ............... 11.10 B. Elements of ss 32 and 154.................................................. 11.11 Bait advertising ............................................................................ 11.12 A. Elements of bait advertising ............................................. 11.13 B. What is a reasonable period? ........................................... 11.14 C. What are reasonable quantities? ..................................... 11.15 D. Are there any defences to bait advertising? .................. 11.16 E. Is switching an illegal practice? ....................................... 11.17 Misleading sales talk ................................................................... 11.18 A. When is sales talk likely to mislead or deceive? ........... 11.19 B. What remedies are available to consumers? ................. 11.20 C. Can traders contract out of liability for misleading sales talk? ............................................................................ 11.21 Unconscionable conduct ............................................................ 11.22 A. Statutory intervention ..................................................... 11.23 B. When is conduct unconscionable? .................................. 11.24 C. What are the consequences of engaging in unconscionable conduct? ................................................. 11.25 495
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Marketing and the Law
Unfair contract terms in consumer contracts ......................... A. What is a consumer contract? ......................................... B. What is a standard form contract? ................................. C. When are terms of a contract unfair? ............................. D. What are the consequences of including unfair terms in a consumer contract? ....................................... Unfair contract terms in business to business contracts ....... Harassment and coercion ........................................................... Referral selling .............................................................................. Pyramid selling ............................................................................ Inertia selling ................................................................................ Lay-by selling ................................................................................ Direct Selling Techniques ............................................................... Unsolicited selling ....................................................................... A. Obligations imposed on dealers and suppliers negotiating an unsolicited consumer agreement ......... B. Obligations after a consumer enters into an unsolicited consumer agreement ................................... C. Consequences of non-compliance with the Australian Consumer Law unsolicited selling provisions ............................................................................. D. How can the right to terminate be exercised? .............. E. Can the unsolicited selling provisions of the Australian Consumer Law be excluded or modified? ............................................................................. F. What are the consequences if a supplier breaches the obligations imposed by the Australian Consumer Law? ................................................................. Self-regulatory codes of practice ............................................. Direct marketing code of practice ........................................... Specific industry legislation applicable to direct selling ....... Marketing Advice ............................................................................
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11.26 11.27 11.28 11.29 11.30 11.31 11.32 11.33 11.34 11.35 11.36 11.37 11.38 11.39 11.40 11.41 11.42 11.43 11.44 11.45 11.46 11.47 11.48
Chapter 11: Selling Techniques
Introduction 11.1 Apart from advertising, there are a great variety of techniques adopted in the marketplace to sell and promote products. Sometimes these techniques may overstep the mark of fair play, making some degree of legal control necessary. Examples of conduct requiring scrutiny include: • games and competitions designed to promote the sales of products; • making gifts or prizes available to purchasers or potential purchasers of products as a means of inducing purchase or obtaining publicity; • promoting products at special prices with a view to attracting customers, but often with the intention, upon inquiry by a customer, to switch the customer to other products; • selling products door-to-door where some customers can be taken advantage of due to factors such as coercion and reduced sales resistance; • selling directly to the public utilising the telephone, which can be intrusive, and where physical inspection of the product and personal contact is usually not involved; and • ‘sales talk’ which may include extravagant and exaggerated statements designed to achieve a sale. This chapter will detail some of the many and varied selling techniques used in the marketplace and outline the legal regulation of such conduct. It will conclude with an examination of the voluntary self-regulatory code of practice adopted by the direct selling industry.
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Promotional Selling Techniques 11.2 Promotions that offer consumers free gifts or prizes are commonly utilised in the marketplace as a means of increasing sales. As long as the promotions are run honestly, there is minimal legal scrutiny over such activities. However, some competitions and promotions conducted in the marketplace may fall into the category of being a lottery (a game of chance), which is a type of promotion that is regulated.
Market games and competitions 11.3 Games and competitions designed to promote the sale of products are extremely common devices used in the marketplace. Generally such promotions are considered harmless and, thus, few laws impinge upon the conduct of games and competitions. Nevertheless, there are critics of this form of selling. Some
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arguments used against the adoption of games and competitions include the following: • unfair trading — traders not adopting such promotions can lose custom due to factors unrelated to the quality of goods or service offered by them; in fact, inferior goods may be favoured by some consumers simply because the chance to win a prize exists; and • price increase — promotions tend to have a ‘snowballing’ effect, as traders losing custom to promoters of competitions and games often feel bound to follow suit; ultimately such promotions have to be paid for, which can result in pressure upon prices. Traditionally, the only market games and competitions declared illegal were those that could be classified as lotteries.1 A lottery is generally considered to be a scheme for distributing prizes by lot or chance. The two main elements required are: 1. a game of chance; and 2. entrants are required to give some consideration.
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The essence of a lottery is the chance which entrants have of winning a prize. Games of chance must be contrasted with games of skill. If a game is predominantly one of skill, it will not be a lottery. The other essential element of a lottery is the requirement that participants must pay or give consideration for the chance to win the prize. Thus, a lottery is a scheme by which prizes are distributed by chance among persons who have paid or given consideration for the chance to win them. In other words, an element of gambling must exist. Traditionally, this was the rationale for outlawing lotteries — to prevent gambling as a means of promoting the sale of products. Participants must have ‘bought’ a ‘chance’ to win before the law came into play. However, as provided for in the legislation listed below, in all Australian state and territory jurisdictions, lotteries and games of chance designed to promote trade or a business are now lawful, subject to a permit being obtained in some jurisdictions. TABLE 11.1 LEGISLATION REGARDING GAMES OF CHANCE
1
JURISDICTION
LEGISLATION
ACT
Lotteries Act 1964; Unlawful Gambling Act 2009
NSW
Lotteries and Art Unions Act 1901
NT
Gaming Control Act 2005
Qld
Lotteries Act 1997; Charitable and Non-Profit Gaming Act 1999
SA
Lottery and Gaming Act 1936
Tas
Gaming Control Act 1993
Vic
Gambling Regulation Act 2003
WA
Gaming and Wagering Commission Act 1987
The common law regarded lotteries as a nuisance.
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Trade (business) promotion lotteries and games 11.4 Despite criticisms that may be directed at games and competitions designed to promote the sale of products, in all jurisdictions of Australia the legitimacy of using trade (business) promotion lotteries and games of chance, has now been recognised, subject to certain controls. Unfortunately, the legislation is not consistent, which can make life difficult for businesses wishing to conduct a national competition. Basically, this means that, in such circumstances, the highest benchmark set by each piece of state or territory legislation must be followed. The essential reason for regulating such schemes nowadays is one of consumer protection, although the traditional justification for prohibiting ‘lotteries’ — that of preventing gambling from being used as a form of promoting products — has been partially retained by a general insistence in these jurisdictions that no entry fee be charged for the right to enter or compete in a game or competition. However, requirements that participants must purchase the promoter’s products are not considered to constitute an entry fee.
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A. Is a permit required to conduct a trade promotion lottery or game? 11.5 In New South Wales, South Australia and the territories a permit (licence or approval) to conduct a trade promotion lottery (or game of chance) must be obtained, subject to some exemptions.2 A fee is payable in all jurisdictions apart from the Northern Territory. However, in South Australia and the Northern Territory, subject to certain conditions being complied with, a trade promotion lottery can now be conducted without a permit if the total retail value of the prizes does not exceed $5000, unless the prizes include instant prizes in South Australia, in which case a permit is required.3 In the Australian Capital Territory, a trade promotion is exempt from the need for approval if the prizes only consist of granting ‘rebates, discounts or other allowances’ in respect of the goods or services provided by the organiser of the lottery.4 In Queensland, Western Australia, and Tasmania no permit is required5 to conduct a genuine trade or business promotion lottery or game.6 In these jurisdictions, a ‘genuine’ lottery or game to promote a 2
Lotteries Act (ACT) s 7; Lotteries and Art Unions Act (NSW) s 4B; Gaming Control Act 2005 (NT) s 39; Lottery and Gaming Act (SA) s 14A; and Lottery and Gaming Regulations 2008 (SA) reg 17; Gambling Regulation Act (Vic) s 5.7.1. 3 Lottery and Gaming Regulations (SA) reg 17; Gambling Regulation Act (Vic) s 5.7.2; Gaming Control (Community Gaming) Regulations 2011 (NT) reg 8. 4 Lotteries Act (ACT) s 6. 5 A statutory permit automatically applies to competitions that meet prescribed conditions in Western Australia: Gaming and Wagering Commission Act (WA) s 104; otherwise a permit is required. 6 A ‘Category 4’ non-profit (free) promotional game (ie, a game conducted to promote goods or services) is exempt in Queensland: Charitable and Non-Profit Gaming Act (Qld); a trade promotion lottery meeting prescribed conditions is deemed not to be unlawful in Western Australia: Gaming and Wagering Commission Act (WA) s 102(b); a ‘trade promotion’ is excluded from the definition of ‘lottery’ in Tasmania: Gaming Control Act (Tas) s 4A.
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trade or business is confined to a situation where entry into the promotion consists of paying the ‘prevailing’ or ‘normal’ market value or price for the product being promoted. Inflating the market price for the product being sold — thus effectively charging a fee for entry into the competition — would make the conduct of the promotion illegal. It is important to realise that, whether a permit is required or not, a ‘trade promotion’ must comply with the regulations that exist in every state and territory: see 11.7.
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B. Can the legislation or the need to obtain a permit for a trade promotion be avoided? 11.6 Although legislation in all states and territories has to a greater or lesser degree expanded the common law definition of a lottery — so that, if an element of chance is involved at any stage in determining the winner of a game or competition, it will be treated as a lottery — it is still the case that, if a game or competition is one of skill only, meaning no element of chance is involved at any stage, the promotion will not be a lottery.7 This means that in jurisdictions that only regulate trade promotion ‘lotteries’ or ‘games of chance’, it is theoretically possible to avoid the legislation by devising a game or competition which is one of skill only. However, in jurisdictions like Tasmania, where a ‘trade promotion’ has been specifically excluded from the definition of a lottery,8 such a step would be ineffective. Devising a promotion that is gratuitous (free to enter) will also not help to avoid regulation or the need to obtain a permit, as legislation in all jurisdictions has removed the exemption for gratuitous entry in a ‘trade (business) promotion’ lottery or game. The difficulties in devising a game or competition that does not fall within the legislation means that, in reality, it is far better to simply comply with the regulations in each jurisdiction and, where necessary, apply for a permit. This is certainly the case for businesses running national ‘trade promotion’ competitions.
C. What conditions apply to the conduct of a trade promotion? 11.7 In all jurisdictions specific conditions apply to the conduct of a trade promotion lottery or game and, in particular, subject to the exercise of any skill or judgment by the participants, all entrants must have a fair and equal chance of winning. It is also universally required that no entry fee be paid, apart from a requirement that the promoter’s product be purchased as a condition of entry (at
7 8
For examples of games of skill, see Ex parte Levy (1909) 9 SR (NSW) 688; 26 WN (NSW) 134b (writing a limerick) and Hall v Cox [1899] 1 QB 198 (predicting the number of births in a city in a given week). Gaming Control Act (Tas) s 4A.
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a non-inflated price).9 There is generally a requirement to publish the details of the winner(s) of any prize(s) above a certain value (for example, this amount is $1000 in Victoria and the ACT, and $250 in South Australia). It is also usual to require that prize winners be notified in a certain manner and for unclaimed prizes to be redistributed. Some states and territories place restrictions on the types of prizes that can be awarded,10 while others, including New South Wales, South Australia, and Victoria, impose specific controls designed to guarantee the integrity of promotions (such as requiring a scrutineer to witness a draw, or a nominee to certify compliance with legislative requirements). There may be a default time specified within which prizes must be distributed (as there is in New South Wales). Records in relation to a trade promotion lottery with a particular prize value may need to be kept for a minimum period after finalisation of the lottery. Although it is essential that the actual legislation be referred to for specific details, Table 11.2 broadly summarises the state and territory lotteries and gaming legislation.11 In some jurisdictions, such as New South Wales, there are some restrictions on the items that may be offered as prizes in trade promotions.
9
Although a specified amount to cover the cost of postage stamps and telephone calls that must be expended to enter a promotion is usually excluded. 10 Generally the restrictions involve tobacco products, alcohol, weapons and ammunition, gambling products, and cosmetic surgery. 11 Note that the Commonwealth government has introduced legislation that can impact on the use of 1900 numbers (and the internet) in conducting lotteries: Interactive Gambling Act 2001 (Cth).
501
502 N/A
No
N/A
No
N/A
No
No
No
N/A
Yes 22
N/A
Yes18
N/A
Yes 16
Yes14
No
Entry is Additional gratuitous requirements for exemption or approval
No
No
Yes Yes
No
No
N/A
Yes19
No No
Yes N/A
No
No
Requirements for notification and disposal of unclaimed prizes
Yes
Yes
Entry fee allowed12
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
Other conditions13
CONDITIONS IMPOSED FOR PERMIT OR EXEMPTION
12 Requiring an entrant to purchase goods or services of the promoter (at normal prices) is permitted. In some jurisdictions, expenditure of a specified amount is allowed in order to cover the cost of a telephone call or a postage stamp. 13 In addition to the relevant legislation, any regulations made pursuant to such legislation will need to be referred to: see Lotteries and Art Unions Regulation 2007 (NSW); Gaming Control (Community Gaming) Regulations 2011 (NT); Charitable and Non-Profit Gaming Regulations 1999 (Qld); Charitable and Non-Profit Gaming Rules 1999 (Qld); Lottery and Gaming Regulations 2008 (SA); Gambling Regulation Regulations 2005 (Vic); Gaming and Wagering Commission Regulations 1988 (WA). 14 Exempt if prizes consist entirely of rebates, discounts, allowances, or refunds for goods or services provided. 15 But not if the fair consideration of the answers of all entrants is precluded: Lotteries and Art Unions Act (NSW) s 3. 16 A permit is only required for a major trade lottery (ie, where the total prize value exceeds $5000); no permit is required for a minor trade lottery (ie, where the total prize value is $5000 or less, or where a permit has been issued by another state or territory). 17 A Category 4 promotional game (ie, a game conducted to promote goods or services) is permitted in Queensland: Charitable and Non-Profit Gaming Act (Qld) s 21; although some conditions are imposed: see Charitable and Non-Profit Gaming Rules 1999 Sch 5. 18 Exempt if the value of prizes does not exceed $5000 and does not include instant prizes. 19 A promotion must not involve the sale of tobacco products, firearms or ammunition, or cosmetic surgery and the like. 20 It should be noted that in 2012 there were a number of changes relating to trade promotion lotteries in Victoria, as outlined in the Gambling Regulation Amendment Regulations 2012 (Vic). 21 If the amount charged for any purchase required to participate in a promotion is, in the opinion of the Tasmanian Gaming Commission, in excess of the market price, the promotion becomes a lottery and is unlawful: Gaming Control Act (Tas) s 4A. 22 Exempt if the value of prizes is $5000 or less. 23 If prescribed conditions are met: Gaming and Wagering Commission Act (WA) s 102; otherwise a permit is required: Gaming and Wagering Commission Act (WA) s 104(1).
N/A
Not required23
WA
Yes
Not required
Vic
N/A
N/A
N/A
Not required21
Tas20
Yes
Yes
Yes
Yes
SA
Yes N/A
No N/A
Yes
Not required17
NT
Qld
Yes
Yes
Yes 15
Yes
If game of skill only (no element of change)
NSW
Yes
Fee payable for permit
EXEMPT FROM OBTAINING PERMIT, LICENCE, OR APPROVAL
Yes
Available if required
PERMIT, LICENCE, OR APPROVAL AVAILABLE
ACT
TERRITORY
TABLE 11.2 LOTTERIES AND GAMING LEGISLATION
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Marketing and the Law
Chapter 11: Selling Techniques
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Unfair Selling Techniques 11.8 Most of the laws discussed under this heading are to be found in the Australian Consumer Law, a single national law covering consumer protection and fair trading that applies in the same way nationally and in each state and territory. The Australian Consumer Law is Schedule 2 to the Competition and Consumer Act 2010 (Cth) and replaces the consumer protection provisions contained in Pt V of the former Trade Practices Act 1974 (Cth), now known as the Competition and Consumer Act. The Australian Consumer Law applies as a law of the Commonwealth, and each state and territory has replaced its previous fair trading legislation with the Australian Consumer Law so that the same provisions apply across Australia. As an application law, the Australian Consumer Law is drafted to reflect that it will be a law of the Commonwealth and of each state and territory. As such, all of the provisions have been drafted so as to apply to ‘persons’ rather than ‘corporations’, as was the case in the consumer protection provisions of the Trade Practices Act. Due to constitutional reasons, the Commonwealth government does not have the power to make consumer protection laws generally, although it can pass laws with respect to corporations. The drafting of the Australian Consumer Law does not change this situation. Part XI of the Competition and Consumer Act applies the Australian Consumer Law as a law of the Commonwealth, meaning that the references to ‘persons’ will generally have to be read so as only to apply to ‘corporations’. The states and territories are unaffected by such constitutional limitations and have applied the Australian Consumer Law to ‘persons’. The Australian Consumer Law contains a number of provisions that prohibit various forms of conduct and/or selling techniques (described as ‘unfair practices’). These ‘unfair practices’ are made illegal under Ch 3 of the Australian Consumer Law, and allow for civil pecuniary penalties to be sought by the Australian Competition and Consumer Commission (the ACCC). The maximum civil pecuniary penalties that can be imposed for corporations are the greater of: • $10 million; • three times the value of the benefit obtained from the offence, if that benefit can be determined; • 10% of the annual turnover, if the value of the benefit cannot be determined in that instance. The maximum civil pecuniary penalty for individuals is $500,000. The same ‘unfair practices’ are also designated as criminal offences under Ch 4 of the Australian Consumer Law.24 For example, it is illegal to run promotions 24 Many of the provisions in the Australian Consumer Law are aimed at protecting the ‘consumer’. Section 3 defines a consumer as a person who has acquired goods or services ‘of a kind ordinarily acquired for personal, domestic or household use or consumption’, while excluding goods that were acquired for resupply, or for the purpose of using them up or transforming them, in trade or commerce, (i) in the course of a process of
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offering prizes and free gifts and then fail to deliver on the promises made. Along similar lines, it is illegal to entice persons to a retail outlet under the false pretence that certain items are available for sale when they are not. Once a customer is ‘face-to-face’ with a salesperson, the salesperson must ensure that any transaction with a customer is handled in such a way that it does not involve misleading or deceptive conduct (such as ‘sales talk’), or exploit a weakness of the customer in a way that can be characterised as unfair or harsh. Furthermore, it is illegal to coerce or harass a person when selling (or attempting to sell) goods or services to that person. More specifically, there are also nominated types of conduct which are prohibited, including referral selling, pyramid selling, and inertia selling. These matters are discussed below.
Misleading gift promotions 11.9 Some gift promotions provide for a gift or prize to be given away, usually upon or in connection with the sale of another product. Examples of such promotions include the placing of toys or ‘collectibles’ in packets of breakfast cereal, or the giving of a ‘free’ paintbrush with every tin of paint sold. A ‘gift with purchase’ promotion — that is, an offer of a good or service free of charge at the time of purchase and conditional upon that purchase — is quite legal in all Australian jurisdictions. It is only when such a promotion is run and the gift or prize is not provided as promoted, that the law comes into play.
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A. Failing to provide gifts or prizes as promoted 11.10 A trader must ‘not, in trade or commerce, offer any rebate, gift, prize or other free item’ in connection with the supply or possible supply or promotion by any means of goods or services: • with the intention of not providing them; or • not providing them, as offered, within the time specified in the offer, or, if no time is specified, within a reasonable time. This conduct is made a criminal offence by s 154 and a civil offence by s 32 of the Australian Consumer Law. The following conduct will clearly be outlawed by these provisions: • offering a gift or prize which is never presented: see TPC v Calderton Corp Pty Ltd;25 • attaching previously undisclosed provisions after a person has participated in a promotion or entered a competition offering gifts or prizes; for example, a cinema advertises that a ‘bonus movie ticket’ is available to anyone who production or manufacture, or (ii) in the course of repairing or treating other goods or fixtures on land. This definition means that in many instances business customers will considered as ‘consumers’. 25 (1994) ATPR 41-306, see 11.10C.
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attends the cinema and buys a ticket, suggesting a ‘buy one get one free’ offer; however, patrons who turn up and buy a ticket merely receive a voucher that states that they will receive a bonus movie ticket when they next attend the cinema and buy a further ticket;26 • offering money prizes where the intention is to offer something else; for example, a promotion advertising $100,000 to be won, where the prize is a lottery ticket with a first prize of $100,000; or • inflating the normal price of goods to cover the cost of a ‘free gift’.27 TPC v Calderton Corp Pty Ltd (1994) ATPR 41-306 Facts: The defendant, trading as the Stereo Warehouse in the ACT, advertised a promotion on local television and by leaflet drops. To participate in the contest, customers had to purchase items at the store, which were allocated a number of points — ‘prize dollars’ — according to the value of the item. The top 10 customers at the end of a specified period were to win prizes. Daily record sheets were posted in the store showing the position of customers. The 10 nominated prizes included a vacation for two, a telephone answering machine, a microwave oven, and so on. Near the due date for the end of the contest, the owner of the store decided to extend the promotion for another month, as it had not been commercially successful. He began to include fictitious names on the list of genuine customers and to gradually replace the latter group. By the close of the competition, fictitious names occupied the top 10 spots and no prizes were in fact awarded. The retailer was prosecuted for breaching what is now s 32 of the Australian Consumer Law.
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Decision: The retailer pleaded guilty to running a promotion without the intention of providing the prizes as offered. This was a ‘serious’ breach, evidencing a lack of integrity. The actions of the retailer amounted to a fraud upon those induced to enter the contest and demonstrated a complete lack of business morality. The retailer was fined $10,000 for breaching the section.
B. Elements of ss 32 and 154 11.11 Sections 32 and 154 of the Australian Consumer Law do have limitations, and it will be necessary to satisfy a number of requirements in order to prove a breach: • The offer of ‘rebates, gifts, prizes or other free items’ must be in trade or commerce. • The offer must be in connection with the supply (or possible supply) or the promotion of the supply or use of goods or services. • The promoter under s 32(1) must have the ‘intention’ of not providing the rebates, free gifts, or prizes offered. Intent is difficult to prove. 26 Such a campaign was run by Greater Union Group in several Australian states during 1995. The Group voluntarily withdrew the advertisements when approached by the ACCC, and agreed to ensure that future advertisements would not be misleading. 27 For other examples, see ACCC, Advertising and selling guide, November 2017, available at .
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11.10C
Marketing and the Law
• The sections overcome the ‘intention’ issue by making it an offence not to provide a rebate, gift, prize, or other free item ‘as offered’ within the time specified in the offer. However, if no time is specified, the offer must be provided within ‘a reasonable time’. What is a reasonable time, will need to be determined by a court on a case-by-case basis, and any decision will no doubt be in part based on the nature of the gifts and prizes offered and any representations made concerning their availability. • Subsection (3) of these sections provides a defence to any promoter alleged to have breached subs (2), where the failure to provide the rebates, gifts, or prizes ‘as offered’ was: – due to the act or omission of another person, or to some other cause beyond the promoter’s control; and – the promoter took reasonable precautions and exercised due diligence to avoid the failure. • Subsection (4) of these sections allows a promoter to avoid a breach of subs (2) by offering a ‘different rebate, gift, prize or other free item as a replacement’, but only if the proposed recipient agrees to the replacement. The limitations of ss 154 and 32 may at times make it necessary to rely on other sections of the Australian Consumer Law when prosecuting traders conducting ‘unfair’ promotions: see Nationwide News Pty Ltd v ACCC.28
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Bait advertising 11.12 A sales technique occasionally resorted to in the marketplace is that known as ‘bait advertising’. Sellers may advertise that a product is available when in fact it is not, or that it is available at a low price when in fact there are only a limited number of items available at that price. Having lured the customer into the shop with such advertising, the sales effort is sometimes switched to the product or products which the advertiser really hopes to sell. It is important not to confuse ‘bait advertising’ with the practice of ‘loss leading’, which is generally accepted as a legitimate practice. Loss leadering is the practice of advertising goods at special prices, sometimes below cost, with the intention of attracting customers to a store, such as a supermarket. The advertiser usually hopes that the customer, having taken the trouble to come to the store to purchase the advertised ‘specials’, will also purchase products other than those advertised, leading to an increase in sales overall. If the product or products advertised are stocked in sufficient quantities to meet the anticipated demand and are in fact sold to those who seek them, there is no question of the law being breached. However, when a false statement is made that a product is available for sale at an advertised price when it is not, the offence of ‘bait advertising’ may have been 28 (1996) 142 ALR 212; 37 IPR 391; (1997) ATPR 41-543, see 10.49C2.
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committed. The conduct of bait advertising is made a criminal offence by s 157 and a civil offence by s 35 of the Australian Consumer Law. There are two types of prohibited conduct encompassed by these sections: 1. the advertising of goods or services at a specified price, when there are reasonable grounds for believing that the advertiser will not be able to offer reasonable quantities for a reasonable period; and 2. the act of not offering advertised goods or services at the specified price in reasonable quantities for a reasonable period (to which there is a special defence for the criminal offence).
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A. Elements of bait advertising 11.13 There are several elements that make up the offence of ‘bait advertising’: • The advertising of goods or services at specified prices must be ‘in trade or commerce’. • The specified price must be ‘advertised’. (‘Advertise’ is not defined by the legislation. It would appear to include all forms of advertising using electronic or print media, promotional literature such as brochures and catalogues, billboards, and point of sale material. Statements on packages and labels could also be considered advertising, although the term would not appear to encompass representations made in sales talk at the point of sale.) • A price must be ‘specified’ in the advertisement. (The reference to a ‘specified price’ means that a mere implication or suggestion of the existence of a bargain offer, in contrast to a stated price, would not be covered. However, an element of approximation does not prevent a price from being ‘specified’,29 nor does a reference to a standard or criteria well known to the parties that allows the price to be ascertained.30 There is no requirement that the specified price be a ‘special’ price or a ‘discount’ price. It may be the normal price.) • The advertised goods or services must be ‘offered’. (‘Offer’ is not defined in the legislation. It does not seem to be used in the contractual sense. Despite a decision to the contrary,31 the better view arguably is that which equates the term ‘offer’ with ‘make available’.)32 • The advertised goods or services must be offered in ‘reasonable quantities’ for a ‘reasonable period’, having regard to both the nature of the advertiser’s market and the nature of the advertisement.
29 See TPC v Sony (Australia) Pty Ltd (1990) ATPR 41-053. 30 TPC v Mobil Oil Australia Ltd (1984) 3 FCR 168; 55 ALR 527; (1984) ATPR 40-482. 31 Reardon v Morley Ford Pty Ltd (1980) 33 ALR 417; 49 FLR 401; (1980) ATPR 40-190, see 11.17C. 32 Wallace v Brodribb (1985) 58 ALR 737.
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Marketing and the Law
B. What is a reasonable period? 11.14 An advertiser is entitled to specify the period of time that goods or services will be available; for example, ‘Monday only’ or ‘the month of May’. Only if a period of time is not specified will it be necessary to consider the meaning of ‘reasonable period’. In determining whether a period (or quantity) is ‘reasonable’, relevant factors to consider are specified as: • the nature of the advertiser’s market; and • the nature of the advertisement. Matters that would no doubt be taken into account when making a determination would include: • the type of advertised goods or services; • the method of advertising utilised; • the method of distribution for the goods; • the rate of turnover in the market for the goods at their normal selling price; and • in the case of services, the frequency with which persons acquire the services at their normal selling price.33 Thus, a large business advertising widely on television would be expected to hold much greater stocks than a local business advertising in a regional newspaper. The facts of each particular case are clearly critical in this regard. It should be noted that using words such as ‘while stocks last’ or ‘limited offer’ in advertisements will not usually discharge the obligation to have goods or services on offer at the specified price for a ‘reasonable period’. Where available stock is limited, it would be better to give some indication of the quantity of stock held and the length of likely availability.
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C. What are reasonable quantities? 11.15 The same factors as those considered above in relation to ‘reasonable period’ are also relevant in determining whether reasonable ‘quantities’ of goods or services have been made available by an advertiser. A reasonable attempt must be made to assess likely demand so that sufficient goods or services can be made available to satisfy that demand. Collis v Coles Myer Ltd (17 February 1988, Court of Petty Sessions, Perth, Complaint No 77968 of 1987) 11.15C1
Facts: In late February 1987, Coles New World supermarket advertised instant coffee for sale at the special price of $4.99. The offer was open until 7 March 1987. The normal price was $8.90. On 5 March 1987, a shopper was told by a checkout operator at a particular store that the $4.99 jars had all been sold. The manager of the store told another customer that all
33 See further ‘Pricing & surcharging’ at .
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Chapter 11: Selling Techniques stocks had been sold, but that more ‘should’ be available the next day. The retailer was charged with breaching what is now s 35 of the Australian Consumer Law. Decision: The retailer had not obtained ‘reasonable quantities’ of the coffee. That there was a large insufficiency of goods was illustrated by the fact that the store ran out of stock two days earlier than the expiry date stated in the advertisement. Many people would have been brought into the defendant’s store by the advertisement and would have been disappointed. It was in the public interest that special price goods are made available in reasonable quantities. A fine of $500 was imposed.
Another interpretation of the expression ‘reasonable quantities’ relates to the situation where undisclosed conditions are imposed. For example, limiting the purchase of advertised goods to ‘three per customer’ is unobjectionable if clearly stated in an advertisement, but if undisclosed or hidden in the ‘fine print’ of an advertisement, this may be considered a failure to offer goods in ‘reasonable quantities’, especially if the goods are likely to be purchased in greater quantities. Harvey Norman Infringement Notice Proceedings (2011)34 (These proceedings are an example of the ACCC using the infringement notice provisions to increase the remedies available to the ACCC, enabling them to act more quickly to address misconduct and promote compliance than bringing a matter before the courts. Once an infringement notice penalty is paid, the ACCC cannot begin court proceedings over the alleged contravention. The payment of an infringement notice penalty is not an admission of a contravention of the Act. The ACCC can issue an infringement notice where it has reasonable grounds to believe a person has contravened certain consumer protection laws.)
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Facts: A number of Harvey Norman franchisees in Perth, Western Australia, distributed a catalogue as an insert in the 13 November 2010 edition of The Weekend West newspaper. The catalogue included the Kodak ‘Playsport’ pocket video camera, advertised for $218. The franchisees did not have stock of the camera to supply to consumers. Outcome: The six West Australian Harvey Norman franchisees each paid the infringement notices of $6600.
D. Are there any defences to bait advertising? 11.16 There is no special defence provided for a breach of s 35 of the Australian Consumer Law (the civil offence), nor for the first offence under s 157 of the Australian Consumer Law (the criminal offence). However, for the second offence under s 157, the act of failing to supply advertised goods or services in reasonable
34 See ACCC, ‘Six Harvey Norman franchisees pay for not stocking cameras’, 7 June 2011, at .
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11.15C2
Marketing and the Law
quantities for a reasonable period, there is a special defence: s 157(4) of the Australian Consumer Law. This defence can take one of two forms: • the ‘raincheck’ defence; or • the ‘substitution’ defence. Thus, a supplier is permitted to: • offer to supply (or to procure another person to supply) goods or services of the kind advertised to the customer (within a reasonable period of time and in reasonable quantities) at the specified price; or • substitute (or to procure another supplier to substitute) equivalent goods or services which are available at the time at the specified price.
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If a customer accepts such an offer from the advertiser, these defences can only be relied upon if the advertiser can prove that the goods or services were so supplied. These defences mean that if a supplier finds itself unable to supply goods as advertised, for example, because it has failed to order enough stock, it can offer customers a ‘raincheck’ to enable them to pick the goods up at the specified price when they become available, or it can offer another equivalent brand as an alternative. Unless such measures are only used in genuine circumstances, the ACCC could still prosecute an advertiser for not having ‘reasonable grounds for believing’ that it would be able to supply the goods or services in question, for which there is no special defence. It is also advisable that incorrect representations be corrected by taking such steps as overprinting advertisements and displaying notices at the point of sale. Printing small ‘apology’ notices in daily newspapers may not prevent a prosecution.35 Apart from the special defence available for ‘bait advertising’, there are also standard defences which can be relied upon by anyone prosecuted for offending these sections, see 10.57–10.62.
E. Is switching an illegal practice? 11.17 It will be observed that the provisions under discussion do not entirely deal with ‘bait and switch’ sales techniques and, in fact, are only concerned with the ‘bait’. Attempts to ‘switch’ the customer to other products is conduct which is only governed incidentally should the conduct involve misleading or deceptive conduct pursuant to other sections of the Australian Consumer Law, such as falsely disparaging the advertised products.36 Thus, as long as the advertised product is genuinely available, there will usually be nothing to prevent a salesperson from trying to talk a customer into purchasing another product, provided no coercion or harassment is involved: see 11.32. However, if the customer insists, the advertised goods must be provided. 35 See the Trade Practices Commission, Advertising and Selling, 1981, at [408]–[412]. The later ACCC editions of this publication contain less guidance on such issues. 36 For example, ss 18 and 29 or s 151 of the Australian Consumer Law.
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Reardon v Morley Ford Pty Ltd (1980) 33 ALR 417; 49 FLR 401; (1980) ATPR 40-190 Facts: A car dealer advertised Ford Falcon sedans at special prices and then failed or refused to supply them to customers expressing an interest in purchasing the advertised model. The dealer had only one of the advertised model cars in stock and salespersons told prospective customers that the car had been sold and that further supplies could not be obtained from the Ford factory. Both statements were false. If a customer insisted on receiving the advertised car, the salesperson would refer the matter on to the company’s managing director, who would then accept an offer to buy the car from the customers, but without giving an undertaking to supply it. Evidence revealed that all salespersons had been instructed to ‘sell up’ to more expensive models. The car dealer was prosecuted for breaching what is now s 157 of the Australian Consumer Law. Decision: The dealer was guilty of bait advertising. The dealer did not offer for supply at the specified price goods in reasonable quantities for a reasonable period. The car dealer had to take positive action to offer the goods on the specified terms, not merely accept an offer on those terms. Provided advertised goods are genuinely available, the advertiser need not encourage persons to accept the offer and is free to urge the benefits of some alternative goods or services instead. However, in this case, the defendant, having advertised goods for supply at a specified price, failed to offer such goods at that price when requested to do so.
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Misleading sales talk 11.18 A common complaint heard from consumers relates to misrepresentations made by the seller in the course of negotiations leading up to a sale. Nevertheless, not all misstatements have legal consequences. For example, a grossly exaggerated statement will usually be categorised as a ‘sales puff’, in other words, a representation which no reasonable person will take seriously and, as such, be regarded as inoffensive. However, the law relating to misrepresentation was significantly strengthened by the introduction of s 52 of the Trade Practices Act. These provisions are now found in the Australian Consumer Law, in particular ss 18 and 29. If a representation is made in trade or commerce which is ‘misleading or deceptive or likely to mislead or deceive’, and a consumer reasonably relies upon that representation to his or her detriment, then remedies may be sought by the consumer. The remedies include the right to claim damages or to seek other forms of relief, which may include an order designed to restore the parties to the position that existed before the representation was made. Misstatements made by salespersons in the course of pre-contractual negotiations are clearly subject to s 18, whether they be made to the private consumer or to the experienced businessperson, provided the statement is made in the course of ‘trade or commerce’.37 Any question of the salesperson’s intention 37 Larmer v Power Machinery Pty Ltd (1977) 29 FLR 490. For a full discussion, see O’Brien v Smologonov (1983) 53 ALR 107; 2 IPR 68; (1983) ATPR 40-418.
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Marketing and the Law
to deceive is irrelevant.38 Liability is quite unrelated to intention or fault. All that must be established is that the conduct complained of might reasonably have been relied on. It should be noted that misleading comments by staff are not limited to a pre-sales context. In ACCC v LG Electronics Australia Pty Ltd39 the court held that LG’s call centre staff made misrepresentations to customers who contacted LG in relation to LG products that the customers believed were faulty. Online retailer Wiggle also entered into an enforceable undertaking relating to the conduct of its post-sales staff.40
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A. When is sales talk likely to mislead or deceive? 11.19 Conduct that misleads or deceives, or is likely to have that effect, may take a variety of forms, whether it constitutes positive conduct or results from a failure to act. Such conduct can be classified as follows:41 • refraining from acting when: – a statement, initially true, has been falsified by later circumstances, and the seller fails to advise the consumer of that fact; for example, where a consumer is induced to purchase shares in the defendant company upon the basis of expected profits to be made from the marketing of a particular book and where a serious setback to the enterprise is not disclosed to the purchaser prior to his or her purchase of the shares;42 – the seller has assisted in creating a false impression in the consumer’s mind, and failed to bring the truth home to the consumer; for example, the display of a used motor vehicle for sale with a false odometer reading where the seller fails to warn the purchaser of doubts as to its authenticity;43 – the consumer is labouring under a serious misapprehension, of which the seller is aware, and the seller fails to correct that mistake; or – the seller fails to disclose information which the consumer might reasonably have expected to have been given; • making misleading or deceptive statements, including laudatory and extravagant descriptions — the latitude afforded to sellers of goods at common law on the basis that literally false statements amounted to ‘mere puffs’ or ‘sales talk’, arose at a time when the common law assumed a healthy scepticism on
38 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty Ltd (1978) 140 CLR 216 at 228. 39 [2019] FCA 1456. 40 See ‘Wiggle Limited — Section 87B’, 11 December 2018, at . 41 Based upon classification used by D W Greig and J L R Davis, The Law of Contract, Law Book Co, Sydney, 1987, pp 806–15. 42 Lucas v Economic Freedom Pty Ltd (1986) ATPR (Digest) 46-008; see also Dainford Ltd v Sanrod Pty Ltd (1985) ATPR 40-513; GA Nominees Pty Ltd v Bardon Motors Pty Ltd (1985) ATPR 40-519. 43 Brown v Southport Motors Pty Ltd (1982) 43 ALR 183; 67 FLR 254; (1982) ATPR 40-306.
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the part of consumers. In the words of Crane J in an American case, Union Car Advertising Co v Collier,44 ‘exaggeration, puffing, boasting appear to be the very breath of salesmanship: we never expect detraction, always overemphasis’. Although some obviously exaggerated claims made in the selling of products (for example, that a product will last ‘forever’ or will give ‘the taste sensation of a lifetime’) will be tolerated, the objective of the Australian Consumer Law is clearly concerned with discouraging conduct which may have been legally exonerated in the past.45 An argument that a ‘reasonably intelligent’ person would not have believed a false commendation made by a seller is unlikely to be given much weight by the courts in the hearing of a matter under the Australian Consumer Law unless it can be established that no one, except perhaps a ‘stupid’ person, could have believed the outlandish representation made. In individual cases it might also be possible to argue that the particular consumer would not in fact have been deceived by a representation made by the seller, for instance, because of the consumer’s actual knowledge or business acumen: see Saints Gallery Pty Ltd v Plummer;46 • unfulfilled predictions and promises — a breach of s 18 of the Australian Consumer Law may be constituted by a prediction not fulfilled or a promise not performed. Section 4 of the Australian Consumer Law places the onus on a seller to substantiate any predictions or promises made in the marketplace. A seller making a representation with respect to any future matter where the seller does not have reasonable grounds for making the statement is deemed to be misleading. The onus of proving the existence of such reasonable grounds is on the party making the statement.
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B. What remedies are available to consumers? 11.20 The Australian Consumer Law permits the courts to grant either damages (s 236) or make other appropriate orders (s 243) for any type of misstatement which is misleading or deceptive, even though it is made without either the intention to deceive, or a lack of reasonable care. In order to prove loss or damage, the consumer would need to establish that reliance was placed on the misleading or deceptive conduct.47 A distinct advantage of the Australian Consumer Law in relation to misrepresentation is the fact that a remedy is not tied to the existence of a contract. Actions can be brought against non-contracting parties. At common law such actions can only be pursued by relying upon the torts of deceit or negligence. Under the Australian Consumer Law there is no need to prove fraud or the existence of a
44 189 N E 463 (1934) at 468. 45 See Mr Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd (1981) 36 ALR 23 at 52; (1981) ATPR 40-226. 46 (1988) 80 ALR 525; (1988) ATPR 40-882. 47 Sanrod Pty Ltd v Dainford Ltd (1984) 54 ALR 179; (1984) ATPR 40-464.
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‘special relationship’ giving rise to a duty of care in such circumstances. Thus, for instance, a salesperson representing a manufacturer who induces a person to enter into a contract with a retailer by virtue of false statements made in a conversation or in brochures provided by the salesperson, can be proceeded against. Provisions in the Competition and Consumer Act ensure that traders will generally be held responsible for the acts of their servants or agents: s 139B. Provided that a servant or agent acts within the scope of actual or apparent authority, the employer will be liable for such actions. Thus, a representation made by a salesperson acting within the scope of his or her actual or apparent authority will be deemed to have been given or made by the employer. This means that in some situations an employer can still be held liable for unauthorised representations made by a salesperson. For instance, a car salesperson who winds back the odometer of a car and makes false representations regarding the distance travelled by the car would still arguably be acting within ‘apparent’ authority.48 Further, when it is necessary to establish the state of mind of a corporation in relation to conduct engaged in by the corporation, the state of mind of a director, servant, or agent acting within the scope of actual or apparent authority is sufficient: Competition and Consumer Act s 139B(1). The ‘state of mind’ of a person encompasses the knowledge, intention, opinion, belief, or purpose of the person: Competition and Consumer Act s 130.
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C. Can traders contract out of liability for misleading sales talk? 11.21 The ability to avoid liability under the Australian Consumer Law by relying upon exemption clauses and disclaimers is limited. While, as a general principle, it has been accepted that some form of disclaimer might prevent a contravention of s 18 of the Australian Consumer Law, ‘it should be noted that correcting otherwise misleading or deceptive conduct is the only way in which an exemption clause or disclaimer can effectively protect a person against incurring liability’.49 If in fact a misrepresentation does induce a person to enter into an agreement, ‘that inducement cannot be negatived by mere words in a contract’.50 However, the courts have shown a willingness to give effect to a disclaimer clause if contained in a contract between experienced businesspersons.51
48 See Watteau v Fenwick [1893] 1 QB 346; Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711; [1971] 3 All ER 16. 49 See Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) 72 ALR 601; (1987) ATPR 40-782. 50 W Pengilley, ‘Mistakes in Negotiations’ (1987) 3 AMLB 99 at 100; see also Petera Pty Ltd v E A J Pty Ltd (1985) ATPR 40-605; Hutchence v South Sea Bubble Co Pty Ltd (1986) 64 ALR 33; 6 IPR 473; (1986) ATPR 40-667, see 6.43C1; Bateman v Slatyer (1987) 71 ALR 553; 8 IPR 33; (1987) ATPR 40-762. 51 Silver Fox Co Pty Ltd v Lenard’s Pty Ltd (2004) ATPR 42-024; [2004] FCA 1225.
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Unconscionable conduct 11.22 Traditionally the courts have tended to treat contracts, once concluded, as binding, regardless of the relative bargaining power of the parties. Putting a signature to a document, whether or not it has been read or understood, in the absence of fraud or misrepresentation, has been regarded as signifying the acceptance of the terms included in the document, irrespective of the effect of those terms.52 However, one area where there may be limited scope for avoiding the consequences of a contract is where the contract is unfair and harsh; that is, unconscionable. It has long been recognised that equity can set aside unconscionable bargains where one party is in a position to exploit a particular weakness of the other, such as where one party is ignorant or mentally deficient. For example, in Dowsett v Reid,53 the High Court of Australia refused to enforce an agreement between a real estate agent and an illiterate farmer, where a lease agreement with an option to buy on extremely favourable terms was drawn up by the real estate agent’s solicitor and the farmer was not represented by a solicitor. The lease agreement was so one-sided that during the first 18 months of the lease the farmer was actually obliged to spend more money on improvements to the property than he would have derived from rental income.
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Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; 46 ALR 402; 57 ALJR 358 Facts: The plaintiffs had given a guarantee to the Commercial Bank. The guarantee was designed to secure the debts incurred by the plaintiffs’ son, who was considerably overdrawn. The bank was aware of the precarious nature of the son’s business. The plaintiffs were quite elderly and of Italian descent, possessing little grasp of the English language. They obtained no independent legal advice. The plaintiffs were under the impression that their son’s business was quite prosperous, and that their liability was limited to both $50,000 and a period of six months, all of which was untrue. The son’s business eventually collapsed, and the bank sought to enforce the guarantee. The plaintiffs asked the court to set the guarantee aside on the grounds of unconscionability. Decision: A court has the power to set aside agreements in circumstances where: • a party to the transaction was under a special disability in dealing with the other party, with the consequence that there was an absence of any reasonable degree of equality between them; and • the disability was sufficiently evident to the stronger party to make it unfair to procure or accept the weaker party’s assent to the transaction. Such was held to be the situation in this case, and the agreement was held to be nonenforceable. The plaintiffs were under a ‘special disability’ because of their age and language difficulties, factors the bank was aware of when obtaining the signatures of the plaintiffs upon a guarantee that was unlimited in amount and duration.
52 L’Estrange v F Graucob Ltd [1934] All ER Rep 16; [1934] 2 KB 394. 53 (1912) 15 CLR 695; 19 ALR 15.
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The growth of contracts containing harsh or oppressive terms has largely coincided with the growth of standard-form contracts in the marketplace. In fact, most businesses, in some form or another, use printed standard form documents setting out the firm’s terms and conditions of contract. There are good reasons for the growth in the use of standard form contracts, although at the same time such contracts can be an instrument of abuse. The difference between a fair and an unreasonable standard form contract was clearly explained by Lord Diplock in A Schroeder Music Publishing Co Ltd v Macauley:54 Standard forms of contracts are of two kinds. The first, of very ancient origin, are those which set out the terms upon which mercantile transactions of common occurrence are to be carried out. Examples are bills of lading, charter parties, policies of insurance, contracts of sale in the commodity markets. The standard clauses in these contracts have been settled over the years by negotiation by representatives of the commercial interests involved and have been widely adopted because experience has shown that they facilitate the conduct of trade … If fairness or reasonableness were relevant to their enforceability the fact that they are widely used by parties whose bargaining power is fairly matched would raise a strong presumption that their terms are fair and reasonable.
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The same presumption, however, does not apply to the other kind of standard form contract. This is of comparatively modern origin. It is the result of the concentration of particular kinds of business in relatively few hands … The terms of this kind of standard form of contract have not been the subject of negotiation between the parties to it, or approved by any organisation representing the interest of the weaker party. They have been dictated by that party whose bargaining power, either exercised alone or in conjunction with others providing similar goods or services, enables him to say: ‘If you want these goods or services at all, these are the only terms on which they are obtainable. Take it or leave it’. To be in a position to adopt this attitude towards a party desirous of entering into a contract to obtain goods or services provides a classic instance of superior bargaining power.
In both this case and in Clifford Davis Management v WEA Records Ltd,55 a musician songwriter had entered into a publishing contract whereby copyright was assigned to the publisher for virtually no fee, and with no corresponding obligation on the publisher to publish, record, or promote the music involved. In both cases the contracts were long and wordy standard form agreements which were signed without benefit of independent legal advice. Potentially both were of 10 years’ duration. The House of Lords declared both agreements to be void on the grounds of unconscionability.
54 [1974] 3 All ER 616 at 624; [1974] 1 WLR 1308. 55 [1975] 1 WLR 61.
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A. Statutory intervention 11.23 The doctrine of unconscionability has now been significantly supplemented by the Australian Consumer Law. Section 20 prohibits unconscionable conduct within the meaning of the unwritten law from time to time. This means that the common law principles discussed above are recognised by the Australian Consumer Law. The benefit arising from this is the ability to access the more comprehensive remedies provided by the Australian Consumer Law. Furthermore, significant pecuniary penalties can now be imposed for a breach of the section. In addition to recognising the common law doctrine of unconscionability, ss 21 and 22 of the Australian Consumer Law are specifically designed to protect consumers and businesses (apart from listed companies) alike from unconscionable conduct. Section 21 prohibits unconscionable conduct by persons who are party to consumer-type transactions. The conduct in question must be undertaken ‘in connection with the supply or possible supply of goods or services to a person’, reinforcing the fact that the section is concerned with unconscionable conduct generally; that is, the section does not just encompass contractual matters, but also promotional activities and pre-contractual negotiations. The section only covers the conduct of persons who buy goods or services ‘of a kind ordinarily acquired for personal, domestic or household use or consumption’, and specifically excludes goods supplied ‘for the purpose of resupply or for the purpose of using them up, or transforming them in trade or commerce’: s 21(6). Section 22 of the Australian Consumer Law is aimed at protecting small business enterprises with relatively weaker bargaining power in relation to large commercial entities. The section applies to all business transactions involving the supply or acquisition of goods and services. The person supplied or acquiring the goods or services (the business consumer) must not be a listed company. Section 22(2) enumerates 12 matters that a court may have regard to when determining the existence of unconscionable conduct.
B. When is conduct unconscionable? 11.24 The term ‘unconscionable conduct’ is not defined by the Australian Consumer Law. It has been described by the courts as conduct involving ‘actions showing no regard for conscience, or that are irreconcilable with what is right or reasonable’.56 Without intending to detract from criteria resorted to by the courts in dealing with ‘unconscionable’ contracts, and in fact encompassing some of these criteria, the legislation specifies certain matters which ought to be taken into
56 Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 266; 145 ALR 294; (1996) ATPR 41-487. See also Hurley v McDonald’s Australia Ltd (2000) ATPR 41-741; [1999] FCA 1728.
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account in deciding whether conduct involved in ‘consumer’ and ‘small business consumer’ transactions is unconscionable, namely: • What was the relative strength of the bargaining powers of the parties? The relative economic position and size of the parties would be the most likely measure adopted in considering this question. • Were the conditions imposed reasonably necessary for the protection of the legitimate interests of the imposer? For instance, to insist on repossession of a motor vehicle as a remedy for default when only one or two payments remain to be made by a consumer might be unreasonable. Onerous or onesided contracts may be very complex and not be adequately explained; they may contain such terms as exclusion or limitation of liability clauses, standard clauses stating that a party has read and understood the terms of the agreement, or acknowledgments that goods have been fully inspected, when such is not the case. • Was the recipient able to understand any documents used? Because of the age, the physical capacity, the educational background and the literacy of a party, the party may not be able to understand the documents. The cultural background of the person may be important in this regard, as evidenced by existing case law.57 The importance of these factors may be heightened by the physical form of the documents; for example, the use of fine print and the complexity of the language used.58 Playing upon the obvious lack of understanding on the part of a person, or failing to suggest that the person seek advice elsewhere, may constitute unconscionable conduct in the circumstances. • Was any undue influence or pressure exerted on, or were any unfair tactics used against, a party? The term ‘undue influence’ has a clear judicial meaning,59 and usually arises where a person relies on the guidance or advice of another person, who may well benefit from the transaction and who is aware of that reliance. The type of pressure that may be exerted on a consumer ranges from a physical presence, such as a door-to-door salesperson refusing to leave the premises until a contract is signed, to economic pressure where a salesperson, for instance, offers an illusory financial inducement in order to obtain an immediate decision from a consumer. The reference to ‘unfair tactics’ is somewhat vague and very general, but would appear to include conduct such as taking advantage of a person’s inability to comprehend a ‘bargain’, whether that is due to mental incapacity, language difficulties, or similar disabilities. Failing to adequately explain the terms and nature of a contract to an obviously
57 Sharman v Kunert (1985) 1 NSWLR 225; (1985) ASC 55-425; Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145; Partyka v Wilkie (1982) ASC 55-213. 58 See Cook v Bank of New South Wales (1982) 2 BPR 9580. 59 See Cook v Bank of New South Wales (1982) 2 BPR 9580.
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•
• • • •
inexperienced person and not allowing the person to consider alternatives or obtain independent advice might be considered unfair. Was the amount paid for the goods or services higher or were the circumstances under which they could be acquired more onerous when compared to the terms offered by other suppliers? Was the conduct consistent with the conduct adopted in similar transactions with other like customers? Were the requirements of relevant industry codes adhered to? Was the other party willing to negotiate the terms and conditions of any contract entered into, and did they act in good faith? Was there an unreasonable failure to disclose relevant information?
ACCC v Lux Pty Ltd [2004] FCA 926
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Facts: Mr and Mrs S were disability pensioners. Mr S had run into a person wearing an Electrolux badge at a McDonald’s restaurant and engaged him in conversation. He indicated that he and his wife owned a 10-year-old Electrolux vacuum cleaner that had been ‘playing up’. Mr S ended up inviting the Electrolux salesman to his house for the purpose of giving the vacuum cleaner a service. When the salesman called, only Mrs S was at home. After inspection the salesman determined that the vacuum cleaner was beyond repair. During the testing procedure he had warned in a ‘raised voice’ that the vacuum cleaner could ‘blow up’, which had frightened Mrs S. He then demonstrated a new vacuum cleaner to Mrs S. Mrs S testified that during the demonstration the salesman had been blunt and had stood ‘right next’ to her while trying to convince her to buy the new vacuum cleaner. Despite its expense, Mrs S agreed to buy it. The salesman then completed the sales documentation (a credit sale contract with a direct debit facility). He filled in all the details for Mrs S, because her literacy level was very low, and then asked her to sign it, without explaining the terms of the contract. Mrs S gave evidence that she only signed it to rid herself of the presence of the salesman. On the basis of this transaction the ACCC brought proceedings against Lux, alleging that, through its salesman, it had engaged in unconscionable conduct in breach of what is now s 21 of the Australian Consumer Law (and undue harassment and coercion). Decision: The defendant had acted unconscionably. The decision was based on the inequality of the bargaining strengths of the parties involved in the transaction, evidenced by the following findings: • Mrs S was substantially illiterate and did not understand commercial matters in any depth, matters which were apparent to the salesman. • Mrs S had limited ability to assess the financial impact of purchasing the new vacuum cleaner. • The salesman did not act on his thought that Mrs S should obtain independent advice. • The salesman did not explain the terms of the contract to Mrs S. The meeting was ‘clearly unfair or unreasonable’ and the outcome was ‘irreconcilable with what is right or reasonable’. The salesman had ‘acted without regard to conscience and so acted unconscionably’. (The allegations of undue harassment and coercion were dismissed.60) 60 See 11.32.
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C. What are the consequences of engaging in unconscionable conduct?
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11.25 Where ‘unconscionability’ is argued, whether at common law or under statute, it has traditionally been raised as a defence by the party ‘taken advantage of’. If the latter party in fact initiates proceedings, an order to have the ‘unfair’ agreement set aside will usually be the remedy sought. However, additional remedies can be sought if relying upon statutory unconscionability. These include certain discretionary remedies, such as monetary compensation for loss or damage, injunctions, having a contract declared void, having a contract or arrangement varied, obtaining a refund of money or return of property, and having specified services performed. The right given to the courts to vary contracts where it appears that contractual terms are unreasonable is in distinct contrast to the philosophy underlying the development of the traditional laws of contract, where certainty and predictability were considered paramount. A civil pecuniary penalty may also be imposed by a court for a contravention of the unconscionable conduct provisions of the Australian Consumer Law, with maximum penalties for companies being the greater of: • $10 million; • three times the value of the benefit obtained from the offence, if that benefit can be determined; or • 10% of the annual turnover, if the value of the benefit cannot be determined in that instance. The maximum civil pecuniary penalty for individuals is $500,000. Disqualification orders, redress for non-parties, and public warning notices are other possible consequences. As an alternative to a court-ordered pecuniary penalty, the ACCC has the power to impose fines by issuing an infringement notice against those engaging in unconscionable conduct. The unconscionable conduct provisions of the Australian Consumer Law provide that: • the statutory prohibition against unconscionable conduct is not to be limited by the equitable or common law doctrines of unconscionable conduct; • in considering whether conduct to which a contract relates is unconscionable, a court should not limit its consideration to the formation of the contract alone, but could also consider the terms of the contract and the manner in which the contract is carried out; and • the statutory prohibition against unconscionable conduct could apply to a system or pattern of conduct or behaviour over time, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour.
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There is no distinction in the Australian Consumer Law between business and consumer transactions with respect to unconscionable conduct. The factors to which a court might have regard when considering whether conduct is unconscionable would be the same for both business and consumer transactions (adopting the longer list of factors which presently apply to business transactions). The rationale for the merging of these two provisions was to eliminate the risk that the courts could ascribe different meanings to concepts contained in both sections.
Unfair contract terms in consumer contracts
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11.26 The Australian Consumer Law regulates unfair terms in standard form consumer contracts between businesses and consumers. On occasion, consumers may unthinkingly sign contracts presented to them, even when no overt pressure or force is involved, only to suffer the consequences down the track when certain terms in the contract come into operation. The standard form contract has the capacity to be an instrument of economic oppression, because it can be weighted in favour of the party who prepares it. Invariably such contracts provide little or no scope for negotiation on important matters. The Australian Consumer Law provides consumers with some protection in these situations. Section 23(1) provides that a term in a consumer contract is void if: • the term is unfair; and • the contract is a standard form contract. The unfair contract provisions in the Australian Consumer Law are based on unfair contract provisions that existed in the Victorian Fair Trading Act 1999. At the time of writing there have not been any decisions involving the provisions of the Australian Consumer Law. A number of decisions based on the Victorian provisions provide guidance to how courts would likely apply the provisions of the Australian Consumer Law.
A. What is a consumer contract? 11.27 A ‘consumer contract’ is a contract for: • the supply of goods or services; or • a sale or grant of an interest in land, to an individual ‘wholly or predominantly for personal, domestic or household use’. This includes contracts with consumers for utility services, banking and financial services, residential tenancies, and telecommunications services. Standard form contracts used in business-to-business dealings (including franchise agreements and business loans) fall outside the scope of s 23 of the Australian Consumer Law.
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B. What is a standard form contract?
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11.28 The Australian Consumer Law does not specifically define what constitutes a ‘standard form contract’. The ACCC has produced Unfair contract terms: A guide for businesses and legal practitioners,61 which suggests that ‘take-it-or-leave-it’ contracts, prepared by one party, which cannot be negotiated, are generally considered standard form. Common examples of standard form contracts include: • bank loan agreements and credit card contracts; • software licences; • mobile phone and telecommunications contracts; • domestic building contracts; • online sales agreements; • fitness centre membership agreements; • pay-TV subscriptions; and • motor vehicle purchase and service agreements. If a consumer alleges that a contract is a standard form contract, there is a presumption that the contract is standard form, which must be rebutted by the supplier: Australian Consumer Law s 27(1). In terms of s 27(2), in determining whether a contract is standard form, a court must take into consideration whether: • one of the parties has all or most of the bargaining power; • the contract was prepared by one party before any discussion relating to the transaction occurred; • a party was required to accept or reject the contract terms in the form they were presented; • a party was given an effective opportunity to negotiate the terms of the contract; and • the terms of the contract take into account the specific characteristics of a party or transaction.
C. When are terms of a contract unfair? 11.29 In terms of s 24(1) of the Australian Consumer Law, a term will be ‘unfair’ if: • the term would cause significant imbalance in the parties’ rights and obligations arising under the contract; • it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and • the term would cause financial or non-financial detriment to a party if that term were applied or relied on.
61 Unfair contract terms: A guide for businesses and legal practitioners, April 2016, available at : this guide has been developed jointly by the ACCC, the Australian Securities and Investments Commission and the state and territory consumer protection agencies. See also A guide to the unfair contract terms law, June 2010, also available at .
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Jetstar Airways Pty Ltd v Free [2008] VSC 539 Facts: Mrs Free booked and paid for two return air tickets (for herself and her sister) from Melbourne to Honolulu with Jetstar on its website. Prior to making the bookings, Mrs Free had viewed Jetstar’s ‘Fare Rules’ on its website. Mrs Free had selected a special ‘Jetsaver’ fare offered by Jetstar — a fare of $437.39 per person return, including all taxes and charges. As she had booked online, the ‘Jet Saver Fare Rules’ and ‘Fare Types’ documents on the webpage became terms of her contract, including that changing a name on a ticket would require her to pay the difference between her original fare and the fare for the same flight on the day that the change was made, plus a ‘change fee’ of $75.00 per change per ‘passenger flight segment’. Mrs Free’s sister was unable to travel, so she wished to take her 11-year-old niece. The additional fees Jetstar charged to change the name on the ticket amounted to almost $800. Mrs Free sought a refund of the change fee on the basis that it arose from an unfair contract term. Decision: In addition to affirming the need to consider the contract as a whole, the court considered the meaning of the phrase ‘significant imbalance’ of the parties’ rights, holding that ‘the context in which the word “significant” is used shows that it means, principally at least, “significant in magnitude”, or “sufficiently large to be important”, being a meaning not too distant from “substantial”’. Considering the overall contract, including the very low fare, Mrs Free’s option to purchase a higher fare with more flexibility along with the fees, Mrs Free was ultimately unsuccessful.
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Section 24(4) of the Australian Consumer Law reverses the onus of proof by deeming contract terms advantageous to the supplier are not reasonably necessary to protect the legitimate interests of the supplier, unless proved otherwise. Matters that must be taken into account by a court in considering whether a term is unfair are: • the extent of transparency in the term; that is, whether the term is expressed clearly and in plain language; and • the contract as a whole. Section 25 of the Australian Consumer Law contains examples of unfair terms, such as terms which permit the supplier to unilaterally: • avoid or limit performance of the contract; • terminate the contract; • vary the terms of the contract; • penalise the other party for a breach; • vary the up-front price payable under the contract without the consumer being able to terminate it; • assign the contract; • renew or not renew the contract; and • vary the characteristics of the goods or services supplied under the contract.
D. What are the consequences of including unfair terms in a consumer contract? 11.30 Where a term in a consumer contract is found to be unfair it will be void and the consumer will not be bound by that term, although the contract will continue 523
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if it is capable of operating without the unfair term. Consumers may pursue their own remedies, or the ACCC may seek a declaration from a court that a term of a consumer contract is unfair for the benefit of consumers as a whole. A business that is found to have included an unfair term in a consumer contract may also be liable for pecuniary penalties for breach of the Australian Consumer Law. Those penalties are up to $27,500 for companies and $5500 for individuals.
Unfair contract terms in business to business contracts 11.31 The unfair contract terms provisions were extended62 to cover ‘standard form’, ‘small business contracts’ entered into, renewed or varied on or after 12 November 2016 (the B2B UCT regime) where: • a contract is for a supply of goods or services, or a sale or grant of an interest in land; • at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons; and • either of the following applies: – the upfront price payable under the contract does not exceed $300,000; or – the contract has a term of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000. ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224
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11.31C
Facts: JJ Richards is one of the largest privately-owned waste management companies in Australia and provides recycling, sanitary and green waste collection services. JJ Richards’ standard form contract included terms that had the effect of: • binding customers to subsequent contracts unless they cancel the contract within 30 days before the end of the term; • allowing JJ Richards to unilaterally increase its prices; • removing any liability for JJ Richards where its performance is ‘prevented or hindered in any way’; • allowing JJ Richards to charge customers for services not rendered even when caused by reasons beyond the customer’s control; • granting JJ Richards exclusive rights to remove waste from a customer’s premises; • allowing JJ Richards to suspend its service but continue to charge the customer if payment is not made after seven days; • creating an unlimited indemnity in favour of JJ Richards; and • preventing customers from terminating their contracts if they have payments outstanding and entitling JJ Richards to continue charging customers equipment rental after the termination of the contract. Decision: The court found that each of the terms was unfair, and that ‘the Impugned Terms tend to exacerbate each other, increasing the overall imbalance between the parties and the risk of detriment to JJR Customers.’
62 See the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015.
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Chapter 11: Selling Techniques JJ Richards consented to orders restraining it from enforcing the terms in existing contracts and precluding it from using the terms in future small business contracts. JJ Richards also consented to publishing a corrective notice and providing a copy of the court’s orders to all its small business customers with which it had an affected contract.
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Harassment and coercion 11.32 The Australian Consumer Law prohibits the use of ‘physical force or undue harassment or coercion’ in connection with the ‘supply or possible supply of goods or services to a consumer or the payment for goods or services by a consumer’: s 50 (civil offence) and s 168 (criminal offence).63 These sections are designed to outlaw some forms of high-pressure sales tactics (as well as the use of unfair pressure in attempts at debt collection). One situation where the section clearly has potential to apply is when door-to-door salespersons call on householders. Once a salesperson gains entry to a home it is not an unknown occurrence for the salesperson, having failed to gain the householder’s confidence, to become abusive when faced with a reluctance from the consumer to enter into a proposed transaction. The salesperson may even point-blank refuse to leave until some ‘agreement’ has been entered into. Over-thetop tactics such as these may amount to an offence. In ACCC v Lux Pty Ltd,64 it was alleged that such conduct had been engaged in by a vacuum cleaner salesperson who had ‘frightened’ a consumer by raising his voice and standing too close to the customer during a home sales call, and refusing to leave until a sale had been made. In dealing with the accusations, Nicholson J described ‘harassment’ as encompassing a range of conduct that involved applying repeated unwelcome approaches or pressure to a consumer who is under no pre-existing obligation to acquire goods or services.65 The word ‘undue’ adds an extra layer, and suggests that what is done must go beyond the normal limits that society would regard as acceptable or reasonable, and not be excessive or disproportionate.66 On the facts of the case, Nicholson J found that there had been no ‘undue harassment’, because the salesman had not engaged in actions calculated to intimidate, demoralise, tire out, or exhaust the consumer. Rather, his action in standing in close proximity to the consumer was of short duration, and the raising of his voice was only during a demonstration and was short lived. Any repetition was minimal, so the element of ‘undue’ was not met.
63 The sections also apply to transactions involving an interest in land. 64 [2004] FCA 926, see 11.24C. 65 Referring to ACCC v McCaskey (2000) 104 FCR 8; 183 ALR 159; [2000] FCA 1037. 66 See ACCC v Maritime Union of Australia (2001) 114 FCR 472; 187 ALR 487; [2001] FCA 1549.
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In dealing with the concept of ‘coercion’, Nicholson J described it as higher level conduct involving threats of force or compulsion, involving conduct such as bullying, bluff, misrepresentation, and standover tactics. There is no requirement of repetition, as there is with ‘harassment’. It was found that the salesman had engaged in no such actions. The judge concluded that it was only the customer’s perception that the salesman would not leave until she had purchased a new vacuum cleaner. The Australian Consumer Law also recognises that people can be ‘harassed’ by salespersons by making it an offence not to terminate an unsolicited sales call when requested to do so and requiring the person not to call again for at least 30 days: s 75. A contravention of s 50 (the civil offence) can result in remedies being granted that include injunctions, damages, and compensatory orders. There are also civil pecuniary penalties that can be imposed, with a maximum civil pecuniary penalty for corporations being of the greater of: • $10 million; • three times the value of the benefit obtained from the offence, if that benefit can be determined; or • 10% of the annual turnover, if the value of the benefit cannot be determined in that instance. The maximum civil pecuniary penalty for individuals is $500,000. The same level of fines can be imposed if a criminal offence is committed in breach of s 168.
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Referral selling 11.33 The practice of ‘referral selling’ is made illegal under the Australian Consumer Law by virtue of s 49 of the Australian Consumer Law (civil offence) and s 167 (criminal offence). ‘Referral selling’ occurs where a trader, usually represented by a salesperson, induces a ‘consumer’ to acquire goods or services by representing that ‘a rebate, commission or other benefit’ will be received in return for: • the provision of the names of prospective customers; or • assisting the firm in the supply of goods or services to other consumers, where ‘the receipt of the rebate, commission or other benefit is contingent on an event occurring after that contract is made’. For example, a customer is faced by a salesperson at the front door of his or her home, who announces ‘your home has been specially selected to be used for display purposes’. The same thing has probably been said to all householders in the area. The purchase of the seller’s product, such as a swimming pool or home cladding, is naturally necessary to set up the ‘display’ at the customer’s home. The customer is persuaded to sign a contract to buy the product, convinced that he 526
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or she will recover much or all of the money paid for the product by obtaining a commission for introducing other customers who buy the same product. The ban on referral selling is absolute in the sense that no element of misrepresentation or other unfair dealing needs to be shown. ACCC v Giraffe World Australia Pty Ltd (1999) 166 ALR 74; (1999) ATPR 41-718; [1999] FCA 1161 Facts: Giraffe World Australia marketed a mat that was placed on a mattress and was claimed to emit negative ions that were said to offer health benefits to those who slept on it. The product was promoted through presentations at ‘Happiness Circle’ meetings, where people were introduced to the product and to the ‘Giraffe Club’ and ‘Grow Rich System’ schemes, where consumers who purchased the mat (upon paying an additional ‘Giraffe Club’ membership fee) could receive commissions in return for assisting the supplier to sell the mats to others and recruiting others into the scheme. A ‘Giraffe Club’ member’s progress through the levels of the scheme depended on the number of members they successfully introduced below them. Decision: Giraffe World Australia was found to have made misrepresentations as to the health benefits of the mats (under what are now ss 18 and 29 of the Australian Consumer Law). In addition, it was held that the schemes used to promote the mats amounted to both pyramid selling and referral selling and were breaches of what are now ss 44 and 49 respectively.
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(Giraffe World subsequently brought an unsuccessful action for defamation and a range of other grounds against the ACCC.)
The main reason for the absolute ban on ‘referral selling’ is that invariably consumers will pay the full price and never receive the promised benefit, but more particularly because the practice is inherently deceptive. This is because the geometric progression of the plan will quickly exhaust the supply of potential referrals.67 It is important to note that ‘referral selling’ only involves representations that the customer will get the rebate or commission after the contract of sale is entered into. The section does not prohibit the unconditional payment of commissions, such as ‘spotters fees’, paid to persons for giving a trader the names of prospective customers. A contravention of s 49 of the Australian Consumer Law (the civil offence) can result in remedies being granted that include injunctions, damages, and compensatory orders. There are also civil pecuniary penalties that can be imposed, with a maximum civil pecuniary penalty for corporations being the greater of: • $10 million; • three times the value of the benefit obtained from the offence, if that benefit can be determined; or • 10% of the annual turnover, if the value of the benefit cannot be determined in that instance.
67 S Barnes and M Blakeney, Advertising Regulation, Law Book Co, Sydney, 1983, p 304.
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The maximum civil pecuniary penalty for individuals is $500,000. The same level of fines can be imposed if a criminal offence is committed in breach of s 167 of the Australian Consumer Law.
Pyramid selling 11.34 Another prohibited practice related to referral selling is the technique of ‘pyramid selling’, which is a practice requiring the recruitment of fee-paying members into the scheme if one is to profit from participating in it. Pyramid selling is:68 … an arrangement whereby one is induced to buy upon the representation that he [or she] can not only regain his [or her] purchase price, but also earn profit by selling the same program to the public. It thus involves the purchase of the right to sell the same right to sell. A pyramid type practice is similar to a chain letter operation. Such a program is inherently deceptive for the seemingly endless chain must come to a halt insomuch as growth cannot be perpetual and the market becomes saturated by the number of participants. Thus, many participants are mathematically barred from ever recouping their original investments, let alone making profits.
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Complex laws designed to prohibit such schemes exist in the Australian Consumer Law by virtue of ss 44–46 of the Australian Consumer Law (civil offence) and s 164 (criminal offence). Under the Australian Consumer Law, the two fundamental characteristics of such schemes are: 1. the payment for the right to become a participant; and 2. the receipt of some payment for recruiting new participants. For an example of a pyramid scheme, see ACCC v Giraffe World Australia Pty Ltd.69 It is important not to confuse the pyramid selling provisions in s 46 of the Australian Consumer Law with acceptable multilevel distribution marketing schemes. These schemes reward participants for the sale of genuine products by them or the people they have brought into the scheme. Rewards are based on product sales, not on recruiting others and collecting fees from them.
Inertia selling 11.35 Another sales technique is the practice known as ‘inertia selling’; that is, sending goods to persons who have not ordered them (or sending more than have been ordered) in the hope that the buyer will either be deceived or, once the goods have been seen, be induced to buy them. Sellers engaging in such a practice rely upon the fact that consumers are often unaware of their legal rights and that they 68 Kugler v Koscot Interplanetary 293 A 2d 682 (1972) at 690–1 per Mehler J; cited by Barnes and Blakeney, above n 67, at p 303. 69 (1999) 166 ALR 74; (1999) ATPR 41-718; [1999] FCA 1161, see 11.33C.
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Chapter 11: Selling Techniques
can refuse to pay for the unordered goods. Commonly, unordered goods are sent with an indication that, unless returned within a specified number of days, the consumer will be taken to have agreed to buy them. Having failed to return the goods within the specified time some customers might be confused into thinking they are legally obliged to keep and pay for them. Even if not so confused, the inconvenience caused by having to deal with the matter is reason in itself to outlaw such a practice. Thus, although the general law of contract is in reality sufficient to protect recipients of unsolicited goods, because many consumers would be unaware of their legal rights the Australian Consumer Law has altered the general law position. The Australian Consumer Law prohibits the assertion of a right to payment for unsolicited goods, that is, goods sent to a person without any request being made for them: s 40 (civil offence) and s 162 (criminal offence). In such circumstances the legislation confirms that the recipient is not liable to pay for the goods: s 41; and then goes a step further by providing that the recipient will become the owner by passage of time: s 41(2)(b). If the recipient gives written notice to the sender indicating that the goods are unsolicited, then, if they are not collected within one month, the recipient becomes the owner. If no such notice is given, the recipient still becomes the owner should the goods not be collected within three months of receipt: s 40(4). The provisions do not apply if the recipient unreasonably refuses to permit the sender or owner of the goods to take possession of the goods during the relevant time or if the goods were received in circumstances in which the recipient knew or might reasonably be expected to have known that the goods were not intended for him or her. Finally, a recipient is not liable for loss or damage to unsolicited goods unless the loss or damage results from a ‘wilful or unlawful act’ in relation to the goods. If a supplier is unable or unwilling to supply goods which have been ordered and instead supplies a similar but not identical product, it is debatable whether the conduct is subject to these provisions in the sense of being ‘unsolicited’ goods. The prohibited practice of accepting payment without intending to supply the goods or services ordered may have application, although again if the supplier does in fact supply goods or services which are not ‘materially different’ from those ordered, the prohibition does not apply: s 36 (civil offence) and s 158 (criminal offence). Sections 40(2) and 162 also prohibit a person from asserting the right to payment for unsolicited services, and s 42 provides that a person is not liable to pay for unsolicited services supplied to them. Other practices which are akin to ‘inertia selling’ and are regulated by the Australian Consumer Law are the provision of unsolicited credit cards: s 39 (civil offence) and s 161 (criminal offence); and pseudo invoices for directory entries and unauthorised advertisements: s 43 (civil offence) and s 163 (criminal offence). All of these offences attract the standard penalties and fines under the Australian Consumer Law. 529
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ACCC action against Readers Digest (2003)70 11.35C
Following consumer complaints and an investigation, the ACCC obtained enforceable undertakings from Reader’s Digest Australia in 2003. Facts: Reader’s Digest (Australia) Pty Ltd, is one of Australia’s largest direct marketing companies and publishes a monthly magazine. The ACCC alleged, following complaints and a subsequent investigation, that Reader’s Digest had demanded payments from consumers for unsolicited mail-order products that Reader’s Digest sent to consumers. Outcome: Reader’s Digest accepted that, due to failure in its processes, it had contravened what is now s 40 of the Australian Consumer Law, in that it sent some customers goods that they had not ordered and then demanded payment for the unsolicited goods when it did not have reasonable cause to believe that it was entitled to payment. Reader’s Digest provided court-enforceable undertakings that it would: • appoint an independent auditor to review its internal operations; • implement the recommendations of that auditor; • write to all those on its mailing list acknowledging its failed processes and informing them of new compliance measures; • produce a direct marketing trade practices training video, to be seen by Reader’s Digest staff and made available to all Australian Direct Marketing Association members; • place disclosure notices on its website; • implement a trade practices compliance program; • place corrective advertisements in its magazine and capital city newspapers; and • give refunds to two customers.
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Lay-by selling 11.36 Another sales technique commonly used by sellers in the marketplace as a means of encouraging consumers to purchase goods which they may not otherwise have been in a position to buy, is the use of the lay-by. A lay-by is a contract between the seller and a customer, where the seller agrees to hold the goods until the purchaser has paid the total selling price in instalments within a fixed time period. The advantage of the lay-by for the customer is that they can delay having to pay the full purchase price and, most importantly, they do not have to pay interest on the purchase. The disadvantage, from the customer’s viewpoint, arises when the customer defaults on a lay-by or cancels the agreement. Depending on the contract entered into, this usually means the loss of any deposit paid, and often the instalment payments made, even if the default comes about as a result of some event beyond the customer’s control, for example, retrenchment and consequent loss of income.
70 See ‘Reader’s Digest admits misleading conduct, demanding payment for unsolicited goods’, December 2003, at .
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Rather than leaving this field to be governed by the laws of contract, the Australian Consumer Law regulates some aspects of lay-by agreements, primarily to protect the interests of consumers. A lay-by agreement is defined in the Australian Consumer Law as an agreement between a supplier and a consumer for the supply of consumer goods after payment by way of three or more instalments (or two or more if the agreement is specified as a lay-by agreement): Australian Consumer Law s 96(3). The Australian Consumer Law sets out some fundamental rules that apply to lay-by sales transactions: • A lay-by agreement must be in writing, a copy of which must be given to the consumer: s 96(1). • The consumer has the right to terminate the agreement at any time, subject to payment of a termination charge: s 97. • In the event of cancellation by the consumer, the consumer may be required to pay a cancellation charge reflecting the reasonable costs incurred by the supplier: s 97(3). • A supplier may cancel a lay-by agreement only if the consumer has breached a term of the agreement, the supplier is ceasing to engage in trade or commerce, or the goods are no longer available: s 98. • In the event of cancellation by either party, the consumer is entitled to a full refund of amounts paid. However, where a consumer cancels the agreement, the supplier is entitled to recover a reasonable termination charge: s 99. This amount may be withheld from any money repaid to, or recovered from, the consumer where necessary. No other remedies can be sought by the supplier. Contravention of the criminal provisions of the Australian Consumer Law relating to lay-by agreements is subject to fines of up to $30,000 for a corporation and $6000 for a person: ss 188–191. Contravention of the civil provisions can attract injunctions, damages, compensatory orders, and adverse publicity orders. There are also civil pecuniary penalties that can be imposed, the same in amount as the criminal fines.
Direct Selling Techniques 11.37 The term ‘direct selling’ normally refers to the situation where goods or services are not being sold from an outlet such as a retail store. Direct selling encompasses a number of sales techniques, ranging from the more traditional door-to-door selling, to the marketing growth areas of selling by telephone (telemarketing), sales over the internet, television marketing, and the use of mailorder catalogues. The Australian Consumer Law contains a single national law covering unsolicited sales practices, including door-to-door selling, telephone sales, and other forms of direct selling which do not take place in a retail context. 531
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In addition to these specific laws, of course any person engaged in direct selling must comply with the provisions of the Australian Consumer Law that prohibit misleading or deceptive conduct and various forms of misrepresentation. Other specific controls tend to be placed over some of these direct selling techniques by the various industry-based codes of practice which have been adopted on a voluntary basis by the industry in question: see 11.45–11.47.
Unsolicited selling
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11.38 The activities of salespersons who approach consumers uninvited require legal scrutiny for a number of reasons: • Customer goodwill is not always a high priority among door-to-door and telemarketing salespersons, with emphasis often being placed upon a quick one-off sale. • There is a general lack of ready comparisons in relation to the price or quality of the goods or services being offered for sale. • Customers negotiating with salespersons in their home or workplace may not be sufficiently on guard or critical of the offer being made to them. • Objectionable high-pressure sales techniques may be engaged in by salespersons. • Misrepresentations made by salespersons in private may be difficult for the customer to prove, and there may be problems in tracking down such persons. As a consequence, the Australian Consumer Law contains provisions that comprehensively regulate ‘unsolicited selling agreements’: see Ch 3 Pt 3-2 Div 2 (civil offences) and Ch 4 Pt 4-2 Div 2 (criminal offences) of the Australian Consumer Law. The Australian Consumer Law regulates ‘unsolicited consumer agreements’, which agreements have the following four elements: 1. The agreement must be for the supply, in trade or commerce, of goods and services to a consumer. 2. The agreement must have resulted from negotiations between a dealer (the negotiator) and the consumer, either in person (at a place other than the supplier’s place of business) or by telephone. 3. The consumer must not have invited the dealer to approach or telephone them for the purpose of entering into negotiations to supply goods or services. (An invitation to quote for a price for a good or service is not taken to be an invitation to enter into such negotiations: s 69(2).) 4. The total price paid or to be paid under the agreement is over $100 or cannot be determined at the time the agreement is made. If a consumer alleges that an agreement was unsolicited, it is presumed to be so unless proved otherwise: Australian Consumer Law s 70. 532
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Impala Kitchens Pty Ltd v Hager (1992) ASC 56-134 Facts: Impala, the defendant, conducted a business of supplying and installing kitchens. A couple visited Impala’s showroom. An employee of Impala asked them if they would like someone to visit their home to give a quote on a new kitchen, which the couple agreed to. As a result of the visit, the customers signed an agreement to have a kitchen installed. Impala argued that the agreement was unregulated, as it was not an ‘unsolicited agreement’, given that Impala had been requested to visit the purchaser’s premises. Decision: The customers had merely requested a quote. Even though the customers voluntarily visited Impala’s showroom, it was Impala’s employee who asked the customers whether they would like someone to visit their home to give a quote. The agreement was therefore subject to legislation equivalent to the ‘unsolicited consumer agreement’ provisions in the Australian Consumer Law.
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A. Obligations imposed on dealers and suppliers negotiating an unsolicited consumer agreement 11.39 The Australian Consumer Law imposes a number of obligations upon dealers and/or suppliers. A dealer (who may or may not be the supplier) is the person who calls on or telephones a consumer for the purpose of negotiating an agreement to supply goods or services. A number of obligations are imposed upon dealers attempting to negotiate an unsolicited consumer agreement, notably: • A dealer (salesperson) can only call on (as opposed to telephone) a consumer during specified hours (Monday to Friday between 9 am and 6 pm; Saturday between 9 am and 5 pm; and not at all on a Sunday or public holiday): s 73. These are default times, which may be varied by individual states and territories by regulation. Section 73 applies to door-to-door salespersons. The regulation of telemarketing is discussed at 19.16–19.25. • A dealer who calls on a consumer must, prior to commencing negotiations, clearly explain their purpose for calling, and provide information about their identity: s 74. • A dealer who calls at any premises must leave immediately if so requested by the occupier or prospective consumer. If such a request is made, the prospective consumer must not be contacted for a similar purpose for at least 30 days: s 75. By virtue of s 125A(1) of the Telecommunications Act 1997 (Cth), the Australian Communications and Media Authority (ACMA) must determine a standard that applies to participants in the telemarketing industry. As a consequence, the Telemarketing (Do Not Call Register) (Telemarketing and Research Calls) Industry Standard was introduced in 2007. The standard, among other things, establishes a minimum set of requirements for making telemarketing calls offering, advertising, or promoting the supply of goods or services. The requirements are very similar 533
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to those imposed by the Australian Consumer Law, as outlined above. The Do Not Call Register is discussed in more detail in Chapter 19. • The calling hours/days for making telemarketing calls are restricted to 9 am to 8 pm on weekdays, and 9 am to 5 pm on Saturdays, and calls are prohibited on Sundays and national public holidays. • Contact information and the purpose of the call must be provided by the person making a telemarketing call, as well as revealing, on request, the source from which the caller obtained the telephone number. • A telemarketing caller must terminate the call where the call recipient asks for the call to be terminated or otherwise indicates that he or she does not want the call to continue. • A telemarketing caller must ensure that calling line identification is enabled at the time that the caller makes or attempts to make a call. The importance of these requirements has been lessened to an extent by the introduction of the Do Not Call Register Act 2006 (Cth), which allows any member of the public to avoid telemarketing calls altogether, simply by registering their telephone number on the Do Not Call Register. Unsolicited telemarketing calls may not be made to such numbers: Do Not Call Register Act s 11(1). A breach attracts a maximum civil penalty of $11,000 for corporate first offenders ($2200 for persons) up to $220,000 for corporate repeat offenders ($44,000 for persons). Prior to making any agreement, whether in person or on the telephone, the Australian Consumer Law requires that a dealer must provide the consumer with information as to the consumer’s right to terminate the agreement and the way in which the right can be exercised: Australian Consumer Law s 76.
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B. Obligations after a consumer enters into an unsolicited consumer agreement 11.40 The Australian Consumer Law sets out the obligations that must be adhered to after entering into an ‘unsolicited consumer agreement’. These obligations are imposed on door-to-door sales agreements and telemarketing agreements. • A dealer must give to the consumer: – if the agreement was made in person, a copy of the agreement after it has been signed by the consumer; or – if the agreement was made by telephone, a document evidencing the agreement within five days after the agreement was made (or a longer period agreed to by the parties). This document can be given personally, by post or, with the consumer’s consent, by email: s 78. • An unsolicited consumer agreement must contain some specified formalities, including all the terms of the agreement, such as the consideration and any additional charges imposed, a conspicuous and clear explanation of the right to terminate, and the contact details of the supplier: s 79. 534
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C. Consequences of non-compliance with the Australian Consumer Law unsolicited selling provisions 11.41 Non-complying contracts can generally be avoided at the option of the consumer. Section 82 of the Australian Consumer Law provides that the normal cooling-off period can be extended to upwards of six months in specified circumstances.
D. How can the right to terminate be exercised?
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11.42 Section 82 of the Australian Consumer Law provides a ‘cooling-off’ period to consumers within which they may change their mind and rescind an ‘unsolicited consumer agreement’. The cooling-off period is for 10 days commencing on the first business day following the day the contract is signed, or in the case of an agreement made on the telephone, 10 days commencing on the first business day following receipt of the agreement document: s 82(3). A consumer can terminate an agreement by giving oral or written notice to the supplier, which, if written, can be delivered in person or by post, fax, or email. Where a notice of termination of an agreement is given, the agreement is deemed to have been rescinded by mutual consent: Australian Consumer Law s 83(1). On termination of the agreement, the supplier is required to repay to the consumer all sums which have been paid under the agreement: Australian Consumer Law s 84. The consumer must return any goods received pursuant to the agreement or, alternatively, notify the supplier of the place where the supplier may collect the goods (which become the property of the consumer if the supplier does not collect the goods within 30 days of termination). The consumer must pay compensation to the supplier for any damage to the goods arising from the consumer’s failure to take reasonable care of the goods: Australian Consumer Law s 85.
E. Can the unsolicited selling provisions of Australian Consumer Law be excluded or modified? 11.43 There is a prohibition on the use of exemption clauses that purport to exclude, restrict, or modify a consumer’s rights under the Australian Consumer Law. Such provisions are rendered void: s 89.
F. What are the consequences if a supplier breaches the obligations imposed by the Australian Consumer Law? 11.44 Corporations and individuals involved in criminal contraventions of the express supplier obligations under the unsolicited consumer agreements provisions of the Australian Consumer Law are subject to criminal fines. Contraventions of the unsolicited consumer agreements (civil) provisions of the Australian Consumer Law can attract injunctions, damages, compensatory orders, non-punitive orders, 535
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and adverse publicity orders. The provisions are also subject to civil pecuniary penalties (in the same amount as the criminal penalties). ACCC v Energy Australia Pty Ltd [2014] FCA 336 11.44C
Facts: Energy Australia, one of the largest energy retailers in Australia, engaged a number of contractors (some of whom also engaged sub-contractors) to conduct door-to-door sales activity for the supply of electricity by Energy Australia. Based on agreed statement of facts, during the course of some of this door-to-door sales activity, some representatives failed to advise the consumers: • the purpose for the approach (and various statements were made); • that the representative was obliged to leave the premises upon request; and • of the details of the contractor and Energy Australia. A number of statements were made, including: • ‘I’m here to check your gas.’ • ‘I am here as a representative of the electricity wholesaler of the area.’ • ‘I can switch you to the correct Victorian rate.’ • ‘We want to check your bill to make sure you are on the correct rate.’ • ‘I’m here because there is a government initiative to make sure energy companies are charging the correct service rates.’ In one instance, the representative was asked if their purpose was to persuade the consumer to switch suppliers and this question was not answered. In another instance the consumer had a sign that read ‘do not knock — sales people please note unsolicited door knocking here is unlawful’, which was ignored, with the representative subsequently claiming to the consumer that they were not selling anything.
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Decision: Energy Australia (and their contractors) had contravened s 18 and a number of elements of s 29 of the Australian Consumer Law by virtue of misrepresentations made by representatives. Section 74, requiring representatives to disclose their identity and purpose, had also been contravened, as had s 75, requiring representatives to cease their negotiations when requested. Energy Australia was fined $1.2 million, required to undertake a compliance programme, and to place advertising in major newspapers and on their website highlighting the decision. A number of the contractors involved also received similar penalties. (Energy Australia ceased door-to-door sales as a marketing method, as did a number of other large energy retailers.)
Self-regulatory codes of practice 11.45 At the time of writing, the ACCC regulates various mandatory industry codes prescribed under the Competition and Consumer Act, these are:71 1. the Electricity Retail Code; 2. the Franchising Code; 3. the Horticulture Code; 4. the Food and Grocery Code; 71 See further ‘Industry codes’ at .
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5. the Oil Code; 6. the Wheat Port Code; and 7. the Unit Pricing Code. In addition to these mandatory industry codes, the ACCC may work with industries that may wish to establish non-prescribed voluntary industry codes of conduct that set out specific standards of conduct for a particular industry. Such standards could include matters such as how to deal with its members and customers. These codes only apply to those members of an industry who sign up to them, often by virtue of joining an industry body or association. The Competition and Consumer Act was amended in late 2014 to enable the introduction of civil penalty provisions under the Franchising Code. A breach of a civil penalty provision will expose a franchisor or franchisee to an infringement notice issued by the ACCC (where it has reasonable grounds to believe there has been a contravention of a civil penalty provision of an industry code) or a pecuniary penalty imposed by the court. For a more specific discussion of franchising regulation, see Chapter 18. The Unit Pricing Code is outlined in Chapter 8. Self-regulation occurs where an industry sets certain standards for itself. Selfregulation has its pros and cons. On the positive side self-regulation can save costs by setting up a more efficient enforcement mechanism than can be achieved by government authorities and the court system. The costs are borne directly by the industry and not by taxpayers. Because the regulations are created and enforced by the industry itself, there is often a greater awareness of and commitment to those regulations than there is with a system imposed from outside. However, on the negative side, self-regulation often suffers from lower public visibility and credibility. Market forces may not ensure widespread compliance with a voluntary code that delivers enhanced consumer protection. The knowledge that competitors can opt out of a code may ensure that most firms will only ever subscribe to a code that imposes minimum standards. Even where a code is the result of a full consultative process, it is likely to be a compromise. The ultimate sanction for code breaches will generally be expulsion from the association administering the code. Many industries may have low participation in industry bodies by those in the industry. Expulsion will of course remove the offending firm completely from the code’s restraints. Finally, the mere fact than an industry has a code does not necessarily indicate a strong conviction to consumer protection. The existence of the code may more accurately represent an attempt to stave off unwanted legislation. The development of effective industry codes will usually involve some input from government authorities72 and, as such, is sometimes described as 72 The ACCC chaired the working party of the Ministerial Council on Consumer Affairs (MCCA) that resulted in the release of a Direct Marketing Model Code of Practice. See ADMA, Direct Marketing Code of Practice, September 2005, available at .
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co-regulation. Most importantly, the ACCC has issued guidelines for developing effective industry codes of conduct.73 The guidelines suggest that an effective code should contain: • provisions designed to protect consumers or users; • a system to raise awareness for consumers and industry members; • a complaints handling system; • an independent board of appeal and review; • a transparent process; • a monitoring system to ensure compliance; • an effective range of sanctions for non-compliance; • a regular review procedure; and • performance indicators. The ACCC has a scheme for endorsing codes of conduct. The scheme is designed to promote competition and fair dealings within an industry while also ensuring compliance with the Competition and Consumer Act. Before endorsement is given, the relevant industry must demonstrate that its code includes all the essential criteria identified by the ACCC, and that it is working effectively. If the code contains any anti-competitive provisions, a further step required will be to obtain an authorisation from the ACCC, which will require the public benefits of the code to outweigh the anti-competitive elements. The voluntary industry code most relevant to this chapter is the Direct Marketing Code of Practice, which governs all aspects of direct and data-driven marketing. The Australian Direct Marketing Association (ADMA) was the first national marketing association to have its Code of Practice authorised by the ACCC. Other examples of voluntary codes of conduct that the ACCC has authorised include: • solar panel retailing — the code of conduct for solar photovoltaic (PV) retail businesses (which was granted to the Clean Energy Council Limited (CEC) in 2015 for a five-year period) imposes standards upon retail businesses for the marketing and sale of solar electricity systems, in addition to their existing obligations under consumer protection legislation; • conduct by grocery retailers and wholesalers in their dealings with suppliers — the code has has rules relating to grocery supply agreements, payments, termination of agreements, dispute resolution and a range of other matters; • mortgage and finance brokers — as at November 2019, the ACCC was considering the re-authorisation of the Mortgage and Finance Association of Australia’s (MFAA) Disciplinary Rules. The MFAA is a voluntary industry organisation that represents over 10,000 mortgage and finance brokers, mortgage managers and aggregators; and
73 ACCC, Guidelines for Developing Effective Voluntary Industry Codes of Conduct, July 2011, available at .
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• casual mall licensing — which involves shopping centres granting a right to occupy part of the common area of a shopping centre for a short period of time (up to 180 days but normally less than one month), and is often used for marketing activities such as product launches and demonstrations, stock clearance sales and brand awareness campaigns. The ACCC has re-authorised the Shopping Centre Council of Australia Ltd’s Casual Mall Licensing Code of Practice until 31 December 2020 and had previously authorised a similar code of conduct.
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Direct marketing code of practice 11.46 Members of the Australian Direct Marketing Association (ADMA) must comply with the provisions of the ADMA Code of Practice. ADMA is the peak industry association for direct marketing. Most of the larger and well-established direct marketers are members. ADMA members are entitled to display a Code compliance symbol on all marketing material. The major features of the Code can be summarised as follows: • Members must comply with a variety of provisions which largely though not precisely reflect the provisions of the Australian Consumer Law. • Prior to entering into any sale, customers ‘must be given clear, unambiguous and easily accessible information of the material terms of the offer’, including the full name and address of the seller, the full price of the product, any postage or delivery costs, the delivery arrangements, any material restrictions or limitations in the contract, and the duration of the offer. • No later than the time of delivery customers must also be told of their refund, cancellation, and exchange rights and procedures. • Customers must be given a seven-day cooling-off period during which, for example, the customer may return goods even though there is no fault in them. • Members are bound by the information privacy provisions of the Code. These provisions are based on the National Principles for the Fair Handling of Personal Information and satisfy the Privacy Act 1988 (Cth). • Members are bound to comply with the telemarketing rules of the Code.74 The rules cover such matters as permitted calling times, calling frequency, acceptable calling conduct, the need for the telemarketer to identify itself, and the information that must be provided on request. • Members must use the Do Not Mail/Do Not Call services of ADMA. ADMA provides a toll-free telephone number that consumers can phone to have their name removed from the mailing or calling lists of ADMA members, meaning that consumers can opt out of mailing and calling lists.75 74 The Australian Consumer Law now contains specific laws on telemarketing: see 11.38–11.40. 75 The Do Not Call Register Act now legislates similar rights for consumers seeking to avoid telemarketing calls.
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• Members must have procedures in place for dealing with complaints from consumers. The procedures must comply with the Australian Standard for Complaints Handling.76 As a condition of obtaining authorisation, the ACCC insisted that the Code’s enforcement procedures were strengthened. The ACCC required as a minimum that the Code Authority have the power to order: • formal apologies for breach; • corrective advertising or the withdrawal of offending advertisements or statements; • correction or deletion of relevant records and personal information; and • refund or replacement of goods or services where appropriate.77 The current code was originally published in September 2006, and updated in 2018, and can be downloaded from ADMA’s website.78
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Specific industry legislation applicable to direct selling 11.47 The National Energy Retail Law79 is an example of a legislative response to regulate specific industries. Another example is the regulation of the real estate industry (which is regulated at state level, with differing legislation). The National Energy Retail Law is also a good example of National Uniform legislation. This is legislation that is brought about by agreement between the Commonwealth and state and territory governments through intergovernmental agreements. National Uniform legislation provides consistency in areas where the Commonwealth has limited (or no) constitutional power. State and territory governments have historically been responsible for regulating retail energy markets. Part IIIAA of the Competition and Consumer Act establishes the Australian Energy Regulator (AER). From 1 July 2012, the AER assumed responsibility for consumer protection (in the states that opted in) under the National Energy Customer Framework. At the time of writing, consumer protections for energy customers in Queensland, New South Wales, the Australian Capital Territory, Victoria, Tasmania, and South Australia occur under a single framework enforced by the AER. This framework includes the National Energy Retail Law, National Energy Retail Rules and National Energy Retail Regulations which detail key protections for energy customers and obligations for businesses marketing energy. The respective states and territories introduce application legislation to give effect to the model legislation that was originally enacted in South Australia. 76 See AS/NZ 10002:2014 (which was prepared by the Joint Standards Australia/Standards New Zealand Committee QR-015, Complaint Handling, to supersede, AS ISO 10002—2006). 77 ACCC Determination No A40077, August 1999 at [9.3(j)]. 78 See . 79 This is a model law enacted by state legislation.
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Chapter 11: Selling Techniques
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Marketing Advice 11.48 The world of sales and promotion can be a legal minefield for the uninformed. Compliance with the law is essential. It typically requires a broad knowledge of several areas of law and will often involve multiple states with differing legislation. The following should be borne in mind. • If conducting a game or competition where chance plays a part at any stage in determining the winner(s), enquire whether a permit is needed in the jurisdiction in which the competition is being conducted. If it is a national competition a permit will be required. Entry into the competition must be free, apart from requiring purchase of the promoter’s product. • Ensure that all conditions attached to a trade promotion are clearly expressed and not likely to be misinterpreted by participants. • If advertising goods at ‘special’ prices, ensure that you have adequate stocks on hand to meet expected demand during the sale period, or otherwise inform prospective customers that supply is limited. Relying on the disclaimer ‘While stocks last’ may not be adequate. • Give consideration to offering rainchecks or substitute products if demand exceeds supply during a sale. • If you are a salesperson, comply with the Australian Consumer Law by ensuring that you do not engage in any misleading or unfair conduct, and do not harass or attempt to coerce customers to buy your product. Be honest and reasonable with customers, and ensure they fully understand all conditions of any agreement being entered into. • If selling products ‘door-to-door’ or over the telephone, be aware that the Australian Consumer Law governs such sales in every state and territory of Australia. • Exercise caution when using price discounts in promotions, in particular when stating ‘was’ and ‘is’ prices. • Marketers should be aware of what obligations they have under specific industry codes that apply by virtue of membership of industry groups or professional bodies. Such obligations may go beyond the requirements of the Competition and Consumer Act. • Industry groups that may be contemplating establishing industry codes need to ensure that such arrangements and the approaches used to gain involvement are not inconsistent with the anti-competitive provisions of the Competition and Consumer Act covered in Chapters 13–17.
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Introduction to Competition Law
12
Introduction ....................................................................................... 12.1 Competition Law in Context .......................................................... 12.2 Microeconomic policy broadly defined .................................... 12.2 The aims of microeconomic policy ............................................ 12.3 The role of competition policy ................................................... 12.4 Competition law ........................................................................... 12.5 Objectives of the Competition and Consumer Act .................... 12.6 The Nature of Well-Performing Markets ....................................... 12.7 Efficient allocation of resources ................................................. 12.8 Productive or technical efficiency (productivity) .................... 12.9 Making effective use of economies of scale and scope ................................................................................. 12.10 Dynamic efficiency ...................................................................... 12.11 Impact of competition on export success .............................. 12.12 Competition Means Workable Competition ............................. 12.13 Measuring Competition ................................................................ 12.14 Structure-conduct-performance — a useful device ............. 12.14 Theory of contestable markets ................................................. 12.15 Overview of the Competition Laws ............................................ 12.16 Part IV — unlawful competitive practices ............................... 12.17 Exemptions .................................................................................. 12.18 Part IIIA — access regime .......................................................... 12.19 Parts XIB and XIC — telecommunications industry .............. 12.20 Part VIII — Penalties and remedial orders ............................... 12.21 A. Penalties — cartel provisions ........................................... 12.21 B. Penalties — other provisions of the Act ......................... 12.22 C. Penalties for the firm ........................................................ 12.23 D. Penalties and disqualification orders for individuals ...... 12.24 E. Assessing the penalty ........................................................ 12.25
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Marketing and the Law
F. Injunctions, damages, and other remedies .................... 12.26 G. Enforceable undertakings and compliance programs ....... 12.27 Part VII — authorisation and notification ................................ 12.28 A. Authorisation ...................................................................... 12.28 B. Notification ......................................................................... 12.29 Administration of the Competition Laws .................................... 12.30 Australian Competition and Consumer Commission ............. 12.31 Australian Competition Tribunal .............................................. 12.32 National Competition Council .................................................. 12.33 Jurisdictional Reach of Australia’s Competition Laws ............... 12.34 Australian states and territories ............................................... 12.34 Beyond Australia ......................................................................... 12.35 Fundamental Concepts of Competition Law .............................. 12.36 Introduction .................................................................................. 12.36 The ‘future with and future without’ test for analysing substantial lessening of competition .................................... 12.37 The concept of market ................................................................ 12.38 A. Introduction ........................................................................ 12.38 B. Product, geographic, and functional aspects of markets ........................................................................... 12.39 C. Importance of time ............................................................ 12.40 D. The basic test for a market is one of substitution ........ 12.41 E. Product markets and demand substitution ................... 12.42 F. Product markets and supply substitution ...................... 12.43 G. Geographic markets and substitution............................. 12.44 H. The role of sub-markets .................................................... 12.45 I. Brand markets ..................................................................... 12.46 The concept of competition ...................................................... 12.47 A. Meaning of competition .................................................... 12.47 B. How market structure affects competition ................... 12.48 i. Market concentration .................................................. 12.49 ii. Vertical integration and product differentiation ....... 12.50 iii. Barriers to entry ............................................................. 12.51 iv. Summing up market structure .................................... 12.52 C. Market conduct and competition .................................... 12.53 D. Market performance .......................................................... 12.54 E. Sources of evidence ........................................................... 12.55 Authorisations .............................................................................. 12.56 A. What are the authorisation tests? .................................. 12.57 B. What is public detriment? ................................................ 12.58 C. What are public benefits? ................................................. 12.59 D. Balancing detriment and benefits ................................... 12.60 E. Review by the Tribunal ...................................................... 12.61 F. Revocation of an authorisation ........................................ 12.62 Marketing Advice ............................................................................. 12.63 544
Chapter 12: Introduction to Competition Law
Introduction 12.1 Most Western economies rely upon competition as the primary regulator of economic activity. The collapse of many centrally-planned economies in central and Eastern Europe in the early 1990s led to a flood of nations adopting competition policies. Competition is also becoming a vital element in most Asian economies. Competition, however, must be protected if it is to do its job properly. In other words, there must be a legal regime to protect competition itself, as opposed to laws which are designed to protect the competitors. Many countries now have a competition law in some form or other. What was once almost solely an American phenomenon is now a worldwide one. In 2008 China adopted a competition law. In the same year India’s revamped competition law became fully operational. As more countries adopt a set of competition laws, it is inevitable that the nature of competition policy and law becomes more complex, more nuanced, more fragmented. Australia’s competition law is found in the Competition and Consumer Act 2010 (Cth). As competition law affects such quintessential marketing activities as choosing a distributor or setting a price for a product, people involved in business, particularly marketing activities, should be aware of the law and the policies behind it.
Competition Law in Context
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Microeconomic policy broadly defined 12.2 To understand competition law properly it must be viewed in context. Competition law is a set of rules which gives expression to the nation’s competition policy. Competition policy, in turn, is one element of microeconomic policy. Broadly defined, microeconomics is concerned with how and why firms make business decisions. Other key elements of microeconomic policy include: • industrial relations policy; • industry policy (such matters as tariffs and industry assistance); • deregulation of industry; • the structural and/or managerial reform of government-owned businesses; and • taxation policy.
The aims of microeconomic policy 12.3 The aim of microeconomic policy is to improve the performance of Australian industry in all facets of production and distribution, so as to increase national wealth and real standards of living — this means improving productivity and 545
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Australia’s international trading performance. While there is broad acceptance that standards of living can only be maintained or improved if we improve our level of productivity and our international competitiveness, there is ongoing debate over not only the specific policies that will achieve those objectives, but also the appropriate rate of change. Some areas of change, such as labour market reform (industrial relations), continue to polarise opinions. Competition policy, while sometimes contentious (particularly in the rural sector), has evoked less confrontation. Broadly speaking, the thrust of Australian policy is to make the various sectors of the economy more efficient, more responsive to demand, more internationally competitive without, at the same time, irreparably damaging the largely harmonious fabric of Australian society. Greater efficiency requires that prices be closely related to costs (allocative efficiency) and that production costs be kept to the minimum possible level (productive efficiency). Even more importantly, it is necessary to foster a climate of innovation, both in products and processes (dynamic efficiency). A necessary ingredient in achieving these efficiencies is an effective competition law.
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The role of competition policy 12.4 The objectives of competition policy include: • restricting anti-competitive trade practices; • providing firms with fair access to essential facilities, such as the national power grid; • restructuring public monopolies, such as the energy authorities; • monitoring the prices and practices of monopolies and other dominant firms; and • fostering ‘competitive neutrality’ between government businesses and private firms. The Harper Review into Competition Policy1 opined that competition policy should: • make markets work in the long-term interests of consumers; • foster diversity, choice, and responsiveness in government services; • encourage innovation, entrepreneurship, and the entry of new players; • promote efficient investment in and use of infrastructure and natural resources; • establish competition laws and regulations that are clear, predictable, and reliable; and • secure necessary standards of access and equity.
1
Competition Policy Review, chaired by Professor Ian Harper (the ‘Harper Review’). See the Competition Policy Review, Final Report, March 2015, available at at 7.
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Competition law 12.5 The principal law implementing competition policy in Australia is the Competition and Consumer Act. Essentially, the Competition and Consumer Act gives the courts and the Australian Competition and Consumer Commission (the ACCC) the power to intervene in the operation of ‘markets’, so as to protect and promote competition within those markets and to control accumulations of market power, of which the most extreme example is a monopoly.
Objectives of the Competition and Consumer Act
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12.6 Competition law is based on the broad proposition that, in a market economy, competition is socially and economically superior to market power. Competition promotes consumer welfare. Competition also promotes productive and dynamic efficiency. Competition is more likely to increase national living standards by increasing productivity and international competitiveness than are markets characterised by market power. However, competition is not an end in itself. Thus, the Competition and Consumer Act provides that the object of the Act is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection: s 2. Where competition does not enhance the welfare of Australians, either because it does not achieve economic efficiency or because it conflicts with other social objectives, it should not be relentlessly pursued.2
The Nature of Well-Performing Markets 12.7 Ideally, well-performing markets will: • produce efficient allocation of resources; • produce productive or technical efficiency (essentially productivity); • make effective use of economies of scale and scope; • produce dynamic efficiency (broadly speaking, innovative products and processes); and • improve exports.
2
Report of the Independent Committee of Inquiry into National Competition Policy (Hilmer Committee), AGPS, 1993, p 6.
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Efficient allocation of resources 12.8 Well-performing markets should allocate resources according to consumer demand. This is best achieved by competitive pricing in competitive markets. An efficient allocation of resources requires excess profits to be eliminated over time. In determining excess profits it is necessary to bear in mind that a certain level of profitability is probably necessary to ensure investment in efficiency and innovation. In some markets such as high-technology markets with network effects (eg, operating systems for personal computers), it is unrealistic to expect marginal cost pricing. In these markets the competition tends to centre on innovation.
Productive or technical efficiency (productivity) 12.9 Well-performing markets should produce products at least cost. This is best achieved by a vigorously competitive environment where the profitability, growth, and ultimate survival of firms depends on their ability to utilise capital, raw materials, and labour in the most efficient manner possible. The competitiveness of the environment may have to give some ground if there are significant economies of scale that justify a level of concentration. This is common in Australia.
Making effective use of economies of scale and scope
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12.10 Well-performing markets should have the capacity to identify and exploit economies of scale and scope. Some economies can only be effectively achieved by allowing accumulations of power, such as oligopolies and even duopolies. In a limited number of instances it may be necessary to acknowledge that the natural structure of the market is a monopoly (natural monopolies). Competition policy should concentrate on the conduct of the oligopolist, duopolist, or monopolist.
Dynamic efficiency 12.11 Dynamic efficiency refers to innovation in products and processes. The intensity of dynamic efficiency is reflected in expenditure on research and development. Dynamic efficiency is one of the major virtues of competitive markets in that it forces firms to develop a capacity to initiate and absorb change.3 While dynamic efficiency should be a goal of every industry, some industries (eg, high-technology industries like software, biotechnology, and pharmaceuticals) are very dynamic. In such industries the costs of research and development are very high relative to the costs of production. Consequently, it is not uncommon in such industries to find accumulations of market power, even monopolies. However, these monopolies are often short-lived as the next generation of technology moves
3
Report of the Independent Committee of Inquiry into National Competition Policy, above n 2, at p 4.
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in and displaces the old.4 This kind of competition is quite different to the price competition of more traditional markets; however, it is extremely important for economic growth and, increasingly, for international competitiveness.5 Dynamic markets present a real problem for competition policy. How should they be regulated? If they are over-regulated, a lot of valuable innovation may be lost as innovators and venture capitalists assess the returns as not being worth the risk. Investment will go to less dynamic (and less socially useful) industries or overseas. On the other hand, if dynamic markets are under-regulated (ie, the monopolist is left free to do what it wants), innovation may be lost as the monopolist chokes off potential rivals, and perhaps extends its power into complementary markets. This was the essence of the US and European cases against Microsoft Corporation, where it was alleged that Microsoft used its power in the computer operating systems market to block competition in the server market and in certain applications markets.6 Somehow competition policy-makers must find a balance between under- and over-regulation.
Impact of competition on export success 12.12 Some studies have indicated that there is a strong link between aggressive domestic competition and export success.7 However, this is not universally held. Almost certainly export success requires that firms be allowed to take advantage of any economies of scale that exist.
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Competition Means Workable Competition 12.13 When the Competition and Consumer Act refers to competition, it does not mean the theoretical ideal of perfect competition; rather, it means some form of workable or effective competition. This is not a precise concept. Broadly speaking, however, workable or effective competition means that: • where possible, there should be a sufficient number of suppliers so that customers have a real alternative to any particular supplier; • where possible, there should be a sufficient number of buyers so that suppliers have a real alternative to any particular buyer;
4
This theory of competition as a constant round of creative destruction was first described by the Austrian economist Joseph Schumpeter in Capitalism, Socialism and Democracy Harper, 1942. 5 M Porter, The Competitive Advantage of Nations, Macmillan, London, 1990; R Jones, ‘The Theory of Firms and Markets’ in Australian Microeconomic Policies, 4th ed (ed R Jones), Prentice Hall, Sydney, 1994, pp 86–87. 6 See United States v Microsoft Corp 253 F 3d 34 (DC Cir, 2001); Commission Decision of 24 March 2004 relating to a proceeding under art 82 of the EC Treaty (Case COMP/C-3/37.792 Microsoft) [2004] EC Comm 12. 7 Porter, above n 5.
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• where possible, no individual trader should have the power to dictate to its rivals or to be free of competitive pressure; • where practical, new traders should be able to enter the market without facing artificial barriers designed to keep them out; • except in special circumstances, there should be no collusion on prices, or customers, or trading policy; • generally speaking, customers should be able to choose their supplier — suppliers should not have to face artificial barriers in accessing customers; and • all traders should respond according to what is happening in the market and not to outside influences (eg, political influences) — no trader should have an advantage because of legal or political considerations.
Measuring Competition Structure-conduct-performance — a useful device 12.14 The idea of workable or effective competition recognises that market structure, market conduct, and market performance are inter-related. This means that structural factors — the number of sellers and buyers, product differentiation, and barriers to entry — will influence and be influenced by how the firms in the market conduct themselves, and will influence how the market is performing in terms of efficiency and dynamism. FIGURE 12.1 THE STRUCTURE-CONDUCT-PERFORMANCE MODEL
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Market Performance Structure can affect the performance of the market
Allocative efficiency Productive efficiency Dynamic efficiency Innovation
The conduct of firms in the market can affect how the market performs
Market Structure
Market Conduct
Barriers to entry Market shares Number of firms Product differentiation Vertical integration Imports
Collusion Output level Pricing decisions Exclusionary tactics Predatory conduct Research
Structure can determine how firms conduct themselves The conduct of firms in the market can change the structure
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The structure-conduct-performance model is a useful tool for analysing competition and setting broad policy objectives. However, it is not an operational model.8 It should not be thought that better market performance will inevitably follow from a more competitive market structure. For example, the firms within the market might collude, thus negating the competitive structure. Alternatively, the market may be in an industry in which there are significant economies of scale to be had; in such markets, allowing some market concentration to occur makes economic sense. Sometimes the economies are so great relative to the size of the market that the market can only efficiently support one firm. Such markets are called natural monopolies.
Theory of contestable markets
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12.15 Many economists are not particularly worried about market concentration. In their view, a concentrated market, even a monopoly, will perform efficiently, provided the market is contestable; that is, there are no significant barriers to entry. These same economists also tend to believe that markets are naturally robust and that competition, like a weed in a garden, will always come back, probably stronger than before. In their opinion, even if a monopolist is acting anti-competitively, the market is much more likely to straighten things out than is a court or a competition authority. However, as with most economic views, there are others who claim that these theories are overstated. In general, most economists view price and output collusion between competitors as the worst anti-competitive evil. This conduct is banned in most modern industrial economies. This is covered under the cartel provisions of the Competition and Consumer Act. The most difficult and most controversial area is the regulation of unilateral conduct (ie, monopolists and quasi-monopolists). This is governed by s 46 of the Competition and Consumer Act.
Overview of the Competition Laws 12.16 The main competition laws are found in Pt IV of the Competition and Consumer Act. Part VI sets out remedies and Pt VII creates a scheme of authorisation and notification. Part II creates and empowers the regulator (the ACCC) and Pt IIIA of the Act contains an access regime for essential services. Parts XIB and XIC contain specific laws dealing with the telecommunications industry. Part X contains specific laws dealing with international cargo shipping services.
8
Jones, above n 5, at p 87.
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Part IV — unlawful competitive practices 12.17 The legislative scheme in Pt IV of the Competition and Consumer Act is proscriptive. This means that all competitive activities are permitted, unless banned (proscribed) by one of the provisions of Pt IV. Some activities are banned completely (ie, unlawful per se); for example, price fixing and market sharing agreements. Other activities are only banned if they are likely to have a substantially adverse effect on the level of competition in the market.9 Part IV Div 1 of the Competition and Consumer Act regulates cartels. Specifically, it prohibits the making of or giving effect to ‘cartel provisions’10 Cartel provisions include arrangements between competitors: to fix prices; restrict output in production and supply; allocate customers, suppliers, or territories; and rig bids. Making or giving effect to a cartel provision is both a criminal offence (ss 45AF and 45AG) and a civil prohibition (ss 45AJ and 45AK). The provisions of Pt IV Div 2 of the Act contain civil prohibitions and do not constitute criminal offences. • Section 45 of the Act imposes further prohibitions on cartels. This section prohibits agreements which have the purpose or effect of substantially lessening competition. It also catches persons engaged in a concerted practice which has the purpose or effect of substantially lessening competition. • Section 46 of the Act prohibits corporations with substantial power in a market engaging in conduct that has the purpose or effect of substantially lessening competition.11 • Section 47 prohibits certain vertical non-price restraints. This is called ‘exclusive dealing’. Exclusive dealing is only prohibited if it has the purpose or effect of substantially lessening competition. • Section 48 prohibits resale price maintenance. It is prohibited per se. • Section 49 prohibits dual-listed company arrangements that have the purpose or effect of substantially lessening competition. A dual-listed company arrangement is an arrangement between a listed Australian company and an overseas company. • Section 50 prohibits mergers and acquisitions which have the effect of substantially lessening competition in any market. Section 50A deals with mergers that occur outside Australia, but which have a substantial impact on Australian markets.
9
This book does not deal with ss 45D–45EB of the Competition and Consumer Act 2010, which are concerned primarily with industrial relations. 10 Competition and Consumer Act 2010 s 45AD. 11 Section 46A of the Competition and Consumer Act 2010 deals with abuses of market power by a corporation with a substantial degree of market power in a trans-Tasman market. The trans-Tasman market includes Australia and New Zealand. This provision was added following the Australia New Zealand Closer Economic Trade Agreement.
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Chapter 12: Introduction to Competition Law TABLE 12.1 OVERVIEW OF COMPETITION AND CONSUMER ACT 2010 PT IV SECTION
TYPE OF CONDUCT
DOES BREACH DEPEND ON PROOF OF SUBSTANTIALLY LESSENING COMPETITION?
45AF, 45AG, 45AJ, 45AK
Making or giving effect to cartel provisions including arrangements between competitors to: • fix prices • restrict output in production and supply • allocate customers, suppliers or territories • rig bids
No
45
Agreements that substantially lessen competition Engaging in concerted practices
Yes
46
Misuse of market power
Yes
47
Exclusive dealing
Yes
48
Resale price maintenance
No
49
Dual listed company arrangements
Yes
50
Mergers
Yes
Yes
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Exemptions 12.18 There are a number of activities which are wholly or partially exempt from the provisions of Pt IV of the Competition and Consumer Act. These are set out as follows in s 51 of the Act: • conduct permitted by an Act of Parliament (Commonwealth, state or territory) — the states and territories may exempt certain activities from competition law, but they have agreed that, in determining whether to exempt any particular government business, they will be guided by the principle that any ‘regulation should not restrict competition unless it can be demonstrated that the benefits of the restriction to the community as a whole outweigh the cost, and that the objectives of the [regulation] can only be achieved by restricting competition’; • employment contracts, partnership, and sale of business agreements; • product standards; • export cartels; • consumer boycotts; and • primary produce marketing arrangements.
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Marketing and the Law
Section 51(3) also used to provide for exemptions in relation to certain intellectual property arrangements. Conditions in licences or assignments of intellectual property rights in patents, registered designs, copyright, trade marks and circuit layouts were not subject to the competition laws. This represented an understanding the law surrounding intellectual property provided a balance between healthy competition and allowing the generators of intellectual property to reap a reward on their investment. For example, the patent law allows drug companies to have an exclusive licence to exploit new drug therapies they have developed, but only for 20 years, and only if they make the details of their new development public. The old exemptions allowed drug companies, for example, to license others to make their products for limited markets, or impose other restrictions, which were not caught by the operation of Pt IV. The Harper Review into Competition Policy12 was critical of these exemptions — especially as they operated in the pharmaceutical and telecommunications sectors — and recommended that they be removed. This was supported by the Productivity Commission’s Intellectual Property Arrangements, Inquiry Report13 and accordingly the intellectual property exemption was removed by legislation which passed in March 2019.14 The Explanatory Memorandum notes that ‘the rationale for the exemption has largely fallen away’ and further that ‘the number of arrangements that are affected by removal of the exemption is likely to be small.’ It further indicates that ‘IP rights and competition are no longer thought to be in “fundamental conflict”. IP rights do not, in and of themselves, have significant competition implications. Rather, competition implications arise in those cases where there are few substitutes or where the aggregation of IP rights may create market power.’15 Activities that have been authorised or notified are also exempt. There are also constitutional limitations to the Competition and Consumer Act, although these have largely been overcome by agreement between the Commonwealth, the states, and the territories: see 12.34.
Part IIIA — access regime 12.19 Part IIIA was included in the Competition and Consumer Act because of the critical importance to competition, the economy, and ultimately consumers of ensuring that essential services, such as the national power grid, are not used for anti-competitive purposes. The problem arises because a number of essential
12 See above n 1. 13 See Productivity Commission, Intellectual Property Arrangements, Inquiry Report, No 78, 23 September 2016, available at . 14 Treasury Laws Amendment (2018 Measures No 5) Act 2019. 15 Treasury Laws Amendment (2018 Measures No 5) Bill 2018 Explanatory Memorandum, at ch 4.
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services are natural monopolies. This is essentially a matter of market power and is discussed briefly in Chapter 14.
Parts XIB and XIC — telecommunications industry 12.20 The special provisions relating to the telecommunications industry reflect the importance of that industry to the modern economy. Part XIB of the Competition and Consumer Act sets up a special regime for regulating anti-competitive conduct in the telecommunications industry. The regime applies in addition to Pt IV. See s 151AA of the Competition and Consumer Act, which provides a simplified outline explaining the role of Pt XIB. A telecommunications carrier or carriage service provider must not engage in anti-competitive conduct: Competition and Consumer Act s 151AK. This rule is called the ‘competition rule’. The ACCC has the power to issue a notice that a telecommunications carrier or carriage service provider has contravened the competition rule. Once issued, the notice is prima facie evidence of its contents. In 2004, the ACCC used this power to serve a notice on Telstra with respect to the pricing of its broadband internet services. The ACCC also has the power to require telecommunications carriers or carriage service providers to file with the Commission information relating to their tariffs. Finally, the ACCC has the power to make rules relating to the keeping of records by telecommunications carriers and carriage service providers. Part XIC of the Competition and Consumer Act sets out a telecommunications access regime similar to Pt IIIA: see s 152AA of the Competition and Consumer Act, which provides a simplified outline explaining the role of Pt XIC.
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Part VIII — penalties and remedial orders A. Penalties — cartel provisions 12.21 The cartel provisions may result in: • a criminal prosecution; or • a civil penalties action. The decision whether to bring the action as a criminal case is made by the Commonwealth Director of Public Prosecutions (CDPP). To establish a criminal case, it is necessary to prove beyond reasonable doubt that the corporation knew or believed that its conduct made or gave effect to an unlawful cartel provision. If the CDPP decides not to bring a criminal charge, the ACCC may proceed under the civil penalty provisions. The only difference is that under the civil penalty provisions, there is no need to prove knowledge or belief. The maximum criminal fines for the corporation are the same as the maximum civil pecuniary penalties (which may exceed $10 million). 555
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Individuals (directors, managers, etc) may also be liable for criminal prosecution as an accessory to the corporation. The criminal penalties involve, in the case of a successful prosecution of an individual, imprisonment for up to 10 years: Competition and Consumer Act s 79. Individuals may also be fined up to $420,000 for a criminal offence. Criminal prosecutions against individuals resulting in jail time are quite common in the United States.
B. Penalties — other provisions of the Act 12.22 The other provisions of Pt IV of the Competition and Consumer Act are not criminal. Rather, they involve civil penalties. No one can go to gaol for a breach of ss 45–50 of the Competition and Consumer Act. Because they do not involve a criminal offence, a breach does not have to be proved beyond reasonable doubt. It is sufficient that it be proved on the balance of probabilities, although the court will take into account the gravity of the matters alleged and the seriousness of the consequences.16
C. Penalties for the firm 12.23 A corporation in breach of Pt IV of the Competition and Consumer Act (including a corporation that is an accessory) may be ordered to pay a pecuniary penalty equal to the greater of: • $10 million; or • three times the ‘benefit’ the corporation gains from the contravention; or • if a court is unable readily to ascertain the ‘benefit’, 10% of the annual turnover of the corporation, including its related bodies, during the period of 12 months ending at the end of the month in which the act or omission occurred.
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This applies whether the action is criminal or a civil penalty action: Competition and Consumer Act s 76(1A).
D. Penalties and disqualification orders for individuals 12.24 An individual may go to gaol for a criminal breach of the cartel provisions. The court may impose a civil pecuniary penalty on any individual who is an accessory to a breach of Pt IV: Competition and Consumer Act s 76(1). The maximum amount of such penalty is $500,000: s 76(1B). Corporations cannot indemnify their officers against this penalty or the legal costs involved: s 77A. An individual (involved in a contravention of the Competition and Consumer Act) may be disqualified from being a director: s 86E. In determining whether a person should be disqualified from being a director, the court must take into account: 16 Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34; TPC v Nicholas Enterprises Pty Ltd (No 2) (1979) 26 ALR 609; (1978) ATPR 40-126, see 13.10C.
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• the person’s conduct in relation to the management, business, or property of any corporation; and • any other matters that the court considers appropriate.
E. Assessing the penalty
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12.25 The penalty should be sufficient, having regard to the corporation in question and to the seriousness of the breach, to act as a deterrent to the corporation and to others. The court will take into account a number of factors in setting the level of the penalty. These were explained by French J in TPC v CSR Ltd17 and include the following: • the nature and extent of the contravening conduct; • the amount of loss or damage caused; • the circumstances in which the conduct took place; • the size of the contravening company; • the degree of power it has, as evidenced by its market share and the ease of entry into the market; • the deliberateness of the contravention and the period over which it extended; • whether the contravention arose out of the conduct of senior management or at a lower level; • whether the company has a corporate culture conducive to compliance with the Act, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention;18 and • whether the company has shown a disposition to cooperate with the authorities responsible for the enforcement of the Competition and Consumer Act in relation to the contravention. In ACCC v SIP Australia Pty Ltd,19 Goldberg J accepted certain additional factors as appropriate for the court to consider. These include the nature of the subject goods and their importance to the community; whether the accused firm improperly obtained a financial advantage; whether the firm came forward and revealed its own contraventions; and whether the firm had offered ongoing assistance to the ACCC in its investigation. It is now reasonably common for the ACCC and the firm to reach agreement on the penalty to be paid. This will be accepted by the court, provided it is in the range that the court would itself have imposed: NW Frozen Foods Pty Ltd v ACCC;20 ACCC v Renegade Gas Pty Ltd (t/as Supagas NSW).21
17 (1991) ATPR 41-076 at 52,152–52,153. 18 The Australian Standards Council has developed a compliance standard (AS 3806) which is strongly supported by the ACCC. 19 (1999) ATPR 41-702; [1999] FCA 858. 20 (1996) 141 ALR 640; (1997) ATPR 41-546. 21 [2014] FCA 1135, see 13.39C1.
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F. Injunctions, damages, and other remedies 12.26 Any person who has suffered loss as a result of a breach of Pt IV may seek damages or such other orders as the court has the power to make. The Competition and Consumer Act empowers the courts with a wide range of remedial orders, including the power to: • order interim and permanent injunctions: Competition and Consumer Act s 80; • award damages for any losses caused by a contravention of the Act: s 82; • declare a contract void or vary a contract: s 87; • order a person to refund money or return property, to arrange for the repair of goods, to provide services, or to sign a document: s 87. Section 87 gives the court the ultimate power to impose terms of trading upon commercial parties should they fail to agree; and • make a declaration in relation to the operation or effect of the provisions of the Act, or the validity of any act or thing done, or proposed to be done, under the Act: s 163A. In Darwalla Milling Co Pty Ltd v F Hoffmann-La Roche Ltd,22 the Federal Court approved a damages settlement ($30.5 million) in a class action against a number of multinational vitamins manufacturers who had engaged in a sophisticated, international price-fixing cartel. In a separate action the various companies were also fined.
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G. Enforceable undertakings and compliance programs 12.27 The ACCC has the power to accept undertakings from firms as to their future conduct: Competition and Consumer Act s 87B. The court has the power to enforce these undertakings: s 87B(4). The court may order the respondent to undertake an appropriate compliance and education or training program. A compliance program may form part of an enforceable undertaking under s 87B of the Competition and Consumer Act. Additionally, it may form part of a probation order made under s 86C(2). In ACCC v Tasmanian Salmonid Growers Association Ltd,23 pursuant to s 86C(2) the court ordered the Tasmanian Salmonid Growers Association (which had admitted price fixing) to establish, and maintain for a period of three years from the date of the order, a trade practices compliance program requiring that: • once a year all the directors of the first respondent attend a seminar conducted by a suitably qualified person solely addressing the Competition and Consumer Act and covering Pt IV of the Act, the first such seminar to be held within two months of the date of the order; and 22 [2006] FCA 915. 23 (2003) ATPR 41-954; [2003] FCA 788.
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• within two months of the date of the order, the first respondent acquire and provide to each director, and thereafter maintain for the duration of the compliance program, a manual that sets out the provisions of Pt IV of the Competition and Consumer Act and provides commentary on scenarios relevant to the fish farming industry.
Part VII — authorisation and notification
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A. Authorisation 12.28 Part VII of the Competition and Consumer Act provides that conduct (other than s 46) which might otherwise be in breach of Pt IV of the Act, may be authorised: s 88. Authorisations are dealt with by the ACCC. Any firm seeking authorisation must lodge the necessary application with the ACCC and pay the required fee. Authorisation involves a public hearing conducted by the ACCC. The ACCC will authorise conduct (whether or not it is otherwise in breach of Pt IV of the Competition and Consumer Act) if, and only if, in the opinion of the ACCC, the conduct will generate such a benefit to the public that it ought to be authorised (per se conduct), or will generate public benefits that outweigh any adverse effects on competition (conduct subject to a competition test): s 90. If the Commission refuses to grant an authorisation, an appeal lies to the Australian Competition Tribunal. There is no appeal from the Tribunal except on matters of law. Once conduct has been authorised it becomes lawful. However, if a firm proceeds without authorisation, it cannot argue authorisation as a defence if it is subsequently brought to court for breaching Pt IV of the Competition and Consumer Act. That is, a defendant cannot argue in court that authorisation would have been granted if it had been applied for. There is no public benefits defence under Australian competition law.24 Authorisation is discussed in more depth at 12.56–12.62.
B. Notification 12.29 Notification applies to all types of exclusive dealing conduct under s 47 of the Competition and Consumer Act and resale price maintenance (s 48) but not to other types of anti-competitive conduct: Competition and Consumer Act s 93(1). Unlike authorisation, notification does not involve any hearing. Notification simply means advising the ACCC in the prescribed manner that the firm is about to engage in conduct that may amount to exclusive dealing or resale price maintenance. The notification protects the corporation from legal action from
24 However, perhaps a court may take these factors into account in determining whether to exercise its discretion whether to grant an injunction. See News Ltd v Australian Rugby Football League Ltd (1996) 135 ALR 33; (1996) ATPR 41-466 at 41,711.
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the time of lodgement. This protection continues unless or until the results of an ACCC assessment raise objections. The ACCC will assess a notification in relation to exclusive dealing to determine whether the notified conduct: • has the purpose, effect or likely effect of substantially lessening competition; and • if so, does it result in a likely public benefit which would outweigh the likely public detriment? Resale price maintenance notifications are not subject to a test of substantially lessening competition, and are simply assessed as to whether the likely benefit to the public from the resale price maintenance conduct would outweigh the likely detriment to the public from the conduct.
Administration of the Competition Laws 12.30 Three regulatory bodies are given responsibilities under the Competition and Consumer Act.
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Australian Competition and Consumer Commission 12.31 The regulatory body given primary responsibility for the competition laws is the ACCC. The role of the ACCC includes: • enforcement of the provisions of the Competition and Consumer Act; • conducting authorisation hearings; • providing information and guidance on the Competition and Consumer Act to the business world and to consumers; • conducting research into matters affecting consumers or matters which are referred to the ACCC by the Minister or the National Competition Council; and • making determinations under the access regime in Pt IIIA of the Act. Where the ACCC has reason to believe that a person has engaged in conduct in breach of the Competition and Consumer Act, the ACCC has wide powers to investigate the matter, including the power to require a person to provide information and documents as set out in s 155 of the Competition and Consumer Act.
Australian Competition Tribunal 12.32 The Australian Competition Tribunal (ACT) was formerly known as the Trade Practices Tribunal. Its functions are to: • conduct authorisation applications in respect of mergers; 560
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• review authorisation applications on appeal from the ACCC; • review notifications that have been withdrawn by the ACCC; and • hear appeals from decisions in access matters under Pt IIIA of the Competition and Consumer Act. The Tribunal is made up of three members. The president must be a judge of the Federal Court. The other two members are not judges. They are appointed because of their expertise in business, economics, or public administration.
National Competition Council
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12.33 The National Competition Council was set up as part of the 1995 reforms to the Competition and Consumer Act. It is made up of a president and up to four other councillors. Its function is to research and advise on matters referred to it by the Minister and to carry out any other function conferred on it by a law of a state or territory. In particular, the Council has a responsibility to make recommendations to the Minister in respect of access matters pursuant to Pt IIIA of the Act. The Council also has a role to play in carrying out the provisions of the Competition Principles Agreement signed by all the states, the territories, and the Commonwealth, particularly in respect of price surveillance of government business enterprises (prices oversight) and ensuring that government businesses do not enjoy any net competitive advantage over private enterprises where the two are in competition (competitive neutrality). Otherwise the work of the Council will be the subject of a work program to be determined collectively by the states, the territories, and the Commonwealth.
Jurisdictional Reach of Australia’s Competition Laws Australian states and territories 12.34 The Constitution limits the scope of the competition provisions of the Competition and Consumer Act, just as it does the consumer provisions. To overcome the constitutional limitations, in 1995 the Commonwealth reached an agreement with the states and territories to extend the competition rules found in Pt IV of the Competition and Consumer Act to state and territorial government business enterprises and to partnerships and sole traders: Conduct Code Agreement.25 This was a recognition that national competition policy could only be fully effective if it applied equally to all business activity, whether state owned 25 Council of Australian Governments, ‘Conduct Code Agreement’, available at .
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or private, whether corporation or partnership or sole trader. There should be no exemptions unless a clear and demonstrable public benefit exists. All states and territories have passed legislation equivalent to Pt IV of the Competition and Consumer Act and the related provisions.26 The only difference between the Competition and Consumer Act and these state and territorial Acts is that the state and territorial Acts refer to a person engaging in anti-competitive conduct, whereas the Competition and Consumer Act refers to corporations engaging in anticompetitive conduct. Together all these Acts make up the Competition Code. The framework for the operation of the Code is contained in Pt XIA of the Competition and Consumer Act. Part XIA attempts to ensure that the interaction between the various Acts is relatively seamless. Thus, Pt XIA provides that a person cannot be sued twice for the same conduct. The Federal Court is given jurisdiction over the operation of the Competition Code, just as it has jurisdiction over Pt IV of the Competition and Consumer Act.
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Beyond Australia 12.35 In an age of multinational corporations and ever increasing globalisation of markets, it is not surprising that business conduct in one country can have effects, even profound effects, on business in other countries. Can one country legislate to cover commercial activities carried on beyond its borders? This is a difficult problem involving elements of international law and comity.27 The leading proponent in claiming extraterritorial jurisdiction for its competition laws is the US. The US claims jurisdiction to apply its competition laws (called antitrust law) to any activity that has an intended or actual effect on US commerce or trade, irrespective of where the activity takes place.28 Australia has never claimed an extraterritorial application for the Competition and Consumer Act that is as wide as the US ‘effects doctrine’. There is a presumption in Australian law that statutes do not have extraterritorial application. This presumption may be rebutted if a proper interpretation of the statute indicates that parliament intended to confer extraterritorial jurisdiction. With respect to the Competition and Consumer Act, parliament’s intention is expressed in s 5. Section 5(1) provides that Pts IV, IVA, and V of the Competition and Consumer Act extend to offshore conduct engaged in by: • companies incorporated in Australia; • companies carrying on business in Australia; • Australian citizens; and • persons ordinarily resident within Australia. 26 See, for example, Competition Policy Reform (New South Wales) Act 1995. 27 Comity is a difficult concept to define precisely. It means that countries, as a matter of good international practice, should exhibit a high level of goodwill and respect for the laws and customs of other countries. 28 United States v Aluminum Co of America 148 F2d 416 (1945).
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Thus, for example, an Australian company which engaged in an offshore merger that had an anti-competitive effect in an Australian market would be subject to s 50 of the Competition and Consumer Act.29 An Australian company that engaged in potentially unlawful collusion with a New York company to acquire a Canadian company was subject to the Australian cartel laws.30 No order for damages may be sought against a firm for offshore conduct unless the relevant Minister has given his or her consent in writing: Competition and Consumer Act s 5(3).31 The Minister is required to give consent unless he or she is satisfied either that the law of the country in which the conduct took place specifically authorised the conduct, or alternatively that consent would not be in Australia’s national interest: s 5(5).32 Only the relevant Minister or the Commission may apply for ancillary orders under s 87 of the Competition and Consumer Act, unless consent has been received from the Minister: s 5(4).
Fundamental Concepts of Competition Law
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Introduction 12.36 Many sections in Pt IV of the Competition and Consumer Act depend upon proving that conduct has the purpose or the effect or likely effect of substantially lessening competition. • ‘Purpose’ must be understood in the light of s 4F, which provides that the relevant purpose may be one of a number of purposes provided that it is a substantial purpose. This means that the relevant purpose does not have to be the only or even the dominant motive behind the conduct.33 • ‘Lessening’ includes ‘preventing’ or ‘hindering’.34 • In Rural Press Ltd v ACCC,35 the High Court held that ‘substantial’ means substantial ‘in the sense of being meaningful or relevant to the competitive process’.
29 See Australia Meat Holdings Pty Ltd v TPC (1989) ATPR 40-932, see 12.44C. 30 Norcast SárL v Bradken Ltd (No 2) (2013) 302 ALR 486; [2013] FCA 235, see 13.43C4. The cartel provisions are discussed in Chapter 13. 31 The question of damages was one of the major factors causing international tension in the uranium case: see Re Uranium Antitrust Litigation 617 F 2d 1248 (1980). American courts have the power to award treble damages for breaches of their competition laws. 32 This should be contrasted with the aggressive extraterritorial application of United States competition law. 33 Hughes v Western Australia Cricket Association Inc (1989) 69 ALR 660; (1986) ATPR 40-736. 34 Competition and Consumer Act 2010 s 4G. 35 (2003) ATPR 41-965; [2003] HCA 75, see 13.39C2.
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• ‘Likely’ can have a number of meanings.36 The approach of the courts has been to treat ‘likely to’ as equivalent to ‘more probable than not’, ‘a real chance or possibility’, or ‘prone to’.37 Certainly the likelihood of competition being lessened must be more than a mere possibility38 — it must be a real possibility.39
The ‘future with and future without’ test for analysing substantial lessening of competition 12.37 Taking these matters together, in order to prove that particular conduct is likely to have the effect of substantially lessening competition, it is necessary to pursue the following inquiry: 1. ascertain the market; 2. ascertain the level of competition in the market without the impugned conduct (by examining the market and how it does or is likely to function); 3. ascertain the likely level of competition in the market with the impugned conduct (by determining the likely (probable) effect of the impugned conduct on the functioning of the market); and 4. compare steps 2 and 3 to determine whether there is likely to be a meaningful decrease in competition.
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This test is often referred to as the ‘future with and future without’ test. It was applied in Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd;40 Stirling Harbour Services v Bunbury Port Authority;41 and ACCC v Cement Australia Pty Ltd.42
36 See Tillmans Butcheries Pty Ltd v Australian Meat Industry Employees’ Union (1979) 27 ALR 367; (1979) ATPR 40-138, in which Deane J said at 18,495: ‘The word “likely” can, in some contexts, mean “probably”, in the sense in which that word is commonly used by lawyers and laymen, that is to say, more likely than not or more than a 50% chance … It can also, in an appropriate context, refer to a real or not remote chance or possibility regardless of whether it is less or more than 50%. When used with the latter meaning in a phrase which is descriptive of conduct, the word is equivalent to “prone”, “with a propensity” or “liable”. When so used, it is sometimes equated with the concept of foreseeability in the law of negligence …’. 37 See Dowling v Dalgety Australia Ltd (1992) 106 ALR 75; (1992) ATPR 41-165; Australian Gas Light Co v ACCC (2003) ATPR 41-966; [2003] FCA 1525. This test was criticised (in respect of s 50 mergers) as being too low a threshold by Buchanan J in ACCC v Metcash Trading Ltd (2011) 284 ALR 662; [2011] FCAFC 151, see 15.8C2. According to his Honour, ‘likely’ means ‘probable’ or ‘more likely to happen than not’. 38 Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd (1982) ATPR 40-318. 39 See Monroe Topple Pty Ltd & Associates v Institute of Chartered Accountants in Australia (2002) ATPR 41-879; [2002] FCAFC 197. 40 (1982) 44 ALR 173; (1982) ATPR 40-315. 41 (2000) ATPR 41-783; [2000] FCA 1381, see 17.25C. 42 (2013) 310 ALR 165; [2013] FCA 336.
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The concept of market A. Introduction 12.38 Central to the competition provisions of the Competition and Consumer Act is the notion of competition. What is competition? The Competition and Consumer Act provides no definition, except to say that it includes imports and potential imports: s 4. It is clear, however, that competition is an economic concept and is to be understood according to economic principles. Competition should be seen as a process for allocating resources, determining cost and distribution structures, and fixing the price of exchange. Competition takes place in a market. Therefore, the starting point in any discussion of competition must be the relevant market. While it is not necessary to measure the boundaries of a market with exact precision, it should be understood that a wrong definition of market will often lead to an incorrect analysis of the level of competition: see Singapore Airlines v Taprobane Tours WA Pty Ltd.43 Many cases are all but decided once the market is determined: see, for example, ACCC v Metcash Trading Ltd;44 and News Ltd v Australian Rugby Football League Ltd.45
B. Product, geographic, and functional aspects of markets
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12.39 A market has the following components: • a product element; • a geographic element; and • a functional element. For example, most would accept that Coca-Cola competes with Pepsi to supply retailers with cola drinks. Coca-Cola and Pepsi are in the same market. But the market does not necessarily end there. Other manufacturers may not make cola drinks, but if they produce drinks that consumers see as substitutes for Coca-Cola or Pepsi, then they must also be regarded as in the same market. For example, Solo is probably a close enough substitute for a cola drink to be in the same market. Beer, spirits, and milk are probably not sufficiently close substitutes to be regarded as in the same market. Therefore, we can conclude that Coke, Pepsi, and Solo are probably competitors in the market for the supply to resellers (functional aspect) of aerated soft drinks (product) in Australia (geographic).46
43 (1991) 104 ALR 633; (1992) ATPR 41-159, see 14.9C2. 44 (2011) 284 ALR 662; [2011] FCAFC 151, see 15.8C2. 45 (1996) 135 ALR 33; (1996) ATPR 41-521. 46 See ACCC Journal (1999) No 21 p 15.
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C. Importance of time 12.40 Time also plays an important role in determining markets. Markets never remain constant. They are forever evolving and changing. Therefore, it is important not to attempt to judge markets over too short a time period. What may look like a separate market when judged over a very short timeframe, may in fact be a submarket when judged over a more realistic term. See the discussion on sub-markets at 12.45. The evolutionary aspect of markets can be an important determinant of the overall shape of competition. Equally, it is important not to view a market over too long a time period. The issue of time was an important element in determining the market in Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC.47
D. The basic test for a market is one of substitution
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12.41 The leading description of a market comes from a decision of the Trade Practices Tribunal, which has been widely accepted by Australian courts. It was accepted by the High Court in Queensland Wire Industries v Broken Hill Proprietary Co Ltd.48 In Re Queensland Co-operative Milling Association Ltd and Defiance Holdings Ltd,49 the Tribunal said: We take the concept of a market to be basically a very simple idea. A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them. (If there is no close competition there is of course a monopolistic market). Within the bounds of a market there is substitution — substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive. Let us suppose that the price of one supplier goes up. Then on the demand side buyers may switch their patronage from this firm’s product to another, or from this geographic source of supply to another. As well, on the supply side, sellers can adjust their production plans, substituting one product for another in their output mix, or substituting one geographic source of supply for another. Whether such substitution is feasible or likely depends ultimately on customer attitudes, technology, distance, and cost and price incentives. It is the possibilities of such substitution which set the limits upon a firm’s ability to ‘give less and charge more’. Accordingly, in determining the outer boundaries of the market we ask a quite simple but fundamental question: If the firm were to ‘give less and charge more’ would there be, to put the matter colloquially, much of a reaction? And if so, from whom? In the language of economics the question is this: From which products and which activities could we expect a relatively high
47 (2003) 215 CLR 374; 195 ALR 609; [2003] HCA 5, see 14.26C. 48 (1989) 167 CLR 177; 83 ALR 577; [1989] HCA 6, see 14.9C1. 49 (1976) 8 ALR 481; (1976) ATPR 40-012 at 17,246.
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Chapter 12: Introduction to Competition Law demand or supply response to price change, ie a relatively high cross-elasticity of demand or cross-elasticity of supply?
Thus, the test for the product market is one of substitution. Substitution has two sides, demand substitution and supply substitution. In the language of economists, this is referred to as cross elasticity of demand and supply. The Tribunal further explained these principles in another authorisation case. Re Tooth & Co Ltd; Re Tooheys Ltd (1979) ATPR 40-113
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Facts: This was an application for authorisation of certain exclusive dealing agreements whereby a number of hotels would be required to purchase all their beer from Tooth breweries. A similar application by Tooth’s rival brewer, Tooheys, was heard at the same time. The applications raised important questions as to the nature and extent of the relevant market. For example, were Tooth’s and Tooheys’ beers in the same market? Were bulk beer and packaged beer in the same market? Were beer and wine in the same market? Were beers and other alcoholic beverages in the same market? Were New South Wales and interstate beers in the same market? Decision: The Tribunal summarised the principles to bear in mind in approaching the task of market delineation as follows: • First, in identifying the market it must be remembered that a market is an area of close competition. • Second, close competition occurs where there are real possibilities of substituting one product for another (‘substitution in demand’) or one source of supply for another in production or distribution (‘substitution in supply’). • Third, substitution should be judged not from the short term perspective but in the longer run. • Fourth, market boundaries are not precise. Generally speaking a market consists of those firms which collectively possess substantial market power, that is, those firms which, if they were to join forces as a cartel, ‘would be able to raise prices or offer a poorer deal without their market being substantially undermined by the incursions of rivals.’ • Fifth, a market may contain segments (or sub-markets) where, because of product similarity, competition may be particularly strong. Identifying segments within the market can sometimes be important in clarifying how competition works. • Finally, the market is a multi-dimensional concept with dimensions of product, functional level, geography and time. The Tribunal decided that the relevant product market was beer, both bulk and packaged in New South Wales. Authorisation was refused.
E. Product markets and demand substitution 12.42 Demand substitution focuses on the reaction of consumers to price and quality changes. A useful way of understanding substitutability is to consider the degree of cross price elasticity between two products. Thus, product A and product B will be in the same market and, therefore, in competition with one another if it can be said that a small but significant and non-transitory increase in the competitive price (SSNIP) of product A will lead to a significant crossover in 567
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demand from product A to product B (whose price has remained steady).50 This is the SSNIP test. Given a price rise in Holden cars relative to other products, will there be a crossover in demand from Holden cars to other products and, if so, which products? It does not require a leap of faith to conclude that some customers will transfer to Fords, Toyotas, Mitsubishis, or Hondas which are similarly priced. Applied literally, the SSNIP test requires a lot of econometric evidence. In most cases this data will not be available. Instead the court must rely on evidence from economists and from those who work in the market. Nevertheless, the SSNIP test provides an ‘aid for focusing the enquiry’ into the market: Seven Network Ltd v News Ltd.51 See ACCC v Australia and New Zealand Banking Group Ltd,52 where Dowsett J applied the SSNIP test to support his conclusion that independent mortgage brokers were not in the same market as ANZ’s in-house mortgage division. Another way of visualising the market is to apply the hypothetical monopolist test. The test was explained in ACCC v Metcash Trading Ltd:53
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A critical market definition test is the hypothetical monopolist test. That test involves determining whether a hypothetical monopolist supplier in a market could profitably impose a small but significant non-transitory increase in price, most commonly between five and ten per cent, for the supply of relevant products, or whether substitution by buyers or suppliers would make such an increase unprofitable. If the hypothetical monopolist supplier could profitably impose such an increase, to which I will refer as a relevant increase in price, the market is correctly defined.
Of course, price is not the only determinant of substitution. Other factors that provide a picture of consumer demand include: • the respective uses of the products; for example, competing products would be expected to serve a similar purpose; products which serve a similar purpose may be in the same market even though they are physically dissimilar; for example, glass containers and metal containers have been held to be in the same market;54 • the similarity between the products; for example, are the products similar in design, construction, or packaging? The more alike two products are, the more likely it is that they are substitutes; • the methods by which the products are promoted; for example, does the respective advertising target the same audience? The greater the similarity, the more likely it is that they are in the same market; a Rolls-Royce and a Hyundai 50 The price of A must be the competitive price (ie, a price that just covers costs including opportunity costs). If the SSNIP test is applied to a monopoly price there will be the illusion of a market where none may exist. 51 (2009) 262 ALR 160; [2009] FCAFC 166. 52 [2013] FCA 1206. 53 (2011) 284 ALR 662; [2011] FCAFC 151 at [153], see 15.8C2. 54 US v Continental Can Co 378 US 441 (1964). The court, however, did not include plastic and paper containers. It is difficult to see why plastic and paper containers would be excluded.
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are both cars, but their marketing is quite different; most would probably agree that they are not substitutes; and • the ways in which the products are distributed; for example, are the products associated with similar retailers? Are there any distinctive conditions of sale attaching to one product and not the other? The greater the similarity, the more likely it is that they are in the same market.
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F. Product markets and supply substitution 12.43 Two firms are said to be in competition with one another, even where there is little or no cross elasticity of demand between their products, if one of them is able to switch production within a reasonable time to producing a product that has a high level of cross elasticity of demand with the other firm’s product, so as to take advantage of the benefits, such as greater profits, that may exist in the other’s market. For example, aluminium guttering and aluminium window frames would not be regarded as demand substitutes. However, the production and distribution facilities, raw materials, labour, and marketing skills required to produce and market aluminium guttering may be basically the same as those required to make and market aluminium window frames. Therefore, if the price of aluminium window frames increased so that it was more profitable to produce aluminium window frames than it was aluminium guttering, a producer of aluminium guttering could switch some of its production to take advantage of that profit opportunity. A profit maximiser would be bound to switch some production. If the switch in production can realistically be achieved in the relatively short term and without the need to resort to investment in new plant and equipment, then the producer of aluminium guttering should be regarded as being in competition with the producer of aluminium window frames. Therefore, it would be incorrect to talk about a market for aluminium guttering. Aluminium guttering would be a segment of the overall aluminium products market.55 FIGURE 12.2 PRODUCT MARKETS
Firm A Aluminium window frames
Firm B Aluminium guttering
Can Firm B switch production in the relatively short term to making window frames? Is this a real rather than a remote possibility? If so, then A and B are in the same market.
55 A segment of the market has sometimes been referred to as a ‘sub-market’. Unfortunately the term ‘submarket’ is not used consistently in the cases or literature on trade practices law. At times its use is apt to mislead.
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It seems reasonably well settled that one firm can only be regarded as a supply substitute for another firm if it is able to switch production without the need to invest in entirely new capacity, such as plant and equipment.56 Some of the factors that one would investigate to make an assessment as to whether two firms were in competition from the supply side are: • whether unique production facilities are required to produce the product in question; • whether access to required technology is limited; • whether access to raw materials is restricted; and • whether access to buyers is restricted. Supply substitution is often treated as a matter of barriers to entry, an important element in assessing the level of competition: see 12.51. Thus, if the possibility of supply substitution is reasonably high, it can be said that barriers to entry are relatively low. The conclusion from this is that the market is likely to be more competitive than it would at first appear (ie, from a demand substitution point of view).
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G. Geographic markets and substitution 12.44 So far all the examples of demand and supply substitution have concentrated on product substitution. However, as previously indicated, markets also have a geographic element. The geographic scope of the market is also determined by applying the principles of demand and supply substitution. From the demand side, the question is whether buyers consider one geographic source to be substitutable for another. Given a small but significant non-transitory price incentive (a discount in location Y), will consumers who are currently purchasing the product in geographic location X transfer a significant share of their buying to geographic location Y? If they would, then X and Y form part of one geographic market. See TPC v Nicholas Enterprises Pty Ltd (No 2),57 where the retail packaged beer market was held to include two hotels situated 10 km apart in Adelaide. Supply substitution is also relevant. If there are producers who have the ability in the short term to move into a geographic area to take advantage of local demand, then those producers ought to be regarded as competitors of the local firms.
56 Queensland Wire Industries v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577; [1989] HCA 6, see 14.9C1; QIW Retailers Ltd & Attorney-General (Cth) v Davids Holdings Pty Ltd (No 3) (1993) 114 ALR 579; (1993) ATPR 41-226, confirmed on appeal Davids Holdings Pty Ltd v Attorney General (Cth) (1994) 121 ALR 241; (1994) ATPR 41-304. This is also the view of most economic commentators. See N Norman and P Williams, ‘The Analysis of Market & Competition under the Trade Practices Act: Towards Resolution of some hitherto Unresolved Issues’ (1983) ABLR 396; M Brunt, ‘“Market Definition” in Issues in Australia and New Zealand Trade Practices Litigation’ (1990) ABLR 86; G Walker, ‘Product Market Definition in Competition Law’ (1980) 11 Fed L Rev 386. 57 (1979) 26 ALR 609; (1978) ATPR 40-126, see 13.10C.
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The following evidence is needed to define the geographic extent of the market:58 • The nature of the product is clearly an important consideration. For example, the geographic market for a perishable product will be limited by the need to consume the product quickly. Householders may travel to the next suburb to get their fresh vegetables, but they are unlikely to go interstate, or to the next city, or perhaps even across town.59 The propensity of cattle to bruise badly when being transported affected the market definition in Australia Meat Holdings Pty Ltd v TPC.60 On the other hand, major construction firms will probably source their steel needs from wherever they can obtain the best deal. • The geographic extent of the market may be influenced by regulatory constraints. For example, government regulation may prevent sellers from selling to particular buyers. • Transportation costs can obviously play a major part in determining the geographic reach of a firm: see Australia Meat Holdings Pty Ltd v TPC;61 and ACCC v Cement Australia Pty Ltd.62 The nature of some industries requires them to be geographically fragmented. • The functional level at which the product is being exchanged is often important. For example, retail markets are much more likely to be geographically narrower than wholesale markets. Often consumers do not have the ability or the buying power to access sources of supply outside the immediate geographic area, although this situation is changing rapidly with the growth of online retailing. • A firm which wants to move into a new geographic area to take advantage of local demand may be constrained by an inability to obtain suitable premises or suitable staff. Australia Meat Holdings Pty Ltd v TPC (1989) ATPR 40-932 Facts: Australia Meat Holdings (AMH) owned a number of abattoirs in Queensland. It took over a company called Borthwicks, which owned abattoirs in north Queensland. The evidence suggested that a large majority of cattle owners in north Queensland sold their fat cattle to abattoirs situated in north Queensland. If there was a separate north Queensland market for the purchase of fat cattle for slaughter, then AMH had breached s 50 (unlawful merger). On the other hand, if the market was the whole of Queensland or even the whole of the eastern coast of Australia, then it was much less likely that any breach had occurred.
58 See ACCC, ‘Merger Guidelines’ (2008) revised in 2017, available at . 59 In Re Queensland Co-operative Milling Association Ltd and Defiance Holdings Ltd (1976) 8 ALR 481; (1976) ATPR 40-012 the Trade Practices Tribunal decided that the retail bread market was ‘local’ because of the perishability of the product. 60 (1989) ATPR 40-932, see 12.44C. 61 (1989) ATPR 40-932, see 12.44C. 62 (2013) 310 ALR 165; [2013] FCA 336.
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Marketing and the Law Decision: The court took a practical approach to the resolution of this issue. The mere fact that some north Queensland fat cattle were sent to abattoirs in southern Queensland did not mean that there was not a separate north Queensland market. Market definition is a matter of degree and one must expect some overlap. The fact that there was a similarity in prices between north Queensland abattoirs and those in the south did not prove that there was only one market for the whole of Queensland. All the facts must be analysed. The court accepted that southern or central Queensland abattoirs were not close substitutes for the north Queensland abattoirs because of the high cost of transporting live cattle, the bruising and loss of condition that occurred during transport of cattle over long distances, the desire of cattle owners to slaughter their cattle when they were in prime condition, and, finally, the loyalty of cattle owners to the local abattoirs. In adopting a practical approach, the court warned against being too theoretical. Pincus J said: In this particular case, it does not appear to me that the price incentive test provides much assistance in fixing the geographic boundary of the market. [AMH’s] argument suggests that one has to consider which buyers and sellers would be likely to operate in a particular area if the price went up or down enough. The simple answer is, of course, all buyers and sellers. If the price moves enough, then obviously there will be new participants in a previously isolated market. Buyers and sellers placed outside any postulated boundary will always be interested in coming in if there is sufficient price incentive.
H. The role of sub-markets
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12.45 One of the mistakes often made in discussions on competition law is to confuse markets and sub-markets. The Competition and Consumer Act refers to markets and not sub-markets. Sub-markets may be useful in analysing the degree of competition, but should not be confused with the market.63 The distinction between the two was explained as follows by the Trade Practices Tribunal (now the Competition Tribunal) in Re Queensland Co-operative Milling Association Ltd and Defiance Holdings Ltd:64 The distinction between markets and submarkets can be merely one of degree. Submarkets are the more narrowly defined, typically registering some discontinuity in substitution possibilities. Where the defining feature of a market is the existence of close substitutes (whether in demand or supply), the defining feature of a submarket is the existence of still closer and more immediate substitutes. Submarkets may be especially useful in registering the short-run effects of change; but they may be misleading if used uncritically to assess long run competitive effects.
Instead of using the expression sub-market, it may be better to use expressions such as market segment or market sector. For example, if we assume that there 63 See Re Tooth & Co Ltd; Re Tooheys Ltd (1979) ATPR 40-113, see 12.41C, in which the Tribunal commented that, although there was a single market for beer (both bulk and packaged), there was nevertheless a ‘significant sub-market in bulk beer of great relevance for these applications’. 64 (1976) 8 ALR 481; (1976) ATPR 40-012 at 17,247.
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is a market for the supply of non-alcoholic drinks, including soft drinks, mineral waters, and fruit juices,65 this does not mean that competition between all firms is equal. No doubt the manufacturers of Coca-Cola, Pepsi, and other carbonated cola drinks compete more fiercely with one another than they do with a fruit juice manufacturer. In other words, within the non-alcoholic drinks market there are a number of segments (‘sub-markets’), including one in which manufacturers of carbonated cola drinks compete particularly strongly.
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I. Brand markets 12.46 The discussion on sub-markets raises the question whether there can ever be a single brand market. While a single brand market would be rare, it is possible. This was the view of the US Supreme Court in Eastman Kodak Co v Image Technical Services Inc.66 The Court held that there could be a separate market for the supply of spare parts for Kodak photocopier equipment because other spare parts were not interchangeable with Kodak parts. Therefore, owners of Kodak photocopiers had no choice but to use Kodak parts. A similar result was reached in Hugin v Commissioner of European Communities.67 The European Court held that there was a separate market for spare parts for Hugin cash registers. Even though Hugin had only 12% of the market for cash registers it dominated the market for Hugin spare parts. However, in light of the decision in Regent’s Pty Ltd v Subaru (Australia) Pty Ltd,68 there must be some doubt that Australian courts will follow Kodak and Hugin. In United Brands Co & United Brands Continentaal BV v Commission of European Communities,69 the European Court decided that bananas were in a separate market. However, there must be some doubt that the same result would be reached in Australia. It is more likely that bananas form a segment of a wider fruit market. A single brand or product market has been rejected for Salomon ski boots,70 each individual musical album,71 and Rugby League football.72 On the other hand, in ACCC v Fila Sport Oceania Pty Ltd,73 Heerey J appeared to accept that there were
65 See Applications of Southern Cross Beverages Pty Ltd, Cadbury Schweppes Pty Ltd (1981) ATPR 40-200. 66 504 US 451 (1992). 67 [1979] ECR 1869. 68 (1998) 42 IPR 421; (1998) ATPR 41-647. 69 [1978] 1 CMLR 429. 70 Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) 75 ALR 581; (1987) ATPR 40-809. 71 Universal Music Australia Pty Ltd v ACCC (2003) 201 ALR 636; 57 IPR 353; (2003) ATPR 41-947; [2003] FCAFC 193, see 17.26C; Tru Tone Ltd v Festival Records Retail Marketing Ltd (1988) 2 NZBLC 103,081. See also Broderbund Software Inc v Computermate Products (Australia) Pty Ltd (1991) 22 IPR 215; (1992) ATPR 41-155, where the court rejected a submission that a computer software program for educational or entertainment use was ‘unique’ in an economic sense. 72 News Ltd v Australian Rugby Football League (1996) 135 ALR 33; (1996) ATPR 41-466. 73 [2004] FCA 376, see 17.11C1.
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separate markets for the supply of each AFL team’s approved apparel. However, as Fila pleaded guilty, it was not necessary for his Honour to decide this point.
The concept of competition A. Meaning of competition 12.47 Competition is an economic concept. Perhaps the best way to understand competition is to think of it as a process. It is the process by which sellers and buyers work out the products to be traded, the manner in which they are to be distributed, the price and other factors. In Re Queensland Co-operative Milling Association Ltd and Defiance Holdings Ltd, the Tribunal said:74
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Competition may be valued for many reasons as serving economic, social and political goals. But in identifying the existence of competition in particular industries or markets, we must focus upon its economic role as a device for controlling the disposition of society’s resources. Thus we think of competition as a mechanism for discovery of market information and for enforcement of business decisions in the light of this information. It is a mechanism, first, for firms discovering the kinds of goods and services the community wants and the manner in which these may by supplied in the cheapest possible way. Prices and profits are the signals which register the play of these forces of demand and supply. At the same time, competition is a mechanism of enforcement: firms disregard these signals at their peril, being fully aware that there are other firms, either currently in existence or as yet unborn, which would be only too willing to encroach upon their market share and ultimately supplant them. This does not mean that we view competition as a series of passive, mechanical responses to ‘impersonal market forces’. There is of course a creative role for firms in devising the new product, the new technology, the more effective service or improved cost efficiency. And there are opportunities and rewards as well as punishments. Competition is a dynamic process; but that process is generated by market pressure from alternative sources of supply and the desire to keep ahead … Competition expresses itself as rivalrous market behaviour. In the course of these proceedings, two rather different emphases were placed upon the most useful form such rivalry can take. On the one hand it was put to us that price competition is the most valuable and desirable form of competition. On the other hand it was said that if there is rivalry in other dimensions of business conduct — in service, in technology, in quality and consistency of product — an absence of price competition need not be of great concern. In our view effective competition requires both that prices should be flexible, reflecting the forces of demand and supply, and that there should be independent rivalry in all dimensions of the price-product-service packages offered to consumers and customers. 74 (1976) 8 ALR 481; (1976) ATPR 40-012 at 17,245–17,246.
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Chapter 12: Introduction to Competition Law Competition is a process rather than a situation. Nevertheless, whether firms compete is very much a matter of the structure of the markets in which they operate. The elements of market structure which we would stress as needing to be scanned in any case are these: (1) the number and size distribution of independent sellers, especially the degree of market concentration; (2) the height of barriers to entry, that is the ease with which new firms may enter and secure a viable market; (3) the extent to which the products of the industry are characterised by extreme product differentiation and sales promotion; (4) the character of ‘vertical relationships’ with customers and with suppliers and the extent of vertical integration; and (5) the nature of any formal, stable and fundamental arrangements between firms which restrict their ability to function as independent entities. Of all these elements of market structure, no doubt the most important is (2), the condition of entry. For it is the ease with which firms may enter which establishes the possibilities of market concentration over time; and it is the threat of the entry of a new firm or a new plant into a market which operates as the ultimate regulator of competitive conduct.
B. How market structure affects competition
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12.48 There are a number of things that indicate the likely level of competition. First, we can look at the structure of the market. Market structure includes: • market concentration; • barriers to new entry; • the level of vertical integration; and • the level of product differentiation.
i. Market concentration 12.49 The importance of market concentration (number of firms and their relative market shares) to economic performance is not entirely clear. On its face, market concentration is anti-competitive. Yet a degree of concentration may be necessary to achieve economies of scale and scope. Provided some of the economies are passed on to consumers, market concentration is good for consumers. A degree of concentration may also be necessary to achieve the right level of research and development. The optimum concentration mix will no doubt vary from market to market and from time to time.
ii. Vertical integration and product differentiation 12.50 Similar comments may be made about vertical integration and product differentiation. For example, increased levels of vertical integration may suggest a 575
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reduction in competition, but, in fact, be an efficient response to strong competition. Product differentiation gives each firm within the market some market power. On its face, this may make the market look less competitive. However, product differentiation is also an expression (or outcome) of competition; that is, firms compete by differentiating their products.
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iii. Barriers to entry 12.51 While the competition implications of concentration, integration, and product differentiation are uncertain, no such doubt exists about barriers to new entry. They must be kept as low as possible. Barriers to entry determine the threat of potential competition. The threat of potential competition is probably the single most important element in determining the overall level of competition.75 The higher the barriers to entry, the less competition one would expect, all other factors being equal. Barriers are not necessarily restricted to sunk costs (ie, costs that are nonrecoverable if the new entrant fails to gain a foothold and quits the market). A barrier may be anything which deters new entrants to the market, including start-up costs; access to suppliers, buyers, technology, and skilled employees; entrenched brand loyalties; excessive advertising costs; and large research and development costs.76 The following questions are designed to establish the level of barriers:77 • Is entry restricted by regulation (tariffs, quotas, licensing, patents, packaging and product standards, product certification requirements, local content requirements, or foreign investment regulations)? • Are there environmental regulations that raise the costs of entry into a market or act as a barrier for customers to switch suppliers? • Are there any absolute ‘natural’ barriers to entry to the industry (eg, prohibitive freight costs for overseas potential competitors)? • Can new entrants get access to sources of supply, distribution networks, essential technology, and skilled workforce? • Is the minimum economic scale of operations in the market likely to deter new entrants? Can new entrants get access to such economies of scale or scope that exist? • Is there already excess production capacity in the market? Is this a mature or a declining market? The fear of creating excess capacity is a major deterrent.
75 See the comments of the Trade Practices Tribunal in Re Queensland Co-operative Milling Association Ltd and Defiance Holdings Ltd (1976) 8 ALR 481; (1976) ATPR 40-012 at 17,246; and the High Court in Queensland Wire Industries v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577; [1989] HCA 6, see 14.9C1. 76 The ACCC has listed a number of factors which it considers important when determining potential competition. See ACCC, ‘Merger Guidelines’ (2008), above n 58, at [7.29]–[7.32]. 77 This list is based on the ACCC, ‘Merger Guidelines’ (2008), above n 58.
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• How high are the likely capital expenditures or other upfront costs faced by any new entrant, including the construction of specialised facilities and the cost of establishing a viable reputation? To what extent are these costs of entry sunk? • What is the lead time for new entry (with regard to product design, plant, construction, etc)? • Are there strategic barriers to entry such as the risk of price wars, or brand proliferation to crowd the product space?
iv. Summing up market structure 12.52 Therefore, by looking at market structure, we can make certain tentative assumptions about how competitive the market is likely to be. A market with a number of more-or-less equal-sized firms and no significant start-up barriers is likely to be highly competitive. On the other hand, a market with only one firm (a monopoly) and significant start-up barriers is not likely to be very competitive.
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C. Market conduct and competition 12.53 Structure is only a guide as to how a market behaves. It is not infallible. We must look behind the structure to see what firms are actually doing; that is, we must examine market conduct. Is pricing aggressive? Do suppliers respond quickly to changes in demand? Are suppliers consistently trying to gain an edge by offering a ‘better deal’? Are sellers acting independently? Are distribution systems efficient? In a competitive market we would expect the answer to all questions to be in the affirmative. Competition requires that each firm in the market sets its own price according to its perception of the prevailing market forces. In many ways this is the essence of competition. Therefore, any activity that takes pricing out of the hands of the individual firm is potentially anti-competitive. For example, it is anti-competitive for rival firms to agree to set the same price. Price fixing agreements will distort allocative efficiency and reduce the incentive for firms to be technically efficient. Market sharing agreements will have much the same effect. Competition is not just about determining price. It is also about product quality and development, about distribution, and, where relevant, after-sales service. It is about sellers providing information to buyers. Competition is the whole process of sellers and buyers coming together to trade goods and services. Therefore, any artificial arrangement that interferes with that process has the potential to be anticompetitive. In sum, an agreement is likely to substantially lessen competition if it: • significantly alters the structure of the market to make it less competitive (eg, a joint venture between the only two bauxite producers, who were previously competitors, is going to have a major effect on the structure of the market for the supply of bauxite); or 577
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• leads to significantly less aggressive pricing in the market, or substantially reduces the options available to buyers.
D. Market performance 12.54 Market structure and market conduct are important only in so far as they affect the performance of the market and, therefore, the achievement of microeconomic goals. The performance of a market can be assessed by analysing a number of performance criteria designed to indicate the level of efficiency and innovation in the market. For example, poor market performance may be indicated by a combination of any of the following factors: • sustained excess profits; • prices unrelated to cost structures; • sustained excess capacity; • low levels of innovation; • inefficient production techniques; • failure to meet demand changes; and • survival of inefficient firms.
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E. Sources of evidence 12.55 In assessing competitive effects, the court may have regard to a variety of sources, including economists and industry representatives. Economists are regularly called as expert witnesses. However, care must be taken that their analyses are not too speculative and that the assumptions upon which any analysis is based are made clear. The Federal Court has developed a procedure for taking expert economic evidence. For a description of that procedure see Robert Hicks Pty Ltd (t/as Auto Fashions) v Melway Publishing Pty Ltd.78 Evidence from persons with long experience in the industry is useful.79 However, care must be taken that the advice is assessed for any partiality. This is not to say that evidence given by industry representatives is unreliable, but that any predictions as to the future may be subconsciously coloured by the representatives’ involvement in the industry.
Authorisations 12.56 Conduct that has the potential to breach Pt IV of the Competition and Consumer Act can be authorised by the ACCC if the relevant test is satisfied.
78 (1998) 42 IPR 627; (1999) ATPR 41-668 at 42,526. 79 The court relied heavily on industry representatives to determine the geographic market in Australia Meat Holdings Pty Ltd v TCP (1989) ATPR 40-932, see 12.44C.
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A. What are the authorisation tests? 12.57 In relation to conduct which is only unlawful if it leads to substantial lessening of competition, authorisation can be granted if the ACCC is satisfied in all the circumstances that either: • the proposed conduct would not be likely to substantially lessen competition;80 or • the conduct will result, or be likely to result, in a benefit to the public and that that benefit will outweigh the detriment to the public constituted by any lessening of competition caused by the conduct.81 In relation to conduct that is not subject to a test of substantially lessening competition, authorisation can only be granted if the ACCC is satisfied in all the circumstances that the conduct would result, or be likely to result, in such a benefit to the public that any likely public detriment is outweighed: Competition and Consumer Act s 90(8). FIGURE 12.3 WEIGHING BENEFITS AND DETRIMENTS
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Public benefits
Lessening of competition
The merger authorisation process operates differently but the tests are the same. The ACCC may only authorise a merger if it is satisfied that either: • the proposed acquisition would not be likely to substantially lessen competition; or • the likely public benefit from the proposed acquisition outweighs any likely public detriment. The ACCC’s ‘Merger Authorisation Guidelines’82 provide a helpful overview of the process. Applications to review ACCC decisions may be made to the Australian Competition Tribunal.83
B. What is public detriment? 12.58 Public detriment is largely determined by analysing the degree to which the conduct will lessen competition in the market. This will involve determining the market and then analysing the difference between the likely level of competition 80 81 82 83
Competition and Consumer Act 2010 s 90(7)(a). Competition and Consumer Act 2010 s 90(7)(b). ACCC, ‘Merger Authorisation Guidelines’, October 2018, available at . Competition and Consumer Act 2010 s 91.
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in the market without the conduct and the likely level of competition in the market with the conduct (ie, the ‘future with and future without’ test). The test is applied to public benefits as well as detriments.84 It is not necessary to determine whether there will be a substantial lessening of competition. Competition is examined in the same way as under Pt IV of the Competition and Consumer Act. Therefore, it will be critical to examine the extent to which the structure of the market, the conduct of the players within the market, and the performance of the market are likely to be influenced or changed by the conduct sought to be authorised. The greater the lessening of competition, the greater will be the public detriment. The larger the public detriment; the larger must the public benefits be to permit authorisation.
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C. What are public benefits? 12.59 ’Benefits to the public’ is not defined in the Competition and Consumer Act. In Re Queensland Co-operative Milling Association Ltd and Defiance Holdings Ltd,85 the Trade Practices Tribunal held that the term ‘public benefit’ must be given a wide meaning and includes anything of value to the community generally. Of particular importance, however, will be the economic goals of efficiency and progress. In ACI Operations Pty Ltd,86 the Commission listed a number of items which it considered to be of public benefit depending on the circumstances: • economic development; for example, in natural resources, through encouragement of exploration, research, and capital investment; • fostering business efficiency, especially where this results in improved international competitiveness; • industry rationalisation resulting in more efficient allocation of resources and in lower or contained unit production costs; • expansion of employment or prevention of unemployment in efficient industries and employment growth in particular regions; • industrial harmony; • assistance to efficient small business; for example, guidance on costing and pricing or marketing initiatives which promote competitiveness; • improvement in the quality and safety of goods and expansion of consumer choice; • supply of better information to consumers and businesses to permit informed choices in their dealings; • promotion of equitable dealings in the market; 84 Re Queensland Independent Wholesalers Ltd (1995) 132 ALR 225; (1995) ATPR 41-438; Re 7-Eleven Stores Pty Ltd, Independent Newsagents Association (1998) ATPR 41-666. 85 (1976) 8 ALR 481; (1976) ATPR 40-012 at 17,246. 86 (1991) ATPR (Com) 50-108 at 56,067.
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• promotion of industry cost savings resulting in contained or lower prices at all levels in the supply chain; • development of import replacements; • growth in export markets; and • steps to protect the environment. A benefit must be of substance, as distinct from ephemeral or illusory.87 There must be a benefit to the public. This does not mean that the conduct cannot have any private benefits, nor does it mean that a strictly private benefit is necessarily irrelevant: ‘[t]his is because benefit and detriment are to be determined in accordance with the values of the community generally.’88 ‘Injury to an individual can itself, in many circumstances, constitute a detriment to the community generally. Injustice to an individual will commonly do so. The encouragement or enabling of an individual to pursue legitimate ends or to attain legitimate rewards may well be beneficial to the community generally.’89 The important question is whether the community generally has an interest in the individual receiving the benefit or suffering the detriment. Where there is no real benefit flowing through to the public at large, authorisation will not be granted unless the loss of competition is negligible. Care must be taken to examine the factual basis surrounding a claimed benefit. A benefit may be so inextricably linked to other effects that it cannot be claimed as a benefit until those other effects have been analysed. For example, in Re Tooth & Co Ltd; Re Tooheys Ltd,90 the applicant claimed that one of the benefits of maintaining an exclusive dealing arrangement whereby hotels were required to buy all their beer supplies from the one brewery (a tied house system) was that without the tied house system distribution costs of bulk beer would have to go up and these increased costs would be passed on to the consumer. While cost savings are often a public benefit, it will not always be the case. The Tribunal said:91 First, much of the applicants’ case seemed to proceed on the basis that cost increases would necessarily be contrary to the public interest. We cannot accept that starting point. In some circumstances, cost savings may constitute a legitimate basis for the establishment of public benefit. But in others, the ‘savings’ may be associated with a suppression of public demand for greater product variety or enhanced service, or with a static approach to product development and market penetration.
87 Re Queensland Independent Wholesalers Ltd (1995) 132 ALR 225; (1995) ATPR 41-438. 88 Re Queensland Independent Wholesalers Ltd (1995) 132 ALR 225; (1995) ATPR 41-438 at 40,928. 89 See Re Rural Traders Co-operative (WA) Ltd (1979) ATPR 40-110 at 18,123. 90 (1979) ATPR 40-113, see 12.41C. 91 At 18,239.
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D. Balancing detriment and benefits 12.60 Authorisation ultimately depends on a balancing of benefits and detriments.92 This is no easy task. Even when the relevant benefits and detriments are established, the difficult job of considering their relative merits lies ahead. Some benefits are obviously better than others; some detriments worse than others. For example, the Tribunal has indicated that more weight is to be given to economic benefits than to social ones.93 A long-term benefit is preferable to a shortterm benefit. On the other hand, a certain short-term benefit may be preferable to a more speculative long-term one. A benefit to the nation as a whole is probably better than a regional benefit. At best, however, these are general observations. Parliament has not set down a more specific test because it recognises that any attempt to put in place a more rigid formulation would inevitably fail given the complex and evolutionary nature of industry, the economy, and society.
E. Review by the Tribunal 12.61 If a firm is refused authorisation by the ACCC it may apply to the Tribunal for a review. Either the ACCC or the Tribunal may grant an interim authorisation pending hearing of the matter by the Tribunal. There is no appeal from the Tribunal decision to a court except on a matter of law.
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F. Revocation of an authorisation 12.62 An authorisation may be revoked where there has been a material change of circumstances since the authorisation was granted: s 91B. For example, the Media Council of Australia Accreditation Scheme for regulating the content and placing of advertisements on television and radio, which had been authorised in 1978, was revoked in 1997.94 The structure of the relevant markets and, not surprisingly, the conduct of the firms within those markets, had altered significantly since authorisation.
Marketing Advice 12.63 This chapter is designed as an introduction to Australia’s competition laws. The individual laws are discussed in the next five chapters. Overall, however,
92 See Application by Co-operative Bulk Handling Ltd (No 3) [2013] ACompT 3, see 17.28C. 93 Re Queensland Co-operative Milling Association Ltd and Defiance Holdings Ltd (1976) 8 ALR 481; (1976) ATPR 40-012 at 17,246. 94 Re Media Council of Australia (1996) ATPR 41-497. See also Re Cooper Basin Natural Gas Supply Arrangements (1997) ATPR 41-593.
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there are certain general lessons that should be taken on board by the business community generally and marketers in particular. • The competition provisions of the Competition and Consumer Act are not prescriptive; that is, they are not designed to dictate generally to the business community how to do business, which is a matter for business itself. • The competition provisions do, however, prohibit certain activities that are regarded as contrary to the interests of the community generally, even though they may be profitable for the individual firm. • Penalties for a breach of the competition laws are significant. • The ACCC has broad investigatory powers and is generally well financed. • Firms should have a compliance program in place to avoid breaches. • Where the business is concerned that proposed conduct may breach the law, an authorisation should be applied for from the ACCC. This should be done before the conduct commences — authorisations are not retrospective.
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Collusive Conduct
13
Introduction ..................................................................................... 13.1 What form can cooperation take? ............................................ 13.2 Why control market cooperation? ........................................... 13.3 Is the common law adequate? .................................................. 13.4 Part IV Div 1 and Div 2 (s 45) of the Competition and Consumer Act ............................................................................... 13.5 Introduction................................................................................... 13.5 Summary of collusive practices ................................................. 13.6 What is meant by contract, arrangement, understanding or concerted practice? ................................. 13.7 A. Contract ............................................................................... 13.7 B. Arrangement or understanding ....................................... 13.8 C. Concerted practice ............................................................. 13.9 What evidence is needed to prove collusion? .......................... 13.10 A. Parallel conduct alone is not sufficient .......................... 13.11 B. Problem of oligopolies .......................................................... 13.12 C. Case study: petroleum markets — collusion or not?.... 13.13 D. What circumstantial evidence is important? ................ 13.14 How does the ACCC detect and investigate cartels? ............ 13.15 How does the ACCC immunity program work? ..................... 13.16 What are the consequences of engaging in cartel conduct? .................................................................................... 13.17 Types of Collusive Conduct ........................................................... 13.18 Price-fixing agreements .............................................................. 13.19 A. Is there a contract, arrangement or understanding?......... 13.20 B. Is the agreement between competitors? ....................... 13.21 C. Does the agreement have the purpose or (likely) effect of fixing prices? ........................................................... 13.22 i. What is meant by fixing, controlling, or maintaining prices? ........................................................... 13.23 585
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Marketing and the Law
ii. Will fixing discounts, allowances, rebates, or credits breach the law? ............................................... iii. Will failed attempts to fix prices breach the law? .... D. Examples of possible price-fixing agreements .............. i. Costing assistance, time manuals, and calculation tables prepared by a trade or industry association ................................................ ii. Information-exchange agreements ........................... iii. Marketing boards and single selling agents .............. iv. Output restrictions, market sharing, and bid rigging .................................................................... E. Are there any exceptions to price fixing illegality? ...... Output restriction agreements ................................................ A. Is there a contract, arrangement, or understanding? . B. Is the agreement between competitors? ...................... C. Does the agreement have the purpose of restricting output? ............................................................ Market-sharing agreements ...................................................... A. Is there a contract, arrangement, or understanding? ................................................................. B. Is the agreement between competitors? ...................... C. Does the agreement have the purpose of allocating customers, suppliers, or territories? ............ Bid-rigging agreements .............................................................. A. Is there a contract, arrangement, or understanding? .................................................................. B. Is the agreement between competitors? ...................... C. Does the agreement have the purpose of rigging bids? ....................................................................... Exclusionary agreements ........................................................... Anti-competitive agreements ................................................... A. Is there a contract, arrangement, understanding, or concerted practice? ...................................................... B. Is the purpose or effect to substantially lessen competition? ...................................................................... i. The ‘future with and future without’ test .................. ii. The lessening of competition must be substantial ... C. Examples of possible anti-competitive agreements .... i. Resource-sharing agreements .................................. ii. Information-exchange agreements ........................... iii. Strategic alliances, partnering agreements, or joint ventures ....................................................... iv. Collective exclusive dealing agreements ................. v. Terms of trading agreements .................................... vi. Price discrimination agreements .............................. 586
13.24 13.25 13.26 13.27 13.28 13.29 13.30 13.31 13.32 13.33 13.34 13.35 13.36 13.37 13.38 13.39 13.40 13.41 13.42 13.43 13.44 13.45 13.46 13.47 13.48 13.49 13.50 13.51 13.52 13.53 13.54 13.55 13.56
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13.57 13.58 13.59 13.60 13.61 13.62 13.63 13.64 13.65 13.65 13.66 13.67 13.68 13.69 13.70 13.71 13.72 13.73 13.74 13.75 13.76
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Collusive Conduct Exemptions .................................................... Division 1 exemptions ................................................................ A. Authorisation exemption ................................................. B. Collective bargaining exemption .................................... C. Related bodies exemption ............................................... D. Joint venture exemption .................................................. E. Collective acquisitions exemption .................................. F. Anti-overlap provisions .................................................... Division 2 exemptions ................................................................ A. Authorisation, collective bargaining, and related bodies exemptions .............................................. B. Joint ventures ..................................................................... C. Collective acquisitions ...................................................... Price Signalling ................................................................................ Authorisation of Collusive Conduct ............................................ What public benefits can be used to justify collusive conduct? ................................................................................... A. Cartel provisions and exclusionary agreements ........... B. Joint ventures ..................................................................... C. Collective buying (acquisition) groups ........................... D. Trade associations ............................................................. Marketing Advice ............................................................................ Collusive (cartel) conduct .........................................................
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Introduction 13.1 Business enterprises often cooperate with one another. The emphasis in this chapter is upon cooperation between competitors — conduct sometimes known as horizontal collusion or cartel conduct. Such cooperation may be highly organised through trade associations or formal agreements, or it can be based on loose understandings. The cooperation might be rigidly policed or it could take the form of recommendations only. The cooperation may emanate from the collaborators themselves, or be imposed by another party. For example, a manufacturer may require its distributors to cooperate with each other so that an orderly marketing scheme can be maintained.
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What form can cooperation take? 13.2 Collusion between competitors (cartel conduct) may be practised for any number of reasons and take many forms. Firms may collude to: • fix prices in their market; • restrict output; • share the market; • set industry standards; • undertake a venture together but otherwise still remain independent (joint ventures); • form an industry or trade association to exchange ideas to better deal with regulatory authorities such as governments, to disseminate information to the public, and to promote the industry as a whole; • discipline uncooperative competitors; • force unwanted competitors out of the market; • boycott certain buyers or suppliers; or • provide a competitive alternative to a large player in the market.
Why control market cooperation? 13.3 Some of the objectives of cooperation are the very antithesis of competition. Cartels formed to restrict output have the effect of raising prices in the same way that a monopolist would restrict supply in order to maximise profits. Naked price fixing by cartels keeps the price artificially high, thereby causing a misallocation of resources without delivering any reduction in production costs that might be achieved by a merger. Cartels enable the members of the cartel to engage in monopolistic practices without any production or distribution rationalisation. Innovation and efficiency may also be curtailed.1
1
G Samuel, ACCC Chairman, ‘Cracking Cartels — International and Australian Developments’, 24 November 2004.
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Chapter 13: Collusive Conduct Cartels are a cancer on our economy. Their price fixing, bid rigging and market sharing are a silent extortion that in many instances do far more damage to our economy, to business, and to consumers, than many of the worst consumer scams …
On the other hand, some joint ventures may promote allocative and technical efficiency by making available products that would not otherwise have been made available or by making them available at lower cost. Trade associations often provide a useful and efficient forum for presenting information to the public and acting as an industry voice on governmental matters: see 13.72 and 13.74. Clearly then, some forms of collusion are inherently anti-competitive and need to be prohibited. However, other forms of collusion are just as obviously pro-competitive or competition neutral. Furthermore, whether or not market cooperation is beneficial or detrimental to the public will often depend upon the circumstances of the industry concerned. For these reasons, some forms of market cooperation are only unlawful in Australia (pursuant to the Competition and Consumer Act 2010 (Cth)) if they result in a substantial lessening of competition in the marketplace. Even then the cooperation can be authorised (permitted) if it has the capacity to deliver public benefits which offset the reduction in competition.
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Is the common law adequate? 13.4 One of the reasons for the introduction of competition legislation in Australia was the failure of the common law to effectively prohibit restrictive trading agreements and monopolistic practices. In theory, the common law can result in contracts that unreasonably restrain trade being declared unenforceable, and in remedies being granted to the business victims of a conspiracy. However, the reality is that the restraint of trade doctrine cannot effectively deal with anticompetitive agreements in the marketplace, simply because most restrictive agreements entered into are happily adhered to by the parties involved, as benefits for both parties usually exist with such agreements. The great majority of restrictive agreements, no matter how detrimental to the public interest, simply do not come before the courts, since the only persons capable of challenging the validity of such agreements are the parties themselves. Even when such agreements are challenged, there is no guarantee that the courts will find any restraints imposed unreasonable.2 The tort of conspiracy, a civil action that provides a right to damages for a trader who is injured as a result of a combination, is even less effective. Although
2 See English Hop Growers Ltd v Derring [1928] 2 KB 174 and D B & A E Newman Pty Ltd v Barossa Cooperative Winery (1981) 28 SASR 50.
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such conduct is unlawful if the objective of the conspiracy is to inflict economic harm or injury on the plaintiff, it is a defence to show that the motive of the conspirators is to protect their own legitimate interests (which includes business interests).3 The need for legislative intervention in order to preserve competition in the marketplace was therefore obvious.
Part IV Div 1 and Div 2 (s 45) of the Competition and Consumer Act Introduction
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13.5 Part IV Div 1 and s 45 in Div 2 of the Competition and Consumer Act are the vehicles that provide the means for protecting competition from the harm caused by restrictive trading agreements in the marketplace. The relevant provisions prohibit certain forms of collusive or cooperative activity. Unfortunately the structure of the cartel and collusion provisions is somewhat complicated. The most important provisions dealing with collusion are to be found in Pt IV Div 1. Under these provisions, any contract, arrangement or understanding that contains a cartel provision, or gives effect to a cartel provision, is prohibited. The definition of ‘cartel provision’ includes four varieties of cartel conduct: 1. price fixing; 2. output restrictions; 3. market sharing; and 4. bid rigging. The Competition and Consumer Act contains parallel civil and criminal sanctions for such cartel conduct, explained in more detail below. In addition to Div 1 of the Competition and Consumer Act, s 45 of Div 2 also provides for civil penalties for certain forms of collusive conduct more generally. Section 45(1) prohibits contracts, arrangements, understandings or concerted practices that have the purpose or likely effect of substantially lessening competition. Such conduct does not necessarily have to be between competitors. The concept of ‘concerted practice’ was introduced into the legislation with effect from November 20174 and applies to conduct covered by s 45.
3 See Mogul Steamship Co Ltd v McGregor Gow & Co [1892] AC 25; [1891–4] All ER Rep 263. 4 See ACCC, Guidelines on concerted practices, August 2018, available at .
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Summary of collusive practices 13.6 Divisions 1 and 2 of Pt IV of the Competition and Consumer Act prohibit a range of practices. TABLE 13.1 PRACTICES PROHIBITED BY PT IV DIVS 1 AND 2
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TYPE OF CONDUCT
ILLEGAL PER SE
CRIMINAL SANCTIONS
CIVIL PENALTIES
CAN BE AUTHORISED
Price-fixing agreements between competitors
YES
YES
YES
YES
Output restriction agreements between competitors
YES
YES
YES
YES
Market-sharing agreements between competitors
YES
YES
YES
YES
Bid-rigging agreements between competitors
YES
YES
YES
YES
Other agreements
NO
NO
YES
YES
All these types of conduct will be discussed in detail in this chapter. But, before doing so, some preliminary issues need to be addressed.
What is meant by contract, arrangement, understanding or concerted practice? A. Contract 13.7 The provisions of Div 1 and s 45 of Div 2 (of Pt IV) of the Competition and Consumer Act do not use the word ‘agreement’ or ‘collusion’. Instead all provisions require the existence of a ‘contract, arrangement or understanding’. ‘Contract’ bears its normal legal meaning of an agreement that the courts will enforce.5 Members of 5
In order to establish the existence of an agreement in the contractual sense, there must be both a mutual intention to agree demonstrated by both parties (that is, an offer and acceptance), together with mutual communication of the offer and acceptance.
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a trading association who have agreed to be bound by the rules of the association may have a contract with one another, the terms of which include the rules.6 In Clarke v Earl of Dunraven & Mount-Earl (The Satanita),7 competitors who lodged entry forms agreeing to be bound by certain conditions with the secretary of a yacht club were held to have communicated agreement with each other (through the secretary) even though they had never met and did not know each other prior to the race.
B. Arrangement or understanding
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13.8 In contrast to a contract, an ‘arrangement or understanding’ does not have to be legally enforceable. Nevertheless, there must be some form of agreement, although that agreement may result from collusion of a very loose kind; for example, a discussion over drinks whereby an understanding to keep prices more or less stable is reached. Determining whether an ‘arrangement or understanding’ exists in a particular case can be a difficult step. In ACCC v CC (NSW) Pty Ltd,8 Lindgren J observed that commonly the words ‘arrangement’ and ‘understanding’ are treated as synonymous (while inferring that this is not necessarily correct),9 and that the cases all require at least one party to ‘assume an obligation’ or give an ‘assurance’ or ‘undertaking’ that it will act in a certain way. His Honour said,10 ‘[a] mere expectation that as a matter of fact a party will act in a certain way is not enough, even if it has been engendered by that party’. For example, people attending a meeting may expect as a matter of fact that the others attending the meeting will return to their offices by car. Each may even have ‘aroused’ that expectation by things said at the meeting. But these factual expectations do not constitute an ‘understanding’ in the sense in which the word is used in Pt IV. Something more is required.
6 See Buckley v Tutty (1971) 125 CLR 353; [1972] ALR 370. 7 [1897] AC 59; [1895] P 248. 8 (1999) 165 ALR 468; (1999) ATPR 41-732 see 13.43C2, applied in Apco Service Stations Pty Ltd v ACCC (2005) ATPR 42-078; [2005] FCAFC 161. 9 Merkel J stated that it is ‘well established’ that an ‘understanding’ describes something less than a binding contract or arrangement, and concluded that an ‘understanding’ rather than an ‘arrangement’ had been entered into in ACCC v Leahy Petroleum Pty Ltd (2004) 141 FCR 183; [2004] FCA 1678 at [47] and [54], see 13.23C4. 10 (1999) 165 ALR 468 at 500.
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Summing up, it would seem that the essential concept behind an arrangement or understanding is the notion of a meeting of the minds of those said to be parties.11 It appears that the necessary meeting of the minds requires that the parties have: • communicated with each other; and • intentionally aroused an expectation in the mind of the other or others in a way which requires at least one party to ‘assume an obligation’ (or give an assurance, commitment, or undertaking) that it will act in a particular manner. In an arrangement or understanding where one party ‘assumes an obligation’, a reciprocal obligation or commitment would commonly be assumed by the other party or parties.12 However, while in practice an arrangement or understanding would ordinarily involve reciprocity of obligation, it remains unclear whether this is an essential element.13
C. Concerted practice
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13.9 Following amendments that took effect in November 2017, s 45(1)(c) of the Competition and Consumer Act prohibits corporations14 from engaging with another person (or persons) in a concerted practice that has the purpose, or has or is likely to have, the effect of substantially lessening competition. A concerted practice is ‘any form of cooperation between two or more firms (or people) or conduct that would be likely to establish such cooperation, where this conduct substitutes, or would be likely to substitute, cooperation in place of the uncertainty of competition’.15 It is not a requirement that parties engaging in a concerted practice are competitors or potential competitors. Concerted practice will include cooperative behaviour or communication between parties that may not meet the requirements to establish the existence of a contract, arrangement or understanding, widening the scope of the type of behaviour that will be caught by the legislation.
11 See Sackville J in ACCC v Amcor Printing Papers Group Ltd (2000) 169 ALR 344; [2000] FCA 17 at [75]. 12 As observed in TPC v Email Ltd (1980) 31 ALR 53; 43 FLR 383; (1980) ATPR 40-172, see 13.11C and TPC v Service Station Association Ltd (1992) 109 ALR 465; (1992) ATPR 41-179, see 13.23C3. 13 The High Court had to deal with an argument in Rural Press Ltd v ACCC (2003) ATPR 41-965; [2003] HCA 75 at [29], see 13.39C2, that, as there was no evidence of any ‘reciprocity of commitment’, there was no ‘arrangement’ between the parties. Rather than stating that such a requirement was unnecessary, the High Court simply concluded that there was more than enough evidence of a quid pro quo arrangement being entered into by the parties. 14 Competition and Consumer Act 2010 s 76 provides that in some circumstances, an individual such as an employee or company office holder may also breach s 45(1)(c). 15 Explanatory Memorandum to the Competition and Consumer (Competition Policy Reform) Act 2017, see also ACCC, Guidelines on concerted practices, above n 4.
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What evidence is needed to prove collusion? 13.10 It is often extremely difficult to prove collusion. Direct evidence of an unlawful agreement will not always exist. Consequently, in appropriate circumstances, the court will be asked to infer a conspiracy from circumstantial evidence. Collusion may be proved by circumstantial evidence in the sense that ‘there may be proven acts which exhibit such a concurrence of time, character, direction and result as to lead to the inference that the acts were the outcome of an arrangement’.16 As the US Federal Court commented in Esco Corp v US:17
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While particularly true of price-fixing conspiracies, it is well-recognised law that any conspiracy can ordinarily be proved by inferences drawn from relevant and competent circumstantial evidence, including the conduct of the defendants charged … A knowing wink can mean more than words. Let us suppose five competitors meet on several occasions, discuss their problems, and one finally states: ‘I won’t fix prices with any of you, but here is what I am going to do. Put the price of my gidget at X dollars; now you all do what you want.’ He then leaves the meeting. Competitor number two says: ‘I don’t care whether number one does what he says he’s going to do or not; nor do I care what the rest of you do. But I am going to price my gidget at X dollars.’ Number three makes a similar statement ‘my price is X dollars’. Number four says not one word. All leave and fix ‘their’ prices at ‘X’ dollars. We do not say the foregoing illustration compels an inference in this case that the competitors’ conduct constituted a price-fixing conspiracy, including an agreement to so conspire, but neither can we say, as a matter of law, that an inference of no agreement is compelled. As in so many other instances, it remains a question for the trier of fact to consider and determine what inference appeals to it … as most logical and persuasive after it has heard all the evidence as to what these competitors had done before such a meeting, and what actions they took thereafter, or what actions they did not take. It should be noted that all cases referred to in this chapter, were decided prior to the ‘concerted practice’ provisions entering the legislation.
TPC v Nicholas Enterprises Pty Ltd (No 2) (1979) 26 ALR 609; (1978) ATPR 40-126 13.10C
Facts: In the mid-1970s a beer discount war broke out in Adelaide. Pricing became so competitive that profit margins were all but wiped out. Most hotels and licensed stores were forced to offer 15 or even 16 bottles to the dozen. One of Adelaide’s breweries ran a regular Friday lunch to which members of the industry were invited. Price discounting was a regular topic of conversation among the beer retailers. On 22 November 1977 a number of Adelaide’s largest hotels were represented at the lunch — Farah from the Royal Oak Hotel (which was owned by Nicholas Enterprises and was the largest packaged beer seller in Adelaide); Tremaine from the Old Lion Hotel, Saturno from the Norwood Hotel, and Palmer from the Morphett Arms Hotel. As the Christmas trading period is by far the largest trading period of the year it was imperative that prices rise in 16 R v Associated Northern Collieries (1911) 14 CLR 387 at 400; [1911] HCA 73 per Isaacs J. 17 340 F2d 1000 (1965) at 1006–1007.
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Chapter 13: Collusive Conduct time for retailers to benefit from the seasonal trade. At the lunch, Farah announced that the Royal Oak was reducing its allowance per dozen to 14 as from the first week in December. There was no evidence that anyone responded positively at the lunch. On 30 November an article appeared in a daily newspaper suggesting that beer prices were about to go up. On 5 December the four hotels in question together with others reduced their discount to 14 to the dozen. The Trade Practices Commission (now the ACCC) alleged a price fixing agreement between competitors. There was clear evidence that Farah had raised the necessary expectation in the minds of the others at the lunch that the Royal Oak would act in a particular manner. The problem was whether any of the others had acted in such a way that it could be said that an arrangement or understanding existed. Decision: According to Fisher J, in order to conclude that an ‘arrangement or understanding’ has been entered into: ‘It is necessary for the parties to have communicated with each other, for each to have raised an expectation in the mind of the other, and for each to have accepted an obligation qua the other. These are the elements of the requisite meeting of the minds.’ (On appeal, the Full Court of the Federal Court felt that it was not necessary that each accept an obligation qua the other, although the number of times where this would not occur is necessarily restricted: see Morphett Arms Hotel Pty Ltd v Trade Practices Commission.)18
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An arrangement or understanding can be inferred from circumstantial evidence. The evidence showed that Palmer (from the Morphett Arms Hotel) had approached at least two other retailers and tried to convince them to raise prices in accordance with what Palmer called ‘an agreement’ between a number of hotels. As Palmer and Farah (Royal Oak Hotel) failed to give evidence, the judge felt entitled to draw the inference that Palmer acted pursuant to an arrangement or understanding with Farah. On the other hand, Tremaine (Old Lion Hotel) was able to convince the court that he had already decided to raise prices prior to any discussion with Palmer. The court was prepared to give Tremaine the benefit of the doubt. Saturno (Norwood Hotel) was also able to convince the court that his parallel behaviour (that is, raising his prices on the same day as Farah and Palmer) was not due to any illegal arrangement, but to other factors. He had advertised in the paper prior to the lunch that discounts were coming to an end. He convinced the court that he regularly monitored his competitors’ prices and that on 5 December he had telephoned a number of rivals to ascertain their price and had visited a number of other competitors’ premises to assure himself that the price had risen. The court accepted that it was only after taking these steps that the beer prices at the Norwood Hotel were raised. The court therefore refused to draw the inference that the arrangement or understanding between Farah and Palmer involved Tremaine and Saturno.
A. Parallel conduct alone is not sufficient 13.11 Even though the court may have regard to circumstantial evidence, it is not sufficient merely to show that two parties have engaged in parallel conduct.19 For example, evidence that firm A set its price at the same level as firm B is not 18 (1980) 30 ALR 88; (1980) ATPR 40-157. 19 See ACCC v Air New Zealand Ltd [2014] FCA 1157.
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evidence from which a court could infer price fixing. It is always necessary to establish collusion. This is so even where the parallel conduct is quite conscious in the sense that all parties basically know what is going to happen. For example, in a market with one dominant player, it is often to be expected that that player will set the market price and that the other firms in the market will follow. This is not collusion. The parallel conduct is likely to be the result of market forces, not conspiracy. Therefore, in every case of parallel conduct, it will be necessary to determine whether the coincidence of conduct is due to an agreement or to market forces. Where a natural market leader exists it will be difficult to establish collusion without firm evidence. The Australian Competition and Consumer Commission (ACCC) has provided guidance that ‘depending on the circumstances, a concerted practice may arise from a single instance of information being provided by one person to one or more other persons’.20 TPC v Email Ltd (1980) 31 ALR 53; 43 FLR 383; (1980) ATPR 40-172 13.11C
Facts: Email produced a diverse range of products. One of the products it produced was a kilowatt hour meter, which was used to read the amount of electricity a consumer used. Email sold the meters to an agency acting for the various electricity authorities. This agency was the only buyer. Email produced 70% of the said meters. The other 30% were produced by Warburton Franki (WF).
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At the buyer’s instigation, there was no product differentiation. The buyer held regular product meetings with the two suppliers to ensure that Email and WF produced exactly the same product. The court accepted that price was not discussed at these meetings. The buyer made it clear to both producers that it had no intention of placing its entire order with one supplier. This was done because the buyer wished to preserve an alternative source of supply. Prior to making any price changes Email would send its new price list to WF. Each year the buyer (on behalf of the electricity authorities) announced its requirements and called for tenders from Email and WF. Prior to tendering, Email ensured that WF received a copy of Email’s current price list. Email’s tender price was always in accordance with its current price list. WF was aware of this. Upon receipt of the new price list from Email, WF always tendered at the prices shown in that price list. The Trade Practices Commission (now the ACCC) argued that this conduct amounted to price fixing between competitors. Email argued that the market structure was such that WF was compelled economically to follow Email’s prices and that it was not the result of an arrangement or understanding between the parties. Decision: A meeting of the minds requires a consensus as to what will be done, not just a mere hope. While mutual obligations are not strictly necessary, it is difficult to envisage circumstances where there is an understanding that does not have an element of mutual commitment.
20 ACCC, Guidelines on concerted practices, above n 4.
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Chapter 13: Collusive Conduct The conduct of Email and WF was treated as a case of conscious parallelism, which is not illegal. Lockhart J said: By sending its price list to Warburton Franki, Email helped Warburton Franki follow Email’s prices if it chose to do so; but there was no obligation that it should do so; and this ensured price stability. By Warburton Franki receiving Email’s prices quickly, the price leadership situation could operate quickly. Email was confident that Warburton Franki would follow its prices based on previous experience. The receipt by Email of Warburton Franki’s price list was of little significance to Email. The parallel pricing which did occur was therefore the result of market forces based on commercial considerations, and not the result of an arrangement or understanding. In this particular market there was a state of pure oligopoly, where buyers (electricity supply authorities) and sellers were well informed of the market situation and where the product was essentially homogeneous or undifferentiated — there was no substantial difference in the function or use of the product, as perceived by a buyer, such as to cause a buyer to pay a higher price for any period for one product rather than another. The result of pure oligopoly is that sellers, even though marketing from different factories, are obliged to sell at the one price.
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B. Problem of oligopolies 13.12 The problem of determining whether unlawful collusion has occurred is a very real problem in a country such as Australia, which has a large number of oligopolistic markets. Oligopolies often exhibit price parallelism or price leadership. There is a tacit recognition by all firms in the market that price wars are damaging to all. Consequently, prices tend to move in concert. For example, a firm in an oligopolistic market makes an announcement in the newspapers that the industry is struggling through the effects of ruinous competition. The other players in the market respond with similar complaints. A short time afterwards someone announces a significant price increase. The other players in the market follow because it is not in their interests to do anything else. The market price has been forced up. There is no direct evidence of clandestine meetings or telephone calls. Is this market forces at work, or is it a result of an arrangement? The parallel movement in price cannot by itself prove unlawful conspiracy. Is there other evidence which, when added to parallel pricing, is sufficient to draw an inference of collusion? If the alleged conspirators deny any arrangement on oath, the court would probably dismiss the matter on the basis that the nature of the market provides a plausible explanation for the parallel pricing. If the alleged conspirators fail to give exculpatory evidence, could the Commission successfully argue that the public dialogue was adequate circumstantial evidence from which to infer
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conspiracy? The Email defence, if broadly accepted, would make it difficult for the Commission to succeed.21 However, despite the Email decision it is suggested that sending price lists to competitors is a risky practice. There were particular facts in Email that explain the decision; these facts will not always be present.
C. Case study: petroleum markets — collusion or not? 13.13 The ACCC alleged a price-fixing arrangement and anti-competitive conduct against Australia’s three major petrol suppliers (Shell Company, Mobil Oil, and BP), which was struck out due to the Commission’s failure to produce sufficient particulars of the alleged offences; that is, evidence of collusion. In the words of Heerey J, in ACCC v Mobil Oil Australia Ltd:22
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The retail petroleum products market, with its highly visible price boards and mobile customers, is one where a trader’s prices and the fluctuations thereof are as readily apparent to competitors as they are to customers. Therefore parallel pricing in itself, in this particular market, is as likely to follow from the observation and independent decision of rival traders as from prior agreement … [M]uch of what the Commission would seek to rely on as putting into effect an unlawful arrangement amounts to no more than that.
In ACCC v Leahy Petroleum Pty Ltd23 (the Geelong Petrol case), Gray J of the Federal Court expressed some views that seem to make the task of establishing collusion even more difficult than had previously been thought. In this case an action was brought by the ACCC alleging that eight petrol companies had entered into a number of arrangements and understandings to fix the retail price of petrol in the Geelong market. The Federal Court dismissed the case against all respondents, despite several of them having ‘admitted’ to the ACCC’s allegations. So, even where some parties ‘admit’ to collusion, the evidence might suggest that in fact an ‘arrangement or understanding’ between competitors did not exist. In the Geelong Petrol case, the judge insisted that the ‘admitting’ respondents give direct evidence in the witness box (refusing to rely upon the signed written ‘admissions’ presented by the ACCC) and, as a result of such evidence, concluded that there was insufficient evidence of a ‘commitment’ by the respondents to fix prices. The judge insisted that the ACCC needed to do more than just point to an exchange of information between the parties. It needed to provide express evidence of an exchange of commitment or obligation between the parties on how they acted on that information. 21 Because of the difficulty of establishing that an arrangement or understanding to fix, maintain, or control prices existed, price signalling laws were in place from 2012 to 2017. 22 (1997) ATPR 41-568 at 43,896. Contrast this finding with ACCC v Leahy Petroleum Pty Ltd (2004) 141 FCR 183; [2004] FCA 1678 (the Ballarat Petrol case), see 13.23C4. 23 (2007) ATPR 42-162; [2007] FCA 794.
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In support of this view, the judge referred to the Full Federal Court’s decision in Apco Service Stations Pty Ltd v ACCC.24 In that case an allegation of collusive price fixing against the respondent was dismissed because there was no evidence of any commitment from the respondent to increase prices following a discussion about prospective price increases, and no expectation that the respondent would increase its price if such action was contrary to its commercial interests. In the Geelong Petrol case, none of the witnesses stated that they felt constrained or compelled to act in a particular way upon receipt of pricing information, leading the court to conclude that there was insufficient evidence of any commitment between the respondents in the case. The court said:25 The situation was that each party to each alleged arrangement or understanding was free to do as it wished on every occasion when information about a prospective price increase was passed to it … [A]n arrangement or understanding in which each party is free to do as it wishes is a creature unknown to … the Trade Practices Act … This finding is fatal to the ACCC’s case.
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Furthermore, the circumstantial evidence presented by the ACCC of a pattern of telephone calls followed by price increases was considered inconclusive, as the pattern of price increases was explicable by a number of factors unrelated to the allegations of collusive price fixing. It was noted that the price increases usually followed the price cycle in the Melbourne market, which the ACCC accepted was driven by market forces rather than collusion. There were also similarities of pricing behaviour by petrol retailers in the Geelong market who were not alleged to be involved in the price fixing arrangements. Finally, the parallel pricing behaviour could be explained as commercially rational, as the Geelong petrol market involved a homogeneous product with easily observable prices.
D. What circumstantial evidence is important? 13.14 Accepting that collusion may be proved by circumstantial evidence, the question is what sort of evidence is important and how is it to be evaluated. A number of questions can be posed when considering whether collusion exists:26 • How pervasive is the uniformity of conduct? • Does the uniformity extend to price alone or to all other terms and conditions of sale? • Is the uniformity identical or nearly so? • How long has the uniformity continued?
24 (2005) ATPR 42-078; [2005] FCAFC 161. 25 (2007) ATPR 42-162; [2007] FCA 794 at [948]–[949]. 26 This role of circumstantial evidence is discussed in detail in ACCC v Air New Zealand Ltd [2014] FCA 1157 at [464]–[487].
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• What is the time lag between a change by one competitor and that of the other or others? • Have there been any, and if so what, opportunities for colluding (eg, meetings between the competitors)? • Do the parties have a motive to collude? • Is the product or service involved homogeneous or differentiated? • Have competitors raised as well as lowered prices in parallel fashion? • Can the conduct, no matter how uniform, be adequately explained by independent business justifications?27 The evidence is to be evaluated as a whole. Perram J addressed the issue of evaluation in ACCC v Air New Zealand Ltd:28 In truth, the strength of any particular circumstantial case will be a function of the number of elements of which it consists and the corresponding unlikelihood of those elements happening for reasons other than as a result of the posited collusive behaviour. Just as with any case of circumstantial evidence, it is forlorn to seek to work out the significance of the individual elements. The circumstantial case’s nature and its strength emerge organically from a consideration of it as a whole.
TPC v David Jones (Australia) Pty Ltd (1986) 64 ALR 67; (1986) ATPR 40-67129
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13.14C
Facts: David Jones and the other respondents were retailers of manchester products in Adelaide. A price war had been raging for a number of months, which was causing considerable concern to the wholesale distributor of Sheridan products, Zellen Pty Ltd. The price war was fuelled by the discounters, who believed that they had to set their prices below the chain stores such as David Jones and Myer. No end to the price war was possible unless the chain stores agreed to raise their prices. In turn, the chain stores had no incentive to raise their price unless the discounters followed. In March 1984, Zellen arranged a meeting at an Adelaide coffee shop between a number of the retailers (including the chain stores) for the purpose of convincing the retailers to price according to a new price list that Zellen had drawn up. In return, Zellen undertook to convince the discounters to lift prices. In April all the respondent retailers raised their prices in accordance with this list. The question for the court was whether prices had been increased as a result of an arrangement to do so. Decision: Collusion may be proved by circumstantial evidence in the sense that there may be proven acts which exhibit such a concurrence of time, character, direction, and result as to lead to the inference that the acts were the outcome of an arrangement. The meeting in the coffee shop, the price list, the obvious concern on Zellen’s part to raise prices, and the uniform
27 See Report of the US Attorney-General’s National Committee to Study the Anti-Trust Laws, US Govt Printing Office, Washington, 1955. 28 [2014] FCA 1157. 29 See also TPC v Allied Mills Industries Pty Ltd (No 4) (1981) 37 ALR 225; (1981) ATPR 40-237.
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Chapter 13: Collusive Conduct increase in retail prices in April 1984 all led to the inference that there was an arrangement to increase prices in accordance with the price list. As none of the respondents gave evidence, the court felt entitled to draw that inference.
In ACCC v Air New Zealand Ltd30 there was circumstantial evidence pointing towards an understanding between Air New Zealand and other airlines regarding freight charges. However, there was also evidence that worked against such a conclusion. In these circumstances, Perram J decided that, on the balance of probabilities, the ACCC had not proved any unlawful understanding.
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How does the ACCC detect and investigate cartels? 13.15 Because cartels tend to be secret, the first issue for the ACCC is one of discovery; how does the ACCC detect the existence of a cartel? The ACCC has a variety of sources and methods available to it. The ACCC may be alerted to the existence of a cartel by complaints from buyers who have had dealings with cartel members; or, given that many contemporary markets are global or are made up of multinational corporations, the ACCC may be alerted to the existence of a cartel by foreign cartel cases (eg, the vitamins cartel, the air cargo cartel, and the marine hose cartel all involved overseas proceedings before the ACCC acted in Australia), or by information supplied by foreign competition agencies. One method of detection is to employ screening techniques; that is, testing for proven indicators of cartel activity. For example, consistent parallel pricing, particularly in markets that do not have a dominant player and are not oligopolistic (as discussed above), will indicate that more investigation into the market may be required. Cartels are more likely to be found where: • there are few competitors; • the products have similar characteristics, leaving little scope for competition on quality or service; • communication channels between competitors are already established; or • the industry is suffering from excess capacity or there is general recession. Examples of industries that reflect some of these characteristics include building materials, construction, and freight. Cartels have been detected in each of these industries. The ACCC has extensive powers to investigate cartels and may: • compel any person or company to provide information about a suspected breach of the law, including providing documents or giving verbal evidence; • seek search warrants from a magistrate and execute these on company offices and the premises of company officers; or 30 [2014] FCA 1157.
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• notify the Australian Federal Police who, in certain circumstances, collect evidence using phone taps and other surveillance devices.31 However, the most powerful weapon available to the ACCC is its immunity or leniency program.
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How does the ACCC immunity program work? 13.16 In October 2019 the ACCC released its revised Immunity and Cooperation Policy for Cartel Conduct.32 The policy is designed to flush out cartel conduct by granting conditional immunity from prosecution to the first member of a cartel to come forward and disclose its involvement in such conduct. The immunity policy also sets out the ACCC’s policy where the cartel member cooperates but is not eligible for full immunity (ie, normally where the cooperating party is not the first member to come forward). The introduction in 2009 of criminal penalties for serious cartel conduct, to be enforced by the Commonwealth Director of Public Prosecutions (CDPP), means that a process for handling immunity must involve both the ACCC and the CDPP. Consequently, the two bodies have now entered into a Memorandum of Understanding. The ACCC will be responsible for investigating suspected breaches of criminal cartel conduct and for the referral of serious cartel conduct to the CDPP for consideration for prosecution; the CDPP is then responsible for the prosecution of such conduct. The ACCC’s immunity policy was designed to assist the ACCC in detecting and stopping conduct. Any immunity granted to the applicant (or whistleblower) by the ACCC relates only to civil pecuniary penalties. Insofar as criminal prosecutions are concerned, the CDPP can also grant immunity. Applications for immunity from criminal prosecutions are initially made to the ACCC on the basis of its immunity policy. The ACCC will then liaise with the CDPP. When the ACCC considers that an applicant has satisfied the conditions for immunity under the ACCC immunity policy, it will make a recommendation to the CDPP that immunity from prosecution be granted to the applicant. The CDPP will then exercise its own independent discretion when considering a recommendation from the ACCC.33 Both bodies will then communicate the outcome of their considerations to the applicant simultaneously. A party to a cartel can apply for immunity pursuant to the ACCC’s immunity policy if, at the time of the application, the ACCC has insufficient evidence to
31 See ACCC, ‘Cartels’ at . 32 Available at . The October 2019 document supersedes the 2014 policy which in turn replaced the 2009 policy and guidelines. 33 See CDPP, Prosecution Policy of the Commonwealth, Annexure B ‘Immunity from Prosecution in Serious Cartel Offences’, available at .
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institute court proceedings and the applicant meets certain conditions including that the applicant: • admits that its conduct in respect of the cartel may constitute a contravention; • is the first of the cartel participants to apply for immunity; • makes a full and frank disclosure of all evidence and information available and cooperates with the ACCC; • ceases involvement in the cartel; and • is not the ringleader of the cartel. The ACCC’s immunity policy was important in the detection and prosecution of Visy Industries in the packaging cartel case: see ACCC v Visy Industries Holdings Pty Ltd (No 3).34 The other cartel member, Amcor, reported the cartel to the ACCC and was granted immunity. It is important to stress that only the first member of the cartel to report to the ACCC is eligible for immunity. Other members will not be entitled to full immunity, even if they approach the ACCC voluntarily. The whole purpose of the immunity program is to destabilise cartels by providing incentives to be the first whistleblower. Other cartel members may, however, be entitled to some leniency dependent on a range of circumstances set out in the ACCC’s Immunity and Cooperation Policy for Cartel Conduct.35 The ultimate objective of an immunity policy is to deter the formation of cartels. Cartels are inherently unstable because of the incentives to cheat. The immunity policy is designed to increase the risk to the cartel that one member will defect. Cartels are less and less likely to be formed as the risk of detection and punishment increases. The 2019 policy applies to ‘cartel conduct in contravention of the CCA’, that is, a contract, arrangement or understanding between parties (including ancillary involvement) that are, or would otherwise be, in competition with each other, where such conduct relates to price fixing, restricting outputs in production or supply, allocating customers, suppliers or territories, or bid rigging. The policy specifically excludes any immunity arrangements for concerted practice. This exclusion extends to conduct that may be reported by a participant as cartel conduct, but that is subsequently deemed by the ACCC to be anticompetitive concerted practice.36 Under the 2019 policy, an applicant for immunity must now meet a number of requirements before immunity is granted, including providing the ACCC with: • written confirmation that the applicant has fully complied with their/its obligations under the policy; • signed statements from relevant witnesses; 34 (2007) 244 ALR 673; [2007] FCA 1617. 35 See above n 32, at [77]. 36 ACCC, Immunity and Cooperation Policy for Cartel Conduct, above n 32, at Sec B, [8] (p 3).
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• a signed cooperation agreement setting out a timetable agreed to by the regulator detailing cooperation the applicant agrees to undertake; and • an admission by the applicant that they have engaged in cartel conduct, and that the conduct may contravene the Competition and Consumer Act.
What are the consequences of engaging in cartel conduct?
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13.17 As noted above, there are now parallel civil and criminal sanctions for cartel conduct. The ACCC determines whether to pursue cartel conduct civilly or criminally after conducting investigations in a given case. Criminal offences are harder to enforce, as: • a criminal cartel offence must be proven ‘beyond reasonable doubt’, whilst a civil offence need only be proven ‘on the balance of probabilities’; and • to establish a criminal offence, it is necessary to prove certain fault elements, namely:37 – that the relevant contract, arrangement, or understanding was made, or given effect to, intentionally; and – that the accused knew or believed that the relevant contract, arrangement, or understanding contained a cartel provision. For these reasons, it is likely that criminal cartel prosecutions will be the exception rather than the rule, despite the ACCC indicating its intention to deal with serious cartel conduct criminally.38 The reason for pursuing cartel conduct criminally is the widespread belief that the most effective disincentive to cartels is jail for those involved, as expressed by Graham Samuel at the International Competition Enforcement Conference:39 The possibility of criminal sanctions for company executives will increase the deterrent effect for businesses that may otherwise rationalise corporate fines as the ‘cost’ of doing such business.
As already noted, if criminal action is taken for serious cartel conduct, it will be instigated and handled by the CDPP. The penalties for engaging in cartel conduct are severe.
37 Competition and Consumer Act 2010 ss 45AF and 45AG. 38 See ACCC approach to cartel investigations, July 2009, . 39 Speech by Graham Samuel, Cartels, Criminal Penalties and the Leniency Policy, International Competition Enforcement Conference, Tokyo, 21 April 2005, available at .
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Chapter 13: Collusive Conduct TABLE 13.2 MAXIMUM PENALTIES FOR CARTEL OFFENCES CORPORATIONS Civil contraventions
INDIVIDUALS
Criminal contraventions
Civil contraventions
Imprisonment Criminal record
Up to 10 years40 YES
YES42
41
Up to $500,00044
Up to $420,00045 (2000 penalty units)46
Barred from company management
YES
YES
Indemnification of monetary fines by employer prohibited
YES
YES
Monetary penalties
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Criminal contraventions
Up to a maximum of: • $10 million; • Three times the value of the benefits obtained; or • If the value of the benefits obtained cannot be assessed, 10% of the annual turnover of the company’s (and related entities’) annual turnover.43
In either criminal or civil proceedings, a range of other orders can be made. These include injunctions, community service orders, probation orders, adverse publicity orders, orders disqualifying a person from managing a corporation, orders declaring a contract void or varying contractual terms, and orders for the payment of compensation. The first criminal conviction under these provisions occurred in 2017. The respondent, NYK, pleaded guilty to giving effect to cartel provisions in an arrangement or understanding with other shipping lines relating to the transportation of motor vehicles from manufacturers including Nissan, Suzuki, Honda, Toyota and Mazda to Australia from Asia between 2009 and 2012. NYK’s guilty plea and co-operation, resulted in their penalty being reduced by 50% to $25 million.47 40 41 42 43 44 45 46 47
Competition and Consumer Act 2010 s 79(1). Competition and Consumer Act 2010 ss 45AF and 45AG; Criminal Code. Competition and Consumer Act 2010 s 79(1). Competition and Consumer Act 2010 s 76(1A) for breach of ss 45AJ, 45AK, and 45(2) (civil); ss 45AF(3) and 45AG(3) (criminal). Competition and Consumer Act 2010 s 76(1B). Competition and Consumer Act 2010 s 79(1). From 2020 the government will automatically index penalty units every three years based on the consumer price index. CDPP v Nippon Yusen Kabushiki Kaisha [2017] FCA 876.
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Types of Collusive Conduct 13.18 The types of conduct listed at 13.5 will now be examined in detail. This will involve looking at the ‘cartel provisions’ that prohibit price fixing, output restrictions, market sharing, and bid-rigging conduct; and anti-competitive conduct prohibited by s 45 of the Competition and Consumer Act.
Price-fixing agreements 13.19 While there are arguments that horizontal price fixing is sometimes justified, the fact remains that the pre-eminent expression of competition is price competition. It is the mechanism by which the market seeks equilibrium. To allow price fixing is to replace that mechanism with another. Clearly, price fixing lessens consumer choice, as the consumer will usually be deprived of the choice between a lower price and poorer service on the one hand, and a higher price and better service on the other. The possibility of abuse is inherent in systems of collective pricing, since the participants are shielded from the pressures of competition and may let their standards of costing, service, availability and innovation decline. The traditional objection to price-fixing agreements between competitors was summed up by Stone J in the US Supreme Court in United States v Trenton Potteries Co:48
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The aim and results of every price-fixing agreement, if effective, is the elimination of one form of competition. The power to fix prices, whether reasonably exercised or not, involves the power to control the market and to fix arbitrary and unreasonable prices. The reasonable price fixed today may through economic and business changes become the unreasonable price of tomorrow. Once established, it may be maintained unchanged because of the absence of competition secured by the agreement …
Under the Competition and Consumer Act, making or giving effect to a contract, arrangement, or understanding containing a ‘cartel provision’ is illegal. Such conduct can constitute a criminal or civil offence. Section 45AD(2) of the Competition and Consumer Act defines a cartel provision to include a provision of a contract, arrangement, or understanding made between competitors49 that has the purpose, effect or likely effect of (directly or indirectly) fixing, controlling, or maintaining the price for (or discount rebate, allowance, or credit provided in relation to): • goods or services supplied (or likely to be supplied) to customers by any of the parties to the contract, arrangement, or understanding;
48 273 US 392 (1927). 49 In Norcast SárL v Bradken Ltd (No 2) [2013] FCA 235 the court held that the threshold as to whether parties were considered competitors was a low one: ‘[L]ikely to be in competition’ meant a ‘possibility that is not remote’.
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• goods or services acquired (or likely to be acquired) from suppliers by any of the parties to the contract, arrangement, or understanding; or • goods or services that will be, or are likely to be, resupplied by any customer of a party to the contract, arrangement, or understanding. A provision of a contract, arrangement, or understanding will not be a cartel provision by reason only that it recommends a price, discount, allowance, rebate, or credit: Competition and Consumer Act s 45AD(6). There may be some benefits to be had in certain circumstances from price fixing. However, the incidence is likely to be very limited. For this reason, parliament has decided that only price fixing by joint venturers and collective buying groups should not be deemed automatically illegal, along with parties who have lodged a successful collective bargaining notice with the ACCC. However, an authorisation can be sought for all types of price fixing, provided there are public benefit grounds which outweigh the lessening of competition. Such public benefits will rarely exist. The exceptions to price fixing illegality are discussed at 13.69–13.74. There are three steps in determining whether illegal price fixing has been engaged in: 1. Is there a contract, arrangement or understanding? 2. Is the agreement between competitors? 3. Does the agreement have the purpose or effect (or likely effect) of fixing prices?
A. Is there a contract, arrangement or understanding? 13.20 This step has been discussed in full at 13.7–13.14.
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B. Is the agreement between competitors?50 13.21 At least two of the parties to an unlawful price-fixing agreement must be (or be likely to be) competitors, or would be, but for the agreement: Competition and Consumer Act s 45AD(4). Two parties are competitors if they are in the same market. Normally this will not cause a problem, for if the parties were not competitive, or did not feel each other’s presence, or were not likely to be competitive, there would be little need for an agreement between them. For example, two firms that do not produce substitutable products, or who are not within the same geographic area, are not likely to have any incentive to fix prices. The Act makes it clear that price-fixing agreements are unlawful if entered into by parties provided ‘at least 2 of the parties … are … in competition with each other’. In other words, not all parties to an agreement or understanding have to be in competition with each other. Thus, in TPC v David Jones (Australia) Pty Ltd,51 the distributor of a certain brand of manchester who attended a meeting of Adelaide 50 See above n 49. 51 (1986) 64 ALR 67; (1986) ATPR 40-671, see 13.14C.
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retailers, where it was agreed to adopt a particular retail price list, was held to be a party to the understanding to fix prices.52 The High Court has held that one party acting as an agent for another does not preclude the parties from being competitors.53 Finally, it should also be noted that it is not only agreements designed to fix prices at which competitors supply or acquire products that are subject to legislative control. The Act also prevents competitors from fixing or controlling the prices charged by others in the resupply of their goods. Thus, if competing petroleum producers agree between themselves to attempt to control the prices at which service station proprietors resell petrol to the public, the law is breached.
C. Does the agreement have the purpose or (likely) effect of fixing prices? 13.22 It should be noted that a contract, arrangement, or understanding (as defined by s 45AD of the Competition and Consumer Act) need not have the purpose of fixing prices, provided its effect (or likely effect) is to fix, control, or maintain prices. Therefore, an arrangement to share markets or information could be caught, as the likely effect may be to maintain prices. The word ‘likely’ is susceptible of various meanings, but generally has been interpreted to mean ‘probable’ in the sense of more likely than not or more than a 50% chance. The word means more than a mere possibility, whether real or not. When establishing purpose, it is important to note that the purpose to fix, control, or maintain prices only has to be a ‘substantial’ purpose; that is, not the sole purpose: Competition and Consumer Act s 4F.
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i. What is meant by fixing, controlling, or maintaining prices? 13.23 It is clear that the meaning of ‘fixing, controlling or maintaining’ prices prohibits making provision for prices to be set according to an agreed formula,54 or fixing maximum or minimum prices at which goods may be sold or services rendered. To ‘fix’ prices is obviously the most precise case and is easily identifiable. ACCC v NW Frozen Foods Pty Ltd (1996) ATPR 41-515 13.23C1
Facts: From 1991 to March 1995 a number of companies involved in the Tasmanian market for the wholesale supply of frozen foods were parties to a price-fixing agreement. The products involved in the price fixing included chips, scallops, flake, takeaway lines, chickens, turkeys, and Sara Lee’s entire range of desserts. The wholesalers supplied these lines of frozen food to businesses such as restaurants, hotels, and takeaway outlets throughout Tasmania. The 52 In a similar case, WD & HO Wills, a cigarette manufacturer, was fined $250,000 for attempting to organise a price-fixing arrangement between a retailer of cigarettes and a nearby discount retail competitor: ACCC v WD & HO Wills (Australia) Pty Ltd (unreported, Fed Ct, 23 February 1998); and a fine of $900,000 was imposed for the same type of conduct in ACCC v George Weston Foods Ltd (2000) ATPR 41-763; [2000] FCA 690. 53 ACCC v Flight Centre Ltd (No 2) [2016] HCA 49. 54 TPC v Pioneer Concrete (Vic) Pty Ltd (1985) ATPR 40-590.
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Chapter 13: Collusive Conduct wholesalers held meetings and telephone conversations, during which they set minimum prices for these frozen food items. The food service industry in Tasmania was worth more than $70 million a year, and the wholesale companies involved in this price-fixing agreement had a combined market share of 80–90%. The ACCC instituted proceedings, alleging that the conduct contravened s 45 of the Trade Practices Act 1974 (now s 45AG of the Competition and Consumer Act). Decision: The frozen food wholesalers admitted to entering into agreements which fixed the minimum wholesale price for the supply of frozen foods to businesses in the food service industry. The companies involved assisted the Commission with its investigation.
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After proceedings had been instituted, the parties agreed on appropriate penalties and submitted these to the Federal Court. Most of the penalties submitted were accepted, although the penalty imposed on the largest wholesaler was increased. The wholesale companies and the individual marketing personnel involved in the price-fixing agreement were penalised more than $1.54 million in total.
The meaning of ‘fixing, controlling or maintaining’ is not always so clear. A flexible interpretation is needed in order to ensure the laws against price fixing are effective. It is doubtful that the objectives of restrictive trade practices legislation would be served by only prohibiting agreements fixing a precise, rigid, or uniform price. Accordingly, it has been held that the ‘fixing’ of a price does not necessarily connote an element of permanency, but generally suggests the settling or determining of a price for a period of time that is not merely momentary or transitory.55 Prices may be maintained or controlled in a variety of ways. Although it has been suggested that to ‘maintain’ a price assumes that it has been fixed beforehand,56 Lindgren J in ACCC v CC (NSW) Pty Ltd57 acknowledged that it was arguable, for example, that it would ‘maintain’ a price not yet fixed at a minimum level if all tenderers for a job were to reach an understanding that a component sufficiently influential on price was to be included in their tender prices. Nevertheless, the notion of ‘controlling’ prices seems to be the one most likely to catch the less obvious forms of ‘price fixing’; for example, by agreeing to place limitations on the output or supply to the market. United States v Socony-Vacuum Oil Co 310 US 150 (1940) Facts: A large increase in the production of oil in the mid-western states of the US in the 1930s caused a fall in the price of petrol to below break-even. A number of the smaller refineries were unable to store the petrol they produced and were forced to sell at whatever price was available. This petrol was referred to as distress petrol. The sale of distress petrol caused further falls in the market. The large oil producers agreed among themselves to monitor the market and to control the surplus supply of petrol by buying up this distress 55 Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd (1982) 44 ALR 557; (1982) ATPR 40-318 per Lockhart J. 56 Per Lockhart J in Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd (1982) 44 ALR 557; (1982) ATPR 40-318. 57 (1999) 165 ALR 468; (1999) ATPR 41-732, see 13.43C2.
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13.23C2
Marketing and the Law petrol when the occasion required. It was alleged that this conduct constituted a pricefixing arrangement. Decision: The US Supreme Court held that the major oil companies had engaged in price fixing, as the purpose and effect of the scheme was to drive up the price of petrol. The agreement artificially interfered with the forces of demand and supply.
However, at least one Australian Federal Court decision appears to have taken a more conservative approach, with the court giving a seemingly narrow interpretation to the meaning of ‘fixing, controlling or maintaining’ prices. TPC v Service Station Association (1992) 109 ALR 465; (1992) ATPR 41-17958 13.23C3
Facts: The retail service station market (petrol retailers) is made up of independent retailers, retail outlets owned by the major oil companies, and convenience stores which also sell petrol, such as Food Plus. The retail market in Sydney was very price competitive. The Service Station Association argued that prices were so low that many retailers were selling below their breakeven point. There was considerable evidence to show that this was correct. The Association blamed this on the oil companies’ strategy of pushing quantity at the expense of profits, and upon the individual retailers’ lack of knowledge about pricing and profits. The Association president and one of its executive officers orchestrated a vigorous campaign to get retailers to chase profitability and not volume. The president held many meetings and the Association newspaper carried a number of articles exhorting members to choose a profit margin that was acceptable. The Association published a list of recommended prices.
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Prices and margins in Sydney rose quite dramatically following these meetings. The Trade Practices Commission (now the ACCC) alleged that there was an arrangement or understanding to increase margins ‘in the order of 10 per cent or approximately 6.5 cpl (cents per litre)’. This was the amount recommended by the Association. Decision: At first instance, Heerey J refused to infer an arrangement to fix prices. According to his Honour, the evidence suggested that members of the Association had individually chosen their margin on the basis of the recommended price and not by virtue of any arrangement or understanding. In relation to fixing a price, his Honour said: Therefore in the Sydney metropolitan retail petrol market an arrangement or understanding to increase margins ‘in the order of 10 per cent or approximately 6.5 cpl’ as against those which had obtained over the previous six month period (in itself a notably vague starting point) may lack the degree of certainty inherent in the concept of fixing, controlling or maintaining prices. The decision was upheld on appeal, although the Full Court appeared to confine this interpretation to the facts of the case.
In ACCC v CC (NSW) Pty Ltd,59 Lindgren J also seemed to take the view that this was a case which needed to be confined to its special facts: 58 For the appeal see TPC v Service Station Association Ltd (1993) ATPR 41-260. 59 (1999) 165 ALR 468; (1999) ATPR 41-732, see 13.43C2.
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Chapter 13: Collusive Conduct I do not think that the [views expressed in that case] signify that in all cases where a market is characterised by a high degree of price competition, an agreement, arrangement or understanding will not be caught by [s 45AD] unless it fixes a price or price increase with some specificity … Rather, I think Heerey J was making the point (to which the Full Court also drew attention) that, in the special circumstances of the market with which he was concerned as one characterised by very fine differences in the prices being charged by competitors for the same product and an absence of brand loyalty, coupled with the vagueness of the alleged arrangement and understanding, it was unlikely that the [defendants] had come to an arrangement or understanding within [s 45AD], involving, as it would have done on the facts, the assumption of mutual obligations. In Trade Practices Commission v Parkfield Operations Pty Ltd (1985) 7 FCR 534; 62 ALR 267, a Full Court of this court … accepted that an arrangement or understanding between petrol retailers to raise their prices by ‘four or six cents a litre’ was within [s 45AD] … I do not think that some specificity as to price is a necessary element of the notion of ‘controlling’ price within [s 45AD]. To insist on such a requirement would be to introduce an unauthorised general limitation on the notion and would allow the statutory prohibition to be easily circumvented — a result that cannot have been intended and should not be lightly accepted.
A more liberal approach to interpreting the price-fixing laws can be observed in the Ballarat Petrol case.60
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ACCC v Leahy Petroleum Pty Ltd (2004) 141 FCR 183; [2004] FCA 1678 [the Ballarat Petrol case] Facts: The ACCC alleged that eight companies in the business of wholesaling or retailing petrol (and eight individuals acting on their behalf) had entered into an arrangement or understanding to fix or control the retail price of petrol in the Ballarat area of Victoria between June 1999 and December 2000. The retail petrol market in Ballarat was intensely competitive, made more so by the opening of a United branded outlet in 1999, and was highly price sensitive. Prices were usually determined by the board price at the high visibility sites located on major roads. The ACCC alleged that discounting cycles in Ballarat were costly exercises for the defendants, so there was a substantial incentive to increase prices in order to restore profitability. This was achieved by one of the companies triggering a coordinated price increase by significantly increasing its board price, accompanied by a price increase telephone call to the other companies. The price increase would only ‘stick’ if all the high visibility sites in the Ballarat area matched the increase within a relatively short period. Five of the eight accused companies admitted or did not contest the allegation made by the ACCC, while three denied any participation in any price-fixing arrangement. These defendants argued that the Ballarat price cycle reflected a highly competitive market rather than collusion among retailers.
60 ACCC v Leahy Petroleum Pty Ltd (2004) 141 FCR 183; [2004] FCA 1678, see 13.23C4.
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13.23C4
Marketing and the Law Decision: Merkel J accepted the evidence of an expert economist that it was highly unlikely that an individual petrol retailer in a highly competitive market would initiate a significant price increase without being confident that the major competitors in the market would match the increase. The real issue between the parties in this case was whether the quick awareness and matching of the increases during the relevant period arose from independent observation of board prices of competitors (ie, of competitive market forces at work) or rather from ongoing collusion between competitors about the price increases (ie, of anti-competitive market forces at work). Was there a contract, arrangement, or understanding? On the basis of the evidence (which included direct testimony, circumstantial evidence and logs of telephone calls), it was concluded that a price-fixing understanding had arisen out of the following course of conduct: • A company intending to initiate a significant price increase would call and advise the other participants of its intentions. • The initiator would increase its retail price for petrol. • Price increase calls were made to the other participants. • Participants were to monitor each other’s board prices to see if they all matched the price increase. • Follow up calls were made to those who had not increased prices. • Price support for discounting was withdrawn from retailers by participating wholesalers. • If the price increase was not expeditiously matched by the high visibility sites in Ballarat, the proposed increase would not take effect. Merkel J found that, insofar as the companies initiating a price increase were concerned, there was little doubt that there was the requisite meeting of the minds and a consensus61 as to what was to be done, not merely a hope as to what might be done. The argument put forward by the non-initiating companies that they were not party to an understanding because they had merely received phone calls rather than actively initiating price increases, was rejected. These companies understood that the purpose of the phone calls was to influence price-fixing behaviour and, in participating in the behaviour, they aroused an expectation that they would fulfil their respective roles in relation to the understanding, which they generally did. In this sense, there was a meeting of the minds.
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Was the understanding between competitors? Most of the parties to the understanding were clearly in competition with each other in the Ballarat retail petrol market. It did not matter that some parties may not have been a direct competitor in that market, as [s 45AD] only requires that at least two parties to the understanding be in competition with each other. Did the understanding have the ‘purpose’ of ‘controlling’ prices? ‘Control’ means ‘to exercise restraint or direction over’. An understanding has the effect of controlling price if it restrains a freedom that would otherwise exist as to the price to 61 Merkel J acknowledged that, in general, the consensus aroused expectations, rather than a commitment, in each of the participants that the others would adopt the course of conduct outlined by the bullet points above. However, if a commitment is required for an understanding to exist, Merkel J found that it existed by virtue of the conduct described in the first three bullet points. This conduct involved a commitment by the initiator who intended to bring a discount cycle to an end, and a commitment by those who gave effect to that intention by implementing the understanding. In ACCC v Leahy Petroleum Pty Ltd (2007) ATPR 42-162; [2007] FCA 794 (the Geelong Petrol case), heard a few years after the Ballarat Petrol case, Gray J rejected the allegations of price fixing on the grounds that there was insufficient evidence to establish the existence of a commitment between the petrol companies involved, most of whom were also involved in the Ballarat Petrol case: see 13.23C4.
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Chapter 13: Collusive Conduct be charged. In this case, the purpose and likely effect of the understanding was to exercise restraint and direction over the retail prices by seeking to bring the discount cycle to an end through the coordinated and substantial increase in retail prices to prices that substantially matched the price proposed or stipulated by the initiating company. The usual result of the understanding was that an initiated price increase would ‘stick’ even though the parties were at liberty to recommence the discount cycle if they wished to do so. Conclusion The contraventions, which involved serious and ongoing breaches of important provisions of the Act, resulted in the price of petrol in Ballarat being the subject of a cartel type of arrangement or understanding over a substantial period of time. It was an arrangement or understanding that led to the public paying higher retail prices for petrol than they would have paid if the prices had been determined by market forces, rather than by a collusive arrangement between competitors. In the light of this, and the need to deter price-fixing conduct, which is secret in nature with a low risk of detection, penalties totalling $22.5 million were imposed on the companies involved, while individual penalties totalled $805,000.62 (A subsequent appeal by one of the respondent companies (Apco) and a director (Anderson) to the Full Federal Court was allowed on the basis that, although Anderson received phone calls from competitors regarding price increases, his response was always non-committal and he generally did not follow the price increases. Penalties amounting to $3.2 million were overturned.63)
ii. Will fixing discounts, allowances, rebates, or credits breach the law?
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13.24 The Act recognises that another way of fixing, controlling, or maintaining prices is by agreeing on the discounts, allowances, rebates, or credits to be given or allowed in relation to goods or services, as was the situation in TPC v Nicholas Enterprises Pty Ltd (No 2).64 ACCC v Alice Car & Truck Rentals Pty Ltd (1997) ATPR 41-582 Facts: The ACCC brought an action against four Northern Territory car rental companies (Alice Car & Truck Rentals t/a Territory, Avis, Hertz, and Thrifty), alleging that they had fixed car rental prices in Alice Springs in contravention of what is now s 45AG of the Competition and Consumer Act. The defendants each operated a car rental business from a town office in Alice Springs, and from the Alice Springs airport where they had only one other competitor (Budget, a non-party to these proceedings). From December 1994 until April 1995, the defendants, following a luncheon meeting organised by Territory, stopped offering tourists (‘walk-up customers’) travelling in Central Australia a car rental discount called an ‘Ayers Rock Special’.
62 See ACCC v Leahy Petroleum Pty Ltd (No 2) (2005) 215 ALR 281; (2005) ATPR 42-051; [2005] FCA 254. 63 Apco Service Stations Pty Ltd v ACCC (2005) ATPR 42-078; [2005] FCAFC 161. 64 (1979) 26 ALR 609; (1978) ATPR 40-126, see 13.10C. See also ACCC v Australian Safeway Stores Pty Ltd (2003) 198 ALR 657; [2003] FCAFC 149.
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13.24C
Marketing and the Law Ayers Rock Specials had been offered to many tourists in the off tourist season in Alice Springs, whereby they received an allowance of up to 600 free kilometres per day as part of the rental of a vehicle. After the price-fixing arrangement was implemented, walk-up customers received only 100 free kilometres per day, paying 25 cents per kilometre for every kilometre travelled in excess of the daily allowance. The result was that some customers ended up paying up to $300 more for their rental. Decision: The parties all pleaded guilty to price-fixing conduct. The judge observed that this was a serious offence, which plainly had the effect of substantially lessening competition in the Alice Springs market for walk-up car rentals. The conduct occurred at a time when competition for the benefit of consumers was, or should have been, fierce; and, but for the proceedings brought by the ACCC, the conduct had the potential to continue from year to year. Penalties totalling $1,450,000 and costs were awarded against the defendant car rental companies and their management. The defendants also agreed to compensate all affected customers.
iii. Will failed attempts to fix prices breach the law? 13.25 Even if the agreement fails to achieve its objective, an agreement which has the purpose of fixing, controlling, or maintaining prices will breach the law.65 In TPC v Australian Autoglass Pty Ltd,66 significant penalties were imposed upon Australia’s major windscreen suppliers after they entered into an agreement to fix the prices of replacement windscreens, even though the agreement met with ‘little, if any, success’.67
D. Examples of possible price-fixing agreements
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13.26 The following types of agreements should be examined to ensure that they do not involve horizontal price fixing.
i. Costing assistance, time manuals, and calculation tables prepared by a trade or industry association 13.27 If costing assistance, time manuals, or calculation tables are drawn up by a trade or industry association for use by members, the effect could be that prices will be maintained or controlled even though this was not the intention. To avoid this, costing manuals should offer a variety of prices to be selected by the individual member. It would be advisable for the association to consider applying for authorisation.68 65 See ACCC v Australia and New Zealand Banking Group Ltd [2016] FCA 1516; TPC v Patterson Cheney Pty Ltd (1990) ATPR 41-059; and TPC v JJ & YK Russell Pty Ltd (1991) ATPR 41-090. 66 (1988) ATPR 40-881. 67 See TPC v Tubemakers of Australia Ltd (1983) 47 ALR 719; (1983) ATPR 40-358 and TPC v Parkfield Operations Pty Ltd (1985) 7 FCR 534; 62 ALR 267; (1985) ATPR 40-639. 68 See Re Australian Automobile Chamber of Commerce (1978) 3 TPR 244.
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ii. Information-exchange agreements 13.28 If an exchange agreement involves prices, the existence of a price-fixing arrangement may be inferred.
iii. Marketing boards and single selling agents 13.29 The creation of an industry marketing board has clear potential for reducing price competition, even where selling through the board is not compulsory. An arrangement between producers to use a single selling authority may very well have the effect of fixing prices. If the products from various sellers are sold at the same price, there must necessarily be price fixing.
iv. Output restrictions, market sharing, and bid rigging 13.30 All other forms of conduct included in the definition of a ‘cartel provision’ in s 45AD of the Competition and Consumer Act — output restrictions, market sharing, and bid rigging — could also potentially involve price fixing. By their very nature, market-sharing arrangements will tend to maintain or control prices by controlling output and removing competition. The effect could be the same as if the parties had formed a cartel to limit production.69 Bid rigging — agreements between competitors to bid only to agreed levels, or to refrain from bidding at auctions — is an obvious way of controlling prices. Many cases will therefore involve dual allegations, with market sharing, output restriction, or bid-rigging conduct all overlapping with price-fixing arrangements.70
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E. Are there any exceptions to price fixing illegality? 13.31 There are two specific types of price-fixing agreement that are not illegal per se. Agreements specifically exempted from the definition of a ‘cartel provision’ are joint venture agreements (ss 45AO and 45AP of the Competition and Consumer Act) and agreements setting the price for products collectively acquired and jointly advertised (s 45AU). These exceptions are discussed below: see 13.62–13.63.
Output restriction agreements 13.32 Under the Competition and Consumer Act, making or giving effect to a contract, arrangement, or understanding containing a cartel provision is illegal. Such conduct can constitute a criminal or civil offence. Section 45AD(3)(a) of the Competition and Consumer Act defines a cartel provision to include a provision of
69 See United States v Socony-Vacuum Oil Co 310 US 150 (1940), see 13.23C2. 70 See ACCC v SIP Australia Pty Ltd (1999) ATPR 41-702; [1999] FCA 858; ACCC v Tubemakers of Australia Ltd (2000) ATPR 41-745; [1999] FCA 1787; ACCC v Ithaca Ice Works Pty Ltd (2000) ATPR 41-777; [2000] FCA 997; and ACCC v Roche Vitamins Australia Pty Ltd [2001] FCA 150.
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a contract, arrangement, or understanding made between competitors that has the purpose of (directly or indirectly) preventing, restricting or limiting: • the production or likely production of goods; • the capacity or likely capacity to supply services; or • the supply or likely supply of goods or services to particular persons or classes of persons, by any or all of the parties to the contract, arrangement or understanding. There are three steps in determining whether illegal output restrictions have been agreed to, namely: 1. Is there a contract, arrangement, or understanding? 2. Is the agreement between competitors? 3. Does the agreement have the purpose of restricting output or supply?
A. Is there a contract, arrangement, or understanding? 13.33 This step has been discussed in full at 13.7–13.14.
B. Is the agreement between competitors? 13.34 At least two of the parties to an unlawful output restriction agreement must be competitors, or would be but for the agreement: Competition and Consumer Act s 45AD(4).
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C. Does the agreement have the purpose of restricting output? 13.35 Output controls agreed on between companies can occur in the form of production or sales quota arrangements that involve an agreement between competitors to limit the volume of particular goods or services available on the market. This generally has the effect of inflating prices in the market. For example, in United States v Socony-Vacuum Oil Co,71 a group of oil companies was successfully prosecuted under equivalent US legislation for engaging in collusive conduct. The oil companies had agreed to limit the amount of petrol reaching the market, in order to overcome an oversupply situation which had been having a depressing effect upon petrol prices. ACCC v Tasmanian Salmonid Growers Association Ltd [2003] FCA 788 13.35C
Facts: The Tasmanian Salmonid Association was concerned by the fact that there was an oversupply of Atlantic salmon being produced by its members, which threatened to cause a drop in prices and, consequently, the viability of some growers. The Board of the Association formally resolved that the five major growers would cull 10% of their Atlantic salmon stocks
71 310 US 150 (1940), see 13.23C2.
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Chapter 13: Collusive Conduct by the end of July in 2002. Perhaps in an attempt to prevent this resolution from falling within the purview of what is now s 45AD of the Competition and Consumer Act, the resolution was worded as a recommendation only, with no obligation on members to comply. Members were required to advise the Board individually whether they intended to undertake the cull, which some did. The ACCC alleged that the Association had facilitated a price-fixing arrangement between competitors in breach of s 45. Decision: An arrangement or understanding between competitors to remove at least 10% of the salmon stock from the marketplace was a price-fixing provision and prohibited per se. (Under the Competition and Consumer Act this would now even more obviously constitute an output restriction agreement in breach of s 45AD(3)(a), as the arrangement clearly had the purpose of preventing, restricting, or limiting the production of goods (salmon) by any or all of the parties to the arrangement.)
Market-sharing agreements
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13.36 Under the Competition and Consumer Act, making or giving effect to a contract, arrangement, or understanding containing a cartel provision is illegal. Such conduct can constitute a criminal or civil offence. Section 45AD(3)(b) of the Competition and Consumer Act defines a cartel provision to include a provision of a contract, arrangement, or understanding made between competitors that has the purpose of allocating to any party to the contract, arrangement, or understanding: • the customers to be supplied by a party; • the suppliers who will supply a party; or • the geographical areas in which goods or services are to be supplied to customers or acquired from suppliers. There are three steps in determining whether illegal market sharing has been agreed to, namely: 1. Is there a contract, arrangement, or understanding? 2. Is the agreement between competitors? 3. Does the agreement have the purpose of allocating customers, suppliers, or territories?
A. Is there a contract, arrangement, or understanding? 13.37 This step has been discussed in full at 13.7–13.14.
B. Is the agreement between competitors? 13.38 At least two of the parties to a market-sharing agreement must be competitors, or would be but for the agreement: Competition and Consumer Act s 45AD(4).
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Marketing and the Law
C. Does the agreement have the purpose of allocating customers, suppliers, or territories?
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13.39 A market-sharing agreement exists where competitors agree not to compete with one another by dividing the market up between them. This, of course, enables each to engage in monopolistic practices and to earn monopoly profits.72 Agreements between competitors allocating particular customers to be supplied by the parties to the agreement are obviously harmful to the competitive process, and by no means unknown in Australia. For example, in ACCC v Pioneer Concrete (Qld) Pty Ltd,73 a group of pre-mixed concrete companies operating in south-eastern Queensland was successfully prosecuted by the ACCC for engaging in various types of cartel conduct. As part of an arrangement to maintain their market shares, the companies agreed, amongst other things, to recognise designated customers (referred to as ‘pets’) as belonging to particular suppliers. If one of these customers called for a tender for the supply of pre-mixed concrete, all other parties to the agreement would ensure that any tender submitted by them was higher than the tender put in by the ‘owner’ of that particular customer. Significant penalties were imposed upon the parties involved. In another case, Visy Paper Pty Ltd v ACCC,74 the defendant tried to impose a non-competition clause (in a supply contract) upon a competitor in the waste paper collection market, in an attempt to preserve certain customers for itself. A penalty of $500,000 was imposed on the defendant.75 See also ACCC v Visy Industries Holdings Pty Ltd (No 3),76 where Visy and Amcor (who were competitors in the corrugated fibreboard packaging market) agreed to maintain their respective market shares, not to deal with each other’s customers, and to compensate each other for any loss of a customer. Visy was fined $36 million, while Amcor was granted immunity under the immunity policy. ACCC v Renegade Gas Pty Ltd (t/as Supagas NSW) [2014] FCA 1135 13.39C1
Facts: Renegade and Speed-E-Gas competed to supply delivered liquid petroleum gas (LPG) cylinders for use in forklifts in Sydney. From 2006 to 2011 there was an understanding between Renegade and Speed-E-Gas that neither would try to secure the other’s customers (the ‘stay away provision’) and, if one did, the other business would retaliate for the customers it lost (the ‘replacement provision’). The court described the arrangement as deliberate, largely
72 See ACCC v ABB Transmission & Distribution Ltd (2001) ATPR 41-815; [2001] FCA 383, where a number of power transformer suppliers entered into a market-sharing arrangement and fines of $19 million were imposed; and ACCC v Roche Vitamins Australia Pty Ltd, where three Australian subsidiaries of major international companies applied an international arrangement that fixed prices and shared markets in relation to animal vitamins — fines totalling $25 million were imposed. 73 (1996) ATPR 41-457, see 13.43C1. 74 (2003) 201 ALR 414; [2003] HCA 59. 75 ACCC v Visy Paper Pty Ltd (No 2) (2004) 212 ALR 564; (2004) ATPR 42-032. 76 (2007) 244 ALR 673; [2007] FCA 1617.
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Chapter 13: Collusive Conduct covert, and long standing, which ‘had the potential to adversely affect a high proportion of manufacturing and distribution businesses across Sydney and which likely had an adverse effect on those businesses that were denied the opportunity of receiving a price competitive offer from either Renegade or Speed-E-Gas’. Decision: Renegade and Speed-E-Gas pleaded guilty to breaches of s 45AK of the Competition and Consumer Act (arrangement containing a cartel provision) and s 45 (exclusionary conduct). The arrangement was a cartel provision because Renegade and Speed-E-Gas were competitors and because the arrangement had the purpose of limiting supply to customers (an output restriction under s 45AD(3)(a)) and allocating customers (s 45AD(3)(b)). The court ordered significant pecuniary penalties, declarations, injunctions, and compliance programs. The managing director of Renegade was also disqualified from managing a corporation for three years.
Dividing the market up by allocating geographic territories to the parties involved in a collusive agreement is a classic form of market-sharing arrangement. Such an arrangement was alleged in the following High Court case. Rural Press Ltd v ACCC (2003) ATPR 41-965; [2003] HCA 75
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Facts: Rural Press, part of a multinational organisation, published a regional newspaper called the Murray Valley Standard out of Murray Bridge, a country town in South Australia. One of the towns to the north of Murray Bridge serviced by the Rural Press was Mannum. Further north, along the Murray River, another publisher, Waikerie Printing, produced a regional newspaper (the River News) that circulated within an area known as the Riverland. When a change was made to the local government boundaries, Waikerie Printing decided to expand the circulation of the River News to include the Mannum area. It hired a Mannum correspondent and actively sought local advertising by offering rates below those of Rural Press. The intention was to trial the expansion for 12 months. Rural Press was quite unhappy with this intrusion into their prime circulation area and made this known to Waikerie Publishing in the form of several direct communications, both verbal and written. In fact, the threat was made that unless Waikerie Printing reconsidered the expansion, Rural Press would consider publishing a rival newspaper in the Riverland area. As a consequence, and following meetings on the issue, Waikerie Printing downscaled its expansion and Rural Press did not introduce a competing newspaper in the Riverland. As it had indicated in a memo to Rural Press, Waikerie Printing eventually confined its activities to a line drawn 40 miles north of Mannum, thereby removing itself from Rural Press’ prime circulation area. The ACCC alleged that Rural Press and Waikerie Printing had entered into an arrangement which restricted the circulation of Waikerie Printing’s River News to a confined area — one that did not involve competition with the Rural Press’ publication — in breach of s 45(2) of the Competition and Consumer Act. The ACCC alleged that this market-sharing arrangement involved an exclusionary provision77 in breach of s 45(2)(a)(i) and (b)(i). (Such conduct would now also fall within the definition of a ‘cartel provision’ as defined by s 45AD(3)(b) of the Competition and Consumer Act). The ACCC also argued that the arrangement substantially lessened competition in breach of s 45(2)(a)(ii) and (b)(ii), and that Rural Press had misused its market power in breach of s 46.
77
The provisions relating to ‘exclusionary provisions’ were repealed in 2017.
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Marketing and the Law Decision: The High Court held that Rural Press and Waikerie Printing had entered into and given effect to a market-sharing arrangement as alleged by the ACCC. Was there a contract, arrangement, or understanding? There was clearly an arrangement between Rural Press and Waikerie Printing. Was the contract, arrangement, or understanding between competitors? The parties were competing, or would have been but for the market-sharing arrangement entered into, in a market defined as the Murray Bridge area (which included Mannum) for the supply of regional newspapers. Did the contract, arrangement, or understanding have an exclusionary purpose? The end (purpose) that the parties endeavoured to accomplish by the arrangement was preventing, restricting, or limiting the supply of newspaper services by Waikerie Printing to readers and advertisers in the Mannum area. This may have been primarily designed to secure the market power of Rural Press in this area, but the immediate purpose was to prevent readers buying papers and advertisers buying space from Waikerie Printing. Establishing this purpose was sufficient on its own — there was no need to establish any intent to injure or disadvantage them. There is no requirement of ‘aiming at’ or ‘targeting’ such persons. Did the arrangement have the purpose or effect of substantially lessening competition? See 13.48–13.49. ‘The arrangement between the monopolist [Rural Press] and [Waikerie Printing] almost totally negated the beneficial effects of [Waikerie]’s competitive behaviour [in entering the Murray Bridge market].’ In fact, the Murray Bridge market returned to being a monopoly as a result of the arrangement. This amounted to substantial lessening of competition. The majority dismissed the allegation against Rural Press that it had misused its market power in breach of s 46 of the Competition and Consumer Act.
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Bid-rigging agreements 13.40 Under the Competition and Consumer Act, making or giving effect to a contract, arrangement, or understanding containing a cartel provision is illegal. Such conduct can constitute a criminal or civil offence. Section 45AD(3)(c) of the Competition and Consumer Act defines a cartel provision to include a provision of a contract, arrangement, or understanding made between competitors that has the purpose of ensuring that: • one or more parties bid and the other parties do not bid; • two or more parties bid, but on the basis that one is more likely to succeed; • whilst all parties bid, some will pull out or not finalise their bids; or • whilst all parties bid, they have worked out a material component of at least one bid. The definition of a ‘bid’ is wide and includes a bid or tender, and any preliminary step taken by a potential participant in a bidding or tendering process: Competition and Consumer Act s 45AB. 620
Chapter 13: Collusive Conduct
There are three steps in determining whether illegal bid rigging has been agreed to, namely: 1. Is there a contract, arrangement, or understanding? 2. Is the agreement between competitors? 3. Does the agreement have the purpose of rigging bids?
A. Is there a contract, arrangement, or understanding? 13.41 This step has been discussed in full at 13.7–13.14.
B. Is the agreement between competitors? 13.42 At least two of the parties to an unlawful bid-rigging agreement must be competitors, or would be but for the agreement: Competition and Consumer Act s 45AD(4).
C. Does the agreement have the purpose of rigging bids?
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13.43 Agreements between competitors to bid only to agreed levels, or to refrain from bidding at auctions, would constitute collusive bidding (or bid rigging). Such conduct was engaged in by a number of scrap metal merchants in ACCC v D M Faulkner Pty Ltd,78 where, prior to attending auctions, the merchants would agree among themselves who would bid at the auction. After the auction, merchants reconvened at another location, usually a local hotel or club, to conduct a second auction among themselves to allocate the scrap metal they had purchased at the auction. Fines totalling $485,000 were imposed on participants in the bid-rigging scheme. Another form of bid rigging is an agreement between competitors not to tender against one of the parties, as exemplified by the following case.79 ACCC v Pioneer Concrete (Qld) Pty Ltd (1996) ATPR 41-457 Facts: The ACCC brought a number of actions alleging price fixing against the members of a cartel of pre-mixed concrete suppliers made up of Pioneer, Boral, CSR, Goodmix, Rocla, and Hymix. The companies had fixed the prices of pre-mixed concrete in the Brisbane, Gold Coast, and Toowoomba markets between mid-1989 and mid-1994. The collusion was planned and executed through more than 50 regular meetings and telephone conversations between executives of the companies. The executives agreed which company was to be successful in tendering for supply for particular projects. The other companies agreed to quote higher prices to ensure that the nominated company secured the work. Decision: The companies all acknowledged guilt and agreed to penalties. In late 1994 Goodmix, Rocla, and Hymix were fined $530,000. Penalties of $6.6m each were imposed on Pioneer, Boral, and CSR, and fines of between $50,000 and $100,000 were imposed upon six executives of the companies.
78 [2004] FCA 1666. 79 See also J McPhee & Son (Australia) Pty Ltd v ACCC (2000) 172 ALR 532; (2000) ATPR 41-758; [2000] FCA 365 and ACCC v Tyco Australia Pty Ltd (2000) ATPR 41-740; [1999] FCA 1799.
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Entering into an agreement between competitors to ‘load’ a tender (by working out a material component of at least one bid) so as to compensate the unsuccessful tenderers, would also be illegal. ACCC v CC (NSW) Pty Ltd (1999) 165 ALR 468; (1999) ATPR 41-732 13.43C2
Facts: The Commission brought an action against four construction companies (CC, Hollands, Multiplex, and Leightons), the Australian Federation of Construction Contractors (AFCC), and an employee from each. The four companies were invited by the Commonwealth government to tender for a large construction contract in Sydney. At a meeting convened by the AFCC, the four companies accepted that the successful tenderer would pay a fee of $1,000,000 to the AFCC and a fee of $750,000 to each of the three unsuccessful tenderers to defray the costs of preparing the tenders. It was claimed that these fees were then added to each tender. The Commonwealth was unaware of the agreement. The ACCC alleged that the parties had entered into an illegal collusive arrangement. Decision: In the earlier proceedings, all companies except CC (NSW) Pty Ltd withdrew their defences and were fined between $400,000 and $500,000 each. The employees involved were fined between $10,000 and $50,000 each: see TPC v CC (NSW) Pty Ltd (No 2).80 Lindgren J concluded that CC had been a party to an arrangement or understanding to fix prices. The tenderers had communicated with each other and intentionally raised an expectation that they would act in a certain way, and the resultant ‘understanding’ was likely to have the effect of ‘controlling’ the price charged to the Commonwealth government for the project. With the introduction of Div 1 into Pt IV of the Competition and Consumer Act, this case would now appear to be an example of collusive bid rigging.
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In the Queensland building market there was a practice called cover pricing, which was held to be unlawful. ACCC v TF Woollam & Son Pty Ltd (2011) 285 ALR 236; [2011] FCA 973 13.43C3
Facts: This case involved an arrangement (described as cover pricing) between builders in Queensland. Cover pricing is a form of bid rigging and occurs in markets where contracts are put out to tender. Builder A (who may want to tender but does not really want to win the tender) contacts Builder B and asks for a cover price. The cover price is a price below which B will tender (ie, B is signalling a price that is above its tender price). This ensures that A, if it decides to tender, can tender without running the risk of winning the tender (ie, by tendering at or above the cover price). The cover price device saves A from having to expend resources to construct a tender it does not really want to win. Decision: By participating in cover pricing, the parties had in the circumstances accepted a commitment to act in particular way. Therefore, they had entered into an arrangement or understanding within the meaning of the Competition and Consumer Act. The arrangement or understanding amounted to price fixing.
80 (1995) ATPR 41-406.
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Chapter 13: Collusive Conduct (This case was based on the law as it existed before the cartel provisions were introduced. These days cover pricing would satisfy the requirements for both price fixing: s 45AD(2) of the Competition and Consumer Act; and bid rigging: s 45AD(3)(c).)
Norcast SárL v Bradken Ltd (No 2) (2013) 302 ALR 486; [2013] FCA 235 Facts: Norcast decided to sell its Canadian subsidiary (a mining consumables business) by tender. Bradken, an Australian company, which also operated a mining consumables business, was not invited to tender. Bradken contacted Castle Harlan, a New York private equity fund, about the sale. Castle Harlan successfully tended for the Norcast subsidiary for $190 million. Castle Harlan immediately on-sold the business to Bradken for $212 million. Norcast was not aware of the arrangement between Norcast and Bradken. Norcast claimed that there was a breach of the cartel provisions of the Competition and Consumer Act relating to bid rigging. Decision: According to the court, there was an arrangement between Bradken and Castle Harlan by which Castle Harlan agreed to bid for, and Bradken agreed not to bid for, the Canadian subsidiary. The court also held that Bradken and Castle Harlan were in competition with each other in relation to the acquisition of shares in the Canadian company. Therefore, the court held that unlawful bid rigging had occurred. The decision was appealed. Prior to the appeal being heard, the parties reached a confidential settlement which resulted in the declarations made against Bradken being set aside and the appeal being discontinued.
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Exclusionary agreements 13.44 Until 2017, s 45 of the Competition and Consumer Act81 prohibited agreements containing exclusionary provisions (commonly referred to as collective (or primary) boycotts), irrespective of the effect on competition. These provisions were repealed in 2017. Such conduct will generally be covered by the general anticompetitive agreement provisions in s 45(1) discussed below.
Anti-competitive agreements 13.45 Section 45 of the Competition and Consumer Act is potentially very wide. There is not a requirement under this section that the parties are competitors. This provision may catch vertical agreements as well as horizontal ones, although some agreements caught by other sections in Div 2 (ss 47, 48, and 50 of the Competition and Consumer Act) are excluded from the operation of s 45 of the Competition and Consumer Act: see 13.64.
81 Section 45(2)(a)(i) and (b)(i) of the Competition and Consumer Act 2010 prohibited contracts, arrangements, and understandings that contained an exclusionary provision. Exclusionary provision was defined in s 4D.
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Apart from these agreements, if a contract, arrangement, understanding or concerted practice has the purpose or effect of substantially lessening competition in a market, it will be illegal.82 There are two steps involved in establishing the existence of an anti-competitive agreement, namely: 1. Is there a contract, agreement, understanding or concerted practice? 2. Is the ‘purpose’ or ‘effect’ to substantially lessen competition?
A. Is there a contract, arrangement, understanding, or concerted practice? 13.46 This issue has been discussed above in 13.7–13.14.
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B. Is the purpose or effect to substantially lessen competition? 13.47 If the existence of an anti-competitive ‘purpose’ can be shown, even though it may not in fact be achieved, and even if it could never have been achieved, there is still an offence. Of course, when two or more parties have different purposes for entering into an arrangement, an obvious problem of proof exists. However, as already noted, the legislation makes it clear that, provided the purpose of substantially lessening competition is a ‘substantial’ reason for the arrangement being entered into, as opposed to the sole or dominant reason (Competition and Consumer Act s 4F), it does not matter that the same purpose was not shared by all the parties. Even if there is no requisite purpose, if the conduct in question has or is likely to have the prohibited ‘effect’, it is unlawful. Naturally, however, the conduct must be the cause of the prohibited ‘effect’. If it can be shown that the result would have occurred anyway (because of market forces, for example) then the agreement cannot be said to be the cause of that result. Obviously, nearly every agreement or arrangement restricts trade in some way. It is only when competition in the marketplace is or is likely to be adversely affected that s 45(1) of the Competition and Consumer Act may be invoked, for it is an accepted fact that regulating or restraining trade can sometimes promote competition. Concern only exists where the regulation or restriction upon trade fetters or destroys competition in a market.
i. The ‘future with and future without’ test 13.48 Before s 45(1) of the Competition and Consumer Act can be breached, there must be a ‘lessening of competition’, or an intention to do so. ‘Lessening’ competition includes ‘preventing’ or ‘hindering’ competition: Competition and 82 Unless the agreement is authorised on public benefit grounds: Competition and Consumer Act s 45(9); see 13.69–13.74.
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Consumer Act s 4G. When determining whether the effect of any arrangement or understanding (the conduct) will be to substantially lessen competition, the courts apply the ‘future with and future without’ test, as follows: • Determine the relevant market. • Work out the level of competition likely to be expected with the conduct. • Work out the level of competition likely to be expected without the conduct. • Determine whether there is a significant or substantial difference between the two (in the sense of the lessening being ‘meaningful or relevant to the competitive process’). Determining the correct market is the crucial first step. In News Ltd v Australian Rugby League Ltd,83 Burchett J, at first instance, decided that News Ltd failed in its s 45(1) case because it had failed to establish the existence of a rugby league entertainment market. The evidence suggested that there were reasonable substitutes for rugby league, such as Australian Rules football, soccer, rugby union, basketball, cricket, and perhaps other forms of entertainment. This finding enabled Burchett J to conclude that, as the Australian Rugby League had little power in this market, there was no substantial lessening of competition in breach of s 45(1) of the Competition and Consumer Act.84 Giving evidence in Gallagher v Pioneer Concrete (NSW) Pty Ltd,85 Dr Neville Norman, an economist, stated that the criteria by which competitiveness in a market (once defined) should be judged, is the market’s ability to: 1. enable products to be delivered consistently to consumers or users efficiently in the range and qualities desired; 2. avoid inefficient practices, excessive costs, delays and product-related faults; 3. pressure suppliers to adopt best practice methods of production and distribution; and 4. reward efficient operators and penalise less efficient operators (including by failure and exit from the market).
ii. The lessening of competition must be substantial 13.49 As discussed, the lessening of competition must be substantial. ‘Substantial’ is a relative concept of which the precise meaning is not clear. In Rural Press Ltd v ACCC,86 the majority in the High Court said that a lessening of competition was substantial if it was ‘meaningful or relevant to the competitive process’ in question.
83 (1996) ATPR 41-466. 84 The Full Court, in a subsequent hearing, did not need to rule on Burchett J’s findings regarding the market definition. 85 (1993) 113 ALR 159 at 162; (1993) ATPR 41-216; [1993] FCA 59. 86 (2003) ATPR 41-965; [2003] HCA 75, see 13.39C2.
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In Ah Toy J Pty Ltd v Thiess Toyota Pty Ltd,87 Forster J took the view that to eliminate competition in relation to 0.6% of the passenger car market in the Northern Territory ‘can hardly be said to be substantially lessening competition’, whereas the Trade Practices Tribunal (now the Australian Competition Tribunal) concluded that restrictions which foreclosed between 1% and 5% of the motor vehicle market in all of Australia ‘resulted in a substantial lessening of competition’, involving as it did the sale of between 6000 and 30,000 motor vehicles per annum.88 In Rural Press Ltd v ACCC,89 the High Court held that driving a viable competitor out of the market so as to return the market to a monopoly was substantial lessening of competition. Although clearly a difficult concept to apply in practice, there are some factors which invariably will be relevant in making such an assessment: • the combined and individual strength of the parties to an agreement; • the proportion of trade or commerce affected by the agreement in relation to the total volume in the relevant market; • the duration of any restriction agreed to; and • the barriers to entry in the relevant market and, in particular, whether they will be heightened by the agreement entered into.
C. Examples of possible anti-competitive agreements
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13.50 There are many types of agreement that can potentially lessen competition in the marketplace. A number of these are described below. Some of the agreements discussed may contain price fixing, output restriction, market sharing, bid rigging, or exclusionary provisions — conduct illegal under the Act without the need to prove a substantial lessening of competition. Such conduct can only be legally engaged in if authorised.
i. Resource-sharing agreements 13.51 A means of restricting competition is to limit or prevent a competitor (or potential competitor) from gaining access to resources which are necessary to successfully conduct a particular business. Horizontal agreements between competitors may achieve such a restriction. For instance, if a group of newspaper publishers entered into an exclusive arrangement with a dominant paper supplier whereby only those publishers, to the exclusion of others, could obtain paper supplies, the effect upon competition or potential competition is obvious.90
87 (1980) 30 ALR 271; 5 TPC 824 at 827–828. 88 Ford Motor Co of Australia Ltd v Ford Sales Co of Australia Ltd (1977) ATPR 40-043, see 17.9C. 89 (2003) ATPR 41-965; [2003] HCA 75, see 13.39C2. 90 See ACI Fibreglass Pty Ltd Application (1974) 1 TPCD [241].
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ii. Information-exchange agreements 13.52 Agreements whereby competitors voluntarily share information can have a pronounced effect on competition. Knowledge of what other businesses are doing or planning to do can shape the activities of competing businesses. If competitors, usually through a trade association, collect and distribute information about such matters as production levels, stocks, costs, overheads, sales, prices, and profits, the end result can be substantially uniform behaviour in setting price levels in the marketplace. This is especially so if an association promotes uniform methods of accounting, for instance, in connection with the provision of such information. While such information-exchange agreements may be justifiable on the grounds of promoting efficiency and keeping businesspersons well informed about market conditions, they may well also on occasions be found to be anti-competitive and thus illegal.
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iii. Strategic alliances, partnering agreements, or joint ventures 13.53 If two corporations form a strategic business alliance, it is important to ensure that it does not have an adverse effect upon competition. If the alliance involves competitors, it is risky; but when it involves parties operating in different segments of the market, it is less likely to breach the law. However, one must always consider the purpose or effect of the alliance. If it is between two large or powerful corporations, it may have an adverse effect upon competition in the marketplace and bring s 45 into play. However, it is always possible that the public benefits arising out of the alliance may justify the grant of authorisation. For instance, in 2004 the ACCC authorised the joint services agreement between Qantas and British Airways, which allows the airlines to coordinate marketing practices, routes, and sales. The ACCC was satisfied that strong competition existed in the marketplace and that the cost savings achieved by the airlines as a result of the agreement would be passed on to members of the public. Joint venture arrangements are discussed at 13.66.
iv. Collective exclusive dealing agreements 13.54 The conduct of exclusive dealing, if engaged in by an individual firm, is subject to s 47 of the Competition and Consumer Act. However, if a group of traders (whether in competition or not) collectively enter into an arrangement with exclusionary elements, it may be caught by s 45(1). This occurred in ACCC v Cement Australia Pty Ltd,91 where certain agreements between South East Queensland power stations and Cement Australia, the buyer of flyash (a by-product of the burning of black coal) were held to substantially lessen competition.
91 (2013) 310 ALR 165; [2013] FCA 909.
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13.54C
Eastern Express Pty Ltd v General Newspapers Pty Ltd (1991) 103 ALR 41; (1991) ATPR 41-128; Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 106 ALR 297; (1992) ATPR 41-167 (Appeal)92 Facts: General Newspapers owned the Wentworth Courier, a suburban newspaper in Sydney which had a virtual monopoly in respect of advertising of real estate in suburban newspapers in its distribution area. A number of local real estate agents became shareholders in Eastern Express Pty Ltd, which was formed to launch a rival newspaper. The articles (rules) of the company required its real estate agent shareholders to place a quota of their real estate advertising with the Eastern Express. The quota was calculated on the basis of the advertising expenditure that had previously been placed with the Wentworth Courier, so that in effect it required those agents to advertise exclusively with the Eastern Express. General Newspapers claimed the articles of Eastern Express Pty Ltd had the purpose or effect (or likely effect) of substantially lessening competition in breach of s 45 of the Competition and Consumer Act. (Eastern Express counter-argued that, by cutting its advertising rates significantly, General Newspapers had misused its market power in breach of s 46 of the Competition and Consumer Act.)93 Decision: The court defined the market as the supply of advertising space in local or suburban newspapers. The quota provisions in the articles of Eastern Express Pty Ltd lessened competition by inhibiting the freedom of real estate agents to choose the suburban newspaper in which to place their real estate advertisements. This lessening of competition was substantial, in that the rule obligated real estate agents to support each and every issue of the Eastern Express indefinitely. This was a permanent hindrance upon competitive forces, which had no justification after the establishment phase of the Eastern Express.
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Furthermore, the obligation seriously interfered with the freedom of choice of real estate vendors. Vendors are generally guided by their agents when it comes to advertising, and the objectivity of that advice would be compromised in the case of those agents who were bound to advertise with the Eastern Express. The advice of the agents was not likely to reflect competitive factors. The court ordered that the obligation in the articles of Eastern Express Pty Ltd be deleted.
v. Terms of trading agreements 13.55 Groups of competitors, usually in the form of an association, may enter agreements for circulation of recommendations as to standard ‘non-price’ terms and conditions of trade. This might include methods of marketing, advertising, promotion, supply of services, labelling, product standards, and other related matters. As with recommended pricing schemes, such agreements may be anticompetitive and thus unlawful. The agreement may utilise what is euphemistically referred to as a ‘Code of Ethics’, with the conditions imposed being described as 92 See also 14.11C. 93 See 14.11C for a discussion of this issue.
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‘voluntary’ or ‘recommended’.94 Nevertheless, members may still be subjected to sanctions for ‘unethical conduct’ if they depart from the standard terms of trade, be it expulsion from the association or the sanction of disapproval, so that in reality the conditions are often binding on members. Australian Federation of Construction Contractors’ Application (1975) 1 TPCD [244] Facts: An association of civil engineering and heavy construction contractors adopted a system whereby the association was to negotiate (with principals who had called for a tender) a variation of an alleged inequitable condition, failing which all members of the association would uniformly tender so that such condition was avoided. Further, if original tenders for a construction project were rejected, on a recall of tenders all members agreed to resubmit the original tender. Failure to adhere to such ‘guidelines’ meant members were in breach of a ‘code of ethics’ and liable to disciplinary action on the grounds of engaging in ‘unfair competition’. An application was made by the association to have the arrangement authorised. Decision: The Trade Practices Commission (now the ACCC) refused authorisation, on the grounds that such an arrangement involved ‘concerted action operating against the general principles of competition without a specifically identifiable substantial public benefit being shown’. (The conduct of the association members would now seem to fall into the definition of ‘cartel conduct’, as a form of bid rigging.)
Despite this decision, it should be recognised that standard forms of contract and uniform terms of trade can promote efficiency by minimising wasteful negotiations.
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vi. Price discrimination agreements 13.56 In theory, s 45 of the Competition and Consumer Act could apply to agreements in which a supplier discriminates with respect to price between one buyer and another. All the agreements of one supplier may be aggregated to determine if together they have an anti-competitive effect. For price discrimination to be anti-competitive, it would usually have to be engaged in by a supplier with substantial market power,95 otherwise buyers discriminated against would simply access alternative sources of supply. Under such circumstances price discrimination is more likely to be pro-competitive.
94 For example, in 1995, the NSW Tennis Professionals Association Ltd agreed with the ACCC not to be involved in price-fixing arrangements which had been incorporated into the Association’s Code of Ethics: ACCC Journal, No 1, p 58, 18 January 1995. 95 Price discrimination conduct is therefore more likely to be caught by s 46.
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In order to establish a breach of s 45 of the Competition and Consumer Act, it would need to be proved that the price discrimination could or does substantially lessen competition in one of two markets: 1. the supplier’s market; that is, the market in which the seller acquires or supplies; or 2. the customer’s market; that is, the market in which the buyer acquires or supplies: Competition and Consumer Act s 45(3).96 Section 45 is not concerned with damage to an individual competitor, but requires that competition in the market as a whole has been or is likely to be substantially lessened before the conduct is illegal. This means, for example, that if a supplier discriminates in favour of its major customers to the detriment of its smaller customers, there is not necessarily a breach of s 45. If the favoured customers all compete vigorously against each other a court might conclude that competition has not been substantially lessened. The harm done to the smaller customers may or may not have an effect upon the market as a whole. Petty v Penfolds Wines Pty Ltd (1994) ATPR 41-32097
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13.56C
Facts: Penfolds was a maker and distributor of wine and operated a number of retail stores in Sydney. When Petty failed to pay its accounts in accordance with its agreement with Penfolds, Penfolds refused to provide it with a discount that was available to other retailers of similar size. The effect was that other competitive retailers received Penfolds’ products 2–3% cheaper than Petty. Petty alleged that he had been discriminated against with the result that his ability to compete was significantly harmed, so that overall competition in the marketplace was lessened. (Petty also relied upon s 46 and breach of contract.) Decision: The complaint was dismissed. On the evidence, there was no lessening of competition. The relevant market was the retail liquor trade in the Sydney metropolitan area. The evidence indicated that, in all areas of Sydney, there were numerous retail outlets. There was no evidence that Petty’s presence, let alone the price discrimination, had any real impact on the market at all. (The other allegations were also dismissed.)
Collusive Conduct Exemptions 13.57 There are a number of exceptions or exemptions applicable to Div 1 of Pt IV. Where these apply, a person who makes or gives effect to a ‘cartel provision’ (as defined) will not contravene the criminal offences or the civil prohibitions of Div 1. Similar exceptions or exemptions exist for the offences created by s 45 in Div 2 of Pt IV of the Competition and Consumer Act. 96 See O’Brien Glass Industries Ltd v Cool & Sons Pty Ltd (1983) 48 ALR 625; (1983) ATPR 40-376, a case decided under the repealed s 49, but which arguably could fall within s 45. 97 See also Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) 75 ALR 581; (1987) ATPR 40-809.
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Division 1 exemptions 13.58 There are a number of Div 1 ‘exemptions’,98 the most important of which are discussed below.
A. Authorisation exemption 13.59 The ACCC may, on application, authorise the making of or giving effect to a cartel provision. Authorisation will only be granted if the ACCC is satisfied that the provision would result in a public benefit likely to outweigh the public detriment arising from any loss of competition. The authorisation process is discussed in more detail at 13.69. It should be noted that a contract containing a cartel provision can be made before applying for an authorisation if the contract includes a condition that the provision will not come into force until authorisation is granted, and if an application for authorisation is made within 14 days.
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B. Collective bargaining exemption 13.60 A person may make or give effect to a cartel provision that would otherwise be considered a price-fixing, output restriction, or market-sharing agreement, if they have a collective bargaining notice (under s 93AB(1A) of the Competition and Consumer Act) in place with the ACCC. This exemption does not extend to bid-rigging conduct. Where a group of competitors join for the purpose of bargaining with a buyer or supplier, very often such conduct will be illegal per se, as negotiations will invariably involve the imposition of ‘cartel provisions’. For instance, if a group of competitors refuse to supply (or acquire) goods or services to (or from) particular persons or classes of persons unless certain conditions (such as stipulated prices) are met or agreed to, the conduct could be characterised as a price-fixing, output restriction, or market-sharing agreement. As such, it would normally need to be authorised on public benefit grounds to be legal. The ACCC has granted a number of authorisations in respect of collective bargaining arrangements where the acquisition of primary products is controlled by a party with a large degree of market power. For example, in 2004 it authorised Tasmanian vegetable growers to collectively bargain with Tasmania’s two vegetable processors (McCain and Simplot) because it gave a greater opportunity for growers to have more effective input into key contract terms and conditions than they would have had as individuals.99
98 See ss 45AL–45AV of the Competition and Consumer Act 2010. 99 Authorisation No A90914, Granted to Tasmanian Farmers and Graziers Association.
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However, as an alternative to authorisation, the Competition and Consumer Act now contains a notification system for collective bargaining by small business (and some cooperatives) that wish to collectively bargain with large business (the target). The notification process will be available to a small business when the value of the proposed transaction is not reasonably expected to exceed $3 million over 12 months, although a higher transaction limit can be set by regulation: Competition and Consumer Act s 93AB. The onus is on the ACCC to establish that any detriment to the public constituted by any lessening of competition would outweigh any public benefit arising out of the collective bargaining process: Competition and Consumer Act s 93AC.
C. Related bodies exemption 13.61 A cartel provision can be made and put into effect when the only parties to the relevant contract, arrangement, or understanding are related bodies corporate.
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D. Joint venture exemption 13.62 Prior to November 2017, a cartel provision in a contract was permitted if it was for the purposes of a joint venture, where the joint venture was contained in a contract and was for the production and/or supply of goods and services. In November 2017, the ‘joint venture defence’ was significantly expanded. The defence will apply where the cartel provision is in a contract, arrangement or understanding;100 and the joint venture is for the joint production, supply or acquisition of goods or services. The revised defence is subject to two new requirements. The parties must demonstrate that cartel provisions in joint venture arrangements are reasonably necessary for undertaking the joint venture, and that the joint venture is not being carried on for the purpose of substantially lessening competition.101
E. Collective acquisitions exemption 13.63 A cartel provision that relates to the price of goods or services to be collectively acquired (or collectively acquired and jointly advertised) by the parties to a contract, arrangement, or understanding is not illegal under Div 1 of the Competition and Consumer Act.102 This exemption applies to the buying and selling activities of cooperative buying groups. Typically they are small businesses operating as franchisees or as part of a banner group; for example, franchisees in the petroleum or bedding 100 Competition and Consumer Act 2010 s 4J(b). 101 Competition and Consumer Act 2010 ss 45AO and 45AP. 102 Competition and Consumer Act 2010 s 45AU.
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markets; and banner groups of hardware stores, pharmacies, or supermarkets. The goods or services involved must have been collectively acquired by the parties to the agreement, or involve goods collectively acquired for the purpose of jointly advertising the price at which they are to be sold in the marketplace. The dispensation for such schemes recognises that they need not be anti-competitive and will often be pro-competitive, especially where the scheme involves a relatively small proportion of the traders who are competing in a market. Although the scheme may result in uniform prices as between the scheme members, its effect on competitive prices in the market as a whole may be minimal. Further, by collective buying and advertising, small traders may gain access to facilities and expertise that are commonly available only to larger competitors and, as a result, may be able to compete more effectively with them. This may increase, not reduce, competition.103
F. Anti-overlap provisions 13.64 If a cartel provision constitutes exclusive dealing under s 47 of the Competition and Consumer Act, or resale price maintenance under s 48 of the Act, or involves the acquisition of shares and assets governed by s 50 of the Act, the conduct does not fall within Div 1. The intention appears to be that these types of conduct will continue to be dealt with by the Div 2 provisions in Pt IV of the Act. Agreements that constitute maximum resale price maintenance are also excluded. Maximum resale price maintenance occurs where suppliers require buyers (for example, retailers) not to sell above a certain price.
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Division 2 exemptions A. Authorisation, collective bargaining, and related bodies exemptions 13.65 The exemptions for Div 1 offences are largely duplicated when dealing with offences under s 45(1) of the Competition and Consumer Act (Div 2 of Pt IV).104 Section 45(1) prohibits contracts, arrangements, or understandings containing exclusionary provisions, or that have the purpose or effect of substantially lessening competition. The discussion in 13.58–13.61 above regarding authorisation, collective bargaining, and related bodies exemptions applies equally to s 45. The two exemptions that are not duplicated, relate to joint ventures and collective acquisitions.
103 G Q Taperell, R B Vermeesch and D J Harland, Trade Practices and Consumer Protection, 3rd ed, Butterworths, Sydney, 1983, pp 238–239. 104 See Competition and Consumer Act 2010 s 45(5), (6), (7), (8), and (8A).
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B. Joint ventures 13.66 Joint venture arrangements often involve competitors. Because joint ventures are often pro-competitive, the federal parliament introduced a joint venture defence for participation in exclusionary agreements. The exemption given to joint ventures by s 76C of the Competition and Consumer Act is only a partial exemption. Joint venture agreements are exempted from being per se illegal. However, the legality of a joint venture depends upon the purpose or effect that the arrangement has upon competition in the marketplace. Joint ventures can be pro-competitive and thus quite lawful. For example, a joint venture can facilitate the entry into the market of a new competitor, where the joint venturers would be unlikely to have entered the market separately.105 Furthermore, combining the existing skills of competitors in a joint venture may introduce into the market innovation and stronger competition.106 The other side of the coin is that joint ventures may have the potential to lessen competition: • by making the market more concentrated, especially if it eliminates competition which would have resulted had the joint venturers entered the market separately;107 • by deterring the potential entry of others; and • by eliminating price competition between the joint venturers. If a joint venture has the purpose or effect of substantially lessening competition in the marketplace, it will breach s 45 of the Competition and Consumer Act. Of course, a joint venture that is assessed as likely to harm competition may be eligible for an authorisation on public benefit grounds: see 13.69.
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C. Collective acquisitions 13.67 As noted above, the buying and selling activities of cooperative buying groups have been exempted from the per se illegality against price fixing in Div 1 of Pt IV of the Competition and Consumer Act. No such exception exists for s 45 of the Act. This means that, if buying groups enter into arrangements containing provisions that fix prices, they can be deemed illegal under s 45, but only if they have a substantial anti-competitive purpose or effect. Although collective buying and joint advertising schemes may result in uniform prices as between the scheme members, its effect on competitive prices in the market as a whole will often be positive, as the prices adopted by scheme members are commonly ‘special’ (discounted) prices. Rather than harming competition, it can have the opposite result. In fact, such schemes usually come into existence 105 Application of Tenant Trading (Australia) Pty Ltd (1974–5) ATPR (Com) 8608. 106 GHD-Parsons Brinckerhoff Pty Ltd Application (1975) 1 TPCD [303]. 107 Howard Smith Industries Pty Ltd Application (1977–8) ATPR 40-023.
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because they are a means whereby small independent traders can compete more effectively with larger competitors. Therefore such schemes may increase, not reduce, competition. Collective acquisition schemes may have public benefits, especially at the retail level and, therefore, be eligible for an authorisation if required: see 13.73.108
Price Signalling 13.68 From 2012 until 2017, price signalling provisions were included in the Competition and Consumer Act.109 These laws applied only to banks and were subject to a number of exceptions. There were no actions brought under these provisions and they were repealed in November 2017.
Authorisation of Collusive Conduct 13.69 Authorisation may be sought for all cartel conduct otherwise prohibited by the provisions of Div 1 and s 45 of Div 2 of the Competition and Consumer Act. A contract, arrangement, or understanding will only be authorised if there are public benefits (which would not otherwise be generated) flowing from the agreement which outweigh any lessening of competition caused by the agreement: Competition and Consumer Act s 90(5A), (5B), and (6)–(8).
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What public benefits can be used to justify collusive conduct? 13.70 The Trade Practices Tribunal (now the Australian Competition Tribunal) has stated that the term ‘public benefit’ must be given a wide meaning and includes anything of value to the community generally.110 Of particular importance, however, will be the economic goals of efficiency and progress. A list of matters that the Commission considers will constitute public benefits is set out at 12.59. There must be a benefit to the public. This does not mean that the conduct cannot have private benefits. However, conduct that has no real benefits flowing through to the public at large will not be authorised unless the loss of competition is negligible. 108 See Re Queensland Grocery Groups (1979) ATPR 35-340, see 13.73C; Re Pharma-Buy Application (1975) 3 TPR 452; Re Foodland Associated Ltd (1979) 4 TPR 109. 109 The price signalling provisions were found in Div 1A of Pt IV of the Competition and Consumer Act 2010: ss 44ZZS–44ZZZB. 110 Re Queensland Co-operative Milling Association Ltd and Defiance Holdings Ltd (1976) 8 ALR 481; (1976) ATPR 40-012.
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A. Cartel provisions and exclusionary agreements 13.71 Whilst cartel provisions and exclusionary agreements, which are prima facie prohibited under the Competition and Consumer Act, can be authorised on public benefit grounds, an authorisation will only be granted if the public benefits outweigh any lessening of competition that such agreements will cause, which will be difficult to establish in practice.111 By way of example, for a price-fixing agreement to be authorised, it will need to be beneficial to the public as a whole or to various identifiable sections of the public, and such benefits will need to outweigh detriments arising from a lessening of competition. The prices established under any such agreement should be both rational and reasonable having regard to the objectives sought to be achieved, and should be sufficiently flexible to enable amendment should conditions necessitate it. Built-in safeguards that allow flexibility will assist the ACCC in finding that any detrimental effect the agreement might have is such as not to outweigh the public benefits involved. It will further serve to eliminate the possibility of harmful effects of the agreement in the future. The potential detriments arising from a price-fixing agreement include impediments to all aspects of competition, and may involve matters such as innovation, services or availability of supply. For example, the effect of the price agreement may be that wherever the same price is charged for goods or services (irrespective of the quality, the efficiency of the distributor, or the services and amenities provided), the inefficient distributor will be discouraged from improving its premises, efficiency, and quality of service. If this is so, competition in fields other than price will have been adversely affected by the agreement. The parties seeking an authorisation must be able to show that the agreement is essential for obtaining the public benefits identified, and that the benefits would not accrue without the agreement. Assuming that the price agreement is effective in obtaining public benefits, then it is also necessary to ensure that any detrimental effects of the agreement are kept to a minimum. Thus, assuming that, for example, prices under an agreement are higher than competitive prices in order to support a joint venture, then it is clear that the more ‘reasonable’ these prices, the greater the likelihood that the agreement as a whole will be beneficial to the public.
B. Joint ventures 13.72 Joint ventures can take many different forms. A joint venture agreement may contain ‘cartel provisions’, exclusionary provisions, and other matters that are likely to have detrimental effects on competition. However, joint ventures may also provide public benefits. In determining whether a joint venture should
111 See Application by Obadiah Pty Ltd (1980) ATPR 40-176; Re Real Estate Institute of the ACT (1985) ATPR 50-087; and Re New South Wales Glass Merchants’ Association (1980) 4 TPR 237.
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be authorised, it is necessary to determine whether there are public benefits flowing from the joint venture that outweigh its effect on competition. The basic issue is whether the joint venture is a development that may not otherwise have occurred, or whether it is essentially a substitute for competition. Consequently, it is important to understand the market prior to the venture. If the joint venturers were previously competing over the joint venture product, then the number of players in the market has been effectively reduced. This is likely to have a bigger impact on competition than if the venturers had not previously been competing. A joint venture that significantly reduces costs will improve the market’s production efficiency.112 Therefore, provided these cost savings are passed on to consumers, a joint production venture is less likely to have detrimental effects on competition than a joint marketing venture. However, joint marketing may in some cases be essential to the realisation of production benefits. Thus, the ACCC has often allowed joint marketing arrangements in the area of resource development, especially where there are some joint venture partners who do not have access to marketable portions of the product produced.113 Re BHP Petroleum Pty Ltd (1986) ATPR (Com) 50-112
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Facts: Authorisation was sought by BHP for a joint marketing scheme for crude oil produced from the Challis oil field in the Timor Sea to the north of Australia. Challis was a joint operation with a number of minority venturers. The crude oil produced at the field was largely destined for international markets. Decision: The Commission accepted that, because of the presence of a number of minority partners, there were efficiencies to be realised by joint storage and marketing, and that these efficiencies were necessary if Challis were to compete in the international market. Furthermore, the viability of the Challis field depended on its international competitiveness, and the percentage of crude oil coming from the Challis field was small in comparison with the overall output of Australian fields (about 10%). Therefore, there were adequate alternative sources of supply. The Commission did not accept BHP’s argument that there were public benefits to be gained from using BHP’s operational personnel and its skill and experience in transport and insurance. These were to the benefit of the venturers, but not necessarily the public. Nevertheless, the Commission authorised the joint venture.
C. Collective buying (acquisition) groups 13.73 There have been a number of Commission decisions involving collective buying groups, especially in the retail grocery trade and the retail pharmacy trade.114 It is clear that the Commission treats buying groups as likely to be pro-competitive in 112 See Re Electric Lamp Manufacturers (Australia) Pty Ltd (1982) ATPR (Com) 50-033. 113 See Re Macadamia Processing Company and Suncoast Gold Pty Ltd (1991) ATPR 50-109; Re SAGASCO Resources Ltd (1992) ATPR (Com) 50-118. 114 See Re Pharma-Buy Application (1975) 3 TPR 452; Re Foodland Associated Ltd (1979) 4 TPR 109; cf Re Betta Stores Ltd (1977–8) ATPR (Com) 16,927.
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many situations. This should be contrasted with the Commission’s general attitude to pricing recommendations. In assessing the competitive effects of a joint buying and promotion agreement, the Commission will usually have regard to the following matters: • the number and size of the participants in the scheme relative to the industry as a whole; • the products involved in the scheme, and the extent to which the products are purchased, advertised, promoted, or marketed by the participants in competition with companies, and particularly large companies, outside the scheme; • the geographic dispersion of participants — in particular, in this regard, the Commission is concerned that the arrangements not give rise to a series of local price-fixing arrangements through the participation of all or most of the traders, of whatever size, in the locality; • whether the scheme allows small outlets access to expertise and group buying, marketing, promotional, or advertising facilities, which facilities are commonly available only to large companies outside the scheme; and • whether the arrangement in any way affects the freedom of any individual participant if it wishes to carry lines competitive with the products subject to the scheme.115 Re Queensland Grocery Groups (1979) ATPR 35-340
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13.73C
Facts: A number of small grocery stores formed a grocery group for various marketing purposes with a view to improving their individual abilities to compete, particularly with national grocery chains. The group sought authorisation for a number of practices, including joint buying of stock and joint determination of the prices at which special goods promotions were to be advertised and sold. Decision: The effects of this arrangement on competition were claimed to be as follows: • The number of participants in the groups and their market shares did not indicate that the group would be able to lessen competition — the presence of Coles, Woolworths, Food Barns, and other groups in the marketplace would prevent this. • The products involved in the special advertising were relatively few (usually about 30 each week), the special advertising being in direct competition with similar advertising by chains. • The participants in the scheme were geographically dispersed. • The scheme allowed for expertise on group buying, marketing, and promotion to be available to small business. The public benefits claimed were as follows: • The promotion of specials increased competition between the group and the national chains. • It was economically essential that collective media advertising be available for groups. • ‘Specialling’ facilities reduced prices to consumers. • The advent of groups had assisted to combat the growth of the chains. 115 See ACCC, Small business collective bargaining: Notification and authorisation guidelines, December 2018, available at .
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Chapter 13: Collusive Conduct • Smaller shops provided ‘after hours’ trading, personal service, and convenience to the public and, if the means of competing organised by the groups were not available, the viability of many would be threatened. • National chains were able to set prices and advertise for their branches without risk of breaching the Act. The Commission acknowledged that much of what the applicant group did actually increased competition between the group’s members and the national chains and other groups. The Commission granted authorisation.
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D. Trade associations116 13.74 A trade association is a body of persons formed for the purpose of furthering the trade interests of its members or of persons represented by its members. Trade associations often exist merely as a forum for the dissemination of information or to provide other market services, such as advertising and public relations, whereas at other times they purport to exercise control over the way in which the members market their products or conduct their businesses. Clearly, the rules and activities of a trade association can have an anti-competitive purpose or effect, although there are no provisions specifically directed at trade associations in the Competition and Consumer Act. Market cooperation is often instigated by a trade association and, irrespective of the basic objectives, such cooperation can provide a powerful forum for the imposition or enforcement of control upon its members or upon the trade generally. This is made possible by virtue of the fact that trade associations usually comprise a significant proportion of competitors in a particular trade. The constitution or rules of an association can clearly amount to a ‘contract, arrangement or understanding’ between competitors.117 It is not just the formal constitution that can have an anticompetitive purpose or effect. A mere ‘recommendation’ by a trade association to its members is often a very effective way of controlling activities of the trade, for such ‘recommendations’ normally carry substantial weight and tend to be followed in the absence of strong feelings to the contrary. Most problems confronting trade associations will arise in relation to the prohibition against cartel provisions and exclusionary provisions. Thus, schemes operated by trade associations involving the provision of market information, customer credit rating services, price recommendations, the establishment of standard terms and conditions of contract, marketing practices and the like, and acquisition of resources, might all offend in this regard. Nevertheless, it may be 116 For a full discussion of the role and legal control of trade associations, see W J Pengilley, Trade Associations, Fairness and Competition, Law Book Co, Sydney, 1981. 117 See Hughes v Western Australia Cricket Association Inc (1989) 69 ALR 660; (1986) ATPR 40-736; McCarthy v Australian Rough Riders Association Inc (1988) ATPR 40-836.
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that an association can demonstrate that the public benefits following from an agreement justify the granting of an authorisation.118
13.74C
Retail Confectionery and Mixed Business Association (Vic) (1977–8) ATPR (Com) 35-340 Facts: The applicant association had around 3200 members, most of whom were proprietors of milk bars and mixed businesses. The Association published a monthly magazine called the ‘Milk Bar’, in which it set out lists of suggested prices for products, such as soft drinks, ice cream, confectionery, bread, biscuits, sandwiches, milk shakes, and cigarettes. The Association claimed it set margins which provided an adequate return for such businesses. Although the publication of such lists might have the effect of lessening price competition between such outlets, the Association claimed that this was outweighed by the public benefits involved, such as: • assisting the continued existence of these types of outlets, trading outside ‘normal’ business hours; • helping many new proprietors of such businesses, who were often completely untrained and needed guidance on price and other matters, to survive; and • freeing hundreds of shopkeepers from the time consuming task of calculating retail prices on a multitude of different lines.
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Decision: The anti-competitive effect of the Association’s published price list was low, as most members did not engage in price competition anyway. Most of the businesses sought custom not on the basis of price, but on the basis of location, convenience, personal advice, and afterhours trading. Given that the anti-competitive effect was small, it could be outweighed by a public benefit that was not itself considerable. The Association’s suggested price lists were a pro-efficiency factor assisting the small businesses concerned, businesses that occupy an often precarious place in the market, and providing a convenient service to the public in terms of local and after-hours shopping. A public benefit did exist, which on balance led the Commission to authorise the Association’s practice of publishing suggested price lists.
Another public benefit that may justify a cartel provision or an exclusionary provision in the rules of trade associations is public safety or protection. For example, in Re Federation of Australian Underwater Instructors,119 the Commission authorised a rule whereby members of the association agreed not to refill scuba tanks unless the customer had a certificate qualifying him or her to use scuba gear. Despite the legal minefield that must be traversed by a trade association operating in the marketplace, such associations certainly have a legitimate role to play. This has been recognised by the ACCC:120 As a general comment, there is a very real role for trade associations in a number of areas without risk in [Competition and Consumer Act] terms. They may, for example, without infringing the [Competition and Consumer Act] provide 118 Retra Service Association (1977–8) ATPR (Com) 35-340; Tasmanian Automobile Chamber of Commerce (1978) ATPR (Com) 16,995; Black Cabs & Eastern Group Taxis Co-operative Ltd (1990) ATPR (Com) 50-098. Compare Silver Top Taxi Services (1990) ATPR (Com) 50-103. 119 (1983) ATPR (Com) 50-055. 120 Retail Tobacco Sellers Association of Victoria (1982) ATPR (Com) 50-040.
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Chapter 13: Collusive Conduct accounting services, credit information, details of better business practices, collection services, economic studies, technical aids, government negotiations on behalf of the industry, details of and representations in industrial relations, legislative research, legal information, market research, public relations, sales promotions and so on. Indeed many of those activities may foster competition.
Marketing Advice
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13.75 Because cartel behaviour is being targeted by the Federal government and the ACCC as a priority, evidenced by the introduction of significantly higher fines and criminal penalties for ‘hard core’ cartel conduct, ensuring compliance with the Competition and Consumer Act by all marketing and sales staff is critical. The chances of participants in a collusive agreement being caught are ever increasing, partially as a result of the ACCC’s immunity policy, which is intended to encourage and protect whistleblowers. There are actions all businesses should take to avoid being caught up in cartel conduct, such as: • If you are invited to a meeting where competitors will be in attendance, think twice about attending. • If you do attend such a meeting, quickly leave if issues such as fixing prices, bid rigging, output restrictions, market sharing, and boycotts appear on the agenda.121 • Following your departure, carefully document your response and reaction. This advice applies particularly if you belong to a trade association whose membership includes your competitors. Businesses can also take steps to reduce the likelihood of becoming a victim of cartel conduct through the following actions:122 • Train staff to recognise the signs that can indicate a cartel may be operating. • Consider the possibility of buying goods and services from alternative suppliers — the greater the number of suppliers the more difficult it is for them to coordinate. • Consider providing industry-specific training to staff dealing with suppliers, particularly when seeking tenders. • If possible, keep the identity of your suppliers (and the details of your dealings with them) confidential, to reduce their ability to collude with one another. • Keep track of pricing movements and be aware of unexpected and unjustified price increases or changes to products offered by suppliers, particularly if the changes occur at around the same time. 121 W Pengilley, Trade Practices and You – A Compliance Manual for Companies, Legal Books, Sydney, 1992, pp 73–74. 122 See ACCC, Cartels: What you need to know. A guide for business, August 2012, available at .
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Collusive (cartel) conduct 13.76 FIGURE 13.1 DETERMINING A BREACH OF PT IV DIV 1 OF THE COMPETITION AND CONSUMER ACT — CARTEL PROVISIONS Is there a contract, arrangement, or understanding (an agreement)? YES Does the agreement involve
NO YES
Division 1 is NOT applicable; other sections in Div 2 of the Act may apply
NO
Division 1 is NOT applicable; other sections in Div 2 of the Act may apply
(i) exclusive dealing conduct? (ii) resale price maintenance? (iii) the acquisition of shares or assets? NO Is the agreement between competitors? YES Does the agreement have the purpose or effect of fixing prices?
NO
YES
Does the agreement involve: (i) price fixing by joint venturers? (ii) price fixing by collective buying groups?
NO NO
YES Do the joint venture or collective buying exceptions apply?
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YES Does the agreement have the purpose of preventing, restricting, or limiting outputs, sharing markets, or rigging bids? YES The agreement is ILLEGAL unless authorised
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NO
The agreement is NOT illegal
Chapter 13: Collusive Conduct FIGURE 13.2 DETERMINING A BREACH OF PT IV DIV 2 OF THE COMPETITION AND CONSUMER ACT — S 45 Is there a contract, arrangement, understanding or concerted practice (an arrangement)? YES Does the arrangement involve:
NO YES
Section 45 is NOT applicable; other sections of the Act may apply
YES
The agreement is ILLEGAL unless authorised
(i) exclusive dealing conduct? (ii) resale price maintenance? (iii) the acquisition of shares or assets? (iv) related corporate entities? NO Does the agreement have the purpose or effect of substantially lessening competition? NO
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The agreement is NOT illegal
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Misuse of Market Power
14
Introduction to s 46 of the Competition and Consumer Act 2010........................................................................ 14.1 Significant Changes to s 46 of the Competition and Consumer Act 2010....................................................................... 14.2 The objective of s 46...................................................................... 14.3 Commercial activities that may involve a contravention of s 46................................................................. 14.4 Commercial activities that are unlikely to breach s 46............ 14.5 The cartel provisions and s 46...................................................... 14.6 Elements of s 46(1)............................................................................. 14.7 1. Does the firm have a substantial degree of market power?.......................................................................................... 14.8 A. What is the relevant market................................................ 14.9 B. Does the corporation have a substantial degree of power in that market?........................................................ 14.10 i. Proving substantial degree of market power............... 14.11 ii. Can more than one firm have a substantial degree of power in a market?....................................... 14.12 iii. Aggregating power of related corporations................ 14.13 iv. Substantial degree of power is a threshold requirement.................................................................... 14.14 2. Is the firm engaging in conduct which has the ‘purpose, effect or likely effect’ of substantially lessening competition?............................................................. 14.15 A. Proving purpose................................................................... 14.16 B. Assessing effect or likely effect.......................................... 14.17 C. Substantial lessening of competition.............................. 14.18 645
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Marketing and the Law
Section 46(1) — Examples............................................................... 14.19 Refusals to supply.......................................................................... 14.20 Restricting access to an essential input..................................... 14.21 Product tying or bundling............................................................ 14.22 Refusals to purchase — buying power...................................... 14.23 Margin/price squeeze................................................................... 14.24 Loyalty rebates.............................................................................. 14.25 Predatory pricing.......................................................................... 14.26 Remedies and Sanctions................................................................. 14.27 Authorisation.................................................................................... 14.28 Misuse in Australia-New Zealand Market.................................... 14.29 Access to Essential Services under Pt IIIA of the Competition and Consumer Act................................................ 14.30 What are the objects of Pt IIIA?................................................. 14.30 What is an essential service or facility?..................................... 14.31 What is the problem with essential facilities?......................... 14.32 What is the solution to this problem?...................................... 14.33 How does Pt IIIA work?............................................................... 14.34 A. Declaration of an essential service................................... 14.35 i. Recommending an essential service be declared....... 14.36 ii. Declaration of an essential service.............................. 14.37 iii. Negotiations between service provider and service user over terms of access................................. 14.38 iv. Arbitration of access dispute........................................ 14.39 v. Review by the Australian Competition Tribunal......... 14.40 vi. Unlawful conduct under Pt IIIA..................................... 14.41 B. Certification of an effective state or territory access regime....................................................................... 14.42 C. Access undertakings........................................................... 14.43 Conclusion — access to essential facilities............................... 14.44 Marketing Advice.............................................................................. 14.45
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Chapter 14: Misuse of Market Power
Introduction to s 46 of the Competition and Consumer Act 2010 14.1 Competition is often a brutal process. There are no guarantees of survival, let alone success. It is the very nature of competition that firms seek to do economic injury to their rivals. Marketing strategies and ultimately competitive success are often built around taking market share from competitors, even to the extent of driving those competitors out of the market. This process provides benefits to consumers and should not be compromised by unnecessary interference. However, while competition law should not interfere with competitive practices no matter how aggressive, any credible competition law must prevent firms obtaining an advantage by abusing their power. The problem is distinguishing between activities that are an expression of vigorous competition, which is desirable, and activities that are anti-competitive. Difficult as it may be, this is the function of s 46 of the Competition and Consumer Act 2010 (Cth).
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Significant Changes to s 46 of the Competition and Consumer Act 2010 14.2 On 6 November 2017 the Competition and Consumer Amendment (Misuse of Market Power) Act 2017 came into force and made two significant changes to s 46 of the Competition and Consumer Act:1 1. a ‘purpose, effect or likely effect of substantially lessening competition’ test (the ‘effects’ test) was introduced and replaced the former ‘purpose’ test; and 2. the former requirements that a corporation with substantial market power had to be shown to have ‘taken advantage’ of its market power for one of three proscribed purposes were repealed. The only element surviving from the former s 46 test (which operated until 6 November 2017) is the threshold requirement that a corporation must have a substantial degree of market power. The current s 46(1) prohibits any conduct engaged in by a corporation with substantial market power that has the purpose,
1
This amendment largely followed the recommendations for reform of Australia’s misuse of market power law made by the Competition Policy Review, chaired by Professor Ian Harper (the ‘Harper Review’). See the Competition Policy Review, Final Report, March 2015, available at . The recommendations of the Harper Review and the 2017 legislative amendments generated extensive political debate, significant media attention and lobbying for and against from divisions within the business community.
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effect or likely effect of substantially lessening competition in a market in which a business directly or indirectly supplies or acquires goods or services.2 The legislative history of the provision and issues relating to its interpretation and enforcement have been written about extensively elsewhere and are not the focus of this chapter.3 Rather, this chapter will focus on the amended s 46 — the law as it is now. However, until the current s 46 is actually tested and interpreted by Australian courts and jurisprudence is developed, there is a level of uncertainty as to its application. To mitigate this uncertainty, in August 2018 the Australian Competition and Consumer Commission (the ACCC) published the Guidelines on Misuse of Market Power,4 which set out how the ACCC proposes to interpret and enforce the current s 46, including some practical examples of the types of conduct seen as likely to contravene s 46.5 It is important to note, however, that while the Guidelines are helpful to understand the ACCC’s position, they are not law and any future decisions of the courts may well be inconsistent with the ACCC’s approach currently described in the Guidelines.6 Ultimately, a determination of whether s 46 has been contravened is a decision to be made by the courts.
The objective of s 46 14.3 In Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd, it was said:7
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[The] object of s 46 [of the Competition and Consumer Act] is to protect the interests of consumers, the operation of the section being predicated on the assumption that competition is a means to that end. Competition by its very nature is deliberate and ruthless. Competitors jockey for sales, the more effective competitors injuring the less effective by taking sales away. Competitors almost always try to ‘injure’ each other in this way.
The Revised Explanatory Memorandum to the Competition and Consumer Amendment (Misuse of Market Power) Bill 20168 put it this way: The objective of section 46 is to prevent firms from engaging in unilateral conduct that harms the competitive process. This requires distinguishing 2
In addition, s 46A prohibits the misuse of market power by a corporation with a substantial degree of power in a trans-Tasman market. 3 For a snapshot history of proposals for an effects test, see the Competition Policy Review, Final Report, above n 1, at p 335, Box 19.2. 4 ACCC, ‘Guidelines on Misuse of Market Power’ (August 2018), available at . The Competition Policy Review, Final Report, above n 1, at p 345 suggested that residual concerns about business uncertainty could be addressed by the ACCC issuing guidelines as to its approach to enforcement of the new s 46. 5 ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, p 2. 6 ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at p 2 ‘Purpose of these Guidelines’. 7 (1989) 167 CLR 177; 83 ALR 577; [1989] HCA 6 per Mason CJ and Wilson J; although this was expressed in the context of the former s 46, it is equally applicable to s 46 in its current form; see 14.9C1. 8 Competition and Consumer Amendment (Misuse of Market Power) Bill 2016, Revised Explanatory Memorandum, at [1.13], available at .
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Chapter 14: Misuse of Market Power between vigorous competitive activity which is desirable, and economically inefficient monopolistic practices that may exclude rivals and harm the competitive process.
Section 46 is not designed to protect inefficient competitors from the natural effects of strong competition in a market.9 Nor is its purpose to protect small business. Its purpose is simply to prevent conduct by powerful firms that ultimately harms consumers by undermining the competitive process. Consumers are harmed by higher prices, poorer products, and poorer services than they might expect under different conditions. Section 46 is aimed at protecting the competitive process itself. The underlying assumption being that by maintaining a competitive market, consumers will benefit.
Commercial activities that may involve a contravention of s 46
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14.4 The Competition and Consumer Act makes no attempt to list the types of activities that may breach s 46. Whether specific types of conduct will constitute a misuse of market power will turn on the facts of each case. However, the ACCC Guidelines indicate that the following activities have greater potential to contravene s 46: • refusals to deal; • restricting access to an essential input; • product tying or bundling (eg, ‘if you want product A, you must also buy product B’); • margin/price squeezing; • loyalty rebates; and • persistent below-cost pricing (predatory pricing).10
Commercial activities that are unlikely to breach s 46 14.5 The ACCC points out that the aim of s 46 is ‘to preserve the integrity of markets so that businesses have the incentive to enter or operate more efficiently, price competitively and offer better products to their customers’.11 Whether specific types of conduct will constitute a misuse of market power will turn on the facts of each case. However, the ACCC considers that the following conduct would not generally raise concerns under s 46:12 9 Competition and Consumer Amendment (Misuse of Market Power) Bill 2016, Revised Explanatory Memorandum, above n 8, at [1.15]. 10 See 14.26 for detailed discussion. ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, provides examples of each of these types of conduct through hypothetical case studies in section 3. 11 ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [4.4]. 12 ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [4.3]. The ACCC also provides worked examples setting out its assessment at [4.4].
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• innovation, regardless of how ‘big’ the firm is; • responding to price competition with matching or more competitive (above cost) price offers; • responding efficiently to other forms of competition in the market such as product offerings and terms of supply; and • engaging in conduct which is demonstrably efficient and is designed to drive down costs.
The cartel provisions and s 46
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14.6 Whereas the cartel provisions and s 45 of the Competition and Consumer Act are concerned with the activities of two or more firms acting collectively, s 46 is concerned with the activities of a firm acting alone. Compare the following two fact situations: • Firm A has 40% of the market for the production of soya beans. The next largest firm is B, which has 8% of the market. The remainder of the market is divided between a number of small firms. Firm A has decided that it will not supply Coleworths Supermarkets with its popular brand of soya bean flavoured milk because the supermarket chain has been stocking soya bean milk imported from Venezuela. (Assume that soya bean milk has special properties that mean there are no close substitutes for it.) • Firm A and Firm B each have 15% of the market for the production of soya beans. At a meeting of the Soya Bean Producers Association, to which both A and B belong, it is decided that soya bean flavoured milk will not be sold to Coleworths Supermarkets chain because Coleworths has been stocking soya bean milk imported from Venezuela. (Assume that soya bean milk has special properties that mean there are no close substitutes for it.) In the first scenario, Firm A has acted individually and its conduct may be illegal under s 46 of the Competition and Consumer Act. It would be necessary to prove that Firm A had a substantial degree of power in the market for the production of soya beans (or soya bean milk) and that it has engaged in conduct that had the purpose or effect of substantially lessening competition (by stopping the supermarket chain from buying soya bean milk from a rival supplier, namely the Venezuelan soya bean milk importer): Competition and Consumer Act s 46. In the second scenario, Firm A and Firm B have acted collectively through their association. We are not told why they acted collectively, but it could be because neither wanted to act alone. Possibly neither had a substantial degree of power in the market because they had basically similar market shares. (Compare this with the first scenario.) Because Firm A and Firm B acted in collusion, the applicable parts of the Competition and Consumer Act are the provisions dealing with cartels and/or s 45, as discussed in Chapter 13. 650
Chapter 14: Misuse of Market Power
Elements of s 46(1) 14.7 The Competition and Consumer Amendment (Misuse of Market Power) Act 2017 which came into force on 6 November 2017, made significant amendments to s 46 of the Competition and Consumer Act.13 Section 46 prohibits a corporation with a substantial degree of market power from engaging in conduct which has the purpose, effect or likely effect of substantially lessening competition in that market or any other market in which the corporation (or related corporation) supplies or acquires goods or services. The new wording of s 46(1) is set out below. Misuse of market power
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(1) A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in: (a) that market; or (b) any other market in which that corporation, or a body corporate that is related to that corporation: (i) supplies goods or services, or is likely to supply goods or services; or (ii) supplies goods or services, or is likely to supply goods or services, indirectly through one or more other persons; or (c) any other market in which that corporation, or a body corporate that is related to that corporation: (i) acquires goods or services, or is likely to acquire goods or services; or (ii) acquires goods or services, or is likely to acquire goods or services, indirectly through one or more other persons.
In determining whether a contravention of s 46(1) has occurred, there are two broad steps for a court to analyse: 1. Does the firm have a substantial degree of power in the relevant market? 2. Is the firm engaging in conduct which has the purpose, effect or likely effect of substantially lessening competition?
1. Does the firm have a substantial degree of market power? 14.8 Section 46(1) of the Competition and Consumer Act has no operation unless the firm in question has a substantial degree of power in a market. This threshold test involves two questions. A. What is the relevant market? B. Does the corporation have a substantial degree of power in that market? Power means market power, as opposed to financial power: Competition and Consumer Act s 46(8)(a). 13 See 14.2.
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A. What is the relevant market? 14.9 The relevant market will always be the market from which the alleged abuse emanates. For example, what is the relevant market for the purposes of s 46 where a firm which manufactures both X and Y refuses to supply a retailer with product X because it will not buy product Y from the firm? As the alleged abusive conduct is the refusal to supply product X, the relevant market for analysing power is the market for the supply of product X to retailers. It would not be germane to establish that the firm had substantial market power in the market for the supply of product Y. Determining the nature of the market is a matter of applying the demand and supply substitution tests: see 12.41–12.44. The ACCC’s starting point is to identify the product market and the geographic market in which the competitive process takes place. It also considers the functional dimension of the market and the timeframe over which substitution possibilities should be assessed.14 Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577; [1989] HCA 6 14.9C1
Facts: BHP produces 97% of steel and steel products in Australia. The only other producer generally follows BHP on price. Imports are negligible. BHP produces 100% of Y-Bar feed, the steel product from which star pickets used in rural fencing are manufactured. BHP sold Y-Bar exclusively to its fully owned subsidiary, AWI. AWI then processed the Y-Bar to produce star pickets and sold the pickets together with wire to distributors of rural fencing.
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Queensland Wire Industries (QWI) also supplied wire to distributors of rural fencing. Therefore it was in competition with AWI. However, QWI could not obtain supplies of Y-Bar feed and, therefore, could not compete equally with AWI. BHP offered to supply Y-Bar at an uncompetitively high price. BHP informed QWI that it was its policy not to supply Y-Bar except to its own subsidiary. The main distributors of rural fencing dealt with AWI because they required a combined load of star pickets and wire. Because of BHP’s policy, only AWI could supply combined loads. In effect this meant that 40% of the market for the supply of rural fencing materials to distributors was exclusively AWI’s. BHP (supplies Y-Bar to AWI exclusively) AWI (star pickets and wire)
QWI (wire only)
Rural fencing distributors
14 ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [2.4] and [2.5].
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Chapter 14: Misuse of Market Power Y-Bar was the only product coming off BHP’s steel rolling mills that it did not offer for sale to outsiders. At the time, BHP had excess capacity in its steel rolling mills, which meant that it could have produced more Y-Bar if it so decided. QWI issued proceedings pursuant to s 46. Decision: What was the relevant market? Pincus J at trial identified a number of markets, including the market for the production and sale of Y-Bar to distributors of rural fencing. On appeal, the Full Court of the Federal Court held that no market for Y-Bar existed because there had been no arm’s-length transactions. The High Court disagreed with both definitions of the market. The Full Court was wrong because, provided that there are willing customers, a market may exist irrespective of whether there have been any sales. A market includes not just actual sales, but also potential sales. Pincus J was wrong because he failed to take into account supply substitution. As BHP could change the products coming off its rolling mills without undue time delay and without the need to invest in plant or equipment, all steel products coming off the steel rolling mills must be seen as being in competition with one another. Therefore, the correct market is the market for the production and sale of steel products coming off the steel rolling mills. Did BHP have a substantial degree of power in that market? Having determined the market, the next issue was to analyse whether BHP had a substantial degree of power in that market. BHP clearly had a substantial degree of market power.15
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Singapore Airlines v Taprobane Tours WA Pty Ltd (1991) 104 ALR 633; (1992) ATPR 41-159 Facts: The Maldives is a group of islands located in the Indian Ocean and is a popular holiday destination. Singapore Airlines enjoyed preferential landing rights on the Maldives, which enabled it to control the sale of airline seats to the Maldives ex-Australia (about 80–90% of sales ex-Australia). Taprobane was a successful wholesaler of package tours to the Maldives and other places. Taprobane acquired its airline tickets from Singapore Airlines. It combined the airline ticket with accommodation which it arranged, and then sold the package to retail travel agents. A dispute arose between Singapore Airlines and Taprobane as a result of Singapore Airlines’ attempts to rationalise the wholesale market. Singapore Airlines refused to supply seats to Taprobane at competitive prices. Taprobane brought an action against Singapore Airlines for a breach of s 46 of the Competition and Consumer Act. At first instance, Lee J held that the relevant market was the supply of airline services from Australia to persons engaged in providing wholesale tours to the Maldives. Singapore Airlines clearly had substantial power if that was the correct market. Lee J then held that Singapore Airlines had taken advantage of its power to harm Taprobane. Singapore Airlines appealed to the Full Court of the Federal Court. The basis of Singapore Airlines’ appeal was that Lee J had misconstrued the market. Singapore Airlines argued that there were other island holiday destinations which were in competition with the Maldives such as Bali, Fiji, Tahiti, New Caledonia, Hawaii, Penang, the Barrier Reef Islands, and others. According to Singapore Airlines, the market should be the supply of airline services to persons 15 The next two questions for the court’s consideration involved the former wording of s 46 and as that analysis is no longer relevant under the current s 46 it is not included here: Did BHP take advantage of its power? Did BHP have an illegal purpose?
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Marketing and the Law engaged in providing wholesale tours to island destinations or destinations with similar attractions to the Maldives. If this was the correct market, then Singapore Airlines competed with most of the large airlines operating in Australia and it would be highly unlikely that Singapore Airlines had breached s 46. Decision: The Full Court of the Federal Court held that the market was wider than the Maldives. At the consumer level there were other island holiday destinations which were substitutes for the Maldives such as Bali, Fiji, Tahiti, New Caledonia, Hawaii, Penang, the Barrier Reef Islands, and others. This competition between destinations at the downstream level had sufficient impact upstream to conclude that the appropriate market was wider than the supply of airline seats to the Maldives. At the very least, the other island holiday destinations ought to be included. Singapore Airlines did not have a substantial degree of power in this wider market. Therefore, Singapore Airlines could not be in breach of s 46.
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B. Does the corporation have a substantial degree of power in that market? 14.10 A firm will only contravene s 46 if it has a substantial degree of market power. In determining whether a firm has a substantial degree of market power, the court must examine the extent to which that firm is constrained in its competitive activities by its competitors, its potential competitors, its buyers, and its suppliers: Competition and Consumer Act s 46(4). Thus, a firm has substantial market power when it is largely able to dictate its market activities and strategies (such as pricing and distribution) without being restricted by the activities of its competitors, its suppliers, or its customers. Substantial market power may also enable a firm to raise barriers to entry, profitably reduce the quality of goods or services or slow innovation.16 A firm with a substantial degree of market power will most often be recognisable as the market leader. That is, market share will be the first indicator of market power. A firm with a large market share is more likely to have a substantial degree of market power than a firm with a smaller share. In Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd17 Mason CJ and Wilson J described market power as follows:18 Market power can be defined as the ability of a firm to raise prices above the supply cost without rivals taking away customers in due time, supply cost being the minimum cost an efficient firm would incur in producing the product ...
In the same case, Dawson J also described market power as follows:19 The term ‘market power’ is ordinarily taken to be a reference to the power to raise price by restricting output in a sustainable manner ... But market power
16 17 18 19
ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [2.14]. (1989) 167 CLR 177; 83 ALR 577; [1989] HCA 6, see 14.9C1. At 188. At 200.
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A firm possesses market power when it can behave persistently in a manner different from the behaviour that a competitive market would enforce on a firm facing otherwise similar cost and demand conditions (C Kaysen and D F Turner, Antitrust Policy, Harvard University Press, Cambridge, 1959, p 75).
Therefore, market power means competitive power. Anything which gives a competitive edge is market power. Ultimate market power, therefore, belongs to a monopolist sitting behind very high barriers to entry. Natural monopolies are clear examples of ultimate market power. It is clear, however, that s 46(1) does not require the corporation in question to be a monopolist. Substantial power does not mean absolute power. This is addressed in s 46(5), which provides that a corporation may have market power even though it does not have substantial control of the market and does not have absolute freedom from constraint by the conduct of competitors, suppliers or customers. At the other end of the scale from the monopolist lies the firm with low market share and low barriers to entry. Such a firm may have some element of power derived from product differentiation, but clearly does not have a substantial degree of market power. One of the keys to substantial market power is the ability to act persistently in an uncompetitive manner. Short term analysis can be quite misleading. The essence of a competitive market is that if a competitor attempts to act in a noncompetitive manner over a sustained period of time, the market will exact punishment. For example, a firm in a competitive market that chooses to ignore a drop in the market price is likely to suffer a loss of market share. The essence of market power is the ability to avoid being punished in the longer term for noncompetitive activity.
i. Proving substantial degree of market power 14.11 Proving substantial market power involves an analysis of both market structure and market conduct. How market structure and market conduct affects competition was discussed at 12.48–12.54.
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TABLE 14.1 FACTORS OF MARKET STRUCTURE AND CONDUCT AFFECTING COMPETITION STRUCTURAL FACTORS:
• What is firm’s market share? • What is the market share of the next largest competitor? • Are there any patents or other legal rights that confer power on the firm? • What is the degree (if any) of vertical integration compared to rivals?20 • What is the degree of product differentiation? • Are there any countervailing forces, such as a dominant supplier of inputs or a dominant buyer? • What is the state of production capacity? Does the firm have excess capacity not available to its rivals? • What is the nature of demand? A firm facing relatively inelastic demand is likely to have more power than if demand were relatively elastic.
CONDUCT FACTORS:
• Is access to suppliers and buyers relatively equal among competitors? • Is the firm seen as an ‘unavoidable trading partner’? • Is there evidence that the firm has set its prices without regard to its competitors? • Is there any evidence the firm is able to charge a premium? • Is the firm able to cross-subsidise its operations from other activities? • Does long-standing presence in the marketplace confer substantial benefits on the firm vis-à-vis its newer rivals? • What are the consumer and production trends in the market?
Of all the factors that determine market power, the most important is the existence of barriers to entry: Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd21 and Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC.22 If the barriers to new entrants are very low, it will be difficult to prove that any firm, even a firm with significant market share, has a substantial degree of market power. The constant threat of new entrants caused by low barriers will force the incumbents to act in a competitive manner. If barriers are high, the firms within the market are shielded from the threat of new entrants. This will enable such firms to exploit their market share more effectively. The nature of barriers to entry was discussed at 12.51.
20 See, for example, Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177; 83 ALR 577; [1989] HCA 6, see 14.9C1. 21 (1989) 167 CLR 177; 83 ALR 577; [1989] HCA 6, see 14.9C1. 22 (2003) 215 CLR 374; 195 ALR 609; [2003] HCA 5, see 14.26C.
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Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 106 ALR 297; (1992) ATPR 41-16723 Facts: General Newspapers operated a monopoly newspaper, the Wentworth Courier, in the eastern suburbs of Sydney. Most of its revenue came from advertising by local real estate agents. The real estate agents formed their own newspaper, the Eastern Express. The Wentworth Courier slashed the price of a full page advertisement to $995, as against the Eastern Express price of $1295. Despite this, the Eastern Express survived and prospered owing mainly to its connection with the real estate agents. Eastern Express alleged that the price cutting was predatory and a breach of [the former] s 46(1)(a) of the Competition and Consumer Act. The key issue was whether General Newspapers (by virtue of the Wentworth Courier) had a substantial degree of market power. Decision: The relevant market was the market for the supply of advertising space by the local or suburban newspapers in the eastern suburbs of Sydney. The most important determinant of market power is barriers to new entrants. In this case they were not unduly significant. Not only had the Eastern Express been able to enter the market, it had also been able to capture a reasonable share of the available advertising dollar. Eastern Express had been able to do this because it was owned by a consortium of real estate agents who were also the Wentworth Courier’s largest customers. Therefore, the Wentworth Courier did not have a substantial degree of market power at the relevant time.
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ii. Can more than one firm have a substantial degree of power in a market? 14.12 The ACCC does not impose a market share threshold in determining whether a firm has a substantial degree of market power.24 Section 46(7) provides that more than one firm in a market may have a substantial degree of market power. However, caution must be taken in reaching this conclusion. For example, where a market is shared by three or four firms with roughly equal market power (an oligopoly), can it be said that they all have market power? Without further evidence, the answer is probably no. It is not permissible to simply aggregate the oligopolists’ power. Section 46(1) of the Competition and Consumer Act is concerned with an individual firm’s power, not cartel power: see Dowling v Dalgety Australia Ltd.25 This is an important question in Australia because of the prevalence of oligopolies. To take a real example, can it be said that Coles and Woolworths, both giant corporations, have a substantial degree of market power in the grocery market? Although they are large, they tend to balance one another. Neither is free to act without considering the impact of its activities on its competitor. Yet, each may act strategically; for example, to drive out small competitors or prevent new competitors entering the market: see, for example, ACCC v Australian Safeway
23 See also 13.54C. 24 ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [2.16]. 25 (1992) 106 ALR 75; (1992) ATPR 41-165.
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Stores.26 On the other hand, the High Court decision in Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC27 rather suggests that it will be difficult to establish that more than one firm in a market has a substantial degree of power. See also Universal Music Australia Pty Ltd v ACCC.28
iii. Aggregating power of related corporations 14.13 In determining whether or not a corporation has sufficient market power for the s 46(1) prohibition to apply, the position in the market of all of the related corporations in a group may be considered. Section 46(3) provides that power may be aggregated if two or more corporations are related. Section 4A(5) defines the circumstances in which corporations will be deemed to be related. This will be the case if a body corporate is: • the holding company of another body corporate; • a subsidiary of another body corporate; or • a subsidiary of the holding company of another body corporate. Section 4A(1) provides that one company (A) is deemed to be a subsidiary of another company (B) where: • B controls the composition of A’s board of directors; or • B controls more than half of the maximum number of votes that can be cast at a general meeting of A; or • B holds more than one half of the allotted share capital of A.
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iv. Substantial degree of power is a threshold requirement 14.14 Proving that the firm had a substantial degree of power is a threshold test. It must be proved before the second broad element of s 46(1) becomes relevant: is the firm engaging in conduct which has the ‘purpose, effect or likely effect’ of substantially lessening competition. In Universal Music Australia Pty Ltd v ACCC,29 the court applied Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC30 in determining that neither Universal Music (with 18% of the market for the distribution of CDs to retailers) nor Warner Music (with 17%) had a substantial degree of power. There were a number of other CD manufacturers, including Sony with 25%. The evidence suggested that neither Universal nor Warner had much influence over the large retailers. Barriers to entry were generally low; new recording companies had successfully come into the business and prospered; manufacturing and distribution costs were not high; in fact, marketing costs were 26 (2003) 198 ALR 657; [2003] FCAFC 149. See also 14.23 where Safeway used its market power to discipline its bread suppliers. 27 (2003) 215 CLR 374; 195 ALR 609; [2003] HCA 5, see 14.26C. 28 (2003) 201 ALR 636; 57 IPR 353; (2003) ATPR 41-947; [2003] FCAFC 193, see 17.26C. 29 (2003) 201 ALR 636; 57 IPR 353; (2003) ATPR 41-947; [2003] FCAFC 193, see 17.26C. 30 (2003) 215 CLR 374; 195 ALR 609; [2003] HCA 5, see 14.26C.
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the most significant cost. Although both Universal and Warner may individually have had some degree of power over the smaller retailers, that did not satisfy the test for power under s 46(1) of the Competition and Consumer Act.
2. Is the firm engaging in conduct which has the ‘purpose, effect or likely effect’ of substantially lessening competition? 14.15 A firm that simply possesses substantial market power does not contravene s 46. Once it is established that a firm has a substantial degree of market power, the firm will only be in breach of s 46(1) if its conduct can be shown to have the purpose, effect or likely effect of substantially lessening competition in a relevant market. A causal nexus will need to be established between the firm’s conduct and the substantial lessening of competition in a market. A contravention of s 46 can be proved on the respective bases of ‘purpose’, ‘effect’ or ‘likely effect’ and these are discussed further below. While there is no legislative definition of ‘substantially lessening competition’, the test has long been a feature of other sections of Pt IV of the Competition and Consumer Act and a wide body of jurisprudence has developed under these provisions.31 While the existing case law under these provisions concerns bilateral or multilateral conduct (rather than unilateral conduct), it will inform the application of this test to s 46.32
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A. Proving purpose 14.16 Section 4F(1)(b) of the Competition and Consumer Act provides that in determining whether the corporation has the relevant purpose, it is not necessary to establish that the relevant purpose was the only purpose. It is sufficient that the relevant purpose was a substantial purpose. Section 4F is designed to reflect the fact that decision making within a firm may be quite complex, involving a variety of persons and objectives. Purpose is defined in the ACCC Guidelines on Misuse of Market Power as ‘a firm’s intention to achieve a particular result’. It can be established by direct evidence or inference.33 It is essentially a subjective notion. A corporation is said to have a particular state of mind (relevant purpose) when a director, employee, or agent of the corporation, acting within actual or apparent authority, has that state of mind: Competition and Consumer Act s 84(1). For example, if the decision 31 The Competition Policy Review, Final Report, above n 1, at p 341. For a discussion of the test and case law see P Armitage, ‘The evolution of the “substantial lessening of competition” test — a review of the case law’ (2016) 44 ABLR 74. 32 Competition and Consumer Amendment (Misuse of Market Power) Bill 2016, Revised Explanatory Memorandum, above n 8, at [1.26]. 33 ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [2.19].
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of a corporation to refuse supply is made by the managing director, the relevant purpose for s 46(1) of the Competition and Consumer Act is the managing director’s purpose. Importantly, under the new s 46, even where it cannot be shown that the firm engaged in conduct which had the purpose of substantially lessening competition, the firm’s conduct may still breach the new s 46 if the conduct has ‘the effect’ or ‘likely effect’ of substantially lessening competition. This ‘effects test’ applies regardless of whether the firm intended its conduct to have that outcome.
B. Assessing effect or likely effect
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14.17 The ACCC Guidelines on Misuse of Market Power define ‘effect’ in this context as ‘the direct consequence of a firm’s conduct’, which is determined objectively by examining the actual impact on the competitive process within the relevant market.34 ‘Likely effect’ refers to the firm’s conduct having a ‘real chance’ or a ‘possibility that is not remote’ of impacting on the competitive process.35 While no particular method of analysis is specified for assessing the ‘effect’ or ‘likely effect’ of the firm’s conduct on competition, the ACCC Guidelines indicate that the ACCC will consider the nature and extent of that conduct including the firm’s commercial rationale. ‘For example, whether the conduct is likely to be profitable for the firm because it improves its customer offer or because it restricts rival firms from improving their customer offers’. While a firm’s commercial rationale may be relevant to understanding the conduct in question and assessing its effect on competition, it will not amount to a defence.36 Further, in undertaking its assessment, the ACCC may undertake the ‘future with and future without’ test,37 which was discussed at 12.37, to determine whether any lessening of competition would be the effect or likely effect of the firm’s conduct.38
C. Substantial lessening of competition 14.18 While ‘lessening of competition’ is not defined exhaustively, s 4G of the Competition and Consumer Act extends its meaning to ‘preventing or hindering competition’.39 To prove a breach of s 46, the lessening of competition must be ‘substantial’. ‘Substantial’ in this context is defined as ‘relevant to the competitive process’ or ‘meaningful’. It is a relative concept.40 34 35 36 37 38 39 40
ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [2.20]. ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [2.21]. ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [2.22]. ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [2.23]. ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [2.23]. Competition and Consumer Act 2010 s 4G. ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [2.26]. See Rural Press v ACCC (2003) 216 CLR 53; (2003) ATPR 41-965; [2003] HCA 75 at [41].
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In short, the ACCC Guidelines on Misuse of Market Power provide that conduct substantially lessens competition when it interferes with the competitive process in a meaningful way by deterring, hindering or preventing competition. It is suggested that this can be done by raising barriers to competition or to entry into a market.41
Section 46(1) — Examples 14.19 Whether or not particular conduct contravenes s 46 will depend on the circumstances. There is a potentially wide range of conduct which may have the ‘purpose, effect or likely effect of substantially lessening competition’ and a wide range of circumstances in which that conduct may occur.42 Without any jurisprudence to provide guidance on the interpretation of the new provision, it is difficult to identify with certainty what conduct will or will not breach s 46. To assist business and business advisors to navigate the new provision, the ACCC’s Guidelines on Misuse of Market Power43 identify certain types of conduct which the ACCC regards as having greater potential to contravene s 46: refusals to deal, restricting access to an essential input, tying and bundling, predatory pricing, loyalty rebates and margin/price squeezing.44 It is also possible for conduct that falls outside of these categories to constitute a contravention of s 46 and this will depend on the specific facts of each case.
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Refusals to supply 14.20 While there is no rule that a corporation must supply everyone who requests supply, in some circumstances a refusal to deal by a firm with a substantial degree of market power may amount to a breach of s 46.45 The ACCC suggests that this may be the case where a firm with a substantial degree of market power in the supply of a key input: • refuses to supply that input to its competitors in a downstream market and the ‘purpose, effect or likely effect’ of that conduct is to stop or hinder those competitors from being able to compete in the downstream market; or • is only prepared to supply the key input to its competitors in a downstream market on unreasonable commercial terms such that no competitor would be 41 ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [2.24]. 42 As is pointed out in the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016, Revised Explanatory Memorandum, above n 8, at [1.27]: ‘In some markets a particular type of conduct may substantially lessen competition while in other markets the same conduct may have little or no effect on competition’. 43 See above n 4. 44 See ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, section 3 which also provides examples of each through hypothetical case studies. 45 ACCC, ‘Guidelines on Misuse of Market Power’, above n 4. The ACCC provides a hypothetical case study example of how refusal to supply would be assessed for the purposes of s 46 at [3.4].
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willing to buy the key input, and if the ‘purpose, effect or likely effect’ of that conduct is to stop or hinder those competitors from being able to compete in the downstream market.46
Restricting access to an essential input 14.21 As discussed at 14.34–14.44, Pt IIIA of the Competition and Consumer Act provides a process for access to essential facilities of national importance. However, it is still open to a firm denied access to an essential facility to argue a case under s 46 of the Competition and Consumer Act: NT Power Generation Pty Ltd v Power and Water Authority.47 Section 46 could operate against an owner of an essential services facility in much the same way as it operated to require BHP to supply Y-Bar to Queensland Wire Industries:48 see Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd.49 In such cases, it is suggested that normally compulsory access will only be ordered where there is clear evidence that the facility owner is using its power in the facility market to extract a monopoly benefit in a downstream market which has the ‘purpose, effect or likely effect of substantially lessening competition’. If s 46 of the Competition and Consumer Act were used to compel access in a wide variety of circumstances, the incentives to invest in infrastructure facilities would be seriously eroded. This would clearly disadvantage consumers in the long term. Therefore, any application of the Competition and Consumer Act must take into account long-term incentives. NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90; 210 ALR 312; [2004] HCA 48 Copyright © 2019. LexisNexis Butterworths. All rights reserved.
14.21C
Facts: Power and Water Authority (PAWA) was a statutory corporation set up under Northern Territory (NT) legislation. PAWA generated, distributed, and sold electricity to consumers in the NT. PAWA owned the electricity distribution infrastructure. NT Power wished to enter the market for the supply of electricity to consumers, but to do so it needed access to PAWA’s distribution infrastructure. With the consent of the relevant NT Minister, PAWA refused access. It was argued that the NT was in the process of developing an electricity transmission access regime and granting NT Power access was premature. NT Power argued that PAWA’s refusal was a breach of s 46. PAWA argued in its defence that: • as it was a statutory corporation of the NT, it was protected by Crown immunity; • even if it was not protected by Crown immunity, there was no relevant market for the supply of electricity transmission services because PAWA had not granted access to anyone; and
46 ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [3.4]. 47 (2004) 219 CLR 90; 210 ALR 312; [2004] HCA 48, see 14.21C. 48 ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, provides a hypothetical case study example of how restricting access to an essential input would be assessed for the purposes of s 46 at [3.6]. 49 (1989) 167 CLR 177; 83 ALR 577; [1989] HCA 6, see 14.9C1.
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Chapter 14: Misuse of Market Power • even if it had a substantial degree of market power, it did not have an anti-competitive purpose (rather, so it argued, it was maintaining the status quo until the government put into place a recognised access scheme). PAWA was successful on the first point at trial and on appeal. NT Power appealed to the High Court. Decision: The High Court decided the three issues as follows: • The Competition and Consumer Act applied to state and territory statutory corporations insofar as they carried on business: s 2B. PAWA was carrying on a business of selling electricity and its operation of the transmission infrastructure was part of that business. Therefore, s 46 could apply to PAWA. • Although PAWA did not sell transmission services to anyone, this did not mean that a market did not exist: Queensland Wire case. In fact, a market did exist and PAWA, as a monopolist, clearly had a substantial degree of power in that market. Alternatively, PAWA had a substantial degree of power in the market for the supply of electricity (sole ownership of the transmission grid being one of the sources of that power). • PAWA’s purpose was to prevent NT Power from competing for the supply of electricity to consumers in NT. It was irrelevant that PAWA and the NT Minister may have had a longterm intention to introduce an access scheme. There was nothing in s 46 that enabled a corporation to engage in anti-competitive conduct in the short term on the basis it had a plan for long-term competition.
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Product tying or bundling 14.22 Businesses often offer their goods or services in bundles, and generally this practice is pro-competitive and results in consumers receiving a better offering. However, where a supplier requires a buyer to take not only product A but also product B, there may in limited circumstances be a breach of s 46(1) of the Competition and Consumer Act. This can occur when a firm with substantial power in one market uses a tie or bundle to leverage this market power into another market.50 Under s 46(1) the market in which substantial lessening of competition must be shown may include any market in which the firm with substantial market power actually or potentially supplies or acquires goods or services. The ACCC Guidelines on Misuse of Market Power suggest an example of a tying arrangement would be where a printer supplier sells a printer on condition that the customer also acquires ongoing servicing from the supplier. Further, an example of product bundling would be where a mobile phone operator offers bundles of handsets and mobile phone service plans where the price of the packaged handset and plan is cheaper than if consumers bought each one separately.51
50 ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [3.20]. 51 ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [3.18]–[3.19]. The ACCC provides a hypothetical case study example of how tying and bundling would be assessed for the purposes of s 46 at [3.20].
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Refusals to purchase — buying power 14.23 A buyer with substantial market power may breach s 46(1) by engaging in conduct with suppliers that has the purpose or effect of substantially lessening competition. In ACCC v Australian Safeway Stores Pty Ltd,52 Safeway was held to have breached s 46(1) of the Competition and Consumer Act through its bread policy. When Safeway heard that one of its bakery suppliers was selling bread to independent retailers in a particular area cheaper than it was selling the same bread to Safeway, Safeway responded by cutting the baker’s products from its shelves in that area until the discounting stopped. Safeway’s purpose was to deter the bakers from supplying discounted bread to the independent retailers so as to deter the independent retailers from engaging in competitive conduct. TPC v Carlton & United Breweries Ltd (1990) ATPR 41-037 14.23C
Facts: Carlton & United Breweries (CUB) was the largest brewery in Australia. It purchased 70% of its requirements of beer cans from Gadsden, which was owned by SA Brewing, one of CUB’s competitors. SA Brewing supplied Payless, the owner of a chain of supermarkets, with unbranded beer. Payless planned to sell the beer as a cheap alternative to the national brands through its supermarkets. CUB was concerned about the introduction of generic beer on the national market, so its managing director contacted both SA Brewing and Gadsden, threatening to buy their cans from another can producer if SA Brewing continued to supply Payless. As a result of this pressure, SA Brewing informed Payless that it could not supply it with beer. The Commission brought an action against CUB for a breach of s 46 of the Competition and Consumer Act. Decision: CUB pleaded guilty and was fined $175,000.
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Margin/price squeeze 14.24 The ACCC Guidelines on Misuse of Market Power highlight the circumstances under which a firm’s conduct which involves charging different prices to different buyers for the supply of goods could possibly breach s 46. A firm with a substantial degree of market power in the supply of a key input (where there are limited alternative sources of supply) may be able to disadvantage its competitors in downstream markets by reducing the margin available to its competitors (eg, by charging its competitors such a high price for the key input that it makes it uncommercial for those competitors to offer a competitive price — being similar to the one charged by the firm — in the downstream market). Such a margin squeeze has the potential to prevent efficient competitors in the downstream market from competing with the firm on their merits, the ‘effect or likely effect’ of such conduct being that competition is substantially lessened.53 52 (2003) 198 ALR 657; [2003] FCAFC 149. 53 ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [3.15]–[3.16]. The ACCC provides a hypothetical case study example of how margin/price squeeze would be assessed for the purposes of s 46 at [3.16].
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Loyalty rebates 14.25 The ACCC has also identified the offering of loyalty rebates by businesses with a substantial degree of market power as conduct which has the potential to contravene s 46 in limited circumstances.54 For example, where a firm offers its retail customers volume rebates which are conditional on the retailer purchasing a large proportion of its requirements from the firm, this can have the effect of preventing retailers from purchasing from alternative suppliers. The effect of such conduct by the firm may be to substantially lessen competition.55
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Predatory pricing56 14.26 Economically speaking, predatory pricing occurs where a firm is able to cut prices to such an extent and over such a sustained period that rivals are driven out of the market. The firm is then in a position to raise prices above competitive price levels or increase its market share. Put in this way, predatory pricing sounds deceptively simple. In reality, it presents enormous theoretical and practical difficulties. The core problem lies in determining whether the alleged price cutting is predatory or just aggressive competition. After all, reduced prices are one of the benefits of increased competition. How do we distinguish between competitive pricing and predatory pricing? One possibility is to examine the firm’s cost structure. Thus, if the price is set at or above marginal cost, the price should not be regarded as predatory. This makes sense, as allocative efficiency is supposed to be maximised where firms set their price at marginal or incremental cost.57 This is theoretically what happens under conditions of perfect competition. The reverse, however, does not apply. It cannot be assumed that a firm is engaged in predatory conduct just because it is pricing below marginal cost. Even if we change the benchmark to average variable cost (or the related notion of ‘avoidable cost’) it still cannot be said that a firm engages in a breach of s 46(1) of the Competition and Consumer Act just because it prices below that benchmark. While predatory pricing by a firm with a substantial degree of market power can harm an individual competitor, in order to prove a breach of s 46(1) it is always
54 ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [3.12]. 55 ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [3.12]. The ACCC provides a hypothetical case study example of how loyalty rebates would be assessed for the purposes of s 46 at [3.13]. 56 The Competition and Consumer Act 2010 previously contained specific subsections dealing with predatory pricing; however, these provisions were repealed following the recommendations of the Harper Review (see above n 1). Predatory pricing is now covered under the general provision. 57 Under conditions of perfect competition the profit-maximising firm is forced to accept the market price and will set its production at the point where marginal cost is equal to that price.
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necessary to establish that the conduct engaged in by the firm had the purpose, effect or likely effect of substantially lessening competition in a market.58 The leading decision on predatory pricing under the former s 46(1) of the Competition and Consumer Act in Australia is Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC.59 The ACCC’s case failed because ultimately it was unable to establish that Boral had a substantial degree of market power. In other words, the ACCC failed to establish the threshold requirement for s 46(1) (which is still the threshold requirement under the new s 46). Nevertheless, the High Court made a number of comments about the nature of s 46(1) in price-cutting cases. An allegation of predatory pricing also failed in Eastern Express Pty Ltd v General Newspapers Pty Ltd.60 Boral Besser Masonry Ltd (now Boral Masonry Ltd) v ACCC (2003) 215 CLR 374; 195 ALR 609; [2003] HCA 5 14.26C
Facts: Boral Besser Masonry Ltd (BBM) produced masonry products in Melbourne for the construction of walls and pavements. Masonry products were also produced by a number of other firms including Pioneer, Budget, Rocla, and C&M.
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In 1991 the Victorian economy went into a serious recession which hit the building industry particularly hard. In 1993 C&M entered the market with a more efficient plant than that possessed by other masonry manufacturers. Competition for contracts became intense. Prices plummeted as a result of low demand and excess capacity. In the period 1993 to 1996 the evidence suggested that BBM most often failed to cover its avoidable costs (variable costs). BBM discussed exiting the market, but decided to stay. The decision was taken to improve its position by making its production more efficient by investing in substantial plant improvements. Its corporate strategy was to tough it out and, by increasing investment in its plant, to drive competitors out of the market and to make it difficult for new competitors to enter. Market shares were as follows: before 1992, BBM’s share of sales had been more than 30%; by early 1992 it had fallen to 12%; by 1993 it had risen again to 30%, ‘[f]rom 1994 to 1996 (the period of the alleged contravention) it stayed consistently at 25 to 30%. BBM did not increase its market share over the period of its alleged predatory pricing’;61 Pioneer’s share during the whole period was about 25%; Rocla’s share until it left the market in 1995 was about 22%; and Budget’s share until it left about 7%.62 C&M, once it entered the market, rapidly increased its market share to over 30%. According to the court, between 1993 and 1996 C&M entered the market, and ‘survived and prospered’.63 The ACCC brought an action against BBM (and against its parent, Boral) for breach of s 46. BBM succeeded at trial and the ACCC appealed. On appeal, the court found for the ACCC, holding that: • BBM had a substantial degree of power in the market for masonry products. The proof was BBM’s ability to engage in strategic exclusionary pricing tactics, supported by its parent company, Boral.
58 ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, at [3.10] provides a hypothetical case study of how predatory pricing would be assessed for the purposes of s 46. 59 (2003) 215 CLR 374; 195 ALR 609; [2003] HCA 5, see 14.26C. 60 (1992) 106 ALR 297; (1992) ATPR 41-167, see 13.54C and 14.11C. 61 (2003) 215 CLR 374; 195 ALR 609; [2003] HCA 5 at [18]. 62 (2003) 215 CLR 374; 195 ALR 609; [2003] HCA 5 at [19]. 63 (2003) 215 CLR 374; 195 ALR 609; [2003] HCA 5 at [20].
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Chapter 14: Misuse of Market Power • BBM had taken advantage of its power by engaging in predatory pricing. • BBM’s purpose was to eliminate one or more of its competitors. BBM appealed to the High Court. Decision: The High Court decided in favour of Boral. BBM did not have a substantial degree of power in the masonry products market. Market power means the ability to operate without being constrained by competitors or customers. While strategic barriers could exist, the evidence did not suggest that Boral was using price discounting as a strategic weapon. Rather, the evidence suggested that BBM was acting in response to market pressures. In difficult economic times that response could involve below-cost pricing. As Boral did not have a substantial degree of market power, it could not have breached s 46. Some members of the court also commented on the nature of price cutting as a use of market power. Price cutting by itself cannot be a use of market power. It is the ability to raise prices above competitive levels that characterises market power. Thus, while proof of an ability to recoup losses was not strictly required for a predatory pricing breach of s 46, it was in this case and will often be factually very important. An ability to recoup losses following a period of below-cost pricing is evidence of a use of market power. An inability to recoup losses, on the other hand, will often indicate a lack of market power.
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Remedies and Sanctions 14.27 If a court determines that a person has contravened, attempted to contravene or has been involved in a contravention of, s 46, the court may impose orders including but not limited to: • requiring that person to pay a civil pecuniary penalty (s 76(1)(a));64 • requiring that person to pay damages (s 82); • granting an injunction preventing that person from engaging in certain conduct (s 80); • declaring that person has contravened the Competition and Consumer Act (s 87); and • in the case of individuals, disqualifying a person from managing a corporation.
Authorisation 14.28 The amendments contained in the Competition and Consumer Amendment (Competition Policy Review) Act 2017,65 which came into effect on 6 November 2017, now permit conduct that might otherwise breach s 46 to be the subject of an 64 Where pecuniary penalties are imposed under s 76, in the case of a corporation, the penalty can be the greater of: $10 million, the value of the benefit attributable to the breach or 10% of the annual turnover of the body corporate in the 12 months prior to the conduct. For individuals the maximum penalty is $500,000; however, the individual may also be disqualified from managing a corporation: see s 76(1A)(b) and s 76(1B)(b) of the Competition and Consumer Act 2010. 65 The amendments were a result of the recommendations of the Harper Review, see above n 1.
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application for authorisation. Authorisation provides statutory protection against legal action for future conduct that might breach s 46.66 The ACCC determines applications for s 46 authorisations under the ACCC’s general authorisation process (pursuant to s 88 of the Competition and Consumer Act). The ACCC can only authorise the conduct if it is satisfied in all the circumstances that at least one limb of the statutory test under s 90(7) of the Competition and Consumer Act is met. Namely that either: 1. the conduct would not have the effect, or would not be likely to have the effect, of substantially lessening competition; or 2. the conduct would result, or be likely to result, in a benefit to the public, and that benefit would outweigh the detriment to the public that would result, or be likely to result, from the conduct.67 The concepts of ‘public benefit’ and ‘public detriment’ are not defined in the Competition and Consumer Act, but have been discussed at 12.58–12.60. The ACCC will weigh up the benefits to the public that would result, or be likely to result, from the proposed conduct against the detriments to the public that would result, or be likely to result, from the proposed conduct and determine which is the greater. The ACCC may make a determination to grant authorisation for a proposed conduct, or grant authorisation subject to conditions68 or deny authorisation.
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Misuse in Australia-New Zealand Market 14.29 As a result of the Closer Economic Relations Trade Agreement between Australia and New Zealand,69 the former Trade Practices Act was amended in 1990 by adding a section dealing with misuse of market power by a corporation that has a substantial degree of market power in a market for goods or services in Australia, in New Zealand, or in Australia and New Zealand (a trans-Tasman market). Section 46A of the Competition and Consumer Act, like the former s 46, applies when a corporation with market power ‘takes advantage’ of that power for one of three proscribed purposes. Specifically, s 46A of the Competition and Consumer Act makes it unlawful for a corporation with a substantial degree of power in a trans-Tasman market to take advantage of that power for the purpose of: 1. eliminating or substantially damaging a competitor in an impact market: s 46A(2)(a); or 2. preventing a person from entering an impact market: s 46A(2)(b); or 66 67 68 69
Competition and Consumer Act 2010 s 88(2). Competition and Consumer Act 2010 s 90(7). Competition and Consumer Act 2010 s 88(3). Australia New Zealand Closer Economic Relations Trade Agreement [1983] ATS 2, as modified.
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3. deterring or preventing a person from engaging in competitive conduct in an impact market: s 46A(2)(c). An ‘impact market’ is defined in s 46A(1) as a market in Australia that is not a market exclusively for services. In all other respects, s 46A is the same as the former s 46.
Access to Essential Services under Pt IIIA of the Competition and Consumer Act What are the objects of Pt IIIA? 14.30 Part IIIA of the Competition and Consumer Act sets up a scheme to regulate access to essential services, provided by significant monopoly infrastructure. The objects of Pt IIIA are set out in s 44AA: • to promote the economically efficient operation of, use of, and investment in the infrastructure by which services are provided, thereby promoting effective competition in upstream and downstream markets; and • to provide a framework and guiding principles to encourage a consistent approach to access regulation in each industry.
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What is an essential service or facility? 14.31 Part IIIA was included in the Competition and Consumer Act because of the difficulties that can occur with natural monopolies. A natural monopoly occurs where it is not economic to duplicate a facility. For example, it would not be economic to build an airport for every airline, or to lay down rail tracks for every railway company, or to construct a separate power transmission grid for every electricity-generating company. In each case, the nature of the service dictates that there be only one or a limited number of facilities. In Australia many of these facilities have traditionally been owned and operated by government authorities. These facilities are essential in the sense that they provide a service which is absolutely necessary for the operation of the economy. Consider the importance of electricity transmission, ports and airports, telecommunications networks, and rail systems to the economy and to public welfare.
What is the problem with essential facilities? 14.32 Where an essential facility is a monopoly, the owner is able to manage access to the facility in a discriminatory fashion. If the monopolist also operates in a downstream or upstream market, the monopolist is able to leverage its power in the essential facility market to obtain a competitive advantage in that other 669
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market. For example, a firm that was in the business of generating electricity and also controlled the transmission grid would be in a position to offer discriminatory terms to its electricity generating business. The electricity generating business would have an unfair advantage over its rivals. The business could succeed even though it was not particularly efficient. The mere presence of a vertically integrated firm in a natural monopoly might deter others from competing against the monopolist in an upstream or downstream market. Therefore, the role of competition policy should be to reduce the effect of natural monopolies by having a system whereby the monopolist cannot abuse its power and where suppliers and buyers can get reasonable access to the monopolist’s services.
What is the solution to this problem?
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14.33 The Australian solution is threefold: 1. The existing provisions of Pt IV of the Competition and Consumer Act (particularly s 46) should be used. 2. The states should be allowed to set up their own access regimes to ensure that firms can get reasonable access to the monopolist’s services. 3. A Commonwealth access regime should be set up to ensure that firms can get reasonable access to the monopolist’s services. A firm that is denied reasonable access to an essential facility because the monopolist is engaging in exclusionary or discriminatory tactics to protect its upstream or downstream operations is able to bring an action under s 46 of the Competition and Consumer Act, claiming that the monopolist is abusing its market power: see ASX Operations Pty Ltd v Pont Data Australia Pty Ltd.70 Despite the existence of s 46, it was felt that there should be an additional regime devoted to ensuring fair access to essential facilities that exhibit natural monopoly characteristics. There are a number of reasons why s 46 alone has historically been seen as insufficient. These include the difficulty of proving purpose under the former s 46 (which existed before the November 2017 amendments introduced the ‘effects test’), the reluctance of the courts to decide the terms of access (including price) (this is more a regulatory function rather than judicial function), and the costly and time-consuming nature of court actions. The states and territories may set up their own access regimes to handle disputes involving access to essential facilities in their jurisdiction. The states and territories have agreed that any state or territorial access regime will apply the relevant principles set out in the Competition Principles Agreement.71 The aim of the Competition Principles Agreement is to ensure that the cornerstone of any access regime is the promotion of competition. 70 (1990) 97 ALR 513; 19 IPR 323; (1991) ATPR 41-069. 71 Council of Australian Governments, ‘Competition Principles Agreement’ (1995, as amended 2007), available at .
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Where no effective state or territorial access regime exists, Pt IIIA of the Competition and Consumer Act provides the necessary regime. The regime set up by Pt IIIA operates nationwide.
How does Pt IIIA work? 14.34 Part IIIA of the Competition and Consumer Act establishes the National Third Party Access Regime for services provided by significant monopoly infrastructure. It seeks to ensure that access to essential services will be available on reasonable terms and conditions, such as a fair price. In so doing it enables efficient access to dependent markets by third parties, while maintaining both a facility owner’s usage rights and providing an appropriate commercial return on investment.72 Paragraphs 14.34–14.44 are intended to provide a simple overview of the three forms of access regime provided for in Pt IIIA. For a more detailed analysis of these complex procedures, the ACCC and the National Competition Council have produced detailed guides.73 Part IIIA provides the following three ‘pathways’ to facilitate third party access to nationally significant monopoly infrastructure: 1. through declaration; 2. pursuant to a state or territory effective access regime; 3. under a voluntary access undertaking given by a service provider and accepted by the ACCC.74
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A. Declaration of an essential service 14.35 Part IIIA of the Competition and Consumer Act creates a complex procedure to guarantee that access to essential services will be available to appropriate parties. First, the essential service must be declared. Having been declared, the terms of access can then be negotiated between the parties or, failing agreement, be determined by the ACCC.
i. Recommending an essential service be declared 14.36 If a firm is denied access to an essential service, it may apply to the National Competition Council to recommend that the service be declared an
72 National Competition Council, Access to Monopoly Infrastructure in Australia, December 2017, at [2], available at . 73 See National Competition Council, Access to Monopoly Infrastructure in Australia, above n 72, and Declaration of Services: A guide to declaration of services under Part IIIA of the Competition and Consumer Act 2010 (Cth), 2018, available at ; and ACCC, Part IIIA Access Undertaking Guidelines, August 2016, available at . 74 National Competition Council, Access to Monopoly Infrastructure in Australia, above n 72, at [2].
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Marketing and the Law
essential service under Pt IIIA by the designated Minister.75 The starting point for considering a declaration application is to identify the service to which access is sought. Service means a service provided by means of a facility including the use of infrastructure facilities such as roads and railway lines, as well as other facilities such as handling or transportation or communication services, but does not include the supply of goods, use of intellectual property, or use of a production process except to the extent that such matters are an integral but subsidiary part of the service: Competition and Consumer Act s 44B. A declaration is made with respect to a service, as distinct from a facility that provides a service. By way of example, the National Competition Council suggests that water transport services would be declared (where the declaration criteria are met) rather than the water pipeline which provides those services.76 There are a number of declaration criteria set out in s 44CA(1) upon which the Council must satisfy itself before it can recommend that a service be declared (s 44G). These same declaration criteria must then be considered by the Minister before deciding whether to declare a particular service (s 44H(4)). The declaration criteria set out in s 44CA(1) include: • that access (or increased access) to the service, on reasonable terms and conditions, as a result of a declaration of the service would promote a material increase in competition in at least one market (whether or not in Australia), other than the market for the service; • that the facility that is used (or will be used) to provide the service could meet the total foreseeable demand in the market: – over the period for which the service would be declared; and – at the least cost compared to any two or more facilities (which could include the first-mentioned facility); • that the facility is of national significance, having regard to: – the size of the facility; or – the importance of the facility to constitutional trade or commerce; or – the importance of the facility to the national economy; and • that access (or increased access) to the service, on reasonable terms and conditions, as a result of a declaration of the service would promote the public interest. The Council applies the declaration criteria (and other provisions of Pt IIIA) in a way that promotes the purpose and the objects of Pt IIIA (s 44AA — referred to at 14.30) and the object of the Competition and Consumer Act, set out in s 2.77 75 Where the essential facility is owned by a state or territorial government, the designated Minister is the Premier in that state or the Chief Minister in the case of a territory. In all other cases it is the Commonwealth Minister (see Competition and Consumer Act 2010 s 44D(1) and (2)). 76 National Competition Council, Declaration of Services: A guide to declaration of services under Part IIIA of the Competition and Consumer Act 2010 (Cth), above n 73, at [1.6]. 77 Section 2 provides ‘The object of this Act is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection’.
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The Council is guided by relevant decisions of the Australian Competition Tribunal and the courts.78 If the Council is not satisfied that all the declaration criteria are met, it must recommend, and the designated Minister must decide, that the service not be declared. Section 44F(1)(a)–(d) provides that in certain circumstances an application cannot be made for a declaration. This is where: • the service is currently subject to an effective access regime; or • the service is the subject of an access undertaking; or • there is an approved competitive tender process for the construction and operation of a facility and the service was specified in the application for that decision as a service proposed to be provided by means of the facility; or • the service is provided by means of a pipeline and there is either a price regulation exemption or a 15-year no-coverage determination under the National Gas Law; or • the Minister has decided that the service is ineligible to be a declared service.
ii. Declaration of an essential service 14.37 Once the National Competition Council has made the recommendation to the designated Minister, the Minister must decide whether to declare the service. The Minister does not have to accept the recommendation of the Council. In determining whether to declare the service, the Minister must take into account the declaration criteria already considered by the National Competition Council: s 44H(4). These factors are listed in 14.36 above. An appeal lies to the Australian Competition Tribunal: s 44K(2).
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Re Fortescue Metals Group (2010) 271 ALR 256; [2010] ACompT 2 Facts: BHP Billiton (BHPB) and Rio Tinto (RIO) each owned and operated two rail lines from their iron ore mines in WA to shipping ports. Fortescue and other miners sought access to these lines. The Minister made a declaration in respect of three of the rail lines. BHPB and RIO appealed. Decision: Two of the rail lines (one owned by BHPB and one by RIO) were already busy and any access by other miners would have to be seriously constrained, both logistically and commercially. Access would also impact adversely on future development by BHPB and RIO, causing a significant loss in export revenues. Thus, while there were some benefits to allowing access, those benefits were outweighed by the costs. Therefore, it was not in the public interest to declare these two lines. The other two lines, however, were less used and it was in the public interest to order access. On this point, the matter went to the High Court, which determined that the Australian 78 National Competition Council, Declaration of Services: A guide to declaration of services under Part IIIA of the Competition and Consumer Act 2010 (Cth), above n 73, chs 2–8 outline the Council’s approach to the declaration criteria based on its experience in dealing with applications since 1996 and drawing on relevant decisions by the Australian Competition Tribunal and the courts.
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Marketing and the Law Competition Tribunal had erred in applying s 44H(4)(b): see The Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal.79 The matter was sent back to the Tribunal for consideration according to the correct law. The Tribunal held that the Minister had not applied the correct test in declaring the lines to be an essential service. Accordingly, the Minister’s declaration was set aside: see Applications by Robe River Mining Co Pty Ltd and Hamersley Iron Pty Ltd.80
iii. N egotiations between service provider and service user over terms of access 14.38 If the service has been declared, the firm is then entitled to negotiate the terms of access with the service provider and reach a binding contract. A party has no automatic right to seek access to the services of the facility.
iv. Arbitration of access dispute 14.39 If the negotiations fail, the firm (or the service provider) may notify the ACCC that an access dispute exists. The matter then goes to arbitration, with the ACCC acting as arbitrator. The ACCC has broad scope to make orders to resolve an access dispute within the guidelines and prohibitions set out in Pt IIIA of the Competition and Consumer Act: ss 44V, 44W, 44X, and applying the pricing principles set out in s 44ZZCA.
v. Review by the Australian Competition Tribunal 14.40 Either party may seek a review of the decision by the Australian Competition Tribunal: s 44K. Appeals to the Federal Court lie only in matters of law.
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vi. Unlawful conduct under Pt IIIA 14.41 Once a service has been declared and a determination made, the service provider must not engage in conduct for the purpose of hindering or preventing the other party’s access to the service as provided by the determination: Competition and Consumer Act s 44ZZ(1). Purpose may be proved by inference: s 44ZZ(2).
B. Certification of an effective state or territory access regime 14.42 The states and territories may create their own access regimes for essential facilities if they wish to do so. These may be accepted by the Commonwealth Minister as an ‘effective’ access regime: Competition and Consumer Act s 44M.
79 [2010] FCA 1118. 80 [2013] ACompT 2.
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If a regime has been accepted or certified as an ‘effective’ access regime, the relevant service may not be declared.
C. Access undertakings 14.43 Instead of subjecting itself to the lengthy process of declaration, a person who is the provider of an essential service (or who expects to be) may submit a voluntary written undertaking to the ACCC setting out details of the terms and conditions on which the provider undertakes to provide access to its service: Competition and Consumer Act s 44ZZA. The ACCC must then examine the undertaking and open it to public consultation before deciding whether to accept or reject it. Section 44ZZA(3) sets out the criteria that the ACCC applies in determining whether to accept an access undertaking. Once it has been accepted, it has the same force as if a determination had been made. In some industries there are a number of providers. To save conducting a public consultation process for each provider, the industry as a whole may submit an access code to the ACCC, which will then accept or reject the code following public consultation: Competition and Consumer Act s 44ZZAA. Where an access undertaking is accepted by the ACCC, an application for declaration under s 44F(1) cannot be made.
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Conclusion — access to essential facilities 14.44 It is vital that the owners of essential facilities not be allowed to abuse their position of power. While s 46 of the Competition and Consumer Act prohibits certain abuses of power, it was considered necessary to have a separate and more regulatory regime for resolving problems relating to access to those essential facilities. Who gets access to the essential facility and upon what terms and conditions can be resolved in one of four ways: 1. by agreement between the owner and the party seeking access; 2. where the terms of access are set by a state or territorial access regime which is certified by the Commonwealth; 3. by court order pursuant to an action for breach of s 46 of the Competition and Consumer Act; or 4. where the terms are determined under Pt IIIA of the Competition and Consumer Act in either of the following ways: –
–
by declaration of the service pursuant to Pt IIIA followed by agreement as to terms, or, failing agreement, arbitration of the terms of access by the ACCC; or where the facility owner has given an access undertaking (or the industry an access code) to the ACCC, which has been accepted following public consultation. 675
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Marketing Advice
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14.45 Section 46(1) of the Competition and Consumer Act only applies to firms with a substantial degree of market power. A firm has a substantial degree of power only if it is able to act persistently without being constrained by its rivals, suppliers, or buyers. Therefore, it is pointless complaining to the ACCC about a supplier’s or buyer’s conduct, unless that supplier or buyer has the requisite market power. However, it is not a contravention of s 46 if a firm merely possesses market power. If it is established that a firm has a substantial degree of market power, the firm will only be in breach of s 46(1) if its conduct can be shown to have the purpose, effect or likely effect of substantially lessening competition in a relevant market. Whether or not particular conduct contravenes s 46 will depend on the circumstances. While the new effects test has the potential to expand the application of s 46 to capture new forms of conduct, until the new s 46 is actually tested and interpreted by Australian courts and jurisprudence is developed, there is a level of uncertainty as to its scope. Business must be mindful of the potential impact of the provision. To assist business to navigate the new provision, the ACCC’s Guidelines on Misuse of Market Power identify certain types of conduct which it regards as having greater potential to contravene s 46: refusals to deal, restricting access to an essential input, tying and bundling, predatory pricing, loyalty rebates and margin/price squeezing.81 While the Guidelines are a helpful aid, it is important for businesses to remember that they are not law and that these categories are not closed. It is possible that conduct which falls outside of these categories could constitute a contravention of s 46.
81 See ACCC, ‘Guidelines on Misuse of Market Power’, above n 4, section 3 which also provides examples of each through hypothetical case studies.
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Mergers
15
Introduction to Mergers .................................................................. 15.1 What is a merger?......................................................................... 15.2 Why control mergers?.................................................................. 15.3 A. Horizontal mergers .............................................................. 15.3 B. Vertical and conglomerate mergers ................................. 15.4 Benefits of a merger ..................................................................... 15.5 The Mergers Test ............................................................................. 15.6 Has there been an acquisition of shares or assets? ................. 15.7 Will the merger have the effect of substantially lessening competition? ........................................................... 15.8 Theories of Competitive Harm ........................................................ 15.9 Horizontal mergers ...................................................................... 15.10 Vertical and conglomerate mergers ......................................... 15.11 Merger Assessments ....................................................................... 15.12 Informal review by the ACCC...................................................... 15.13 Authorisation by the ACCC.......................................................... 15.14 First ACCC merger authorisation under new regime ...............15.15 Revocation of an authorisation by the ACCC........................... 15.16 Review of an ACCC merger authorisation by the Australian Competition Tribunal .............................................15.17 Offshore Mergers ............................................................................ 15.18 Introduction .................................................................................. 15.18 The laws ......................................................................................... 15.19 A. Applying s 5 ......................................................................... 15.20 B. Applying s 50A ..................................................................... 15.21 Remedies and Sanctions ............................................................... 15.22 Marketing Advice ............................................................................ 15.23
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Introduction to Mergers
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15.1 Mergers may enable firms to realise efficiencies and spread risk across a variety of activities. However, sometimes mergers change the structure of markets and the incentive for firms to compete in those markets, resulting in anticompetitive effects. A complete competition policy includes some control over the accumulation of market power through mergers1 and acquisitions.2 This is the function of s 50 of the Competition and Consumer Act 2010 (Cth) which prohibits those mergers or acquisitions which would have the effect, or be likely to have the effect, of substantially lessening competition in any market in Australia. The Federal Court has the power to order injunctions to prevent anti-competitive mergers and, if necessary, divestiture of shares or assets acquired in breach of s 50. Because of the risks of breaching s 50, it is common for parties to a proposed merger to apply well in advance of completion of the merger to the Australian Competition and Consumer Commission (ACCC) for an informal review or an authorisation of the merger.3 The ACCC has published the ‘Merger Guidelines’ (2008),4 which outline the general principles and analytical framework applied by the ACCC in evaluating whether a proposed merger is likely to substantially lessen competition under s 50. They are designed to assist the merger parties, the business community, their advisers and the general public to understand the ACCC’s approach to merger analysis under s 50, however, they do not have legal force and final determination of whether a merger is likely to contravene s 50 is a matter for the courts.5 When assessing the impact on competition for the purposes of s 50, little turns on whether a transaction is strictly speaking a ‘merger’ or an ‘acquisition’, so for convenience the ACCC refers in the Merger Guidelines (2008) to ‘mergers’ and ‘merger parties’.6 The same approach is adopted in this chapter.
What is a merger? 15.2 For the purposes of Pt IV of the Competition and Consumer Act, a merger occurs when one business acquires another business. Where the target business is owned by a corporation, the merger may be achieved either by acquiring the shares in the corporation or by acquiring the assets (including goodwill) of the 1
2 3 4 5 6
A ‘merger’ involves the shareholders of two companies becoming the shareholders of a new merged company: see ACCC, ‘Merger Guidelines’ (2008) (amended in November 2017 to reflect the Harper reforms to the Competition and Consumer Act 2010), at [1.12]; available at . An ‘acquisition’ occurs when one company acquires a shareholding in, or the assets of, another company: ACCC, ‘Merger Guidelines’ (2008), above n 1, at [1.12]. These two processes are discussed further at 15.12–15.14. ACCC, ‘Merger Guidelines’ (2008), above n 1. ACCC, ‘Merger Guidelines’ (2008), above n 1, at [1.18]. ACCC, ‘Merger Guidelines’ (2008), above n 1, at [1.12].
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corporation. A merger may be friendly or hostile. They are treated the same way under the Act. A merger may be horizontal, vertical, or conglomerate, which can be described as follows: • A horizontal merger involves firms operating at the same functional level of the market; for example, where a firm takes over one of its competitors. • A vertical merger involves firms operating or potentially operating at different functional levels of the same vertical supply chain; for example, where a wholesaler takes over one of its suppliers or buyers. • A conglomerate merger involves firms that interact or potentially interact across several separate markets and supply goods or services that are in some way related to each other; for example, products that are complementary in either demand or supply, such as staples and staplers.7
Why control mergers? A. Horizontal mergers 15.3 A horizontal merger will have the immediate, if not long-term, effect of increasing concentration within the market. The increased concentration may mean that the merged firm has sufficient market power to act like a quasi-monopolist. Alternatively, increased concentration may facilitate the possibility of collusive conduct. In either event, the merger may result in restrictions on output and the setting of prices above competitive levels. This detracts from consumer welfare. Horizontal mergers are the fundamental concern of s 50 of the Competition and Consumer Act.
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B. Vertical and conglomerate mergers 15.4 A vertical merger may also result in reduced levels of competition. For example, a supplier of aluminium that gained control over a significant number of firms in the aluminium buyers’ market could be in a position to exert considerable power over its competitors. This could lessen competition in both the suppliers’ and the buyers’ market. Perhaps an even more critical example in a small economy such as Australia’s is where one supplier gains control over the distribution system for their product. There are many industries in Australia where, for reasons relating to economies of scale, distribution tends to be quite concentrated. This creates bottlenecks in the economy which can choke competition in upstream and downstream markets; for example, by acting as an effective barrier to entry by new firms. It is essential that this bottleneck effect not be exacerbated by allowing any single supplier or buyer to gain control over a significant proportion of the distribution facilities. Most vertical mergers, however, are not anti-competitive. 7
ACCC, ‘Merger Guidelines’ (2008), above n 1, at [1.13], [5.20].
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Conglomerate mergers are, generally speaking, also not likely to pose competition problems.
Benefits of a merger 15.5 Although horizontal and vertical mergers have the potential to create competition problems, competition policy does not assume that mergers, even horizontal mergers, are bad. Indeed, competition policy recognises that mergers and acquisitions are often ultimately beneficial to consumers as they allow firms to achieve efficiencies. Some possible benefits of a merger are set out below: • A merger may reduce costs by enabling the full benefit to be derived from economies of scale and scope (eg, from combining product, distribution and marketing activities).8 • A merger may result in greater innovation yields from combining investment in research and development.9 • A vertical merger may significantly reduce transaction costs, which may then be passed on to the consumer in the form of lower prices. • More efficient production may enable the merged firm to better compete on the international market with obvious benefits for Australia’s balance of payments. • Mergers often mean the replacement of an unsuccessful management team with a new, dynamic team.
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The Mergers Test 15.6 Section 50 of the Competition and Consumer Act only prohibits those mergers which have the effect, or are likely to have the effect, of substantially lessening competition in any market in Australia. There are two steps in determining whether a merger is unlawful under s 50: • Has there been a direct or indirect acquisition of shares or assets? • Will the acquisition have, or be likely to have, the effect of substantially lessening competition in any market?
Has there been an acquisition of shares or assets? 15.7 Section 50 of the Competition and Consumer Act includes not only the purchase of shares, but also the purchase of an asset. For example, a mining company with diverse businesses may decide to sell off one of the businesses to its competitor. Such a sale would not involve any shares, but could certainly have a 8 9
See ACCC, ‘Merger Guidelines’ (2008), above n 1, at [7.63]. See ACCC, ‘Merger Guidelines’ (2008), above n 1, at [7.63].
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substantial effect on competition. However, an acquisition of assets in the ordinary course of business is not to be regarded as a merger.10 For example, a purchase of stock in trade is not examinable under s 50.
Will the merger have the effect of substantially lessening competition? 15.8 A merger is only unlawful under s 50 of the Competition and Consumer Act if it has, or is likely to have, the effect of substantially lessening competition in any market. Purpose or intention is not relevant to the test in s 50. Most mergers do not affect the level of competition at all because there are sufficient substitution possibilities to effectively constrain the merged firm.11 In determining whether a merger will lead to a substantial lessening of competition, the starting point is to determine the relevant market in which the proposed merger will occur. The implications of the market definition are significant — the more narrowly the market is defined for the purposes of merger analysis, the more likely it is that the merger will be found to have substantially lessened competition in that market. As discussed in Chapter 12, the relevant market is a multi-dimensional concept (involving considerations of product, geography, functional level and timeframe) determined by applying the principles of demand and supply substitution: see 12.41–12.44. The importance of ‘substitution’ in this analysis is affirmed by the definition of ‘market’ in s 4E of the Competition and Consumer Act, which includes those goods or services that are substitutable for, or otherwise in competition with, the goods or services under analysis.12
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Arnotts Ltd v TPC (1990) 97 ALR 555; (1990) ATPR 41-061 Facts: Arnotts was the major producer of biscuits in Australia with 65% of all sales. Westons had 13%, Nabisco 9%, imports 5%, and others (mainly specialty brands) the balance. Ninety per cent of biscuits were sold through supermarkets. On average, Arnotts accounted for 50% of the supermarket shelf space devoted to biscuits. Usually biscuits were sold together in supermarkets (called ‘blocking’) and separate from other processed foods such as snack foods, confectionery, and bread. In all supermarkets Arnotts had the premium spot in the ‘biscuit bar’. Arnotts sought to acquire Nabisco’s biscuit business. The Commission objected on the basis that it would be a breach of s 50 of the Trade Practices Act 1974 (Cth) (now s 50 of the Competition
10 Competition and Consumer Act 2010 s 4(4)(b). The full scope of s 4(4)(b) is not clear. Section 4(4)(b) reads: ‘a reference to the acquisition of assets of a person shall be construed as a reference to an acquisition, whether alone or jointly with another person, of any legal or equitable interest in such assets but does not include a reference to an acquisition by way of charge only or an acquisition in the ordinary course of business.’ 11 ACCC, ‘Merger Guidelines’ (2008), above n 1, at [3.2]. 12 ACCC, ‘Merger Guidelines’ (2008), above n 1, at [4.7]. See also discussion of the concept of substitution as key to market definition in Air New Zealand Ltd v ACCC [2017] HCA 21.
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Marketing and the Law and Consumer Act).13 What was the relevant product market? The Commission argued that the product market was biscuits. Arnotts, on the other hand, argued that the appropriate market was wider than just biscuits. It argued that other processed foods were substitutes for biscuits. For example, according to Arnotts, chocolate biscuits were in competition with chocolate sold as a confectionery, savoury biscuits competed with potato chips, and so on. Decision: The court rejected Arnotts’ argument, stating: [B]iscuits have distinct characteristics which set them aside from other products. As we have pointed out, manufacturers recognise this. They speak of ‘the biscuit industry’. They concentrate their competitive attention upon other biscuit manufacturers; not concerning themselves with those who distribute corn crisps or chocolates. Retailers recognise this; displaying biscuits — as a distinct range of products, whether savoury or sweet — on separate shelves, away from the corn crisps and chocolates. Most importantly, although some customers may be fickle, there must be many for whom no other product provides an acceptable substitute; who routinely consume biscuits, throughout the year and with little regard for price variations or alternatives. We cannot accept the suggestion that the relevant product market is wider than that for biscuits. The merger was found to breach s 50.
ACCC v Metcash Trading Ltd (2011) 284 ALR 662; [2011] FCAFC 151
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15.8C2
Facts: Metcash is Australia’s largest independent grocery wholesaler and distributor. It supplies independent grocery retailers throughout Australia, including those under the IGA and Supa IGA banners.14 Franklins supplied 80 supermarkets in New South Wales which operated under its own banner. It also supplied a number of franchised Franklins supermarkets. In other words, Franklins was similar to Coles, Woolworths, and Aldi, in that it acted as both distributor and retailer — it was vertically integrated. Metcash acted only as a distributor. In 2010, Franklins entered into an agreement to sell its grocery business to Metcash. The ACCC objected to the sale on the basis that it infringed s 50. The case turned on the issue of the correct market. The ACCC argued that the market should be defined narrowly as the market for the wholesale supply of packaged groceries to independent supermarket retailers in New South Wales; that is, Coles, Woolworths, and Aldi should be excluded from the analysis. Metcash argued that, as it was constrained in its decision making by Coles, Woolworths, and Aldi, the market must include these firms. If Coles, Woolworths, and Aldi were included, it was unlikely that the ACCC could prove any substantial lessening of competition. Decision: The Metcash-Franklins deal did not breach s 50. The ACCC’s version of the market had not been proved.
Having determined the relevant market, it is then necessary to consider whether the proposed merger will, or will be likely to, result in competition in the relevant market being ‘substantially lessened’. As this exercise is necessarily speculative, 13 At the time, a merger was prohibited if it was likely to lead to a firm acquiring dominance in a market or increasing its dominance in a market. 14 See Metcash website .
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the level of proof is important. What does the ACCC have to establish? That there is a ‘possibility’ that the merger will have the necessary anti-competitive effect,15 or that the anti-competitive effect is ‘probable’, or ‘more likely to happen than not’?16 The issue is not as yet fully settled by Australian courts. However, a ‘mere possibility’ would be insufficient.17 The Merger Guidelines set out the ACCC’s position: ‘Mergers are prohibited when there is a “real chance” that a substantial lessening of competition will occur.’18 While the phrase ‘lessening of competition’ is not defined, s 4G of the Competition and Consumer Act clarifies that it includes ‘preventing or hindering competition’. The ACCC considers a lessening of competition is ‘substantial’ if it confers on the merged firm an increased market power that is significant and sustainable.19 For example, a merger will substantially lessen competition in a market if it results in the merged firm being able to significantly and sustainably increase prices in that market. When assessing whether a proposed merger will, or be likely to, result in a substantial lessening of competition in a market, it is necessary to take into account a broad range of matters (known as ‘merger factors’) which highlight key actual and potential competitive constraints faced by the merged firm . The list of ‘merger factors’ is not exhaustive and is set out in s 50(3): (a) the actual and potential level of import competition in the market; (b) the height of barriers to entry to the market; (c) the level of concentration in the market;20 (d) the degree of countervailing power in the market; (e) the likelihood that the acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins; (f) the extent to which substitutes are available in the market or are likely to be available in the market; (g) the dynamic characteristics of the market, including growth, innovation and product differentiation; (h) the likelihood that the acquisition would result in the removal from the market of a vigorous and effective competitor; and (i) the nature and extent of vertical integration in the market.
Some of these factors deal with market structure and others deal with market conduct. The presence of effective competitive constraints on a merged firm in a post-merger market will affect the impact of the proposed merger on competition 15 See Australian Gas Light Co v ACCC (2003) ATPR 41-966; [2003] FCA 1525. 16 Buchanan J in ACCC v Metcash Trading Ltd (2011) 284 ALR 662; [2011] FCAFC 151, see 15.8C2. 17 Australian Gas Light Co v ACCC (2003) ATPR 41-966; [2003] FCA 1525 at [348]. 18 ACCC, ‘Merger Guidelines’ (2008), above n 1, at [3.15]. 19 ACCC, ‘Merger Guidelines’ (2008), above n 1, at [3.5]. 20 The ACCC typically measures market concentration with reference to market shares, concentration ratios and the Herfindahl-Hirschman Index: see ACCC, ‘Merger Guidelines’ (2008), above n 1, at [7.9]–[7.16].
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(in other words whether the proposed merger would be likely to result in a substantial lessening of competition in that market). The ACCC Merger Guidelines make clear that while all the merger factors need to be taken into account, in some circumstances one competitive constraint may be enough to prevent a significant and sustainable increase in the market power of the merged firm while in other situations the collective effect of several competitive constraints is required.21 In undertaking its evaluation as to the effect or likely effect of a merger on competition in a market, the ACCC will use the forward looking likely ‘future with and future without’ test22 that is described at 12.37. The ACCC will assess whether the likely future state of competition in the market with the merger would be substantially less than the likely future state of competition in which the merger does not occur (the counterfactual).23
Theories of Competitive Harm 15.9 The ACCC’s assessment of the competitive effects of a merger is based on the theories of competitive harm; namely, unilateral and coordinated effects, which weaken the competitive pressure on firms in a market, as discussed below.24
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Horizontal mergers 15.10 A horizontal merger may be opposed because it substantially increases the likelihood of anti-competitive unilateral effects or anti-competitive coordinated effects. Anti-competitive unilateral effects exist where the post-merger entity has sufficient power to unilaterally raise prices or otherwise engage in anticompetitive conduct. This could occur, for example, where the two merging parties (pre-merger) were among the market leaders and thus constrained each other’s conduct, but after the merger the merged entity is able to act without significant constraints.25 Anti-competitive coordinated effects exist where the merger creates market conditions that are conducive to coordinated conduct. For example, a merger that moved a market from a reasonably competitive one to an oligopolistic one would increase the likelihood of supra or above competitive pricing. In other words, there would be a substantial lessening of competition. According to the ACCC’s Guidelines, ‘[m]ergers have coordinated effects when they assist firms in 21 22 23 24 25
ACCC, ‘Merger Guidelines’ (2008), above n 1, at [7.4]. See, for example, Australian Gas Light Company (ACN 052 167 405) v ACCC (No 3) [2003] FCA 1525 at [352]. ACCC, ‘Merger Guidelines’ (2008), above n 1, at [3.16]–[3.19]. ACCC, ‘Merger Guidelines’ (2008), above n 1, at [3.9], [7.1]. ACCC, ‘Merger Guidelines’ (2008), above n 1, discussion at [5.1], [5.5]–[5.17].
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the market in implicitly or explicitly coordinating their pricing, output or related commercial decisions’.26
Vertical and conglomerate mergers 15.11 Vertical mergers and conglomerate mergers are less likely to result in a substantial lessening of competition. Nevertheless, there are occasions where vertical mergers, in particular, can result in anti-competitive unilateral or coordinated effects. The main issue is likely to be with unilateral effects. Where the merger increases a firm’s power so that it can act independently of competitive constraint (unilateral market power) there is cause for concern. According to the Merger Guidelines, the ACCC is ‘concerned with non-horizontal mergers where the merged firm has the ability and incentive to use its position in one market to anti-competitively foreclose rivals in another market in a way that lessens competition.’27 Thus, a vertical merger may provide the merged entity with the power and incentive to discriminate against its non-vertically integrated rivals in either the upstream or downstream market. A vertical or conglomerate merger may also provide the merged firm with the power and incentive to leverage its power in one market to another market at the expense of competition in the second market.
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Merger Assessments 15.12 Merger parties are not required by law to notify the ACCC of a proposed merger. However, if they decide to proceed with a merger without seeking the ACCC’s consideration and assessment, there is a risk that the ACCC or other interested parties may take legal action on the basis that the merger would contravene s 50. One possible consequence of a successful ACCC action would be an order by the court to unwind the transaction.28 Accordingly, the ACCC encourages merger parties to voluntarily notify the ACCC of a proposed merger well in advance of completion if the following ‘notification threshold’ is met:29 • the products of the merger parties are either substitutes or complements; and
26 ACCC, ‘Merger Guidelines’ (2008), above n 1, discussion at [6.1]. 27 ACCC, ‘Merger Guidelines’ (2008), above n 1, at [5.22]. 28 See ACCC, ‘Informal Merger Review Process Guidelines’ (2013) (amended in November 2017 to reflect the Harper reforms to the Competition and Consumer Act 2010), at [1.7], available at . Remedies are discussed at 15.22. 29 ACCC, ‘Merger Guidelines’ (2008), above n 1, at [2.1]–[2.9].
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• the merged firm will have a post-merger market share of greater than 20% in the relevant market/s.30 The ‘notification threshold’ acts as a marker to identify mergers which, in the ACCC’s experience, may potentially raise competition concerns.31 If the merger parties believe the notification threshold is met, there are two voluntary pathways to have the proposed merger considered and assessed by the ACCC on competition grounds: 1. an informal review, whereby the ACCC assesses the merger, applying a substantial lessening of competition test; or 2. an application for merger authorisation, whereby the ACCC assesses the merger applying the statutory test set out in s 90(7) of the Competition and Consumer Act.
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Informal review by the ACCC 15.13 The ACCC reviews those mergers it becomes aware of that have the potential to raise concerns under s 50. Such mergers are generally brought to the ACCC’s attention by merger parties who may apply to the ACCC for an informal review of the merger proposal.32 The ACCC, may also become aware of a merger proposal through media reports, from complaints, through referral from other government bodies (such as the Foreign Investment Review Board) or through its own monitoring activities.33 There is no legislative basis for the ACCC’s informal review process. Rather, the system has evolved as a practical matter over many years to provide an opportunity for merger parties to seek the ACCC’s view, prior to completion of the merger, as to whether the proposed merger is likely to have the effect of substantially lessening competition. While an informal view expressed by the ACCC does not provide the merger parties with protection from legal action under s 50, it does provide the parties with a significant degree of comfort as to the ACCC’s position (which is based on the information available to the ACCC at the time of the decision).34 The ACCC’s ‘Informal Merger Review Process Guidelines’ (2013)35 set out the procedures applied by the ACCC in conducting its informal merger reviews. Both the Informal Merger Review Process Guidelines (2013) and the Merger Guidelines 30 ACCC, ‘Merger Guidelines’ (2008), above n 1, at [2.8], [2.9]. The Merger Guidelines note that as market shares are an imprecise indicator of likely competition effects, a merger that does not meet the notification threshold may still raise competition concerns. The ACCC may, therefore, investigate such mergers, even if they have not been notified. 31 ACCC, ‘Merger Guidelines’ (2008), above n 1, at [2.7]. 32 See ‘Informal Merger Review Process Guidelines’ (2013), above n 28. 33 ‘Informal Merger Review Process Guidelines’ (2013), above n 28, at [1.9]. 34 ‘Informal Merger Review Process Guidelines’ (2013), above n 28, at [1.11]. In contrast, as discussed at 15.14, a decision by the ACCC to grant merger authorisation confers immunity from subsequent legal proceedings by the ACCC and other parties. 35 ‘Informal Merger Review Process Guidelines’ (2013), above n 28.
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(2008) (referred to previously, which set out the ACCC’s analytical framework for merger analysis under s 50) are relevant for parties intending to undertake mergers that may raise competition concerns.36 For each application for an informal merger review, the ACCC will make an initial assessment based on the available information to determine whether a confidential or public review is necessary.37 Appendix A of the Informal Merger Review Process Guidelines includes the initial level of information required by the ACCC in order to undertake an informal review.38 If the ACCC decides that it is not necessary to conduct a confidential or public review, the merger will be regarded as being ‘pre-assessed.’39 A significant proportion of the mergers notified to the ACCC are able to be ‘pre-assessed’ expeditiously, often within two weeks of notification.40 If the merger cannot be ‘pre-assessed’, the ACCC will need to undertake further evaluation. The evaluation process (including the scope of market inquiries) is set out in the Informal Merger Review Process Guidelines and differs depending on whether the proposed merger has been publicly announced or is confidential. If after the evaluation process, the ACCC forms the view that a proposed merger is likely to have the effect of substantially lessening competition, the merger parties may decide: • not to proceed with the merger; • to provide a court enforceable undertaking to address the ACCC’s concerns;41 • to apply to the ACCC for merger authorisation;42 or • to proceed and defend any court action taken under s 50.
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If the parties decide to proceed with the merger, the ACCC can apply to the Federal Court of Australia for an injunction to prevent the merger from proceeding, as well as divestiture of shares or assets acquired in contravention of s 50 and penalties.43
36 ‘Informal Merger Review Process Guidelines’ (2013), above n 28, at [1.3]. 37 ‘Informal Merger Review Process Guidelines’ (2013), above n 28, at [2.10]. 38 ‘Informal Merger Review Process Guidelines’ (2013), above n 28, at [2.9], [2.41], [2.42]. The ACCC will often need to request additional information as the review progresses. The ACCC also has statutory information gathering powers under s 155 of the Competition and Consumer Act 2010 to compel the provision of information to the ACCC. 39 ‘Informal Merger Review Process Guidelines’ (2013), above n 28, at [2.10], [2.11]–[2.14]. The Guidelines make clear that a decision to pre-assess a merger without market inquiries is not taken lightly and is dependent on the ACCC’s familiarity with the relevant industry and the adequacy of information provided by the merger parties. Where mergers are pre-assessed, the ACCC will reserve the right to reconsider the merger if new information comes to the ACCC’s attention. 40 ‘Informal Merger Review Process Guidelines’ (2013), above n 28, at [2.12]. 41 Section 3 of the ‘Informal Merger Review Process Guidelines’ (2013), above n 28, outlines the process by which the ACCC will consider proposed undertakings under s 87B of the Competition and Consumer Act 2010. 42 Discussed at 15.14. 43 Remedies are discussed at 15.22.
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All public informal merger reviews — those completed and those under consideration — are recorded on the ACCC’s public register.44
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Authorisation by the ACCC 15.14 The merger authorisation process provides parties to a proposed merger with an alternative pathway to the informal merger review process discussed above. If the ACCC grants merger authorisation, it provides the merger parties with statutory protection from legal challenge under s 50 of the Competition and Consumer Act.45 The ACCC can only grant merger authorisation in respect of a merger that has not been completed.46 The merger authorisation process is public. A valid application for merger authorisation must be in the form approved by the ACCC and accompanied by the relevant fee. Significant procedural changes to the merger authorisation process were introduced by the Competition and Consumer Amendment (Competition Policy Review) Act 2017,47 which came into effect on 6 November 2017. The changes mean that the ACCC now has responsibility for evaluating all applications for merger authorisations. Prior to the 2017 Act, parties were able to seek merger authorisation directly from the Australian Competition Tribunal (the Tribunal), but this procedure has now been repealed. It is, however, possible to apply to the Tribunal to seek a limited merits review of the ACCC’s authorisation determinations, as discussed at 15.17. The ACCC published the Merger Authorisation Guidelines in October 2018 to assist businesses and their advisers understand the new process relating to merger authorisations, and how the ACCC proposes to assess such applications.48 The ACCC determines applications for merger authorisations under the ACCC’s general authorisation process (pursuant to s 88 of the Competition and Consumer Act). The ACCC can only authorise a proposed merger if it is satisfied in all the circumstances that at least one limb of the merger authorisation test under s 90(7) of the Competition and Consumer Act is met. Namely that either: 1. the proposed merger would not have the effect, or would not be likely to have the effect, of substantially lessening competition; or 2. the proposed merger would result, or be likely to result, in a benefit to the public, and that benefit would outweigh the detriment to the public that would result, or be likely to result, from the proposed merger.49 44 45 46 47
See ‘Public Informal merger reviews’ at . Competition and Consumer Act 2010 s 88(2). Competition and Consumer Act 2010 s 88(6). The amendments were a result of the recommendations of the Competition Policy Review, chaired by Professor Ian Harper. See the Competition Policy Review, Final Report, March 2015, available at . 48 ACCC, ‘Merger Authorisation Guidelines’ (October 2018), available at . 49 Competition and Consumer Act 2010 s 90(7).
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In undertaking its evaluation as to the likely competition effects of a proposed merger, the ACCC will use the forward looking likely ‘future with and future without’ test that is described in 12.37. The ACCC will compare the state of competition and the public benefits and detriments likely to arise in the future where the merger occurs, against the future in which the merger does not occur.50 The concepts of ‘public benefit’ and ‘public detriment’ are not defined in the Competition and Consumer Act, but have been discussed at 12.58–12.60. The ACCC has traditionally defined the phrase ‘public benefit’ broadly. As noted by the Tribunal it includes ‘anything of value to the community generally, any contribution to the aims pursued by the society including as one of its principal elements (in the context of trade practices legislation) the achievement of the economic goals of efficiency and progress’: see Re QCMA;51 Application for Authorisation of Acquisition of Macquarie Generation by AGL Energy Ltd52 (AGL Energy case). Section 90(9A) provides that in the context of applications for merger authorisation, the ACCC must take into account the following matters, which are to be regarded as ‘public benefits’ for the purposes of s 90(7) (in addition to any other benefits to the public that may exist): • a significant increase in the real value of exports; • a significant substitution of domestic products for imported goods; and • all other relevant matters that relate to the international competitiveness of any Australian industry — this would include changes in the quality of inputs, improvements in technology, and better work practices.53 Any public benefit must be attributable to the merger in the sense that it would not have accrued without the merger. The ACCC is likely to give particular consideration to increased efficiencies which benefit the public through lower unit costs and prices and through better products. The ACCC considers that cost savings accruing to one or a few firms can constitute public benefits and it is not essential that an increase in efficiencies be passed on to end consumers in the form of lower prices.54 However, the ACCC may give more weight to benefits which flow to the broader community than if they are retained by the merged firm:55 see Re Qantas Airways Ltd;56 and the AGL Energy case.57 ‘Public detriment’ is not defined in the Competition and Consumer Act but the Tribunal has given the concept a wide meaning: ‘… any impairment to the
50 51 52 53 54 55 56 57
ACCC, ‘Merger Authorisation Guidelines’ (October 2018), above n 48, at [6.8]. (1976) ATPR 40-012 at [17,242]. [2014] ACompT 1. Competition and Consumer Act 2010 s 90(9A). ACCC, ‘Merger Authorisation Guidelines’ (October 2018), above n 48, at [8.15]. See ACCC, ‘Merger Authorisation Guidelines’ (October 2018), above n 48, at [8.14]–[8.16]. [2004] ACompT 9. [2014] ACompT 1.
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Marketing and the Law
community generally, any harm or damage to the aims pursued by the society including as one of its principal elements the achievement of the goal of economic efficiency …’.58 The ACCC will weigh up the benefits to the public that would result, or be likely to result, from the proposed merger against the detriments to the public that would result, or be likely to result, from the proposed merger and determine which is the greater. Pursuant to s 90(7)(b), the ACCC may grant authorisation for the proposed merger if the public benefits outweigh the public detriments. The ACCC may make a decision (called a ‘determination’) to grant authorisation for a proposed merger, or grant authorisation subject to conditions59 (eg, conditions designed to increase the likelihood of the claimed public benefits occurring or to reduce the public detriments resulting from the merger),60 or deny authorisation. If any of the conditions specified in a merger authorisation are not complied with, the authorisation will not apply: s 88(3). The ACCC’s determination must be in writing and provide detailed reasons for its decision.61 The ACCC must make its determination within 90 calendar days of the application being validly lodged (unless extended because the applicant agrees to the ACCC taking a longer period). If the ACCC fails to deliver its determination within the time period, the ACCC is taken to have refused to grant the authorisation: s 90(10B).62 A merger authorisation will come into force on the day specified in the determination. This date cannot be earlier than 21 days after the determination is issued to accommodate the appeal period: s 91(1A).63 A merger authorisation remains in force for the period specified by the ACCC in the authorisation: s 91(1). The ACCC is required to keep a public register relating to merger authorisations.64 The merger authorisations register is available on the ACCC’s website and contains applications for merger authorisation, all related submissions and documents by the applicant and interested parties, and the ACCC’s determination.65
58 See Re 7-Eleven Stores Pty Ltd (1994) ATPR 41-357 at [42,683]. 59 Competition and Consumer Act 2010 s 88(3). 60 ACCC, ‘Merger Authorisation Guidelines’ (October 2018), above n 48, at [9.1]. This includes a condition that a person give and comply with an undertaking under s 87B of the Competition and Consumer Act 2010: s 88(4). 61 Competition and Consumer Act 2010 s 90(1); s 90(4). 62 The 90-day limit also applies to an application for revocation, revocation and substitution, or minor variation of a merger: ACCC, ‘Merger Authorisation Guidelines’ (October 2018), above n 48, at [4.3]. 63 Appeals are dealt with in 15.17. 64 Competition and Consumer Act 2010 s 89(3) and (4). 65 See ‘Merger authorisations register’ at . Prior to 6 November 2017, merger authorisation applications were made to the Australian Competition Tribunal. Details relating to these applications are published on the Tribunal’s public register at .
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First ACCC merger authorisation under new regime66 15.15 On 25 July 2019, the ACCC granted its first merger authorisation under the new merger authorisation regime in relation to the proposed acquisition of ASX-listed Automotive Holdings Group Ltd (AHG) by ASX-listed AP Eagers Ltd (AP Eagers).67 A copy of all relevant documents including AP Eager’s application, the public submissions received, EP Eagers’ divestiture undertaking and the ACCC’s determination are available on the ACCC Merger Authorisation Register.68 In summary, AP Eagers and AHG are the two largest automotive retailers in Australia. Both operate car dealerships supplying new and used cars, trucks and buses, as well as related products and services such as car repair and servicing, authorised car parts, insurance and finance in various parts of Australia, including Brisbane, Melbourne, Sydney and the Newcastle/Hunter Valley region of New South Wales. AP Eagers sought merger authorisation to acquire all of the ordinary shares in AHG that it did not already own on the basis that the proposed acquisition would not have the effect or likely effect of substantially lessening competition. On 24 June 2019, the ACCC released a ‘market feedback letter’ setting out the preliminary view of the ACCC that the proposed acquisition was likely to substantially lessen competition in the retail supply of new cars in the Newcastle and Hunter Valley region. However, the ACCC did not consider that the proposed merger raised any concerns nationally, or in Melbourne, Sydney and Brisbane, where the overlap between the operations of AP Eagers and AHG is limited and there is sufficient competition from other dealerships and suppliers.69 To address the ACCC’s competition concerns, AP Eagers offered a court enforceable undertaking pursuant to s 87B of the Competition and Consumer Act 2010 to divest its existing new car retailing dealerships and related business sites in the Newcastle and Hunter Valley region to an ACCC approved purchaser. The ACCC accepted AP Eagers’ divestiture undertaking. On 25 July 2019 the ACCC granted merger authorisation for 12 months until 16 August 2020 which is conditional on AP Eagers complying with its s 87B undertaking to divest.70
66 See ‘AP Eagers Limited proposed acquisition of Automotive Holdings Group Limited’ at . 67 See ACCC Determination of 25 July 2019 ‘Application for merger authorisation lodged by AP Eagers Ltd in respect of its proposal to acquire Automotive Holdings Group Ltd’, Authorisation No MA000018, 25 July 2019; and ACCC, ‘Car deal conditionally authorised with Newcastle and Hunter Valley divestitures’, media release, 25 July 2019, both available at . 68 See ACCC, ‘Merger authorisations register’ at . 69 See ACCC, ‘Concerns about AP Eagers’ proposed acquisition of AHG’, media release, 24 June 2019, available at . 70 See ACCC, ‘Merger authorisations register’ at .
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Revocation of an authorisation by the ACCC 15.16 The ACCC may revoke an authorisation either at its own initiative or at the request of a person to whom an authorisation was granted.71 Once revoked, the merger parties no longer have statutory protection from legal action under s 50. The formal process to be followed by the ACCC before an authorisation is revoked is set out in s 91B. The ACCC can revoke an authorisation in the following circumstances: • if the authorisation was granted on the basis of evidence or information that is materially false or misleading; • if a condition attaching to the authorisation has not been complied with; or • if there has been a material change in circumstances since the authorisation was granted.72 A person must not give information to the ACCC in an application for a merger authorisation if the person knows or is reckless or is negligent as to whether information given to the ACCC is false or misleading in a material particular: s 92(1). Proof that a person knew that, or was reckless as to whether, the information was false or misleading in a material particular will be taken as proof that the person was negligent: s 92(2). In addition to revocation of the authorisation, if a person negligently provides information that is false or misleading in relation to an application for merger authorisation, in contravention of s 92, that person may be liable to pecuniary penalties under s 76.
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Review of an ACCC merger authorisation by the Australian Competition Tribunal 15.17 An applicant or other person who the Tribunal determines has a ‘sufficient interest’ in the matter,73 who is dissatisfied with a merger authorisation determined by the ACCC, may apply to the Tribunal for a limited merits review of the determination.74 A review by the Tribunal is not a re-hearing of the matter: s 101(2). There are special procedures and time limits in relation to Tribunal reviews set out in Pt IX of the Competition and Consumer Act. Ultimately the Tribunal must affirm, vary or set aside the ACCC’s determination: s 102(1). Judicial review of ACCC determinations can be sought only on a question of law in the Federal Court. Judicial review is only concerned about the legality of a 71 Competition and Consumer Act 2010 s 91B. 72 Competition and Consumer Act 2010 s 91B(3). 73 Competition and Consumer Act 2010 s 101(1AA). Third parties may apply for leave to intervene and establish their interest in order to be involved in the Tribunal process: s 109(2). 74 Competition and Consumer Act 2010 s 101(1). The Tribunal may reconsider ACCC determinations on applications for authorisation and minor variation and the revocation or revocation and substitution of authorisations. More information on the procedure for a review of the ACCC’s determination is provided in ACCC, ‘Merger Authorisation Guidelines’ (October 2018), above n 48, at [10.9]–[10.13].
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decision (eg, whether the ACCC has taken into account an irrelevant consideration or failed to take into account a relevant consideration) not the merits of the case. If an applicant needs to obtain a review of the merits of an ACCC determination, they need to apply to the Tribunal.75 The Full Federal Court can review Tribunal determinations only on questions of law, not questions of fact or the merits of the decision.76
Offshore Mergers
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Introduction 15.18 A merger that occurs outside Australia may have implications for Australian markets. This is to be expected, given the existence of multinational corporations and the growing internationalisation of business. An example is the involvement in 1990 by Gillette, a multinational corporation, in the worldwide acquisition of the Wilkinson Sword wet shaving razor blade business: see TPC v Gillette Company (No 1).77 At the time, Gillette’s Australian subsidiary had 50% of the Australian market for wet shaving products and Wilkinson Sword’s Australian subsidiary had 17%. Another company, Schick, had 18%. Wilkinson Sword was the only competitor to Gillette offering products over the full price range.78 The Commission sought an injunction to prevent the transfer of Wilkinson Sword’s trade marks and assets in Australia to Gillette. Gillette argued that the Australian courts did not have jurisdiction over the takeover. This argument was rejected by the Federal Court. The matter was eventually settled with Gillette providing an undertaking to the Commission that the Wilkinson Sword business in Australia would be licensed to a company fully independent of Gillette.
The laws 15.19 An offshore merger may be caught by the Competition and Consumer Act: • through the extraterritorial application given to the Competition and Consumer Act by s 5 of the Act; or • through the provisions of s 50A of the Act.
75 76 77 78
ACCC, ‘Merger Authorisation Guidelines’ (October 2018), above n 48, at [10.15]. ACCC, ‘Merger Authorisation Guidelines’ (October 2018), above n 48, at [10.16]. (1993) ATPR 41-267. Schick concentrated on the upper end of the market, while Gillette focused on cheaper disposable razors.
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A. Applying s 5 15.20 Section 5(1) of the Competition and Consumer Act provides that Pt IV of the Act extends to offshore conduct engaged in by: • bodies corporate incorporated in Australia; • bodies corporate carrying on business in Australia; • Australian citizens; and • persons ordinarily resident within Australia. Therefore, an Australian company which engaged in an offshore merger that had an anti-competitive effect in an Australian market would be subject to s 50 of the Competition and Consumer Act: see Australian Meat Holdings Pty Ltd v TPC,79 where it was held that the Trade Practices Act (which was the relevant law at the time) covered the sale in London of an English company which had significant cattle holdings in Queensland.
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B. Applying s 50A 15.21 The effect of s 50A of the Competition and Consumer Act is to give the Australian Competition Tribunal the power to make a declaration that an offshore merger is likely to have the effect of substantially lessening competition in an Australian market and is unlikely to result in any, or any sufficient, public benefit. The approach of s 50A differs from that of s 50. The elements of s 50A that must be satisfied before the Tribunal can make a declaration are that: • a person acquires (outside Australia) a controlling interest80 in a company; • by reason, at least partly, of that controlling interest, the person obtains a controlling interest in an Australian corporation or corporations; • this will have the effect, or be likely to have the effect, of substantially lessening competition81 in a market; • there is no public benefit82 that would justify the acquisition; and • the merger is not one to which s 50 applies. It may be useful to give an example by way of demonstration: • A foreign company (X) acquires more than half the voting shares in another foreign company (Y). This means that X now controls Y. 79 (1989) ATPR 40-932. 80 A controlling interest occurs where the acquired company becomes a subsidiary of the purchaser by virtue of s 4A of the Competition and Consumer Act 2010 (other than s 4A(1)(b)). Thus, a controlling interest exists where the purchaser controls the composition of the board of directors of the target company, or has the right to cast more than 50% of the maximum number of votes in a general meeting, or has more than 50% of the issued share capital of the target company (s 50A(8)). 81 When analysing substantial lessening of competition, the Tribunal must take into account the matters set out in s 50(3) of the Competition and Consumer Act 2010. 82 When analysing public benefits, the Tribunal must take into account the matters set out in s 50A(1B) of the Competition and Consumer Act 2010. These matters deal with exports, imports, and Australia’s international competitiveness.
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• Y controlled a third company (Z, an Australian company). X is now in a position to control Z, even though it does not own any shares in Z. • X’s wholly owned subsidiary (W) is a major supplier of ‘widgets’ to the Australian market; W has 40% of the market. Its major competitor is Z, which also has 40% of the market. • By gaining control of Z, X now dominates the Australian market because it also owns W. This amounts to a substantial lessening of competition in the market. Assume that there are no public benefits that justify this outcome. • The acquisition of Y by X is not a merger to which s 50 applies because neither X nor Y are Australian corporations or carry on business in Australia. Six months after the declaration is made, and provided it has not been revoked, the corporation (in the example, Z) must not carry on business in the market to which the declaration relates: Competition and Consumer Act s 50A(6). If it carries on business in the relevant market, it is in breach of Pt IV of the Act. The Commission, the Minister, or the person who applied for the declaration may now apply for an injunction.
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Remedies and Sanctions 15.22 A court may make the following orders in the event that there has been a contravention of s 50 or s 50A, depending on the circumstances: • injunction: Competition and Consumer Act s 80 — only the ACCC or the relevant Minister may apply for an injunction in a merger case; • divestiture: s 81 — a court has the power to order a corporation which has breached s 50 to sell the shares or assets that it has unlawfully acquired: see Australian Meat Holdings Pty Ltd v TPC;83 • pecuniary penalties against the corporation and its officers: s 76;84 • damages: s 82; and • enforceable undertakings: s 87B.
Marketing Advice 15.23 Decision making in relation to possible mergers is not normally regarded as a marketing activity. It has been included so as to give a full overview of the competition provisions of the Competition and Consumer Act. 83 (1989) ATPR 40-932. 84 Where pecuniary penalties are imposed under s 76, in the case of a corporation, the penalty is the greater of $10 million, three times the total value of the benefits obtained attributable to the breach, or 10% of annual turnover of the body corporate during the period ending at the end of the month in which the act or omission occurred. For individuals the maximum penalty is $500,000; s 76(1A), (1B).
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Resale Price Maintenance
16
Introduction ........................................................................................ 16.1 Why might a supplier wish to engage in resale price maintenance? .............................................................................. 16.2 Why is resale price maintenance prohibited outright? ........... 16.3 A. Elimination of price competition ....................................... 16.4 B. Overcharging ......................................................................... 16.5 C. Loss of choice ........................................................................ 16.6 D. Inefficiency ............................................................................. 16.7 The Practice of Resale Price Maintenance ..................................... 16.8 Has the supplier specified a resale price? .................................. 16.9 A. When can it be said that a resale price has been specified? ............................................................................. 16.10 B. When is the specification of a resale price not required? ............................................................................... 16.11 Is the resale price specified or used by the supplier a minimum price? ....................................................................... 16.12 Has the supplier taken action to ensure that the stipulated resale price is maintained? ................................... 16.13 A. Making it known that goods will not be supplied ......... 16.14 B. Inducing or attempting to induce ..................................... 16.15 C. Agreeing or offering to agree ............................................. 16.16 D. Using statements of price .................................................. 16.17 E. Withholding supply ............................................................ 16.18 i. What is meant by ‘withholding supply’? ..................... 16.19 ii. When is withholding supply illegal? ........................... 16.20 iii. Who has to establish the reason for withholding supply? ........................................................................... 16.21 697
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iv. Can a supplier ever legally refuse to supply a reseller because of its discounting (loss-leading) practices? ...................................................................... 16.22 Maintaining advertised resale prices ........................................ 16.23 Resale price maintenance and services .................................... 16.24 Authorisation of Resale Price Maintenance ................................ 16.25 Notification of Resale Price Maintenance ................................... 16.26 Consequences of Resale Price Maintenance ............................... 16.27 Penalties ………………………………………............................ 16.28 Training instead of prosecution ................................................. 16.29 Remedies ....................................................................................... 16.30 Resale Price Maintenance and Other Provisions of the Competition and Consumer Act Pt IV ....................................... 16.31 Harper Review Panel Recommendations .................................... 16.32 Marketing Advice ............................................................................. 16.33
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Introduction 16.1 Section 48 of the Competition and Consumer Act 2010 (Cth) prohibits a corporation from engaging in the practice of resale price maintenance. In order to determine what is meant by resale price maintenance, it is necessary to refer to Pt VIII of the Act: Competition and Consumer Act ss 96–100. In broad terms, resale price maintenance is the marketing technique whereby a supplier of goods or services — usually a manufacturer or wholesaler — stipulates the minimum price to be charged by the person who resells those goods or services in the marketplace. Invariably the person reselling will be a retailer. Another term sometimes used to describe resale price maintenance is vertical price fixing. The conduct is generally designed to prevent price competition (discounting) among distributors or retailers of the same brand of goods and services; that is, intrabrand competition. Section 48 only applies to resellers. The section does not prevent suppliers from specifying a price at which an agent must sell goods or services.1 In a true agency agreement, the property (ownership) in the goods or services does not pass to the agent, meaning there is no sale until the goods or services are sold to a third party.2 For example, publishers of newspapers and magazines usually set the price at which newsagents will sell them to consumers. The newsagents receive a commission on the sale of each newspaper and magazine. The newspapers and magazines are delivered to the newsagent to sell on behalf of the publisher, but property in them does not pass to the newsagent. The newspapers and magazines are simply held by the agent on a sale or return basis. Section 48 also has no application when the goods or services supplied to a reseller are treated, transformed, or substantially varied before being on-sold. For example, the franchisor of a hamburger chain can legally specify the price of hamburgers that franchisees must adhere to, even if the franchisor supplies the meat and buns — cooking the meat and adding toppings is clearly a transformation of the goods supplied. In other words, the goods supplied are not the same as the product resold.
1 See TPC v Leslievale Pty Ltd (1986) 64 ALR 573. 2 This is an important point to note, as sometimes suppliers describe their distributors as ‘agents’, when in fact they are not agents in the legal sense of the word. If property in goods passes from the supplier to the distributor (ie, the goods are sold), the distributor is not a true agent.
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Why might a supplier wish to engage in resale price maintenance?3 16.2 There are a number of reasons why a supplier might enforce resale price maintenance, such as: • to maintain or improve the ‘image’ of a product;4 • to protect a popular product from being used as a ‘loss-leader’; • to maintain diversity of resellers by ensuring a profit for all — if discounting at the resale level reduces profits, many resellers may elect not to stock that product, which could interfere with the supplier’s distribution strategies; • to prevent pressure from resellers for the supplier to cut profits — if resellers are taking a reduction in profits as a result of price discounting, the supplier will be expected to do the same and the supplier will thus suffer a loss of profits; • to promote inter-brand competition in non-price related matters — inter-brand competition is more likely to occur in a market where resellers of a branded product are not competing with each other for sales of that product (intrabrand competition) with regard to price; • to discourage the free-rider — many products depend on more than just an attractive price for success; promotional activities plus the quality of pre-sale and after-sale service and advice and the availability of spare parts may be as important; if a reseller refuses to supply these services, that reseller will be able to discount the price of the product; the discounter gets a free ride on the backs of those resellers that have added value to the product by providing the services; this will ultimately make the provision of the services unattractive to resellers;5 • to protect a subsidiary reseller from competition by an aggressive discounter; or • to enforce horizontal agreements — a supplier may have entered into an arrangement with its competitors to maintain resale prices at an agreed level in the marketplace; such an arrangement can only be effectively adhered to if each individual supplier is able to force its resellers to follow the price agreed to by the supplier. Irrespective of whether there is merit in these reasons, the Competition and Consumer Act treats resale price maintenance as anti-competitive conduct, so that it is prohibited outright. Only the desire to avoid harm caused by loss-leaders
3
For a more detailed analysis of the pros and cons of resale price maintenance see S G Corones, Competition Law in Australia, 7th ed, Lawbook Co, Sydney, 2019. 4 See TPC v ICI Australia Petrochemicals (1983) ATPR 40-634. 5 See Tooltechnic Systems (Australia) Pty Ltd – Authorisation A91433 (2014), see 16.25C; TPC v Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 40-091; TPC v Bata Shoe Co of Australia (1980) ATPR 40-161, see 16.20C1.
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can be used to justify resale price maintenance and, even then, in very limited circumstances: see 16.22. Nevertheless, it should be noted that it is possible to lawfully engage in resale price maintenance if it is notified (see 16.26), or authorised on public benefit grounds: see 16.25.
Why is resale price maintenance prohibited outright? 16.3 By engaging in resale price maintenance in relation to the wholesale and retail price of goods or services, a supplier controls the margins for those respective functions. Thus, the price of the goods or services in question tends to become the same at all points of resale, regardless of differences in location, the range and quality of before and after sales service, demands on the resources of the wholesaler or retailer in overhead costs, and the differing efficiency or ability of the various wholesalers or retailers. Resale price maintenance can produce the following undesirable results.
A. Elimination of price competition 16.4 If the supplier stipulates distributive margins, the consumer may be deprived of the opportunity to obtain the benefit (lower prices) of the increased efficiency or other competitive advantage of a particular retailer.
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B. Overcharging 16.5 The determination of a reasonable margin for a reseller is a difficult one. The expenses of the operation, for example, rents, capital expenditure on goods for resale, and managerial costs, all vary from reseller to reseller, and the ‘average’ cost is difficult to calculate with any accuracy. Because of such difficulties, any price determined is likely, having regard to the supplier’s need to accommodate the resellers of its product, to err on the high side rather than the low side.
C. Loss of choice 16.6 The services offered by different retail outlets tend to vary substantially from store to store. In these circumstances, resale price maintenance has the effect that the consumer loses the opportunity to choose between a store which provides a good service at the stipulated retail price on the one hand, and one which provides a monetary discount but no service on the other. The wants of all consumers are not necessarily the same and there may be a desire for a substantial range of services in the relevant market. This inability of the consumer to choose between factors such as price and service is particularly relevant in connection with supermarkets, hypermarkets, self-service shops, online retailers, and discount stores, where greater or lesser services are provided for the customer than in more traditional retail stores. 701
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D. Inefficiency 16.7 Resale price maintenance may enable some less efficient retailers to stay in business and thereby involve more resources in distribution than is economically justifiable. It also removes some of the incentive to maximise efficiency. Experience during the first decade following the adoption of restrictive trade practices legislation in Australia suggested that resale price maintenance invariably had the harmful effects outlined above, so present-day legislation now simply provides that no firm shall ‘engage in the practice of resale price maintenance’: Competition and Consumer Act s 48.
The Practice of Resale Price Maintenance 16.8 Three steps are involved in determining whether the practice of resale price maintenance has been engaged in, namely: 1. Has the supplier specified a resale price for the goods or services supplied? 2. Is the price specified or used by the supplier a minimum price? 3. Has the supplier taken action to ensure that the stipulated resale price is maintained?
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Has the supplier specified a resale price? 16.9 All forms of resale price maintenance (with one exception)6 provide that the reseller be required ‘not to sell at a price less than a price specified by the supplier’. Apart from one exception, the key to resale price maintenance is to establish that a resale price has been specified by the supplier for the goods or services supplied if the action is to succeed. Section 4 of the Act makes it clear that a ‘price’ includes a charge of any kind and would include a discount, allowance, rebate or credit.
A. When can it be said that a resale price has been specified? 16.10 A price will be specified if it is stated or identified in some way. In many cases it will be obvious that a resale price has been specified, but it is not always clear-cut. The most obvious example is where the supplier says: ‘Don’t sell my product below $10’. $10 is clearly the specified resale price. Mere persuasion to ‘stop discounting’ or to ‘raise prices’ without specifying a resale price will not breach s 48 of the Competition and Consumer Act: see TPC v Golden Fleece Petroleum Ltd.7 However, it should be noted that a ‘recommended resale price’, although not prohibited by the Competition and Consumer Act,8 may 6 Section 96(3)(f) of the Competition and Consumer Act; see 16.11 and 16.17. 7 (1985) ATPR 40-528. 8 See 16.15.
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become a specified resale price for the purposes of s 48 of the Act if the supplier attempts to enforce it as, for example, where the supplier says: ‘Don’t sell my product below the recommended price’. It is not necessary that an actual dollar price be specified. It is sufficient if some formula is mentioned by which the resale price can be ascertained: Competition and Consumer Act s 96(4). Thus, a supplier would be engaging in resale price maintenance if the supplier insisted that a retailer charge ‘at least a 15% mark up on the cost price’ or ‘no more than 10% below the recommended resale price’: see TPC v Madad Pty Ltd.9 A specified resale price may involve an element of approximation. In TPC v Bata Shoe Co of Australia,10 Bata’s agent informed a retailer (Woolworths) that ‘unless Woolworths increased its price so as to “conform” to the price charged by “all traditional footwear retailers”, a guide being the price charged by another identified retailer, continuity of supply in New South Wales could not be guaranteed’. However, it is clear from the decision in TPC v Penfolds Wines Pty Ltd11 that the onus is on the Australian Competition and Consumer Commission (ACCC) to establish that a price has been specified. Vague references to raising prices are probably not enough. Where a supplier makes it known that the minimum resale price is a price specified by another person, that price becomes a price specified by the supplier: Competition and Consumer Act s 96(4). This probably covers the situation where a wholesaler makes it known to a retailer that the retailer is required to comply with the manufacturer’s recommended resale price.
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B. When is the specification of a resale price not required? 16.11 As noted above, there is one exception to the requirement to establish that a price has been specified in an action for resale price maintenance under s 48 of the Competition and Consumer Act. This exception is set out in s 96(3)(f) of the Act: a supplier engages in resale price maintenance if it uses, in relation to goods or services, a statement of price which is likely to be understood by the person supplied to as the minimum resale price for those goods or services. This is a very wide catch-all type of resale price maintenance. A statement of price will be deemed to be used in relation to particular goods or services if it is: • woven in, impressed on, or otherwise affixed or annexed to the goods; • applied to the cover, wrapper, package, label, or any other thing in which or with which the goods are supplied; or • used in any sign, advertisement, invoice, price list, catalogue, or document relating to the goods or services. 9 (1979) 40 FLR 453; (1979) ATPR 40-105, see 16.15C2. 10 (1980) ATPR 40-161, see 16.20C1. 11 (1991) 104 ALR 601; (1992) ATPR 41-163.
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Is the resale price specified or used by the supplier a minimum price? 16.12 Section 48 prohibits minimum resale price maintenance only. The setting of a maximum resale price by a supplier; that is, a price above which the reseller is obliged not to sell, is not prohibited by s 48.12 Thus, it would be generally lawful for a supplier to require a reseller not to sell above a nominated price; for example, $10. A supplier who is seeking to achieve a high volume of sales, perhaps in an effort to establish economies of scale or to gain a substantial market share, will not want its distributors to reduce those sales by overpricing. Even more importantly, enforcing maximum prices is beneficial to consumers, as it maintains prices at lower levels than might otherwise have been the case.
Has the supplier taken action to ensure that the stipulated resale price is maintained?
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16.13 There are a number of actions that a supplier can take which constitute resale price maintenance. The different types of resale price maintenance are not mutually exclusive. Often the same conduct will amount to resale price maintenance under more than one of the various classifications.13 In terms of s 96(3) of the Competition and Consumer Act there are five forms of action that constitute resale price maintenance, being the supplier: 1. making it known that goods will not be supplied; 2. inducing or attempting to induce; 3. agreeing or offering to agree; 4. using statements of price; and 5. withholding supply. If any of these actions are taken by a supplier with a view to ensuring that a reseller does not sell below the resale price specified by the supplier, resale price maintenance will have been engaged in.
A. Making it known that goods will not be supplied 16.14 It is illegal for a supplier of goods to make it known to a reseller that goods will not be supplied unless the reseller agrees not to sell those goods at a price less than that specified by the supplier: Competition and Consumer Act s 96(3)(a). The words ‘making it known’, although vague, seemingly require some form of actual communication with the reseller. The communication must convey the impression that goods will not be supplied unless the reseller agrees not to sell those goods at less than a specified price. The word ‘agrees’ might suggest that a binding contract 12 But this behaviour may offend against other provisions of the Competition and Consumer Act, such as s 46. 13 See, for example, ACCC v Navman Australia Pty Ltd (2007) ATPR 42-208; [2007] FCA 2061, see 16.17C.
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must result, as opposed to a ‘gentlemen’s agreement’, but given the intention of the Act, it seems that a broad interpretation will be adopted so as to catch loose arrangements: see TPC v Bata Shoe Co of Australia.14 Heating Centre Pty Ltd v Trade Practices Commission (1986) 65 ALR 429; (1986) ATPR 40-674 Facts: The Heating Centre was the importer and distributor of certain heaters made in New Zealand. Its retail customers were provided with a list of suggested retail prices. This was followed with a circular which stated: ‘Price-cutting — we urge you in the strongest possible terms to maintain your suggested retail price.’ A price war developed between retailers. The Heating Centre’s agent was Mr Butterfield. Butterfield visited one retailer with the purpose of making clear to the retailer The Heating Centre’s objection to discounting. Butterfield remarked that, if the retailer did not charge the recommended price as set out in the price list, The Heating Centre would stop supplying the retailer and appoint another dealer. The retailer replied that he would try to sell at the recommended prices. In conversations with another retailer who wished to commence selling The Heating Centre’s product, Butterfield said, ‘There is to be a no discount situation.’ And ‘We are only interested in people who are not involved in discounting.’ He then provided the prospective dealer with a list of retail prices. A third retailer who had previously refused to stop discounting asked for a second dealership in an area which already had a Heating Centre dealer. Butterfield made it clear that any dealership would depend on the retailer agreeing not to discount. No dealership was granted. The Trade Practices Commission (now ACCC) brought an action against The Heating Centre and its agent.
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Decision: The defendants were guilty of breaching s 48. In all instances the court held that the defendants had made it known that goods would not be supplied unless the respective retailers agreed not to sell at less than the specified price. It was not necessary to obtain a legally binding agreement not to discount from the retailer.
B. Inducing or attempting to induce 16.15 Another way in which the offence of resale price maintenance may be engaged in is by a supplier inducing, or attempting to induce, a reseller not to sell at less than the price specified: Competition and Consumer Act s 96(3)(b). No element of intent or purpose need be proven where an inducement by a supplier is alleged, although it will need to be established where an ‘attempt to induce’ is alleged. The concept of inducement is a wide one, and clearly it includes attempts to influence or persuade, ranging from simple requests made with the object of encouraging a willing response, to the forceful use of threats: ‘Mild persuasion … will suffice to qualify conduct as an attempt to induce the maintenance of price.’15 Even if the persuasion fails, the conduct is covered because ‘attempting’ to induce 14 (1980) ATPR 40-161, see 16.20C1. 15 Per Kiefel J in ACCC v Mayo International Pty Ltd (1998) ATPR 41-653.
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is sufficient. Thus, in TPC v Malleys Ltd,16 the marketing manager of Malleys, a producer of white goods, introduced a marketing scheme which provided retailers who sold at the recommended price certain incentive allowances — an inducement which resulted in the imposition of a $10,000 penalty upon Malleys for breaching s 48: see also ACCC v Mitsubishi Electric Australia Pty Ltd.17 ACCC v Telwater Pty Ltd [2009] FCA 263 16.15C1
Facts: Telwater was a manufacturer/wholesaler of aluminium boats and boating accessories. Telwater produced a brochure which contained a price for ‘boat, motor and trailer’ packages. Each dealer selling these packages was provided with a ‘dealer’s expectations’ document, which included an expectation that all dealers would adhere to the brochure price at all times if engaging in any form of media advertising. Telwater administered a ‘marketing fund’ for each dealer (2% of the dealer’s wholesale purchases) to subsidise the cost of the dealer’s advertising, but the subsidy was only available to dealers who advertised at the brochure price.18 Decision: Telwater had breached s 48 of the Competition and Consumer Act (by virtue of s 96(3)(a) and 96(3)(c)). It was fined $210,000, ordered to establish and implement a competition law compliance program, and to notify all its dealers that they were free to set their own prices.
TPC v Madad Pty Ltd (1979) 40 FLR 453; (1979) ATPR 40-10519
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16.15C2
Facts: The defendant, trading as Sealy Posturepedic, was a manufacturer of mattresses. Through its general manager it attempted to induce a number of retailers not to sell at a price less than that specified. The general manager visited a number of retailers expressing concern ‘with the way Sealy is being marketed in regard to price’ and impressing the need to ‘get Sealy back up to a level where everybody can get a good profit margin’. After obtaining a general agreement from a number of retailers to stick to a recommended retail price, the general manager later returned with a price list at 10% below the normal recommended retail price. He handed the list to retailers with a request that they ‘stick to it’ and ‘give it a go’. He also made it clear that Sealy would be checking behind the scenes to ensure that all retailers were following the recommended prices. Based upon such evidence, the Trade Practices Commission (now ACCC) prosecuted the defendant for breaching s 48 of the Competition and Consumer Act. Decision: The defendant had engaged in the practice of resale price maintenance in contravention of s 48, as it had attempted to induce a number of retailers to adhere to a minimum specified retail price.
16 17 18 19
(1979) 25 ALR 250; (1979) ATPR 40-118. [2013] FCA 1413, see 16.21C. See also ACCC v Tooltechnic Systems (Aust) Pty Ltd [2007] FCA 432, see also 16.25C. See also TPC v Stihl Chain Saw (Aust) Pty Ltd (1978) ATPR 40-091 and ACCC v Skins Compression Garments Pty Ltd [2009] FCA 710, see 16.23C2.
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Chapter 16: Resale Price Maintenance
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The specification of a recommended retail price by a supplier in the marketplace may in some circumstances be found to constitute an inducement (a ‘mild persuasion’ or encouragement) to the reseller not to sell at a price less than the recommended price. With this in mind, it is provided in the Competition and Consumer Act that the specification of a genuine non-obligatory recommended price by a supplier will not be taken as an attempt to induce resale price maintenance (s 97 of the Act), as long as certain procedures are followed: • If a supplier applies a recommended price to a product, the price must be preceded by the words ‘recommended price’: Competition and Consumer Act s 97(a). • If a supplier includes a recommended price in an invoice or other correspondence with the buyer, the supplier must also include a statement to the following effect: ‘The price set out or referred to herein is a recommended price only and there is no obligation to comply with the recommendation’: Competition and Consumer Act s 97(b). Failure to follow these procedures does not automatically mean that there has been a breach of s 48 of the Competition and Consumer Act, it merely means that the supplier will not be able to take advantage of the defences provided by s 97 of the Competition and Consumer Act. It is still open to a supplier to argue that, in all the circumstances of the case, the price that appears on the product, or in an invoice, or in other such document, is not an attempt to induce the buyer not to sell below the specified price. Conversely, the fact that the specification of a price is couched in terms of a recommendation does not necessarily protect a supplier.20 If the supplier does anything to enforce the recommended price or convey that the price is not a genuine recommendation, s 48 is likely to be breached.21 For example, in TPC v Commodore Business Machines Pty Ltd,22 dealers were required by the terms of their distributorship agreements to only use recommended resale prices in their advertising material if they made any reference to price. Although the defendant later wrote to dealers and advised them that despite these terms they were free to advertise and sell computers for less than the recommended prices, it was held that the terms of the agreement were in breach of s 48 of the Competition and Consumer Act.
C. Agreeing or offering to agree 16.16 Resale price maintenance is engaged in if the supplier enters into or offers to enter into an agreement containing terms that the reseller will not sell goods or services at a price less than that stipulated by the supplier: Competition and 20 TPC v Bata Shoe Co of Australia Pty Ltd (1980) ATPR 40-161, see 16.20C1. 21 Festival Industries v Mikasa (NSW) Pty Ltd (1971) 18 FLR 260. 22 (1989) ATPR 40-976.
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Consumer Act s 96(3)(c). The use of the word ‘agreement’ unaccompanied by the words ‘arrangement or understanding’ would tend to suggest that the normal contractual elements of offer and acceptance, consideration, and legal intention necessary to establish the existence of a legally binding agreement must exist. While it is arguable that a less strict interpretation ought to be adopted, the very limited number of cases heard to date where this issue has been raised would appear to support the view that one has to prove the existence of ‘an agreement with all the legal consequences flowing therefrom’.23 For that reason, the other subsections are much more likely to be used.
D. Using statements of price 16.17 It is unlawful for a supplier to use, in relation to goods or services supplied by it to a reseller, a statement of price that is likely to be understood by the reseller as a minimum price below which the goods or services are not to be sold: Competition and Consumer Act s 96(3)(f). This is a very wide provision, as the use of a statement of price would seemingly extend to oral statements of price as well as to statements applied to products, affixed to labels and packages, and statements used in invoices, catalogues, and advertisements; s 99. Nevertheless, it is difficult to envisage circumstances where a statement of price likely to be understood by a retailer as a minimum resale price would not also constitute an attempt to induce that reseller not to sell at prices less than the price specified. ACCC v Navman Australia Pty Ltd (2007) ATPR 42-208; [2007] FCA 2061
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16.17C
Facts: The defendant supplied marine and in-car navigational (GPS) products through selected retailers around Australia. Navman sent retail price lists to its dealers, accompanied by statements discouraging dealers from discounting below the prices specified in the price lists. For example, one letter from the General Manager of the marine division ended with: ‘PS — As stated many times by myself, please do not discount these new products, as they are excellent and extremely well priced anyway. Turnover is easy but profit is why we open the doors.’ In a follow-up communication the same person wrote: ‘… my biggest gripe within our industry has always been discounting. I just cannot understand the mentality where you have an extremely popular product that is priced under the market with good margin and we still have dealers that discount heavily. There is only one issue that will stop Navman and that’s discounting!! I will not allow our great product to be prostituted — take the warning now!’ Navman threatened termination for non-complying dealers and subsequently terminated two dealers for discounting. The defendant was accused by the ACCC of using statements of price likely to be understood by resellers as the prices below which the goods were not to be sold: s 96(3)(f); to induce dealers not to sell at prices less than those specified: s 96(3)(b); and of withholding supply from dealers because they had been discounting: s 96(3)(d). Decision: The defendant acknowledged its breach of s 48 and the agreed penalty of $1.25 million was approved by the court. The judge described Navman’s contravention as serious, deliberate (‘aggressive and high-handed’), and carried out over a lengthy period of 23 TPC v Orlane (Australia) Pty Ltd (1984) 51 ALR 767; (1984) ATPR 40-437, see 16.22C.
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Chapter 16: Resale Price Maintenance time. His Honour also observed that the senior personnel at Navman received no competition law compliance training, which reflected badly on Navman’s corporate culture. A substantial penalty was therefore warranted.24
E. Withholding supply 16.18 Withholding supply may in some circumstances amount to engaging in resale price maintenance. However, refusals to deal per se do not breach the resale price maintenance provision, as the Act does not compel firms to supply. A refusal to supply is only actionable (under s 48 of the Competition and Consumer Act) if the refusal occurs for one of the following reasons: • The person seeking supply will not agree not to sell the goods or services at less than the price specified by the supplier: Competition and Consumer Act s 96(3)(d)(i); • The person seeking supply has sold or is likely to sell goods or services supplied, including those which have come via a third person (eg, a wholesaler) from the supplier, at less than the price specified: Competition and Consumer Act s 96(3)(d)(ii); • A third person (such as a retailer) supplied by the person seeking supply (such as a wholesaler) has not agreed to sell below the price specified by the supplier or has sold or is likely to sell at below that price: Competition and Consumer Act s 96(3)(e).25
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This means that the party bringing an action for breach of s 48 must prove both the withholding of supply and the reason or purpose behind the withholding of supply (unless s 100 applies: see 16.21). ACCC v Australian Safeway Stores Pty Ltd (1997) 145 ALR 36; (1997) ATPR 41-562 Facts: Tip Top Bakeries is a division of George Weston Foods, which in 1995 had a 33% share of the national bread market and a 23% share of the Victorian market. Under pressure from the retailer Australian Safeway Stores, the defendant stopped the supply of Tip Top bread to small retailers who were selling it cheaper than neighbouring Safeway supermarkets. Safeway was the bakery’s major customer, accounting for 19.2% of Victoria’s Tip Top bread sales. Evidence revealed that during March 1995 Safeway in Preston had refused to accept delivery of Tip Top bread because the same brand was cheaper at the Preston Market stall owned by Tip Top. Tip Top was told it would not be permitted to resume supplies to Safeway until it rectified the situation. As a result, Tip Top removed all branded bread and increased its prices at the Preston Market, which resulted in sales falling by about 50%. Tip Top also admitted trying
24 See also BP Australia Ltd v Trade Practices Commission (1986) ATPR 40-701 and Trade Practices Commission v Pye Industries Sales Pty Ltd (1979) ATPR 40-088. 25 See ACCC v Colgate-Palmolive Pty Ltd (2002) ATPR 41-880; [2002] FCA 619, where the defendant was found to have breached s 48 of the Competition and Consumer Act 2010 by refusing to supply a Melbourne-based wholesaler who had been supplying a discount retailer in Tasmania.
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Marketing and the Law unsuccessfully to force an Albury retailer, Bob’s IGA, to stop discounting, and had refused to supply the Cool Store in Ferntree Gully because it too was selling bread below the prices charged by a nearby Safeway supermarket. It was alleged by the ACCC that the defendant’s refusal or threat to refuse to supply the small retailers who were selling Tip Top bread at a discount, was a breach of s 48. This offence, and other alleged price fixing behaviour in breach of s 45, was admitted by George Weston Foods, but no penalty could be agreed upon. The defendant argued that the breach was the result of commercial pressure from Safeway, was carried out by subordinate employees acting in contravention of its trade practices compliance program, and as such the penalty should not exceed $225,000. The ACCC asked the court to impose a penalty of $2 million. Decision: The defendant was convicted of engaging in price fixing in breach of s 48 (and s 45) and fined $1.25 million. The judge described the contraventions as blatant and systematic, made worse by the fact that they were carried out by persons who ‘were effectively the top management for the Tip Top bread business in Victoria’ in direct contravention of the company’s trade practices compliance program. The court did not in any way excuse Tip Top’s conduct by reference to the pressure exerted by Safeway. Rather, Tip Top was under a duty not to acquiesce to breaches of the law. (Action was also taken by the ACCC against Australian Safeway Stores Pty Ltd. Safeway successfully defended an allegation that it had attempted to induce George Weston Foods to engage in resale price maintenance: ACCC v Australian Safeway Stores Pty Ltd (No 2).26 However, Safeway was eventually found by the Full Federal Court to have misused its market power in breach of s 46 (see 14.23) and to have entered into a price fixing arrangement with George Weston Foods in breach of s 45: see ACCC v Australian Safeway Stores Pty Ltd.27 Leave to appeal to the High Court against this decision was refused.)
The use of the words ‘likely to sell’ in s 96(3)(d) and (e) is important insofar as it clearly assists in establishing resale maintenance in cases where a prospective customer with a known policy of discounting is refused supply.28
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i. What is meant by ‘withholding supply’? 16.19 It would be useless to confine withholding of supply to actual refusal to deliver when other forms of coercion may achieve the same effect. Therefore, the Act provides that a supplier withholds supply if the supplier:29 • refuses to supply; or • supplies on disadvantageous terms; or • treats the buyer less favourably than others, including in respect of time, method, or place of delivery, or • otherwise procures another person to withhold supply. Thus, for example, the law will be breached if a supplier, who usually offers its customers a delivery service, refuses to supply a particular person unless that 26 [2001] FCA 1861. 27 [2003] FCAFC 149. 28 See Festival Industries v Mikasa (NSW) Pty Ltd (1971) 18 FLR 260. 29 Competition and Consumer Act 2010 s 98.
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person picks up the goods for the reason that the purchaser is not complying with the supplier’s resale price policy. Similarly, differential treatment of customers will be caught, for example, charging customers different prices for the goods supplied,30 charging some customers for delivery and not others, offering some customers credit facilities while others pay cash on delivery,31 and so on. Thus, in O’Brien Glass Industries Ltd v Cool & Sons Pty Ltd,32 the defendant windscreen manufacturer who had treated the applicant retailer less favourably in relation to the level of trade discounts provided when the retailer sold windscreens at less than the manufacturer’s recommended retail price, was found to have engaged in resale price maintenance in breach of s 48.
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ii. When is withholding supply illegal? 16.20 Withholding supply by a supplier will only breach s 48 of the Competition and Consumer Act if the substantial purpose behind the withholding is to maintain resale prices. The question of intent is therefore of paramount importance in discussing the concept of illegal withholding of supply to enforce resale price maintenance. Clearly there may be reasons other than enforcement of resale price maintenance for refusing to deal with particular persons. For example, there may be legitimate doubts concerning a prospective customer’s creditworthiness or it may be considered that a particular retailer does not have adequate display facilities, stocking policies, after-sales service, and so on. Such grounds will often constitute legitimate commercial reasons for a refusal to supply. Nevertheless, the courts will still closely examine the reasons given for a refusal to supply with a view to determining the genuineness of such a decision. No doubt in many business situations the motives behind a decision to withhold supplies from a person will be mixed. Thus, a supplier may withhold supply in order to enforce adherence to resale prices and because the customer is behind in the payment of an account. To overcome the problem caused by mixed motives, the Act provides that resale price maintenance only has to be one of the reasons for a refusal to deal, although it still must be a substantial reason: Competition and Consumer Act s 4F. Thus, although the late payment of an account may be a factor in a decision to withhold supplies from a customer if it merely provides a convenient excuse to cease supply to a customer who refuses to adhere to specified prices, the action will be unlawful.33 Contrast the following cases.
30 See ACCC v Mitsubishi Electric Australia Pty Ltd [2013] FCA 1413, see 16.21C. 31 In ACCC v Navman Australia Pty Ltd (2007) ATPR 42-208; [2007] FCA 2061, see 16.17C, one dealer was told by the defendant that it would not be entitled to credit and would have to pay cash up front if it continued to sell below specified prices. 32 (1983) 48 ALR 625; (1983) ATPR 40-376. 33 See Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) 75 ALR 581; (1987) ATPR 40-809.
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TPC v Bata Shoe Co of Australia Pty Ltd (1980) ATPR 40-161 16.20C1
Facts: The defendant was part of the worldwide Bata shoe organisation. It was approached by Woolworths with a request to supply its Big W stores with Bata’s range of leather footwear. The request was refused. Bata maintained that the refusal was based upon the fact that Big W stores did not have proper facilities and trained staff for fitting shoes, or adequate after-sales service to deal with inquiries and complaints from customers. The Trade Practices Commission (now ACCC) alleged the refusal was because Woolworths was a known discounter, and that Bata did not want a price war on its hands between its traditional specialist shoe outlets and discount chain stores. Internal memoranda obtained from the company indicated that this was a concern among management. Furthermore, through its agent, a wholesaler, it had made it known to Woolworths that it would not supply Bata leather footwear to it unless it agreed not to sell the footwear at a price less than that specified by Bata. Decision: Although the court conceded that Bata had some legitimate concerns with the quality of service offered by retailers such as Woolworths, it was held that a ‘substantial’ reason for the refusal by Bata to supply Woolworths was that Bata ‘did not want a price war on [its] hands’ between the traditional retail outlets and a large discount organisation such as Woolworths. Also, if Woolworths was supplied with Bata leather footwear, other large discounters like Coles and K-Mart would have to be supplied too. This would only compound the problem. In other words, Woolworths was being refused supply because it was ‘likely to sell’ Bata leather footwear at a price less than that specified by Bata. Bata was therefore in breach of s 48 and was penalised a total of $51,000.
Peter Williamson Pty Ltd v Capitol Motors Ltd (1982) 41 ALR 613; 61 FLR 257; (1982) ATPR 40-29134
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16.20C2
Facts: Capitol Motors was the distributor of BMW motor vehicles in New South Wales and it appointed Peter Williamson Pty Ltd as a dealer in the Liverpool area. However, within a year Capitol Motors decided to terminate the dealership on the grounds that Peter Williamson had failed to meet its dealership obligations in that sales were unsatisfactory, its showroom facilities were inadequate, it had failed to stock adequate supplies of spare parts, it had been subject to absenteeism, and it had generally lacked an overall professional approach to selling. Peter Williamson instituted injunction proceedings, alleging that Capitol Motors had threatened to withhold supplies because it had sold several BMW vehicles at less than the recommended retail price. Decision: One of the reasons for the termination was that Peter Williamson was selling vehicles below the price specified by the supplier, Capitol Motors, but this was not a substantial or operative reason. The application was thus dismissed, as the supplier had been motivated to withhold supplies for legitimate commercial reasons.
iii. Who has to establish the reason for withholding supply? 16.21 To assist an applicant in overcoming the onerous burden of having to establish the reason for a withholding of supply, the Act has adopted a rebuttable 34 Compare Ron Hodgson (Holdings) Pty Ltd v Westco Motors (Distributors) Pty Ltd (1980) 29 ALR 307.
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presumption: s 100. The effect is to reverse the onus of proof in certain situations. In this way s 100 is designed to help the prosecution prove that the supply has been withheld for a resale price maintenance reason. If it can be established that a supplier has withheld supplies in circumstances where within the previous six months the supplier had become aware that the person refused supply had been involved in discounting the goods or services in question, the supplier then bears the onus of proving that the withholding of supply was for legitimate reasons.35 ACCC v Mitsubishi Electric Australia Pty Ltd [2013] FCA 1413 Facts: In 2009 MEA supplied electrical heating and air conditioning products to dealers, distributors, and retailers throughout Australia, including to Mannix, a distributor and reseller. A competitor of Mannix who also sold MEA products complained to MEA about Mannix’s discounting. MEA was concerned that Mannix’s pricing was lowering the image of MEA’s product. MEA (through one of its managers) informed Mannix that its price was $200 lower than it should be. The manager admitted that he intended to persuade Mannix to increase its price. In 2011 Mannix continued to discount MEA products. Both MEA and Mannix’s competitors continued to complain about Mannix’s discounting. Eventually MEA informed Mannix that it was changing Mannix’s status as a buyer with the effect that Mannix would no longer be eligible for MEA’s most attractive dealer prices.
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Decision: The 2009 incident was a breach of s 98 because it amounted to attempting to induce Mannix not to sell at a price less than the price specified by MEA: s 96(3)(b). The 2011 incident was a breach of s 98 by MEA because it amounted to withholding of supply (by treating Mannix less advantageously than other buyers within the meaning of 98(1)(b)), for the reason that Mannix had been selling below a price relevantly specified by MEA: s 96(3)(d)(ii). The court accepted that s 100 applied to reverse the onus of proving the reason or purpose as required by s 96(3)(d).
iv. Can a supplier ever legally refuse to supply a reseller because of its discounting (loss-leading) practices? 16.22 A supplier is entitled to protect itself against loss-leading — the practice where a reseller sells the supplier’s products, usually a well-known brand, at a loss in order to attract custom or to promote the reseller’s business. By promoting such ‘specials’ the retailer; for example, a cut-price supermarket, endeavours to get customers into the store in the hope that the customers will purchase other more profitable products at the same time. This might have a detrimental effect upon the supplier’s products in the sense that they may gain a reputation as inferior and thereby damage the positioning of those products. The legislation therefore permits
35 Section 100(2) of the Competition and Consumer Act 2010 provides one exception to this reversal of the onus of proof.
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Marketing and the Law
a supplier to withhold supplies of products to a loss-leading reseller,36 who, within the preceding 12 months, has sold products obtained from the supplier at less than their cost for the purposes of promoting its business or attracting to its place of business persons likely to purchase other products: Competition and Consumer Act s 98(2). However, a retailer will not be regarded as engaging in loss-leading if the products are sold at below cost either: • at a genuine seasonal or clearance sale (where the products were not acquired for the purpose of being sold at such a sale); or • at a sale which took place with the consent of the supplier: Competition and Consumer Act s 98(3). A difficult aspect of this section is determining the meaning of selling below ‘cost’. TPC v Orlane Australia Pty Ltd (1984) 51 ALR 767; (1984) ATPR 40-437 16.22C
Facts: Orlane, a cosmetics manufacturer, supplied its products to Myer and Kent’s Pharmacy in Launceston, Tasmania. During a Myer promotion, Kent’s discounted the entire range of Orlane products by 25% off the recommended retail price. The trade discount given to stockists was 33.33% off the recommended retail price. Following complaints from Myer, Orlane terminated supply to Kent’s. The Trade Practices Commission (now ACCC) prosecuted Orlane for breaching s 48. Orlane defended its action on the basis that Kent’s had used Orlane products as a loss-leader; that is, that Kent’s had been selling Orlane products below cost.
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Decision: There were three possible interpretations of ‘cost’: 1. cost meant the net acquisition cost; that is, the price of the goods together with the cost of freight and insurance in transit, if any; or 2. cost referred to the direct or incremental cost of those products to the purchaser; that is, the acquisition cost of the goods plus costs such as bankcard charges, interest, and advertising expenses referable to the goods; or 3. cost meant absorbed cost; that is, direct costs plus the indirect or overhead costs of the business referable to the goods (eg, rental costs, electricity charges, wages, and salaries). The Full Court of the Federal Court made the practical choice and held that the word ‘cost’ in relation to the loss-leader defence to an allegation of resale price maintenance should bear its ordinary and natural meaning in the resale context; that is, the net ‘landed’ or ‘delivered’ cost, or as it was put, the ‘net acquisition cost’. Thus, Kent’s had not sold Orlane products below cost and the defence relied on by Orlane failed. It was convicted of breaching s 48.
The level of certainty achieved by this case is desirable, and it overcomes the problem associated with the many variables and qualifications associated with the other meanings that can be given to the term ‘cost’. One final note of caution: the ‘net acquisition cost’ should not necessarily be equated with the invoice price of products. As previously mentioned, the cost of freight and insurance may have to be brought into calculations in some cases, and there may be deductions
36 That is, to plead a defence to the type of withholding of supply set out in s 96(3)(d) of the Competition and Consumer Act 2010.
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which have the effect of reducing the invoice price, such as quantity discounts, promotional allowances, performance incentives, support or loyalty rebates, and early order discounts.37
Maintaining advertised resale prices 16.23 The Competition and Consumer Act makes it clear that the practice of a supplier trying to maintain the advertised or displayed resale prices used by a reseller is to be treated as equivalent to resale price maintenance as already outlined. This is done by extending the meaning of ‘sell’ to include: • advertising for sale; • displaying for sale; and • offering for sale: Competition and Consumer Act s 96(7). Thus, even if a supplier does not try to control the price at which a purchaser resells goods or services, the supplier is still regarded as engaging in resale price maintenance if it attempts to exercise control over the resale price used by a distributor in advertising the goods or services, or the price displayed in a distributor’s retail premises. Likewise, an attempt to prevent distributors from offering discounted prices on their websites will breach s 48 of the Competition and Consumer Act, as occurred in ACCC v Dermalogica Pty Ltd.38 It would appear that some suppliers regard advertising of discount prices for their products as even more objectionable than the actual sale of their products at a discount price.
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TPC v Simpson Pope Ltd (1980) 30 ALR 544; (1980) ATPR 40-16939 Facts: The defendant company maintained a ‘minimum advertised price policy’ in relation to Simpson washing machines, dryers, and other white goods. The policy was designed to ensure that retailers had to obtain permission from the defendant if they wished to advertise Simpson products at discounted prices. Threats were made to several retailers that failure to adhere to the policy would result in supply being discontinued. For example, the manager of one retail store was told that supplies would be ‘cut off’ if he proceeded to advertise Simpson dryers at a discount price in a forthcoming May sale catalogue and that, as such, the store would become ‘the shining example’ to the industry. Supplies were in fact discontinued during the following month. The defendant was prosecuted for engaging in resale price maintenance.
37 This was accepted and applied by the trial judge in Kadkhudayan v WD & HO Wills (Australia) Ltd (2001) ATPR 41-822; [2001] FCA 645, a case where a retailer had resold goods (cigarettes) below the cost of acquisition. However, the judge incorrectly applied the s 98(2) loss-leader defence to excuse the defendant’s conduct, which the judge had found was an attempt to ‘induce’ the applicant to adhere to the defendant’s specified minimum price. The defendant had withdrawn promotional allowances to achieve this purpose. The Full Court held that the s 98(2) defence has no application to such conduct — it is only a defence to a refusal to supply: Kadkhudayan v W D & H O Wills (Australia) Ltd (2002) ATPR 41-874; [2002] FCAFC 110. 38 (2005) 215 ALR 482; (2005) ATPR 42-046; [2005] FCA 152. 39 See also Ron Hodgson (Holdings) Pty Ltd v Westco Motors (Distributors) Pty Ltd (1980) 29 ALR 307 (a private action) and the subsequent prosecution of the defendant in TPC v Kensington Hiring Co Pty Ltd (1981) ATPR 40-256; and TPC v Sharp Corporation of Australia Pty Ltd (1975) 8 ALR 255; (1975) ATPR 40-010.
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Marketing and the Law Decision: The defendant had engaged in resale price maintenance in that it had attempted to induce several retailers not to advertise goods supplied by Simpson at prices lower than those specified by Simpson, and had in fact withheld supplies from retailers who refused to adhere to those specified prices in their advertising. Simpson was penalised a total of $65,000.
In ACCC v Colgate-Palmolive Pty Ltd,40 the defendant was fined $500,000 for refusing to supply toothpaste and other grocery products to a wholesaler and a retailer unless the retailer agreed not to advertise the products below specified prices. In ACCC v Teac Australia Pty Ltd,41 the defendant made it clear to a Melbournebased discount retailer (Panasales Clearance Centre) that it would not supply its electronic goods to it unless it agreed not to advertise for sale Teac goods at a retail price below that specified by Teac (namely, Teac’s ‘go price’). The National Sales Manager of Teac had told Panasales, ‘Advertise however you want but not less than the go price or we won’t do business with you. This applies to all Teac retailers.’ Teac was found to have breached s 48 and was fined $175,000. The following case is an example of an attempt by a supplier to maintain ‘displayed’ resale prices. ACCC v Skins Compression Garments Pty Ltd [2009] FCA 710
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16.23C2
Facts: The defendant was a manufacturer of compression sports performance garments designed for use by people involved in a wide range of sporting pursuits. Through its South Australian agent, it was alleged that the defendant had attempted to induce an Adelaide retail outlet by the name of Sports Locker not to sell at (or display) a price less than that specified by the defendant. The agent had requested Sports Locker to remove an A-frame advertising board placed on the footpath outside its premises that advertised Skins at ‘20% off’ recommended retail prices. The defendant produced a brochure promoting and describing its products, which contained recommended retail prices for its range of garments. The agent, in a conversation with Sports Locker, had said, ‘I am asking you as a personal favour to take the Skins sign in. We have got a TV promotion going to launch the brand. We’ve been getting complaints. Can you bring the sign in for four weeks? It’s been causing us problems.’ The retailer complied with the request, but four weeks later put the sign back outside its store. Subsequently the agent approached Sports Locker again and said, ‘I have to ask you to take the sign in. Other retailers are complaining and it’s costing us money.’ Sports Locker refused to do so and continued to display the sign. Based upon such evidence, the ACCC prosecuted the defendant for breaching s 48. Decision: The defendant had engaged in the practice of resale price maintenance in contravention of s 48, as it had, inter alia, attempted to induce Sports Locker not to sell at, or display, retail prices below those specified by the defendant. The defendant was fined $120,000 and its agent $14,000. The defendant also consented to an order that it write a letter to all its retail stockists advising them of the breach and confirming that the prices in the Skins brochure were recommended prices only.
40 (2002) ATPR 41-880; [2002] FCA 619. 41 [2007] FCA 1859.
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Resale price maintenance and services 16.24 Section 48 of the Competition and Consumer Act applies to the re-supply of services as well as goods. The various forms of action which constitute resale price maintenance as described at 16.8–16.24 must be read, with appropriate modifications, in such a way that any reference to goods includes services: Competition and Consumer Act s 96A. Some examples of situations where services can be re-supplied include:42 • concert tickets supplied by an entertainment centre to a ticketing agent for resale; • telecommunications services purchased in bulk and then resold; and • financial information supplied by electronic means and resold in substantially similar form.
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Authorisation of Resale Price Maintenance 16.25 Resale price maintenance can be authorised, and thereby excused, by the ACCC: Competition and Consumer Act s 88(1). The Commission will only grant an authorisation if it is satisfied that the proposed conduct will result, or be likely to result, in such a benefit to the public that the proposed conduct should be allowed to take place: Competition and Consumer Act s 90(7)(b); see 12.56–12.62. Public benefits which, in principle, could be argued to justify resale price maintenance might include the following: • assisting sellers to maintain good quality or varied stocks of products — without resale price maintenance, a discount price war might mean the quality and/or variety of products available is sacrificed to enable prices to be cut; • facilitating the introduction of new products into the marketplace — when releasing a new product it may be necessary to ensure that retailers do not cash in on the publicity generated by the product launch to discount the product for the retailers’ own purpose; such discounting could jeopardise the success of the new product by concentrating the attention of consumers on the price and diverting their attention away from the qualities or attributes of the new product; • helping maintain a higher number of retail outlets servicing the public than would otherwise exist — the number of establishments in which products are sold by retail might be substantially reduced without resale price maintenance, as lower profit margins might see a higher attrition rate among retailers;
42 Examples given in Trade Practices Commission, Changes to the Trade Practices Act: Important news for business, 1995, p 3; available at .
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• helping keep prices lower than would otherwise be the case — the loss of outlets may result in a fall in total consumption and lower overall production; economies of scale are thereby lost and production runs become shorter; the increased costs involved may lead to higher prices; and • assisting in the provision of point of sale and after-sale services — pricing products at a level that contains adequate profit margins rewards the serviceoriented retailer, ensures the continuation of such services, and limits the practice of free riding by non-service oriented retailers.43 The ACCC issued an authorisation for resale price maintenance for the first time in 2014. Tooltechnic Systems (Australia) Pty Ltd — Authorisation A91433 (2014) 16.25C
Facts: Tooltechnic Systems is the exclusive importer and wholesaler of Festool power tools. These products are complex and require considerable pre-sale and post-sale services. Tooltechnic has only a small share of the overall market. Tooltechnic argued that it should be permitted to fix resale prices for its products in order to prevent free-riders who took a ‘free ride’ on the pre-sale and post-sale services offered by other retailers, thus endangering the continued viability of those services. Authorisation: The ACCC accepted that there was a market failure and a public benefit (improving pre- and post-sales services) in preventing free-riders in these circumstances. While the resale price maintenance would ‘result in a clear detriment because some customers will face higher retail prices, the extent of that detriment is likely to be limited’. On balance the ACCC accepted that conditional authorisation was warranted.
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Notification of Resale Price Maintenance 16.26 A supplier may also seek an exemption for its proposed resale price maintenance practice by lodging a notification with the ACCC pursuant to s 93(1) of the Competition and Consumer Act. By lodging the notification of proposed resale price maintenance conduct with the ACCC on the approved form and paying the prescribed fee, a party can obtain protection from legal action in respect of that conduct. Similarly to the authorisation test discussed above, the ACCC will make an assessment as to whether the public benefits from the proposed resale price maintenance conduct outweigh the anti-competitive detriment. Protection from legal action automatically arises within 14 days of correctly lodging the notification44 unless the ACCC issues an objection within that period. The ACCC
43 See TPC v ICI Australia Petrochemicals Ltd (1983) ATPR 40-634 for an example of a situation where an application for an authorisation might be successful. 44 Competition and Consumer Regulations 2010 reg 9(a).
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also has power to issue a conditions notice,45 allowing the notified resale price maintenance conduct to proceed subject to conditions imposed by the ACCC.
Consequences of Resale Price Maintenance 16.27 A breach of s 48 of the Competition and Consumer Act can result in a prosecution launched by the ACCC or form the basis of a private action brought by a party harmed or likely to be harmed by the breach.
Penalties 16.28 A supplier who engages in resale price maintenance, as with all restrictive trade practices, is subject to substantial pecuniary penalties: Competition and Consumer Act s 76; see 12.21–12.25. However, a breach of the resale price maintenance provisions does not incur criminal liability. A court is also at liberty to grant an injunction, usually restraining the supplier from engaging in resale price maintenance: Competition and Consumer Act s 80; see 12.26. Invariably, the penalties imposed by the court will be quite significant in amount, as expressed by Weinberg J:46 The prohibition upon resale price maintenance is intended to create conditions under which the public will benefit from traders competing with each other in respect of prices, unfettered by price restraints imposed by suppliers upon retailers. Deliberate contravention of that prohibition should be visited with heavy penalties.
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The level of penalty should act as a real deterrent to such activities in the marketplace. In TPC v Stihl Chain Saws (Aust) Pty Ltd, Smithers J said:47 The penalty should constitute a real punishment proportionate to the deliberation with which the defendant contravened the provisions of the Act. It should be sufficiently high to have a deterrent quality, and it should be kept in mind that the Act operates in a commercial environment where deterrence of those minded to contravene its provision is not likely to be achieved by penalties which are not realistic. It should reflect the will of Parliament that the commercial standards laid down by the Act must be observed, but not be so high as to be oppressive.
Most breaches of s 48 of the Competition and Consumer Act are due to the actions of employees or agents. A corporation is responsible for the actions of its employees and agents when they are acting within their actual or apparent authority s 84; and specifically for resale price maintenance conduct if ‘done by a person acting on behalf of, or by arrangement with the supplier’: s 96(6). For example, in TPC v Bata 45 Competition and Consumer Act 2010 s 93AAA(1). 46 In ACCC v Colgate-Palmolive Pty Ltd (2002) ATPR 41-880; [2002] FCA 619 at [23]. 47 (1978) ATPR 40-091 at 17,896.
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Shoe Co of Australia,48 Bata was held responsible for the actions of its sales agent, as was the defendant in ACCC v Skins Compression Garments Pty Ltd.49 Further, those agents or employees who aid and abet a contravention or who are in any way knowingly concerned in a contravention may be liable personally for their actions: see 12.24.50 TPC v Bamix Australia Pty Ltd (1985) ATPR 40-534 16.28C1
Facts: The managing director of Bamix, a kitchen appliance group, repeatedly told or warned distributors of the group’s products not to allow discounting of prices and sent memoranda to distributors specifying the prices that should be charged. Upon becoming aware that the Trade Practices Commission (now the ACCC) was investigating Bamix, the managing director had arranged a meeting where dealers had been asked to hand over their files to his secretary in order that she could remove all memoranda specifying prices and substitute memoranda where any reference to price was preceded by the words ‘suggested’ or ‘recommended’. Both the company and the managing director were charged with breaching s 48. Decision: A penalty of $110,000 was imposed on Bamix for engaging in resale price maintenance in breach of s 48. For being knowingly concerned in a contravention of the laws against resale price maintenance, the managing director was penalised $22,000 personally.
ACCC v Ampol Petroleum (Victoria) Pty Ltd (1996) ATPR 41-469
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16.28C2
Facts: The area manager of Ampol attempted to induce service station proprietors in the Melbourne suburb of Bayswater to raise prices for super and unleaded petrol to match competing service stations in the area. The ACCC took proceedings against Ampol and its employee for attempting to induce petrol retailers not to advertise or sell petrol at a price less than that specified by Ampol in breach of s 48. Decision: Ampol and its area manager pleaded guilty to a breach of s 48. The court sanctioned the agreed penalties submitted: • Ampol was penalised $1 million; and • the area manager was penalised $40,000. Ampol agreed to reinforce its trade practices training and compliance program.
For an excellent summary of the penalties imposed on both corporations and individuals in a number of resale price maintenance cases delivered from 1996 to 2008, see Table A at the end of the judgment delivered by Spender J in ACCC v Telwater Pty Ltd.51 For companies, the penalties have ranged from $20,000 to $1.4 million, and for individuals from $2000 to $200,000.
48 49 50 51
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(1980) ATPR 40-161, see 16.20C1. [2009] FCA 710, see 16.23C2. ACCC v Skins Compression Garments Pty Ltd [2009] FCA 710, see 16.23C2, where the agent was fined $14,000. [2009] FCA 263, see 16.15C1.
Chapter 16: Resale Price Maintenance
Training instead of prosecution 16.29 There have been occasions when the Commission has refrained from taking legal action against a firm for alleged resale price maintenance in exchange for a formal undertaking by the firm to set up a compliance training program for its staff: Competition and Consumer Act s 87B; see 12.27.52
Remedies 16.30 Suppliers who engage in resale price maintenance are also liable for damages at the suit of a trader injured by such behaviour. The trader can also seek an injunction restraining the supplier from engaging in resale price maintenance. Parry’s Pty Ltd v Simpson Ltd (1983) 76 FLR 60 Facts: The applicant was one of the retail stores who was refused supplies of Simpson products as a result of refusing to adhere to Simpson’s ‘minimum advertised pricing policy’: see TPC v Simpson Pope Ltd.53 The retailer instituted proceedings to recover damages for the loss of profits on the sale of Simpson products and of products other than Simpson. Decision: Simpson Ltd had engaged in resale price maintenance by: • inducing Parry’s Department Store between 14 October 1977 and 17 March 1978 not to advertise Simpson goods at prices lower than those specified by Simpson; and • refusing supply to Parry’s between 17 March 1978 and 11 August 1980 because Parry’s had refused to agree not to advertise Simpson’s appliances below the specified price.
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Parry’s was awarded damages of $160,000 and costs.
Resale Price Maintenance and Other Provisions of the Competition and Consumer Act Pt IV 16.31 The setting and enforcing of resale prices when carried on collusively by two or more competitive suppliers in relation to each or all of their respective products also falls within the scope of the Competition and Consumer Act. Thus, where two or more manufacturers or wholesalers of competing products meet, discuss, and determine the prices at which their respective products are to resell, that conduct is clearly unlawful: Competition and Consumer Act Pt IV Divs 1 and 2; see Chapter 13. The agreement may involve an agreement to adhere to the 52 See Agreement with Toshiba Australia, July 1990: see (1990) ATPR 7–900. 53 (1980) 30 ALR 544; (1980) ATPR 40-169 at 16.23C1.
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same re-supply prices, or it might simply require each manufacturer or wholesaler to undertake to maintain its own resale prices; that is, an agreement between competitors not to allow their own distributors to engage in price competition among themselves in return for a reciprocal undertaking. Likewise, an agreement whereby manufacturers or wholesalers agree to take punitive action in the form of a collective boycott against distributors who do not comply with the resale terms or conditions stipulated, would be engaging in an unlawful activity: see Chapter 13. A collective boycott encompasses not only a refusal to supply, but also a changing of the terms or conditions of supply to recalcitrant distributors, should the changes restrict, limit, or hinder supply. The practice of resale price maintenance may also amount to a breach of s 46 of the Competition and Consumer Act, although in practice it is likely that s 48 alone will be relied on, given the greater difficulty in proving a breach of s 46.
Harper Review Panel Recommendations 16.32 The Harper Review into Competition Policy54 recommended that s 48 of the Competition and Consumer Act (resale price maintenance) should remain the same. The Panel further recommended that the notification system (which previously applied only to s 47 conduct) should also apply to resale price maintenance. As discussed above, this recommendation has been implemented.
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Marketing Advice 16.33 Because resale price maintenance is prohibited absolutely, it is very easy for suppliers to breach s 48 of the Competition and Consumer Act. As such, ensuring that all marketing and sales staff have undertaken competition law compliance training is paramount. One only has to refer to the case law surrounding s 48 of the Competition and Consumer Act to see the number of times that sales representatives, sales managers, account managers, and area managers have been responsible for breaches of the section. All suppliers of goods or services in the marketplace should heed the following advice: • Never withhold supplies from a distributor because the distributor is a known discounter or has been discounting your product. The one exception to this rule is when the distributor has not just been discounting your product, but 54 The Competition Policy Review, chaired by Professor Ian Harper (the ‘Harper Review’) made recommendations for reform of Australia’s misuse of market power law. See the Competition Policy Review, Final Report, March 2015, available at .
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Chapter 16: Resale Price Maintenance
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has been selling it below the cost of supply. However, if you intend to withhold supplies under such circumstances, you will need to satisfy yourself that the distributor had acquired your product in order to use it as a loss-leader, and was not simply engaging in a genuine ‘one-off’ clearance sale. • Never give unfavourable terms of supply or treat a distributor differently because they have been discounting, or are likely to discount, your product. • Never try and prevent a distributor or stockist of your product from advertising or displaying discounted prices. • If you publish a recommended price list, ask yourself whether it is really necessary. If it is, ensure the prices listed represent non-obligatory recommendations only and advise distributors accordingly. If such lists are not published, the temptation by sales and marketing staff to refer to them in a way that turns ‘recommended’ prices into ‘specified’ prices is removed. If prices are not specified or used by a supplier, s 48 can never be breached. • Dr Warren Pengilley has listed a number of examples of conduct which might fall foul of s 48 (keeping in mind that a minimum resale price must have been stated or specified):55 – ‘If you adhere to my prices, I will ensure that your competitor will too.’ – ‘I cannot promise you quick deliveries if you cut my prices.’ – ‘Unless you adhere to my prices, I will withhold goods (or withdraw your advertising allowance or impose some other penalty).’ – ‘$X is the absolute minimum at which you can sell.’ – ‘It is an offence to sell below $X.’ – ‘If you sell below $X, I will take appropriate action.’ – ‘I want to make it clear to you that if you start chopping the resale price off what I recommend, you can say good-bye to your promotional allowance.’ – ‘Resale of this product is subject to price restrictions.’ – ‘You are destabilising the market by that price drop.’ – ‘I want the price back up.’ – ‘Absolutely no discounting from our prices is allowed.’ – ‘Our retail prices as specified must be strictly adhered to.’ – ‘I am not interested in supplying anyone who discounts below our price.’ – ‘If you drop the price, the wheels might fall off the delivery truck and I doubt if I could find any drivers.’ – ‘I can promise you better deliveries if you get your prices back up.’ – ‘It is company policy to have resellers sell at our recommended resale price and it would be a wise policy for you to do so.’
The following flowchart will assist in determining whether a breach of s 48 of the Competition and Consumer Act has occurred.
55 W Pengilley, Trade Practices and You — A Compliance Manual for Companies, Legal Books, Sydney, 1992, pp 8–9.
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Marketing and the Law FIGURE 16.1 BREACHES OF THE COMPETITION AND CONSUMER ACT 2010 S 48
Has the supplier specified a minimum resale price* for the goods or services supplied? NO
YES
YES
Has the supplier made it known that the goods or services will not be supplied unless the specified prices are adhered to?
Has the supplier used a NO YES statement of price which is likely to be understoood as the minimum resale price for Has the supplier agreed the goods or services? (or offered to agree) to supply the goods or services subject NO to the reseller adhering to the prices specified?
YES
NO Has the supplier induced or attempted to induce the reseller to adhere to the prices specified?
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NO
Breach of s 48
YES
YES
Does the inducement involve only the act of ‘recommending’ resale prices? NO
Has the reseller Has the supplier withheld sold the supplier’s supplies (or treated the reseller less favourably) because the YES goods or services within the reseller has sold or is likely to preceding year sell below the prices specified as a loss-leader? by the supplier? NO NO YES YES
No breach of s 48 * The price specified may be for the purposes of advertising or display
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NO
Was the resale the result of a genuine seasonal or clearance sale or undertaken with the consent of the supplier?
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Exclusive Dealing
17
Introduction ........................................................................................ 17.1 Economic views on vertical restraints ......................................... 17.2 A. Vertical restraints are generally pro-competitive ............ 17.2 B. Vertical restraints are often anti-competitive .................. 17.3 Relationship between s 47 and other provisions of the Competition and Consumer Act.................................... 17.4 Supplier’s Exclusive Dealing — s 47(2) and (3) .............................. 17.5 Elements of supplier’s exclusive dealing ..................................... 17.5 A. Supply on condition .............................................................. 17.6 B. Substantial lessening of competition ................................ 17.7 Examples of supplier’s exclusive dealing .................................... 17.8 A. Exclusivity agreements ......................................................... 17.9 B. Loyalty agreements (target rebate schemes) ................. 17.10 C. Product tying or bundling .................................................. 17.11 D. Minimum quantities agreements ..................................... 17.12 E. Customer restraints ............................................................ 17.13 F. Territorial restraints ............................................................ 17.14 Third Line Forcing— s 47(6) and (7) .............................................. 17.15 Buyer’s Exclusive Dealing — s 47(4) and (5) ................................ 17.16 Elements of buyer’s exclusive dealing ....................................... 17.16 A. Supply on condition ............................................................ 17.17 B. Substantial lessening of competition .............................. 17.18 Examples of buyer’s exclusive dealing ...................................... 17.19 A. Customer restraints ............................................................ 17.19 B. Territorial restraints ........................................................... 17.20 Exclusive Dealing and Leases or Licences — s 47(8) and (9) ..... 17.21 Substantial Lessening of Competition .......................................... 17.22 Introduction ................................................................................... 17.22 ‘Future with and future without’ test ...................................... 17.23 Consumer welfare versus consumer convenience .................. 17.24 725
Marketing and the Law
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Exclusive dealing and natural monopolies ............................... 17.25 Distinction between unlawful purpose and unlawful effect ......................................................................... 17.26 Notification and Authorisation ...................................................... 17.27 Notification .................................................................................. 17.28 Authorisation ............................................................................... 17.29 Harper Review Recommendations ............................................... 17.30 Marketing Advice .............................................................................. 17.31
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Introduction 17.1 Section 47(1) of the Competition and Consumer Act 2010 (Cth) prohibits a firm from engaging in exclusive dealing. The various types of exclusive dealing are set out in s 47(2)–(9). Exclusive dealing is concerned with vertical relations between firms at different levels of an industry; for example, relations between manufacturers and wholesalers, and between wholesalers and retailers. Exclusive dealing is only unlawful if the conduct has the purpose or effect or likely effect of substantially lessening competition: Competition and Consumer Act s 47(10). TABLE 17.1 SECTION 47 OF THE COMPETITION AND CONSUMER ACT 2010 TYPE OF RESTRAINT IN SECTION 47
IS THE SUBSTANTIAL LESSENING OF COMPETITION TEST APPLIED?
Subsections (2) and (3) prohibit a SUPPLIER from engaging in exclusive dealing
Yes
Subsections (4) and (5) prohibit a BUYER from engaging in exclusive dealing
Yes
Subsections (6) and (7) prohibit a SUPPLIER from engaging in a particular type of exclusive dealing called third line forcing
Yes
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Subsections (8) and (9) prohibit a firm from All types require application of the engaging in exclusive dealing where the substantial lessening of competition exclusive dealing is linked to granting, renewing, test or terminating a lease or licence over land, or a building, or part of a building; the types of exclusive dealing prohibited are almost the same as those covered by s 47(2)–(7)
Section 47 does not apply to restraints between related corporations: Competition and Consumer Act s 47(12). The meaning of related corporation is discussed at 14.13. Exclusive dealing may be authorised: Competition and Consumer Act s 88. Authorisation will be granted, provided the Australian Competition and Consumer Commission (ACCC) is satisfied that there is a public benefit which outweighs the detriment to the public caused by any lessening of competition: Competition and Consumer Act s 90; see 17.29. Exclusive dealing may also be notified: Competition and Consumer Act s 93; see 17.28.
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Economic views on vertical restraints
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A. Vertical restraints are generally pro-competitive 17.2 Opinions are divided among economists as to the anti-competitive effect of vertical restraints. One group, usually associated with the University of Chicago, holds that the vast majority of vertical restraints are justifiable on the basis of efficiency gains. Their argument is that, generally, the profit-maximising producer has nothing to gain from imposing vertical restraints unless it leads to greater output or lower distribution costs. As the restraint leads to greater output or efficiency, it is pro-competitive. The following are some examples of these pro-competitive reasons for imposing restraints. First, restraints may be imposed to better balance the commercial risks involved in a venture. For example, a firm that intends to build a gas pipeline may insist that its customers enter into long-term exclusive contracts. Without the income flow guaranteed by such contracts, the risk of investing in an asset such as a pipeline (which is both costly and severely limited in its alternative uses) would be too great. Therefore, the pipeline may not get built. Assuming that the pipeline would deliver economic benefits (eg, reduced distribution costs), the community suffers a loss unless the producer is allowed to insist on some contractual restraints. Second, restraints may be imposed to prevent free riders. For instance, producers may impose vertical restraints to enable their buyers (dealers at the next functional level of the industry) to improve the quality of the service they provide, including trained staff, after-sales service, and advertising. These factors improve the competitiveness of the producer’s product vis-à-vis competing products. If the producer were not allowed to impose restraints, dealers with no commitment to providing a quality pre- and post-sales service would discount the product and get a free ride on the work done by the producer and other retailers. Eventually all retailers will be forced to follow the discounter. This will have a deleterious effect on service and perhaps on the competitiveness of the product. Therefore, by imposing restraints which limit intra-brand competition, the producer is increasing inter-brand competition. According to the Chicago School only a limited number of restraints are likely to be anti-competitive: 1. restraints imposed as a result of horizontal collusion; for example, where a suppliers’ cartel imposes vertical restraints as a means of achieving the cartel’s objectives; 2. restraints imposed upon suppliers by a buyers’ cartel; and 3. restraints imposed by a dominant firm seeking to close off the market to competitors.
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Chapter 17: Exclusive Dealing
B. Vertical restraints are often anti-competitive 17.3 Other economists, however, are less tolerant of vertical restraints. They argue that vertical restraints can be anti-competitive in a number of ways: 1. Vertical restraints increase the opportunity for horizontal collusion, especially price fixing. 2. Restraints (such as tying the sale of one product to the purchase of another product) enable the transfer of market power from one market to another. 3. Territorial and customer restrictions, such as are commonly found in franchising arrangements, can be used to eliminate price competition in the buyer’s market by restricting known discounters from obtaining access to products. According to these economists, the free rider problem is not nearly as important as the Chicago School believes. Further, the restraints imposed to overcome free riders often have the effect of forcing consumers to pay for services that many of them do not require.
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Relationship between s 47 and other provisions of the Competition and Consumer Act 17.4 There is considerable potential for overlap between s 47 and other sections of the Competition and Consumer Act. For example, an exclusive dealing arrangement between a supplier and a buyer that has the purpose or effect or likely effect of substantially lessening competition could theoretically breach both ss 47 and 45(2) of the Competition and Consumer Act.1 The Act provides that, in such circumstances, only s 47 applies.2 There is also considerable overlap between ss 46 and 47. Exclusive dealing is one way in which a firm with substantial market power can take advantage of its power.3 In many situations exclusive dealing will not be possible unless the firm has a substantial degree of market power or is part of a cartel which has substantial market power. The reason for this is that without power it is unlikely that the exclusive dealing will lead to a substantial lessening of competition. In a competitive environment market forces will often ensure that vertical arrangements between suppliers and buyers will be pro-competitive and efficient, or otherwise short-lived. Although it cannot be assumed that exclusive dealing only exists where a corporation has a substantial degree of market power, it is suggested that a strong indicator of an unlawful vertical restraint will be the possession of market
1
2 3
Section 45(2)(a)(ii) of the Competition and Consumer Act 2010 prohibits a corporation from making a contract, arrangement, or understanding that has the purpose, effect, or likely effect of substantially lessening competition. Competition and Consumer Act 2010 s 45(6). See Visy Paper Pty Ltd v ACCC (2003) 201 ALR 414; [2003] HCA 59. For a discussion on s 46 see Chapter 14.
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power. For a case in which a breach of s 47 was found, but not a breach of s 46: see Universal Music Australia Pty Ltd v ACCC.4
Supplier’s Exclusive Dealing — s 47(2) and (3) Elements of supplier’s exclusive dealing 17.5 There are two steps in determining whether a supplier has engaged in exclusive dealing, namely: 1. Has the supplier ‘supplied’ goods or services on condition that the buyer accept an exclusive dealing restraint? Alternatively, has the supplier refused to supply because the buyer will not accept an exclusive dealing restraint? 2. Does the supplier’s conduct have the purpose, effect or likely effect of substantially lessening competition in the relevant market?
A. Supply on condition
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17.6 Exclusive dealing only occurs where the supplier offers to supply a buyer, or offers some form of incentive to the buyer, on condition that the buyer agrees to one of the following restraints: • to limit the amount of goods or services it acquires from competitors of the supplier; • to limit its sales of competitors’ products; • not to resupply the supplier’s products to certain customers; or • not to resupply the supplier’s products in certain areas. The types of incentive offered include offering to supply at a special price, giving the buyer a special discount, rebate, or allowance, or providing the buyer with special credit terms. The restraint does not have to be a binding condition in the sense of being a term of a contract, nor should it be seen as something imposed upon a buyer against the latter’s wishes. In fact, the buyer may be perfectly happy to accept the condition. While the condition does not have to be contractually binding, there must be more than just a hope or expectation that the buyer will act in a particular way. The buyer must be under some obligation to abide by the exclusive dealing arrangement. The existence of the condition or obligation may be proved by
4
(2003) 201 ALR 636; 57 IPR 353; (2003) ATPR 41-947; [2003] FCAFC 193, see 17.26C.
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Chapter 17: Exclusive Dealing
inference from the conduct of persons or from other relevant circumstances; that is, circumstantial evidence: Competition and Consumer Act s 47(13).
B. Substantial lessening of competition 17.7 There is no exclusive dealing unless the restraint has the purpose or the effect or likely effect of substantially lessening competition: Competition and Consumer Act s 47(10). Substantial lessening of competition can occur in the supplier’s market or in the buyer’s market. Substantial lessening of competition is discussed in greater detail in 17.22.
Examples of supplier’s exclusive dealing 17.8 A supplier’s exclusive dealing may take many forms, including: • exclusivity agreements; • loyalty agreements; • product tying or bundling; • minimum quantities agreements; • customer restraints; and • territorial restraints.
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A. Exclusivity agreements 17.9 These are distribution agreements where the buyer agrees to acquire only the supplier’s goods or services. For example, an oil company may insist that a petrol retailer stock only the company’s petrol. The effect of the condition is to restrain the retailer from dealing with the oil company’s competitors. This is unlawful if its purpose or effect or likely effect is to substantially lessen competition in the supplier’s market (the oil company’s market) or the buyer’s market (retailer’s market). FIGURE 17.1 RESTRAINT EFFECT OF AN EXCLUSIVITY AGREEMENT Supplier (oil company)
Competitor of supplier (Another oil company)
Supply of petrol Buyer (petrol retailer)
Restraint Buyer is not to deal with competitor (ie not to buy competitor’s petrol)
In TPC v CSR Ltd,5 CSR cut off supply of plaster materials to a buyer who refused to stop stocking materials manufactured by Boral, a competitor of CSR’s. This 5
(1991) ATPR 41-076.
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was a breach of s 47 of the Competition and Consumer Act because of its anticompetitive effect. A number of exclusivity agreements have come before the courts;6 a number have also been examined under the authorisation procedures. In Re Tooth & Co Ltd; In Re Tooheys Ltd,7 authorisation was refused for an arrangement whereby certain retailers — hotels and clubs — were required to purchase their beer stocks exclusively from the one brewery. Ford Motor Co of Australia Ltd v Ford Sales Co of Australia Ltd (1977) ATPR 40-043 Facts: Ford required its distributors to enter into sole distributorship agreements. Ford sought authorisation for these agreements. At the time, sales of new cars were divided as follows: • General Motors Holden 25% • Toyota 14% • Ford 22% • Nissan 11% • Others 28%
17.9C
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There was significant product differentiation, substantial barriers to entry, and aggressive product promotion. Only Ford insisted on sole distributorships. Ford estimated that if it was not allowed to insist upon sole distributorship agreements, the effect on its market share would be somewhere between 1% and 5%. Ford considered that a loss of 1% was so significant as to warrant the description ‘disastrous’. Decision: Authorisation was refused. The Tribunal held that the sole distributorships had a significant impact on competition and there were insufficient public benefits to outweigh this loss of competition. New entrants were denied access to 22% of the established dealers, making it difficult for a new entrant to establish itself. By its own evidence, between 1% and 5% of Ford’s market share was due to the exclusive dealing arrangements and, as Ford admitted, that was highly significant. The Tribunal held that the effect on competition was significant. The Tribunal also found a lessening of competition in the retailers’ market for the following reasons: • Those Ford dealers who wished to stock more than just Ford’s products were not free to do so. As Ford accounted for 22% of sales of new cars, this was a significant restriction. • Distributorship changes are an important and highly desirable means of adjusting to the interaction of supply and demand forces in the market. Ford’s mandatory sole distributorships significantly retarded such changes and therefore lessened competition. • The consumer is denied the opportunity of comparing competing products on the showroom floor.8 This is particularly effective in rural areas where the market is not large enough to carry numerous dealers. There were insufficient public benefits to outweigh this loss of competition.
6
7 8
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TPC v CSR Ltd (1991) ATPR 41-076; Outboard Marine Australia Pty Ltd v Hecar Investments (No 6) Pty Ltd (1982) 44 ALR 667; (1982) ATPR 40-327, see 17.24C; Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (1982) 44 ALR 173; (1982) ATPR 40-315. (1979) ATPR 40-113, see 17.29C. Compare this comment with the decisions in Outboard Marine Australia Pty Ltd v Hecar Investments (No 6) Pty Ltd (1982) 44 ALR 667; (1982) ATPR 40-327, see 17.24C and Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (1982) 44 ALR 173; (1982) ATPR 40-315.
Chapter 17: Exclusive Dealing
B. Loyalty agreements (target rebate schemes) 17.10 Loyalty agreements are agreements where the buyer agrees to take a certain proportion of its requirements from the supplier. For example, the buyer may be obliged to acquire 50% of its annual requirements from the supplier in order to qualify for the supplier’s loyalty discounts.9 This is unlawful if its purpose or effect or likely effect is to substantially lessen competition in the supplier’s market or the buyer’s market. Loyalty discounts should be distinguished from quantity discounts. Unlike a quantity discount, the loyalty discount is not necessarily linked to any cost saving.
C. Product tying or bundling 17.11 Product tying or bundling occurs where the supplier requires the buyer to take a second product (the tied product) as well as the desired product (the tying product). For example, a lessor of a photocopier requires a lessee to acquire photocopying paper from the lessor,10 or a manufacturer of plaster materials requires wholesalers to take a full range of its plaster products.11 The effect of a tie is to restrain the buyer’s freedom to deal with competitors of the supplier in respect of the tied product. This is unlawful if its purpose or effect or likely effect is to substantially lessen competition in the supplier’s market or the buyer’s market. ACCC v Fila Sport Oceania Pty Ltd [2004] FCA 376
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Facts: Fila is the Australian subsidiary of an Italian-based clothing manufacturer, Fila Holdings Spa, one of the largest sportswear suppliers in the world with operations in over 20 countries. In 1999/2000 Fila was the third highest seller of sporting apparel in Australia, ranking behind Nike and Adidas. The Australian Football League (AFL) owns the rights to merchandise a range of apparel associated with the AFL football clubs. AFL-approved apparel is sold in over 400 retail stores throughout Australia. The apparel is divided into ‘on-field’ apparel (copies of the jumpers etc worn by the AFL teams) and ‘Team Spirit’ apparel (clothing and other items that use the team colours, logos etc, including T-shirts, polo shirts, jackets, casual jumpers, scarves, and beanies). Fila had the exclusive licence to supply ‘on-field’ apparel for five teams (the Fila teams). Fila implemented a selective distribution policy. The essence of the policy was that Fila would supply ‘on-field’ apparel to retailers only on condition that the retailers would not acquire or stock ‘Team Spirit’ apparel (relating to a Fila team) from another supplier. There was evidence that the policy had serious detrimental effects on other ‘Team Spirit’ suppliers. The ACCC brought an action for a breach of s 47 and s 46(1)(c). Because it was experiencing financial problems, Fila eventually pleaded guilty. Decision: According to Heerey J, Fila’s breach was blatant. Fila’s senior executives were well aware that the distribution policy could breach the Trade Practices Act 1974 (Cth) (now the 9 See, for example, O’Brien Glass Industries Ltd v Cool & Sons Pty Ltd (1983) 48 ALR 625; (1983) ATPR 40-376. 10 Re Nashua Australia Pty Ltd (1975) 1 TPCD [168]. 11 TPC v CSR Ltd (1991) ATPR 41-076.
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17.11C1
Marketing and the Law Competition and Consumer Act). Fila was warned on a number of occasions. Fila only ceased the practice when the ACCC intervened. Fila was fined $3 million. Although it was not necessary to determine the matter, Heerey J considered briefly the issue of the market. He said: Separate markets existed at both the wholesale and retail levels for the sale of licensed apparel for each AFL team. In particular, apparel of one team would not be regarded as substitutable for apparel of another within the meaning of s 4E of the Act, a proposition which hardly needs the support of expert economic evidence.
ACCC v Baxter Healthcare Pty Ltd (No 2) (2008) 249 ALR 674; [2008] FCAFC 141 17.11C2
Facts: Baxter is a manufacturer and supplier of sterile fluids and peritoneal dialysis (PD) products. These products have separate medical uses and are in separate markets. Baxter is the sole Australian manufacturer of sterile fluids. It has dominated market shares for over six years. Sterile fluids are an essential product, their price is relatively inelastic, and they are costly to import. On the other hand, the market for PD products (which are high value items) is much more competitive. Baxter’s main customers were the various state governments. Each government contract was awarded pursuant to a competitive tendering process. Baxter’s strategy when tendering was quite simple. It tendered its sterile fluids products at very high prices when purchased individually (so high that they were not really regarded by Baxter as a serious offer), but at much more attractive prices when purchased as a bundle with PD products.
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Baxter’s purpose in structuring its tenders in this way was ‘to prevent rival bidders for PD products from being able to put forward bids that were realistically competitive’. Because of this, the buyers (state governments) had incentives to enter into the exclusive bundling contracts with Baxter. The ACCC alleged breaches of ss 46 and 47 of the Competition and Consumer Act. Decision: Baxter had a substantial degree of market power in the sterile fluids market. Baxter’s tendering policy depended on its power in the sterile fluids market. Without that power, the tendering policy would not have existed. Therefore, Baxter had taken advantage of its power within the meaning of s 46(1). Baxter’s ultimate aim or motive may have been to win as much PD products business as possible to keep its Australian plant operating efficiently, but Baxter’s immediate purpose (in implementing its tendering policy) was to prevent its competitors in the PD products market from competing in any meaningful way for the state government contracts: s 46(1)(c). Baxter’s conduct came under s 47(2). The conduct was an attempt to leverage its power in the sterile fluids market to the PD market. In doing so, its purpose was to substantially lessen competition in the PD market by corrupting the tender process: s 47(10).
An area of potential abuse under the anti-tying provisions is the licensing of intellectual property. A patent, trade mark, or copyright licence may require the licensee to acquire other goods or services from the licensor. Many retail franchising arrangements require the franchisee to acquire materials provided by the franchisor or at the franchisor’s instruction. If the goods are acquired from the franchisor, it may be possible to argue that this is a tying arrangement in that the franchisor is supplying a service (the use of the trade mark) to the franchisee on 734
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Chapter 17: Exclusive Dealing
the condition that the franchisee not acquire certain goods from the franchisor’s competitor. The substantial lessening of competition test would need to be applied; that is, to ask the question of whether the tie-in had the purpose, effect or likely effect of substantially lessening competition. If a firm has engaged in unlawful full line forcing, how does the court determine what orders should be made? This is a major difficulty in all areas of competition law, but is particularly acute in distribution arrangements. For example, if two products have been unlawfully bundled, the effect of an injunction would be that the products have to be offered for sale individually. But at what price and upon what conditions? This may be extremely difficult to determine. Another difficulty with tying or bundling is to distinguish between a tying arrangement and the supply of a composite or integrated product. For example, if the supplier of a good insists that the buyer acquire an after-sales service contract as a condition of acquiring the good, is this the supply of two products or one product?12 A more difficult case has arisen over Microsoft’s practice of bundling products with its Windows operating system. For example, the European Commission found that Microsoft had unlawfully bundled Windows Media Player with the Windows operating system. Microsoft was ordered to offer a version of its Windows operating system without the Windows Media Player. This caused great consternation at Microsoft, which argued that the two products were so interwoven that they could not be unbundled without making the operating system clearly inferior. In other words, Microsoft argued that the bundle was really a new product. The decision also caused a rift between European competition authorities and US authorities. The US regards the European approach as likely to hinder innovation (dynamic efficiency). If the supplier is only supplying one product, there will be no breach of the product tying or bundling provisions of s 47 of the Competition and Consumer Act because it will not be possible to conclude that the supplier has supplied a product on condition that the buyer not acquire a good or service from a competitor of the supplier. For example, a manufacturer of yachts is not breaching s 47 by refusing to supply yachts without masts. The yacht is a composite product made up of the hull, the keel, and the mast. If the supplier consistently treats the product as one product; for example, with no separate sales or invoices, it may be difficult to establish exclusive dealing.13 Where a composite product is involved, it is probably better to use the more flexible provisions of s 46 to take action against a supplier.
12 Re Nashua Australia Pty Ltd (1975) 1 TPCD [168]. 13 See Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd (1986) 68 ALR 376; (1986) ATPR 40-751.
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D. Minimum quantities agreements 17.12 Minimum quantities agreements occur where the buyer is required to take a minimum quantity of a product. There is considerable doubt as to whether these contracts are caught under s 47 of the Competition and Consumer Act. For example, if a supplier requires a buyer to purchase 100 units of a particular product, can it be said that this is supply on condition that the buyer will not — or will not except to a limited extent — acquire goods from a competitor of the supplier? If a supplier of soft drinks insists that the buyer take a minimum quantity of 100 cans of soft drink, the requirement may easily be explained as the minimum efficient quantity that the supplier will package and deliver to a buyer. This is clearly not supply on a restrictive condition. If, however, the product in question is a computer and the supplier requires a retailer to purchase 100 units of its computers per year, knowing that the retailer only sells 150 units of all computers per year, then it may be a supply on a disguised condition. If there is no efficiency reason justifying the minimum quantity of 100, then it is suggested that s 47 should operate. The existence of the condition could be proved as a matter of inference: Competition and Consumer Act s 47(13). From an economic point of view, there seems no reason to distinguish between a loyalty contract and a minimum quantities contract, which may, after all, be a loyalty contract disguised.
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E. Customer restraints 17.13 A firm engages in exclusive dealing if the firm supplies goods or services to the buyer on condition that the buyer agrees not to resell the goods or services. It is also exclusive dealing if the firm insists that the buyer not resell the goods or services — at least to a limited extent — to particular customers or classes of customers.14 This type of exclusive dealing involves customer restraints. It does not involve any restriction on dealing with competitors. Customer restraints are designed to give the seller control over the product even after it has been sold to the buyer. Such restraints are often found in distributorship or franchise agreements. For example, a supplier may supply goods to a buyer on condition that the buyer deals only with nominated persons or a group of persons.15 Alternatively, a manufacturer who supplies goods to a wholesaler may do so on condition that the wholesaler does not resell the goods to a particular retailer. This might occur where the manufacturer wishes to deal directly and exclusively with a large retail chain and 14 Section 47(2)(f)(i) of the Competition and Consumer Act 2010 refers to ‘particular persons, or classes of persons, or persons other than particular persons, or classes of persons’. Section 47(2)(f)(ii) — territorial restraints — refers to ‘particular places, or classes of places, or places other than particular places, or classes of places’. 15 For example, in D & R Byrnes (Nominees) Pty Ltd v Central Queensland Meat Export Company Pty Ltd (1990) ATPR 41-028, a supplier withheld supplies of meat because the buyer would not abide by a customer restraint imposed by the supplier.
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does not want to have to compete with wholesalers. Alternatively, it may occur where the supplier does not want the goods resupplied to known discounters.16 It may also occur where a vertically integrated supplier is trying to protect one of its downstream operations.
F. Territorial restraints 17.14 Just as a firm may achieve a competitive advantage by imposing customer restraints on its buyers, it may achieve a similar advantage by imposing territorial restrictions. In both cases the supplier is exercising control over its products even after they have been sold to the buyer. In Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd,17 Bursill Sportsgear, the distributor of Salomon ski boots in Australia, breached s 47 of the Competition and Consumer Act by refusing to supply ski boots to a retailer which had failed to agree not to resupply the ski boots in places other than its two retail stores. Territorial restraints are commonly found in distributorship and franchise agreements. For example, a person might be given the exclusive franchise for the state of Tasmania on condition that the franchisee does not operate a similar business in Victoria (a particular place), or does not operate outside Tasmania (places other than a particular place).
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Third Line Forcing — s 47(6) and (7) 17.15 Third line forcing is another type of supplier’s exclusive dealing. Third line forcing used to differ from those types of exclusive dealing already discussed in that it was previously unlawful whether or not it had any detrimental effect on competition. Changes to the Competition and Consumer Act18 mean that like other types of exclusive dealing, third line forcing is now subject to the substantial lessening of competition test to determine whether it amounts to a breach of s 47. Third line forcing occurs where the supplier offers to supply a buyer — or offers some form of incentive19 to the buyer — on condition that the buyer agrees to acquire secondary products from another person. Another person includes the situation where the buyer must select from a panel chosen by the supplier: ACCC v Link Solutions Pty Ltd (No 2).20 Third line is different from full line forcing (also 16 Section 48 of the Competition and Consumer Act 2010 (resale price maintenance) would also apply in this situation. In fact, s 48 is more likely to be used than s 47, as it does not require proof of any substantial lessening of competition. See Chapter 16. 17 (1987) 75 ALR 581; (1987) ATPR 40-809. 18 Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth). 19 The incentives include offering to supply at a special price; or giving the buyer a special discount, rebate, or allowance; or providing the buyer with special credit terms. 20 (2010) 272 ALR 280; [2010] FCA 919.
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called product tying or bundling: see 17.11): see Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd;21 and Australian Automotive Repairers’ Association (Political Action Committee) Inc v Insurance Australia Ltd (No 6)22 as it relates to a supplier trying to force a third party product or service on the buyer, rather than, as in full line forcing, one of its own additional products or services. FIGURE 17.2 EFFECT OF A THIRD LINE FORCING ARRANGEMENT Supplier Product “A” Buyer
Product “B”
Third party
ACCC v Black & White Cabs Pty Ltd [2010] FCA 1399 17.15C1
Facts: Black & White Cabs Pty Ltd (B&W) provide booking, dispatch, and other services to taxi operators. B&W notified its operators that henceforth the supply of those services was dependent on the operator acquiring certain services (eg, credit card services) from Cabcharge Australia Ltd, an unrelated company.
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Decision: B&W pleaded guilty to third line forcing: s 47(6). An injunction was granted and B&W was fined $110,000.
It is not third line forcing if the supplier merely tries to persuade the buyer to buy from a particular source.23 As with other types of exclusive dealing, the restrictive condition does not have to be contractually binding. The existence of the condition may be proved by circumstantial evidence: Competition and Consumer Act s 47(13). Essential to a finding of third line forcing is that there are two separate products or services. If a supplier is offering bundled goods and/or services, then there can be no third line forcing. Paul Dainty Corp Pty Ltd v National Tennis Centre Trust (1990) 94 ALR 225; (1990) ATPR 41-02924 17.15C2
Facts: The National Tennis Centre Trust operated the national tennis centre in Melbourne which was a popular venue for concerts. The Victorian Arts Centre Trust (also called Bass) operated a ticket selling service. Anyone wishing to hire the national tennis centre was required to use the services of Bass for ticketing operations.
21 22 23 24
(1986) 68 ALR 376; (1986) ATPR 40-751. [2004] FCA 700. Stationers Supply Pty Ltd v Victorian Authorised Newsagents Association Ltd (1993) ATPR 41-255. This case actually involved third line forcing under s 47(8)(c), but the principles are the same.
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Chapter 17: Exclusive Dealing Paul Dainty Corp organised concert tours by international artists. A related corporation operated a ticket selling service which was used by the Paul Dainty Corp. Paul Dainty was planning to bring Pink Floyd and Mick Jagger to Melbourne in 1988 and wished to hire the tennis centre. However, Paul Dainty did not wish to accept the ticketing services of Bass. The National Tennis Centre Trust stood firm and Paul Dainty brought an action for breach of s 47, claiming that the conduct of the National Tennis Centre Trust amounted to third line forcing. The Trust argued that it was not compelling Paul Dainty to acquire anything from Bass. There was never any contract between Paul Dainty and Bass. Rather, the Trust offered a product, which was the hire of the tennis centre complete with ticketing services. Decision: The Full Court of the Federal Court accepted the arguments of the Trust. There was no third line forcing as there were not two separate goods or services offered but rather a bundled package. What Paul Dainty acquired was one thing, tickets sales for performance at the Tennis Centre, not ‘venue hire’ and separate ‘ticket sales’ services.
It is not third line forcing if the supplier and the third party are related corporations. Many cases of notification involve third line forcing.
Buyer’s Exclusive Dealing — s 47(4) and (5)
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Elements of buyer’s exclusive dealing 17.16 There are two steps to analyse when determining whether a buyer has engaged in exclusive dealing. 1. Has the buyer ‘acquired’ (or refused to acquire) goods or services from the supplier on condition that the supplier agree to an exclusive dealing restraint? 2. Does the buyer’s conduct have the purpose, effect or likely effect of substantially lessening competition?
A. Supply on condition 17.17 Buyer’s exclusive dealing occurs where a firm offers to acquire goods or services from a supplier — or offers to acquire at a special price — on condition that the supplier agrees to one of the following restraints: 1. The supplier agrees not to deal with certain customers (or at least to restrict its dealings with those customers). 2. The supplier agrees not to operate in certain areas (or at least to restrict its dealings in those areas). The condition imposed by the buyer does not have to be binding in the sense of being a term of a contract, nor is it necessary that it be forced upon the supplier. Exclusive dealing may apply even though the arrangement is to the mutual satisfaction of the buyer and the supplier. For example, a franchisor will often 739
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agree not to create another franchise within the designated franchise area. Such a condition is part of the attraction of the franchise and is not something that is forced upon the franchisor. Nevertheless it may be subject to the provisions of s 47(4) of the Competition and Consumer Act. As with the other provisions under Pt IV of the Competition and Consumer Act, s 47(4) is designed to protect competition, not competitors. The existence of the condition may be proved as a matter of inference from the evidence: Competition and Consumer Act s 47(13).
B. Substantial lessening of competition 17.18 There is no exclusive dealing unless the conduct has the purpose or effect or likely effect of substantially lessening competition: Competition and Consumer Act s 47(10). A breach of s 47(4) was unsuccessfully argued in Stirling Harbour Services v Bunbury Port Authority25 — the case failed because substantial lessening of competition could not be proved. Substantial lessening of competition is discussed in greater detail at 17.22.
Examples of buyer’s exclusive dealing A. Customer restraints 17.19 There is an obvious competitive advantage for a firm if it can persuade or force its suppliers to deal exclusively with the firm, or at least not to deal with the firm’s major competitors. For example, a large retailer, wishing to obtain an advantage over its major rival, may purchase a product from a supplier on condition that the supplier does not supply the same product to its rival (a particular person).
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FIGURE 17.3 EFFECT OF A SUPPLY SIDE RETAIL CUSTOMER RESTRAINT ARRANGEMENT Buyer Buyer agrees to purchase Supplier
Competitor of buyer Restrictive Condition Supplier agrees not to supply a rival trader
A buyer may also wish to prevent competition from the supplier. For example, a retailer may agree to purchase a particular product from a manufacturer, provided the manufacturer agrees not to engage in direct sales to the public (that is, that the manufacturer not act as a retailer). In this case, the restrictive condition is that the manufacturer will not supply the product to consumers (a class of persons).
25 (2000) ATPR 41-783; [2000] FCA 1381, see 17.25C.
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Chapter 17: Exclusive Dealing FIGURE 17.4 EFFECT OF A SUPPLY SIDE WHOLESALE CUSTOMER RESTRAINT ARRANGEMENT Buyer Buyer agrees to purchase Supplier
Consumers
Restrictive Condition Supplier agrees not to sell directly to the public
B. Territorial restraints 17.20 There may be a competitive advantage for a firm in persuading or forcing its suppliers to supply only in certain areas and not in other areas. For example, a large retailer in Western Australia may wish to have exclusive access to a product in Western Australia and so it purchases the product on condition that the supplier does not supply the product to any other retailer in Western Australia. Many franchise agreements contain a buyer’s condition as to supply in a geographic area. Just as a franchisee is often limited to a particular area, so also will the franchisor be restricted from supplying other buyers in the franchisee’s area.
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Exclusive Dealing and Leases or Licences — s 47(8) and (9) 17.21 A firm engages in exclusive dealing if it grants (or refuses to grant) a lease or licence in respect of land or buildings on condition that another party to the lease or licence agrees to a restrictive trading condition.26 The restrictive conditions are essentially the same as those that appear under s 47(2)–(7) of the Competition and Consumer Act. Thus, solus agreements, requirements contracts, full line forcing, customer and territorial restraints, buyers’ restrictions, and third line forcing are all potentially unlawful if linked to a lease or licence. Exclusive dealing covenants in a lease or licence are only unlawful if the purpose or the effect or the likely effect is to substantially lessen competition.
26 There is an exemption for registered charities; Competition and Consumer Act 2010 s 47(11).
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Substantial Lessening of Competition Introduction 17.22 Exclusive dealing is not unlawful unless it has the purpose or effect or likely effect of substantially lessening competition in the relevant market. Competition will be considered as lessened if it is hindered or prevented.27 ‘Substantial’ probably means that any lessening of competition must be more than nominal or marginal — that it must be meaningful in a competitive sense. However, it does not have to be considerable or large. In determining whether the purpose or effect or likely effect is to substantially lessen competition, the court must take into account similar conduct engaged in by the firm or by a related corporation. This simply means that, if the firm applies the exclusive dealing provision to all buyers or suppliers, the court must take into account the overall impact of the restraint.
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‘Future with and future without’ test 17.23 To determine whether competition has been substantially lessened, the courts apply the ‘future with and future without’ test: see Stirling Harbour Services v Bunbury Port Authority28 and ACCC v Baxter Healthcare (No 2).29 A useful guide is to apply the following steps: • Determine the market — remember that a market is made up of substitutable products and sources of supply: see 12.41–12.44. In the case of s 47 of the Competition and Consumer Act, the market may be the supplier’s market or the buyer’s market. • Work out the level of competition likely to be expected without the exclusive dealing. The following questions may be useful: – What is the market structure? How many suppliers and buyers are there? What market share do they have? Does the supplier have market power? Are new firms likely to enter the market, or are the barriers to entry high? – How competitive is pricing in the market? – How competitive is the distribution process — do buyers change suppliers regularly? – How innovative is the market? • Work out the level of competition likely to be expected with the exclusive dealing. The following questions may be worth asking:
27 Competition and Consumer Act 2010 s 4G. 28 (2000) ATPR 41-783; [2000] FCA 1381, see 17.25C. 29 (2008) 249 ALR 674; [2008] FCAFC 141, see 17.11C2.
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Chapter 17: Exclusive Dealing
– Does the exclusive dealing apply to all, or a significant number of, buyers? Remember that the fate of an individual trader is not relevant.30 – Even if the exclusive dealing does not apply to all, or a significant number of, buyers, will it intimidate or coerce other buyers into compliance?31 – How long will the exclusive dealing last? The effect of exclusive dealing on competition must be viewed in the longer term rather than the short term. How long is a matter for each case. The term should not be so long that analysis becomes too speculative?32 – What is the content of the exclusive dealing, and what effect, if any, will it have on such factors as price, service, quality of product, or timeliness of delivery?33 – Is there any pro-competitive purpose behind the exclusive dealing? For example, some exclusive dealing may be necessary: to ensure that the risks of a venture are efficiently allocated; to facilitate and maintain entry by a firm to a market;34 to facilitate introduction of a new product, particularly if it is complex; to counterbalance a vertically integrated competitor; to ensure a quality service is provided by resuppliers (for example, retailers) by preventing free riders; and to achieve all possible efficiencies, whether by ensuring that all available economies of scale and scope are utilised or by reducing distribution and transaction costs. This argument has been used quite successfully in the United States in relation to vertical restraints.35 The United States law, however, is different from Australia’s and it may be that arguments based on achieving productive or distributive efficiencies are better argued in authorisation hearings as a public benefit. • Determine whether there is a significant or substantial difference between the second and third steps.
30 Outboard Marine Australia Pty Ltd v Hecar Investments (No 6) Pty Ltd (1982) 44 ALR 667; (1982) ATPR 40-327, see 17.24C; ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (1990) 97 ALR 513; 19 IPR 323; (1991) ATPR 41-069. 31 Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (1982) 44 ALR 173; (1982) ATPR 40-315 at 43,898. 32 See Union Shipping New Zealand Ltd v Port Nelson Ltd [1990] 2 NZLR 662. 33 Outboard Marine Australia Pty Ltd v Hecar Investments (No 6) Pty Ltd (1982) 44 ALR 667; (1982) ATPR 40-327, see 17.24C. 34 Eastern Express Pty Ltd v General Newspapers Pty Ltd (1991) 103 ALR 41; (1991) ATPR 41-128, see 13.54C; Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 106 ALR 297; (1992) ATPR 41-167, see 14.11C. 35 Continental TV Inc v GTE Sylvania Inc (1977) 433 US 36; (1977) 53 L Ed 2d 568.
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Consumer welfare versus consumer convenience 17.24 Substantial lessening of competition was proven in Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd.36 Contrast the Mark Lyons case with the Outboard Marine case below. Outboard Marine Australia Pty Ltd v Hecar Investments (No 6) Pty Ltd (1982) 44 ALR 667; (1982) ATPR 40-327
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17.24C
Facts: Outboard Marine Australia (OMA) manufactured and distributed ‘Evinrude’ and ‘Johnson’ outboard marine engines, spare parts, and accessories. There were a number of other brands of outboard motor available and the market was fairly competitive. Hecar Investments operated a retail store in Newcastle and was a dealer in ‘Evinrude’ and ‘Johnson’ products. OMA refused to supply Hecar when Hecar started stocking a rival product, and appointed a new distributor in the area. Hecar alleged a breach of s 47 in that OMA had engaged in exclusive dealing by virtue of s 47(3)(a) and (d) of the Competition and Consumer Act. The question was whether the conduct would lead to any substantial lessening of competition. Decision: The court looked at the effect of the conduct on the retail market for outboard motors on the central New South Wales coast. The retailer argued that there was a substantial lessening of competition, partly because customers were being deprived of the opportunity to compare various brands at the one location. The court rejected this. Customer convenience may be one element of competition, but it is not the essence of competition. The court made the following points: • Section 47 is designed to protect competition, not competitors. • When analysing competition it is necessary to look at market structure. In this case, there was no evidence that the exclusive dealing would alter market structure so as to produce an anti-competitive effect. For example, there was no evidence that barriers to new entry had been raised. • There was no evidence that the number of dealers in the market was being reduced. Refusal to supply one dealer in an otherwise competitive market is unlikely to have any impact on competition. • There was no evidence that price competition, or other forms of competition, were likely to be reduced. • There was no evidence that the exclusive dealing would have an adverse effect on the market’s efficiency (eg, cost or profit structures). • There was no evidence that the exclusive dealing would have an adverse effect upon the product range, including brands, sizes, finishes, and colours available in the market. • There was no evidence that the ability of consumers to influence the market was being reduced or impeded. The inability of customers to compare rival products at the same establishment may have caused some inconvenience, but there was no evidence that it raised prices, reduced choice, or retarded service. Conduct which merely changes the balance between competing entities in a competitive market by disadvantaging one player and advantaging another is not normally anti-competitive. It is irrelevant who the players in the market are — that is, who survives and who fails — provided the process of competition itself continues unabated.
36 (1987) 75 ALR 581; (1987) ATPR 40-809.
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It is often a fine line between competitive and anti-competitive conduct. In both Outboard Marine Australia Pty Ltd v Hecar Investments (No 6) Pty Ltd37 and Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd38 the suppliers acted out of concern for the competitive position of their products. The difference between the two cases lay in the effect that their actions were likely to have on the market overall. Whereas in Mark Lyons the supplier tried to stop a new, aggressive form of competitive retailing which was having the effect of reducing retail prices, in the Outboard Marine case there was little evidence to suggest that the manufacturer’s action of replacing one retailer with another was likely to cause much impact on the market.
Exclusive dealing and natural monopolies 17.25 In Stirling Harbour Services v Bunbury Port Authority,39 the market was a natural monopoly. Stirling Harbour Services argued that the Bunbury Port Authority’s proposal to award an exclusive five-year towage contract at the Port of Bunbury to the successful tenderer was a breach of s 47(4) of the Competition and Consumer Act.
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Stirling Harbour Services v Bunbury Port Authority (2000) ATPR 41-783; [2000] FCA 1381 Facts: Bunbury Port Authority (BPA) operated the port at Bunbury. Stirling Harbour Services (SHS) operated a tug-boat service. Although it did not have any exclusive contract, SHS had been the sole provider of such services to BPA since 1986. Bunbury is not a large port and it is extremely doubtful that it could support more than one tug-boat operator. In 1998 (and despite protests from SHS) BPA announced that it would cancel SHS’s contract (as it was entitled to do) and call for tenders. The successful tenderer would be judged on the basis of a range of criteria including the competitiveness of their proposed towage fees. The successful tenderer would be offered a five-year exclusive contract. Six tenders were received, including one from SHS (under protest). SHS then commenced an action, arguing that the proposed five-year exclusive contract was in breach of s 47 of the Competition and Consumer Act (as well as ss 46 and 45). The main issue was whether the proposed five-year exclusive contract would substantially lessen competition. Decision: The action by SHS was dismissed. The relevant market was for the provision of towage services in the Port of Bunbury. To determine whether competition would be substantially lessened it was necessary to compare the market with and without the exclusive term. As the evidence suggested that the market could only profitably sustain one operator, it was almost inevitable that it would be a monopoly. This is evidenced by the fact that no competitor to SHS had emerged in 10 years. (In fact, the market had characteristics that made it similar to a natural monopoly.) Therefore, realistically there could not be ongoing competition within the market and the only competition would occur at the time of the tender. However, to attract competitive tenderers, it was necessary to offer an exclusive contract to the winner. Firms would not be prepared to risk the capital investment required to enter the market without 37 (1982) 44 ALR 667; (1982) ATPR 40-327, see 17.24C. 38 (1987) ATPR 40-809. 39 (2000) ATPR 41-783; [2000] FCA 1381, see 17.25C.
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17.25C
Marketing and the Law the assurance of an exclusive contract. (This is called competition for the market, as opposed to competition in the market.) Therefore, the tender process (with the reward of an exclusive five-year contract) was the best way of ensuring that price competition existed. The successful tenderer was bound by contract to stick with its tender prices.
Distinction between unlawful purpose and unlawful effect 17.26 In Universal Music Australia Pty Ltd v ACCC40 the court held that, if the firm had the relevant anti-competitive purpose, it was unnecessary to establish that the firm’s conduct would also have the relevant anti-competitive effect: see also ACCC v Baxter Healthcare (No 2).41 Purpose means the actual subjective purpose of the party: Universal Music Australia Pty Ltd v ACCC.42 Universal Music Australia Pty Ltd v ACCC (2003) 201 ALR 636; 57 IPR 353; (2003) ATPR 41-947; [2003] FCAFC 193 17.26C
Facts: In 1998 Australia altered the Copyright Act 1968 (Cth) to allow the parallel importation of CDs (musical works). In response to this, the major Australian CD manufacturing companies, including Universal Music (then Polygram) and Warner Music, began to impose conditions on retailers. Retailers were required to agree not to stock imported works where copies were available from Australian suppliers. Retailers that stocked parallel imports were to be refused supply of local CDs or were treated in a discriminatory manner.
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The ACCC brought an action against Universal Music and Warner Music alleging breaches of ss 46 and 47 of the Competition and Consumer Act. There was also an allegation against Universal and Warner that they had colluded in breach of s 45 to prevent copies being sourced from Indonesia. At the time the case was brought there was little downloading of music from the internet. Consequently, there was agreement between all parties that the relevant market was the wholesale market for recorded music Australia-wide. Percentage shares of CD sales of the leading manufacturers/wholesalers were as follows: Sony — about 25%, Warner — about 17%, Universal — about 18%, EMI — 18%, and BMG — 7%. All these were part of multinational groups. There were also a few significant independent companies, such as Mushroom Records and Shock. There were a number of retailers, including some large national chains as well as purely local suppliers (including discounters). The national chains included Sanity (15–20% of retail sales), Kmart (8–12%), Target (4–6%), HMV (6–8%), Big W (4–6%), Grace Bros/Myer (4–6%), Vox (Chandlers, Billy Guyatts, and Archie Martins) (4–6%), and Leading Edge music stores (12–14%). The evidence suggested that the chains were not unduly concerned with the policy of Universal and Warner. They were large enough to extract terms which did not put them at any disadvantage. The firms most affected by the policies were the smaller retailers.
40 (2003) 201 ALR 636; 57 IPR 353; (2003) ATPR 41-947; [2003] FCAFC 193, see 17.26C. 41 (2008) 249 ALR 674; [2008] FCAFC 141, see 17.11C2. 42 (2003) 201 ALR 636; 57 IPR 353; (2003) ATPR 41-947; [2003] FCAFC 193, see 17.26C.
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Chapter 17: Exclusive Dealing The evidence suggested that the price of CDs was fairly constrained. No manufacturer could charge significantly above a certain price even where the CD in question was a ‘hit’. Nevertheless, a CD which was a hit gave that manufacturer a degree of market power or independence for a limited period of time. At trial, Universal and Warner were held to have breached s 47. Each had the purpose of preventing retailers from acquiring parallel imports. Although only a few retailers had their supplies cut, this sent a strong signal to other retailers. Therefore, both Universal and Warner had the purpose of substantially lessening competition. The trial judge also found that both companies had breached s 46. Universal and Warner appealed. Decision: On appeal, the Full Court held that, as neither Universal nor Warner had a substantial degree of market power, neither had breached s 46. Surprisingly, however, they were held to have breached s 47. Both Universal and Warner argued that their restriction on intra-brand competition would enable them to more efficiently engage in inter-brand competition. However, the court rejected the argument on the basis that it had not been proved. The Full Court drew a distinction between exclusive dealing that has the effect of substantially lessening competition and exclusive dealing that has the purpose of substantially lessening competition. Because they did not have a substantial degree of market power, it was unlikely that either Universal or Warner’s exclusive dealing would have had the effect of substantially lessening competition in the market. Nevertheless, according to the court, as their purpose was to substantially lessen competition, each had breached s 47.
Notification and Authorisation 17.27 Exclusive dealing can be notified and authorised. This is important because there is no provision for notifying or authorising s 46 conduct.
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Notification 17.28 Exclusive dealing may be notified: Competition and Consumer Act s 93. Notification simply means advising the ACCC in the prescribed manner that the firm is about to engage in conduct that may amount to exclusive dealing. The effect of notification is that the conduct is protected from any action under s 47. The ACCC may, however, withdraw that protection at any time, provided: • it is satisfied that the conduct referred to in the notice has the purpose or effect or likely effect of substantially lessening competition and it is unlikely to result in a benefit to the public that outweighs the lessening of competition: Competition and Consumer Act s 93(3); and • it first gives notice of withdrawal to the firm and provides the firm with an opportunity to state its case: Competition and Consumer Act s 93(4).
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For example, notification by Juice Station Franchising Pty Ltd requiring its franchisees to obtain their bottles from nominated bottle suppliers (a case of third line forcing) was revoked when the franchisees produced considerable evidence that the bottles were not fit for the purpose.43 The decision of the ACCC may be reviewed by the Australian Competition Tribunal: Competition and Consumer Act s 101A.44 Nestlé Australia supplied its Nescafé Blend 43 to retailers. Blend 43 is made in Australia. One of the retailers, Aldi, commenced importing Nestlé coffee products from overseas. Following complaints from the public, Nestlé Australia decided to stop supplying Aldi stores with Nestlé products (not just coffee) until Aldi agreed to ensure that the imported coffee was clearly marketed as not being Nescafé Blend 43. Nestlé Australia notified its proposed conduct, but the ACCC revoked the notification on the grounds that Nestlé’s purpose was to discourage parallel (competitive) imports. Although Aldi had only a small share of the retail market, the effect, according to the ACCC, was likely to be disproportionately larger. Nestlé Australia appealed to the Australian Competition Tribunal. Eventually the matter was settled between Nestlé and Aldi and the appeal was withdrawn. Application by Co-operative Bulk Handling Ltd (No 3) [2013] ACompT 3
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17.28C
Facts: Co-operative Bulk Handling Limited (CBH) lodged Notification with the ACCC that it intended to engage in conduct that might otherwise be in breach of s 47. The conduct involved CBH offering to supply grain storage and handling facilities and services on the condition that growers or marketers of grain also acquire supply chain co-ordination services and transport services from CBH (‘Notified Conduct’). This is a form of full line forcing. After investigating the proposed conduct, the ACCC revoked the Notification. CBH appealed to the Australian Competition Tribunal. Decision: The Tribunal considered the state of competition in the market, both with and without the Notified Conduct and found that the Notified Conduct represented a significant barrier to entry and was anti-competitive. While there were some public benefits, these benefits did not outweigh the detriment caused by the lessening of competition. Therefore, the Tribunal refused CBH’s appeal.
Authorisation 17.29 All types of exclusive dealing can be authorised pursuant to s 88, but only if there are public benefits flowing from the conduct which outweigh the lessening of competition. In dealing with an authorisation it must be remembered that it is not the role of the ACCC or the Australian Competition Tribunal to determine 43 Juice Station Franchising Pty Ltd — Notification N31144. 44 See Applications of Southern Cross Beverages Pty Ltd, Cadbury Schweppes Pty Ltd (1981) ATPR 40-200; Broken Hill Proprietary Co Ltd v Koppers Pty Ltd (1981) ATPR 40-203.
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whether there would be a breach of the Competition and Consumer Act. Their job is to weigh the public benefits against the reduction in competition. Re Tooth & Co Ltd; Re Tooheys Ltd (1979) ATPR 40-113 Facts: Tooths and Tooheys were rival New South Wales breweries. Between them, they dominated production of beer, particularly bulk (or draught) beer in New South Wales. Bulk beer was sold at the retail level mainly through hotels and clubs. A key marketing strategy of both brewers was to ensure as many tied retail houses as possible. A tied house was a hotel or club that agreed to sell only one bulk beer. The breweries used a number of levers to extract the ties. For example, hotels owned by the brewery were leased on condition that the lessee not sell a rival’s bulk beer (this would come under s 47(8)); alternatively, the brewery might agree to provide a loan to the retailer on condition that the retailer stock only the brewery’s beer; or the brewery might agree to supply beer-dispensing equipment to a retailer on condition that the retailer stock only the brewery’s beer (these two would fall under s 47(2)).
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Tooths and Tooheys sought authorisation to be allowed to continue with these ties. The applications were heard together because they involved essentially the same considerations. Decision: The Australian Competition Tribunal refused authorisation. The relevant product market was beer, both bulk and packaged, in New South Wales: see 12.41C. In the opinion of the Tribunal, the system of ties used by the breweries was an indirect method of dividing up the market for beer sales by forcing retail outlets to comply. The Tribunal made the following comments in respect of competition: • structural factors: – barriers to new entry — significant but by no means impossible in the absence of the tied house arrangements. Tied houses raised barriers considerably as successful entry depended on widespread market penetration. Ties closed off access to 41% of bulk beer outlets (ie, hotels) in New South Wales. This was of considerable importance as there were government limitations on new retailers starting up. Therefore, a new entrant could not set up its own system of retail outlets; – market shares — only two players in the bulk beer segment (with 96% share of that segment). Very little market penetration from potential competitors over 10 years (1% to 4%). Changes in market shares of the two breweries were due as much to management and labour problems as competition; • conduct factors: – price competition — very little price competition in bulk beer segment of market at both wholesale and retail level. Bulk beer made up over 50% of the market; – product development — very little product development in bulk beer. This was attributable to the inability of retailers to exert pressure for product development on breweries by threatening to switch to another supplier; – promotion ‘marketing’ — very little advertising of bulk beers. One witness who claimed that marketing was ‘aggressive’ admitted that this merely meant that retailers were visited by sales and promotional teams supported by visits from the technical people. Money spent on marketing beer was much less than other consumer goods; • performance factors: – market dynamics — the bulk beer segment exhibited some dynamic changes in market share over 10 years. However these were due as much to management and industrial problems as to effective competition.
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Marketing and the Law The breweries claimed a number of public benefits, including that the ties ensured: • more independent hoteliers (lessees and privately owned hotels) — without the ties, more hotels would be owned and managed by the breweries; • that new hotels were opened up and existing ones kept up to a high standard; • that production and distribution were more efficient; • that retailers had better access to finance through the breweries; and • that proper pouring equipment was used and that bulk beer was turned over more rapidly. Both contributed to a better quality of beer. The Tribunal was not convinced that these benefits (if they existed at all) outweighed the detrimental effects on competition.
Harper Review Recommendations 17.30 The Harper Competition Policy Review Panel45 recommended that: • s 47 of the Competition and Consumer Act be repealed due to it being too complicated and exclusive dealing cases be dealt with under ss 45 and 46; and • third line forcing only be unlawful if it has the purpose, or is likely to have the effect, of substantially lessening competition. The government accepted and has implemented the second of these recommendations.
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Marketing Advice 17.31 Section 47 of the Competition and Consumer Act is concerned with distribution restraints. Consequently, it is important to bear it in mind when appointing wholesalers, distributors, or franchisees that distribution restraints are only unlawful if they have the purpose, effect or likely effect of substantially lessening competition in the relevant market. This includes: • exclusivity agreements; • product bundling or tying; • third line forcing; • requirements contracts; • customer restraints; and • territorial restraints. In summary, firms are free to select distribution channels, provided that: • there are no market sharing agreements with competitors: Competition and Consumer Act s 45 and Pt IV Div 1; 45 Competition Policy Review, chaired by Professor Ian Harper (the ‘Harper Review’). See the Competition Policy Review, Final Report, March 2015, available at .
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• any exclusive arrangements, product bundling, third line forcing, requirements contracts, or customer or territorial restraints do not have the purpose, effect or likely effect of substantially lessening competition: Competition and Consumer Act s 47; and • any withholding of supply is not for the purposes of: – resale price maintenance: Competition and Consumer Act s 48; or – achieving an anti-competitive purpose under Competition and Consumer Act s 46.
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Franchising
18
Introduction......................................................................................... 18.1 Types of Franchise.............................................................................. 18.2 Advantages of the Franchising System.......................................... 18.3 Potential advantages to the franchisee...................................... 18.4 Potential advantages to the franchisor....................................... 18.5 Problems that Arise under Franchising........................................... 18.6 Problems from the outset.............................................................. 18.7 Operating problems....................................................................... 18.8 Inquiry into the operation and effectiveness of the Franchising Code in Australia............................................. 18.9 The Franchising Code of Conduct................................................. 18.10 An applicable industry code under the Act............................... 18.10 A mandatory industry code binding the franchise parties...... 18.11 Purpose and overview.................................................................. 18.12 Application to franchise agreements......................................... 18.13 Requirement for both parties to act in good faith.................. 18.14 Written statements that franchisee or prospective franchisee must provide to franchisor....................................18.15 Documents that franchisors need to provide to prospective franchisees............................................................ 18.16 Information statement............................................................. 18.17 Disclosure document................................................................ 18.18 Additional documents and matters........................................ 18.19 The franchise agreement............................................................. 18.20 Resolving disputes under the franchise agreement................. 18.21 Enforcement and compliance with the Franchising Code..... 18.22 Application of the Competition and Consumer Act to franchise agreements...........................................................18.23
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Franchisor must not act deceptively......................................... Franchisor must not act unconscionably................................. Any trading restraints must be reasonable and not breach Pt IV of the Competition and Consumer Act........... Obligations of the Franchisee........................................................ Marketing Advice..............................................................................
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18.24 18.25 18.26 18.27 18.28
Chapter 18: Franchising
Introduction 18.1 In determining the best way to get its products to market, a firm must decide on the most appropriate distribution structure. Broadly speaking, there are four choices: 1. a vertically integrated distribution process; 2. a distribution system that relies on the use of agents; 3. a distribution process that relies on independent dealers; and 4. a distribution process based on franchising. FIGURE 18.1 DISTRIBUTION STRUCTURES
Producer
Producer direct sale
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Consumers
Independent distributors
Franchisees Consumers
This chapter concentrates on franchising, which is a rapidly growing part of Australia’s small business sector. Franchising is a way of doing business characterised by a business relationship in which the franchisor (the owner of the business providing the product or service) assigns to independent people (the franchisees) the right to market and distribute the franchisor’s goods or service, and to use the business name for a fixed period of time.1 In Australia, franchising operates across a diverse range of industries including food retailing, non-food retailing, administration and support services, rental and hire services, education and training services, finance and insurance services, construction and trade services, healthcare and social services and information media and telecommunication services.2 Franchising is delivered in various ways including bricks and mortar outlets, online businesses, home-based enterprises, and mobile businesses.3
1 2 3
See Franchise Council of Australia, ‘What is franchising?’, available at . Parliamentary Joint Committee on Corporations and Financial Services, Fairness in Franchising, 14 March 2019 (Fairness in Franchising Report), at [2.11], full text available at . Fairness in Franchising Report, above n 2, at [2.11].
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Types of Franchise 18.2 Franchising offers an attractive compromise between capital-hungry vertical integration and fully independent distributors. A properly run franchise can produce efficiencies in distribution, advertising, management, and information transfer. ‘Franchise’ is a word that carries a variety of meanings. It has been applied in the following situations: • systems franchise — where the franchisee acquires the right to use a system belonging to the franchisor (eg, the McDonald’s chain of restaurants); these franchises often involve a very close relationship between the franchisor and the franchisee; the franchisee acquires a licence to use the franchisor’s name, logo, and business system (in other words, its way of doing business); • process or manufacturing franchise — where the franchisee acquires the right to produce a good (eg, the right to produce Coca-Cola soft drinks); and • product franchise — where the franchisee acquires the right to retail a good produced by someone else (eg, the independent petrol station).
Advantages of the Franchising System 18.3 As discussed below, there are a number of potential advantages of franchising over other more traditional forms of doing business.4
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Potential advantages to the franchisee 18.4 The potential advantages to the franchisee are numerous and include: • the opportunity to operate his or her own business; • the opportunity to operate under an established name and reputation (brand image); • the opportunity to use the experience of an established franchisor in identifying suitable trading locations and/or operating territories; • the opportunity to use the experience of an established franchisor in setting up business (eg, outfitting premises) and running the business; • the opportunity to receive general commercial and industry-specific training; • the opportunity to enjoy lower set-up costs and lower ongoing risks; • the opportunity to have access to better financing terms; • the opportunity to benefit from ongoing competitive inventory prices resulting from the franchisor’s buying power due to the size and scope of the franchise; and
4
See further the website of the Franchise Council of Australia: .
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• the opportunity to access the franchisor’s continuous research and development programs designed to ensure the franchise remains competitive.
Potential advantages to the franchisor 18.5 The franchisor also enjoys significant advantages, including: • the opportunity for rapid expansion without the funding and operational risks associated with internal expansion; • lower management costs; • an ability to tap into economies of scale; • the benefit of working with franchisees who may have a stronger incentive to succeed than employees; and • the opportunity to concentrate on finding new competitive advantages and new opportunities, rather than on operational matters.
Problems that Arise under Franchising
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18.6 Despite its obvious attractions and efficiencies, the franchising sector in Australia has tended to be characterised by a high level of disputes. In large part this is due to the nature of the franchise relationship and the inherent imbalance of power between franchisors and franchisees. The franchisor is granting a right to operate a business in line with its system usually for a set period of time. The franchisor owns the intellectual property; it controls the operation of the franchise; and it possesses by far the greater knowledge concerning the franchise. As such, the franchisor has a special responsibility not to take advantage of the relationship.
Problems from the outset 18.7 Problems may arise right from the outset if the prospective franchisee is not provided with appropriate information concerning the franchise business. The following matters have often caused problems in franchise relationships: • inadequate disclosure by franchisors before entering into franchise agreements; • misrepresentation by franchisors; • difficulties experienced by franchisees in obtaining redress from infringing franchisors; and • franchisees’ lack of understanding of the skills, experience, and capital necessary in order to succeed in franchising. The Franchising Code is designed to overcome these problems, see 18.10.
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Operating problems 18.8 Problems also arise in the operation of franchises, including in such highly successful and profitable operations as the McDonald’s system: see, for example, Far Horizons Pty Ltd v McDonald’s Australia Ltd.5 Matters which can be a source of strength to a franchise can also be a source of tension and hostility. For example, the initiation of a discount policy across a franchise may attract increased turnover and, in this sense, be beneficial to the franchise. However, if the franchisees have to bear the whole cost of the discount (in smaller profit margins) while the franchisor maintains its wholesale prices, then the policy appears to benefit mainly the franchisor. This is not an uncommon complaint made by franchisees. Franchisees, particularly systems franchisees, are generally not permitted much latitude in adopting their own initiatives and strategies. This may cause franchisees to become frustrated with the franchise operation. Nevertheless, consistency is necessary for the success of the franchise. A franchise will not work if each franchisee pulls in a different direction. On the other hand, the franchisee must not become too reliant on the franchisor. Another source of tension is the fact that, generally, franchisees have to pay ongoing franchise fees to the franchisor. This creditor-debtor relationship can work against the special relationship required to make a franchise work successfully, particularly in difficult times: see Poulet Frais Pty Ltd v Silver Fox Co Pty Ltd.6 Tensions can surface where the franchisor also operates as a franchisee. In such cases, the independent franchisees may feel that the franchisor has a conflict of interest. There have been cases where franchisors have encroached upon the territory of the independents, which will almost certainly cause friction: see ACCC v Simply No-Knead (Franchising) Pty Ltd.7 To assist franchisors and franchisees better understand their rights and responsibilities, the Australian Competition and Consumer Commission (ACCC) offers a range of free online resources and publications for both franchisors and franchisees which are available on its website.8 In addition, the ACCC sponsors a free online ‘Pre-entry franchise education’ course.9
5 6 7 8
9
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[2000] VSC 310. (2005) 220 ALR 211; [2005] FCAFC 131, see 18.24C2. (2000) 178 ALR 304; [2000] FCA 1365. See for example the ACCC publications ‘The Franchisee Manual’ and ‘The Franchisor Compliance Manual’ (both published 2 April 2019), ‘Franchising What You Need to Know’ (8 May 2019), ‘Quick guide to a franchise disclosure document’ (23 August 2019) and the series of educational videos ‘Buying a franchise — know the risks’, available at . Available at .
Chapter 18: Franchising
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Inquiry into the operation and effectiveness of the Franchising Code in Australia 18.9 On 22 March 2018, the Senate referred an inquiry into Australia’s franchise sector and the operation and effectiveness of the Franchising Code of Conduct to the Parliamentary Joint Committee on Corporations and Financial Services. The Committee’s Report, Fairness in Franchising, was published on 14 March 2019.10 The Committee was highly critical of the existing framework regulating the franchising industry in Australia, declaring that it had ‘manifestly failed to deter systemic poor conduct and exploitative behaviour’, and had also ‘entrenched the power imbalance’ favouring franchisors over franchisees.11 The Committee proposed substantial changes be made and put forward 71 separate recommendations in order to raise standards and conduct across the franchising industry and to rebuild confidence in franchising in Australia. The recommended regulatory changes address a range of issues including: disclosure, franchise registration, supplier rebates, whistleblower protections, unfair contract terms, cooling off periods, exit rights, collective action, dispute resolution, binding commercial arbitration, alignment of industry codes, churning, education, and leasing arrangements.12 The first recommendation of the Committee was for the government to establish an inter-agency Franchising Taskforce,13 which was established on 10 April 2019, to examine the feasibility and implementation of a number of the Report’s recommendations. On 23 August 2019 the Taskforce released its Issues Paper seeking feedback from the franchising sector in relation to a selection of the Committee’s recommendations.14 On 11 November 2019 the Taskforce released a Regulation Impact Statement,15 for consultation with stakeholders, which considers the potential impacts of regulatory change on the franchising sector. The Taskforce will use the consultation findings to inform the development of its advice to government on the issues presented in the Fairness in Franchising Report.
10 Fairness in Franchising Report, above n 2. 11 Fairness in Franchising Report, above n 2, at p xxii. 12 Parliamentary Joint Committee on Corporations and Financial Services, ‘Inquiry into Franchising in Australia’, media release, 14 March 2019. 13 Fairness in Franchising Report, above n 2, at p xvi; for information on the Franchising Taskforce, see the website of the Department of Employment, Skills, Small and Family Business: . 14 Franchising Taskforce Issues Paper in relation to the Fairness in Franchising Report of the Parliamentary Joint Committee on Corporations and Financial Services, 23 August 2019 available at . 15 See the Regulation Impact Statement in relation to the Fairness in Franchising Report of the Parliamentary Joint Committee on Corporations and Financial Services, 11 November 2019; and Department of Employment, Skills, Small and Family Business, ‘The Franchising Taskforce’ at .
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The Franchising Code of Conduct An applicable industry code under the Act 18.10 Section 51ACB of the Competition and Consumer Act 2010 provides that: ‘A corporation must not, in trade or commerce, contravene an applicable industry code.’ An ‘industry code’ is a code regulating the conduct of participants in an industry towards other participants in the industry or towards consumers in the industry.16 An ‘applicable industry code’ is defined in s 51ACA(1) to include two forms of industry codes — mandatory industry codes and voluntary industry codes17 — as declared by regulations made under s 51AE(1).18 For the avoidance of doubt, s 51ACA(3) declares that franchisors and franchisees are participants in the industry of franchising, whether or not they are also participants in another industry.
A mandatory industry code binding the franchise parties
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18.11 The Franchising Code is a prescribed mandatory industry code of conduct, the current version of which commenced on 1 January 2015.19 The Franchising Code is binding on both parties to a franchise agreement, and applies to conduct occurring on or after 1 January 201520 in relation to a franchise agreement entered into, renewed, extended or transferred on or after 1 October 1998.21 A small number of provisions of the Franchising Code will not apply to agreements entered into prior to 1 January 2015.22 However, if a franchise agreement which was entered into prior to 1 January 2015 is varied, renewed or transferred after 1 January 2015, it will be covered by the entire Franchising Code. The ACCC administers and enforces the Franchising Code. 16 Competition and Consumer Act 2010 s 51ACA(1). 17 A voluntary industry code binds a corporation that has agreed to be bound by it: s 51ACA(2). An example of a voluntary industry code is the Food and Grocery Code: see Competition and Consumer (Industry Codes — Food and Grocery) Regulation 2015 (Cth). 18 Competition and Consumer Act 2010 s 51ACA(1). 19 See Competition and Consumer (Industry Codes — Franchising) Regulation 2014 (Cth), Sch 1. The current version, which came into effect on 1 January 2015, replaced the 1998 Code. Other examples of mandatory industry codes include the Electricity Retail Code of Conduct: see the Competition and Consumer (Industry Code — Electricity Retail) Regulations 2019 (Cth); the Horticulture Code of Conduct: see the Competition and Consumer (Industry Code — Horticulture) Regulations 2017 (Cth); the Oil Code: see the Competition and Consumer (Industry Code — Oil) Regulations 2017 (Cth); the Port Terminal Access Code: see Competition and Consumer (Industry Codes — Port Terminal Access (Bulk Wheat)) Regulations 2014 (Cth); the Retail Unit Pricing Code: see Trade Practices (Industry Codes — Unit Pricing) Regulations 2009 (Cth); and the Sugar Code: see Competition and Consumer (Industry Code — Sugar) Regulations 2017 (Cth). 20 Other than to discharge an outstanding obligation, right or privilege that arose under the now repealed 1998 Franchising Code (cl 3(1) of the Franchising Code). 21 Franchising Code cl 3(1). 22 Franchising Code cl 3(4) sets these out in detail and they are also set out in a table in the ACCC’s publications ‘The Franchisee Manual’ and ‘The Franchisor Compliance Manual’, see above n 8.
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Purpose and overview 18.12 Clause 2 provides that the purpose of the Franchising Code is to ‘regulate the conduct of participants in franchising towards other participants in franchising’. In particular, the Franchising Code: • requires that both the franchisor and the franchisee act in good faith towards one another in respect of any matter arising under or in relation to the franchise agreement and the Franchising Code (Pt 1 Div 3); • requires franchisors to disclose specific information about a franchise before entry into a franchise agreement (Pt 2); • sets out the terms relating to the rights and responsibilities of both parties to the franchise agreement (Pt 3); and • provides procedures for resolving disputes between the parties to the franchise agreement (Pt 4).
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Application to franchise agreements 18.13 The Franchising Code applies to ‘franchise agreements’. A ‘franchise agreement’ is defined in cl 5(1) of the Franchising Code as an agreement (written, oral or implied): • in which one party (the franchisor) grants to another party (the franchisee) the right to carry on the business of offering, supplying or distributing goods or services in Australia; • under a ‘system or marketing plan substantially determined, controlled or suggested by the franchisor (or an associate of the franchisor)’; and • under which the operation of the business will be substantially or materially associated with a trade mark, advertising, or a commercial symbol owned, used, licensed or specified by the franchisor (or an associate of the franchisor); and • under which, before starting the business or continuing the business, the franchisee must pay or agree to pay to the franchisor (or an associate of the franchisor) a franchise fee of some type.23 For the avoidance of doubt, each of the following is taken to be a franchise agreement under the Franchising Code: the transfer or renewal of a franchise agreement, the extension of the term or scope of a franchise agreement, and a motor vehicle dealership agreement.24 The Franchising Code will not apply to franchise agreements:25 • entered into before 1 October 1998 (unless the agreement was transferred, renewed or extended after that date);
23 Certain payments specified in cl 5(1)(v)–(vii) are excluded. 24 Franchising Code cl 5(2)(a), (b) and (c). 25 Franchising Code cl 3(2)(a) and (b).
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• that are covered by another prescribed mandatory industry code (eg, franchise outlets that contain a fuel outlet are regulated by the Oil Code26 rather than the Franchising Code); • where the sales under the franchise are likely to provide not more than 20% of the gross turnover for the first year of the franchise, and the same goods and services have been supplied for two years immediately before entering into the agreement. If any business agreement meets the definition of a ‘franchise agreement’ set out in cl 5(1), it will be covered by the Franchising Code (even if the parties don’t describe it as a ‘franchise agreement’).27 In order to satisfy the definition of a ‘franchise agreement’, cl 5(1)(b) of the Franchising Code requires that the right to carry on the business be under a ‘system or marketing plan’ substantially determined, controlled, or suggested by the franchisor or an associate of the franchisor. The phrase ‘system or marketing plan’ is not defined in the Franchising Code; however, it is clear from the case law that it must involve more than just a distributorship arrangement. In Capital Networks Pty Ltd v .au Domain Administration Ltd28 and again in ACCC v Kyloe Pty Ltd,29 the Federal Court discussed the following indicators as helpful to informing a judgment as to whether ‘a system or marketing plan’ exists, however, this is not an exhaustive list:30 • the provision by the franchisor of a detailed compensation and bonus structure for distributors selling its products; • a centralised book-keeping and record-keeping computer operation provided by the franchisor for distributors; • a scheme prescribed by the franchisor under which a person could become a distributor, direct distributor, district director, regional director, or zone director; • the reservation by the alleged franchisor of the right to screen and approve all promotional materials used by distributors; • a prohibition on re-packaging of products by distributors;
26 The Oil Code is a prescribed mandatory code of conduct which regulates the conduct of suppliers, distributors and retailers in the petroleum industry: see above n 19. 27 As discussed at 18.22 a recent example of this was when the ACCC accepted a court-enforceable undertaking from Husqvarna Australia Pty Ltd (a subsidiary of the Husqvarna Group, a global power tool manufacturer based in Sweden) after it admitted it likely misled its franchisees when it stated that the Franchising Code did not apply to their ‘dealership agreements’. Franchising Code cl 3(2). 28 [2004] FCA 808 at [103]–[110] per Bennett J. 29 [2007] FCA 1522 at [40] per Tracey J. 30 The Federal Court also considered the indicators identified in US case law as to the presence of a system or marketing plan, including the Court of Appeals of Indiana in Master Abrasives Corporation v Williams 469 NE 2d 1196 (1984).
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• the provision of assistance by the alleged franchisor to its distributors in conducting ‘opportunity meetings’; • suggestion by the franchisor of the retail prices to be charged for products; • a comprehensive advertising and promotional program by the alleged franchisor; • the division of a state into marketing areas; • the establishment of sales quotas; • the franchisor having approval rights of any sales personnel whom the franchisee might seek to employ; • a mandatory sales training regime; • the provision of quotation sheets to the franchisee’s employees; • the provision by the franchisor of prescribed invoices and other sales forms; • a requirement that franchisees elicit certain information from their customers and provide that information to the franchisor; and • a restriction on the franchisee selling any of the franchisor’s products without first consulting the franchisor.
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Requirement for both parties to act in good faith 18.14 Traditional contract theory is largely based on the notion of a one-off transaction, such as the sale of a motor vehicle. In such contracts there is no need for a special term of good faith. Many distributorship contracts, however, do not fit this model and are more concerned with establishing an ongoing relationship. Franchising is a good example of this. Ideally the franchise arrangement will last for many years to the mutual benefit of the franchisor and the franchisee. It is not possible in a contract written at the beginning of the franchise to foresee, and allow for, all possible circumstances that may arise over the years. By necessity, each party must, to a certain extent, rely on the goodwill of the other.31 To cater for the special needs of contracts such as these, the common law is in the process of recognising an implied duty of good faith. The duty of good faith will apply both to the performance of obligations under the contract and to the exercise of contractual rights. But what does a duty of good faith mean? Can it be a breach of good faith to pursue one’s legitimate rights? Broadly speaking, a duty of good faith is perhaps best understood in negative terms; that is, a party must not act in bad faith. Clause 6 of the Franchising Code provides a statutory obligation on both parties to a franchise agreement to act towards one another in good faith ‘within the meaning of the unwritten law from time to time’ in respect of any matter arising
31 Of course, creating rules for relational situations is not a new phenomenon to the law. In the past, the common law has had to develop special rules for partnerships, fiduciary relationships (such as agency), and even companies.
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under or in relation to the franchise agreement and the Franchising Code.32 The statutory obligation to act in good faith also applies to a person who proposes to become a party to a franchise agreement.33 Accordingly, the parties’ obligation to act in good faith towards each other extends to: • the negotiation of the proposed franchise agreement; • the performance of the franchise agreement; • disputes relating to the franchise agreement or proposed franchise agreement; and • the end (including termination) of the franchise agreement. In matters involving allegations of breaches of the obligation to act in good faith, without limiting the matters to which a court may have regard, it may take into account: • whether the parties acted honestly and not arbitrarily; and • whether the parties cooperated to achieve the purposes of the agreement.34
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In order to assist with a practical understanding of the provision, the ACCC has provided the following examples of conduct that may indicate a lack of good faith under cl 6:35 • a franchisor treating a franchisee differently to other franchisees because the franchisee has raised concerns about the system; • a franchisor raising numerous minor and immaterial breaches with a franchisee in an aggressive and intimidatory manner designed to extract concessions or cessation of complaints; • a franchisee using confidential information provided by the franchisor to compete with the franchisor; • a franchisee using social media to post negative comments about the franchisor or a dispute they are having with the franchisor. For the avoidance of doubt, cl 6(6) of the Franchising Code clarifies that the obligation to act in good faith does not prevent either party to the franchise agreement (or a person who proposes to become such a party) from acting in their own legitimate commercial interests. Similarly, cl 6(7) of the Franchising Code stipulates that if a franchise agreement does not give the franchisee an option to renew or extend the agreement, it does not mean that the franchisor has not acted in good faith in negotiating or giving effect to the franchise agreement.
32 33 34 35
Franchising Code cl 6(1). Franchising Code cl 6(2). Franchising Code cl 6(3)(a) and (b). See ACCC, ‘The Franchisor Compliance Manual’, above n 8, at p 21, and ‘The Franchisee Manual’, above n 8, at p 6. More detailed examples are available on the ACCC website .
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The Franchising Code makes clear that a franchise agreement cannot limit or exclude the statutory obligation to act in good faith, and if it does, that clause will have no effect.36 The ACCC’s litigation against Ultra Tune37 was the first case to consider the use of the term ‘good faith’ in cl 6(1) of the Franchising Code. The Court accepted the ACCC’s submissions that the obligation of good faith requires that:38 … a franchisor must not use the powers and opportunities available to it to the detriment of a franchisee in the absence of any objective legitimate interest in doing so; and must co-operate to the extent possible with a franchisee or potential franchisee, providing that such co-operation is not to the detriment of the franchisor.
The obligation of good faith was also taken to require:39 … consideration by the franchisor of the position and interests of the franchisee, however, the franchisor is entitled to prefer its own commercial interests where there is a competition. What is prohibited is conduct that harms the franchisee where such conduct is not necessary for the protection of the franchisor’s interests.
This case and the appeal to the Full Federal Court is discussed at 18.24C1 below. The application of cl 6(1) of the Franchising Code was also considered in ACCC v Geowash Pty Ltd (Subject to a Deed of Company Arrangement) (No 3).40
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Written statements that franchisee or prospective franchisee must provide to franchisor 18.15 Buying a franchise is a significant financial and personal commitment for the franchisee. It is essential that the franchisee makes an informed decision as to the franchise’s likely success by understanding the franchise system and the particular market for the product or service being offered. Under cl 10(1) of the Franchising Code, a franchisor cannot enter into, renew, transfer or extend the term or scope of (or enter into an agreement to enter into, renew, transfer or extend the term or scope of) a franchise agreement or receive a non-refundable payment under a franchise agreement (or an agreement to enter into a franchise agreement) until the franchisor receives a written statement from the franchisee or prospective franchisee that it has received, read and had a reasonable opportunity to understand the disclosure document and the Franchising Code. In addition, for new franchise agreements, the franchisor cannot enter into a franchise agreement until it has received statements signed by the prospective franchisee that it has received appropriate independent legal, business, or 36 37 38 39 40
Franchising Code cl 6(4). ACCC v Ultra Tune Australia Pty Ltd [2019] FCA 12; see 18.24C1. At [358]. At [359]. [2019] FCA 72 at [684]–[765], discussed at 18.25C.
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accounting advice about the proposed franchise agreement or franchised business or a statement that the prospective franchisee has been told that such advice should be sought and decided not to seek it.41 The signed statements regarding professional advice received are not required if an existing franchisee is proposing to renew or extend the term or scope of an existing franchise agreement. In ACCC v South East Melbourne Cleaning Pty Ltd (in liq) (No 2),42 the ACCC brought an action against South East Melbourne Cleaning Pty Ltd (in liquidation), formerly Coverall Cleaning Concepts South East Melbourne Pty Ltd (Coverall), a Victorian franchisor of a national professional cleaning franchise system, alleging contraventions of the 1998 Franchising Code43 and the Australian Consumer Law. Of particular relevance, the Federal Court found that Coverall had contravened the 1998 Franchising Code by (amongst other things) entering into a franchise agreement with a prospective franchisee without first obtaining a signed statement that he had either been given advice about the agreement by an independent legal adviser, business adviser or accountant, or had been told that such advice should be sought but had decided not to seek it. The Court noted that Coverall ‘gave scant regard to the requirement that franchisees should be fully informed and given the opportunity to be independently advised before committing to the purchase of a franchise business’.44
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Documents that franchisors need to provide to prospective franchisees 18.16 A franchisor must provide a prospective franchisee with three key documents at least 14 days before the prospective franchisee enters into a franchise agreement or an agreement to enter into a franchise agreement, or makes a non-refundable payment to the franchisor (or an associate of the franchisor) in connection with a proposed franchise agreement.45 The franchisor must also follow this process if an existing franchise agreement is being renewed or the term or scope is being extended.46 The three key documents the franchisor is required to provide are: 1. a copy of the Franchising Code; 2. a copy of the disclosure document (discussed at 18.18); and 3. a copy of the franchise agreement in the form in which it is to be executed (discussed at 18.20). 41 Franchising Code cl 10(2) and (3). 42 [2015] FCA 25. See also ACCC, ‘Federal Court orders $500,000 penalty for cleaning franchise’, media release, 24 March 2015, available at . 43 Trade Practices (Industry Codes — Franchising) Regulations 1998. 44 ACCC v South East Melbourne Cleaning Pty Ltd (in liq) (No 2) [2015] FCA 25 at [81] per Murphy J. 45 Franchising Code cl 9(1). 46 Franchising Code cl 9(2).
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Failure to comply with these requirements can render the franchisor liable to civil penalties of up to 300 penalty units. In addition, if a prospective franchisee approaches a franchisor and expresses an interest in becoming a franchisee, the franchisor is required to provide the prospective franchisee with a copy of the information statement (discussed at 18.17).
Information statement 18.17 Under cl 11 of the Franchising Code, as soon as practicable after a prospective franchisee contacts a franchisor to express an interest in acquiring, or formally applies to acquire, a franchised business, the franchisor must provide the prospective franchisee with a copy of the ‘Information Statement for Prospective Franchisees’ set out in Annexure 2 to the Franchising Code (‘Information Statement’). The Information Statement is a generic two-page document which sets out information to assist franchisees in making a decision about the franchise by providing an overview about franchising, including the nature of the franchise relationship, potential risks associated with franchising, and reminders of the importance of conducting due diligence on the particular franchise and in obtaining appropriate legal, accounting and/or business advice from professionals with expertise in franchising before entering into a franchise arrangement. The requirement for a franchisor to provide an Information Statement does not apply to renewals or extensions of an existing franchise agreement.47
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Disclosure document 18.18 Clause 8(1) of the Franchising Code requires franchisors to maintain a ‘disclosure document’ relating to a franchise that complies with the requirements of the Franchising Code.48 The purpose of the disclosure document is to provide a prospective franchisee (or an existing franchisee who is renewing or extending the scope of the franchise agreement) with up to date information from the franchisor about the franchise that is material to the running of the business to assist the franchisee to make a reasonably informed decision about the franchise.49 Certain information must be included by the franchisor even if it might result in a franchisee deciding not to purchase the franchise. Information in a disclosure document must cover the content, and follow the form and order, set out in Annexure 1 to the
47 Franchising Code cl 11(4). 48 The disclosure document must comply with cl 8(3), (4) and (5) of the Franchising Code. 49 Franchising Code cl 8(2).
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Franchising Code.50 The information required to be disclosed by the franchisor in the disclosure document includes: • details of the franchisor (including the number of years the franchise has operated in Australia); • details of the business experience of the franchisor and of each officer of the franchisor; • details of certain types of legal proceedings against the franchisor and its directors; • details of any intellectual property material to the franchise system and the franchisee’s rights and obligations in connection to it; • details for the past three financial years of particular events in relation to the number of franchised businesses which have been transferred, ceased to operate, terminated, not extended and bought back by the franchisor (including for each event contact details of each former franchisee, unless the former franchisee has requested in writing such details not be disclosed); • contact details of existing franchisees; • information in relation to the franchise site or territory and policy for selection; • details relating to the supply of goods or services to the franchisee and by the franchisee (including details relating to online sales by the franchisee); • the franchisee’s costs to start operating the franchised business and other payments or fees they are required to make; and • details of the arrangements that will apply when the franchise agreement comes to an end. Franchisors are required to provide franchisees with a copy of the disclosure document at least 14 days before: • the franchisee enters into the franchise agreement (or an agreement to enter into a franchise agreement); or • makes a non-refundable payment to the franchisor in connection with the proposed franchise agreement.51 After entering into a franchise agreement, the franchisor must update the disclosure document within four months after the end of each financial year (subject to the exceptions set out in cl 8(7)). A franchisee can request (in writing) a disclosure document from the franchisor every 12 months, which is required to be provided within 14 days of the request.52 However, if the franchisor does not have an updated disclosure document (as the disclosure exception in cl 8(7) applies) the franchisor has up to two months of 50 Franchising Code cl 8(3). The ACCC has developed a model disclosure document (published October 2019 and available at accc.gov.au) with tips on how to fill in the details to assist franchisors to fulfill their disclosure obligations. 51 Franchising Code cl 9(1). 52 Franchising Code cl 16(1)(b) and (2).
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the date of the written request to provide an updated disclosure document to the franchisee.53 Failure to comply with these requirements can render the franchisor liable to civil penalties of up to 300 penalty units.54 ACCC v Morild Pty Ltd [2017] FCA 130855 Facts: The ACCC instituted proceedings against Pastacup’s franchisor, Morild Pty Ltd, and former director, Stuart Bernstein, for breaches of the Franchising Code in relation to alleged deficiencies in the information disclosed to potential franchisees. Under the Franchising Code Morild Pty Ltd was required to create and give to franchisees a disclosure document that, among other things, included a summary of the relevant business experience for the last 10 years of each officer of the franchisor. Mr Bernstein co-founded the Pastacup franchise in 2008 and had managed and been a director of two previous franchisors of the Pastacup franchise system that each became insolvent. Decision: The Federal Court found that Morild Pty Ltd had contravened cls 8(1) and 9(1) of the Franchising Code (and thereby contravened s 51ACB of the Competition and Consumer Act) because the franchise disclosure document that was provided to franchisees concerning the Pastacup franchise system failed to disclose that the relevant business experience of Mr Bernstein included that he was previously a director of two companies who had acted as franchisors of the same Pastacup franchise system and were wound up by reason of insolvency. This was regarded as relevant business experience that was required to be disclosed to prospective franchisees under the Franchising Code. Morild Pty Ltd was ordered to pay penalties of $100,000 for breaches of the Franchising Code and Mr Bernstein was also ordered to pay $50,000 for being knowingly concerned in the breaches.
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Additional documents and matters 18.19 Additional documents and matters that must be disclosed by a franchisor to the franchisee include the following: • copies of any agreements that the franchisee is required to enter into, such as: – leases or agreements to lease relating to the premises of the franchised business;56 – agreements relating to the franchisee’s use of intellectual property, confidentiality agreements, leases not relating to the franchised premises or hire purchase agreements, security agreements (including guarantees, mortgages and loan agreements) or restraint of trade agreements;57
53 Franchising Code cl 16(1)(a) and (2). 54 Franchising Code cls 9(1), 8(6) and 16(1). 55 See also ACCC, ‘Pastacup to pay $100,000 for breaches of new Franchising Code’, media release, 10 November 2017; and ACCC, ‘ACCC takes action against Pastacup for alleged breaches of Franchising Code’, media release, 22 September 2016, available at . 56 Franchising Code cl 13. 57 Franchising Code cl 14.
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• audited financial details of any marketing or other cooperative fund that a franchisee is required to pay money into;58 and • ‘materially relevant facts’ that could have an effect on the franchised business including financial details of the franchisor, changes in majority ownership or control of the franchisor, a change in the intellectual property (or ownership or control of intellectual property) that is material to the franchise system, and any judgments or proceedings against the franchisor relating to a range of matters specified in the Franchising Code.59 Failure to comply with these requirements and the timing specified within the particular clauses can render the franchisor liable to civil penalties of up to 300 penalty units.
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The franchise agreement 18.20 The franchise agreement is the contract between the franchisor and the franchisee. It sets out each party’s rights and responsibilities in relation to the franchised business and to one another. The Franchising Code also regulates the terms of a franchise agreement (see Pt 3 Div 3).There are a number of clauses that are expressly prohibited from being included in a franchise agreement (and if a franchise agreement does contain these clauses they will have no effect even if signed by the franchisee), these include: • a clause that provides a general release of the franchisor’s liability towards the franchisee or a waiver of any verbal or written representation made by the franchisor;60 • a clause that requires a party to the agreement to bring an action or proceedings in relation to a dispute under the agreement (or require the mediation of a dispute to be conducted), in any state or territory outside that in which the franchised business is based or in any jurisdiction outside Australia;61 and • a clause that requires the franchisee to pay the franchisor’s costs in relation to settling a dispute under the franchise agreement.62 A franchise agreement may come to an end in a number of ways — a transfer of the franchise agreement to a third party, a party terminating the agreement or the term coming to an end.63 Whether the franchisor or the franchisee has the right to terminate the agreement, and in what circumstances, will normally be determined by the terms of the contract. However, the Franchising Code requires certain
58 59 60 61 62 63
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Franchising Code cl 15. Franchising Code cl 17. Franchising Code cl 20. Franchising Code cl 21(2). Franchising Code cl 22. ACCC, ‘The Franchisor Compliance Manual’, above n 8, at p 14.
Chapter 18: Franchising
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procedures to be followed relating to the termination of a franchise agreement, including: • providing franchisees with a cooling-off period of seven days after entering into a new franchise agreement or an agreement to enter into a franchise agreement (noting that renewals and extensions of the term or scope of existing franchise agreements do not have a cooling-off period) and requiring that any monies paid by the franchisee under the new franchise agreement are repaid by the franchisor within 14 days;64 • preventing the franchisor from terminating the franchise, where the franchisee is in breach, unless the franchisor has first given reasonable notice (in writing) that it proposes to terminate the agreement because of the franchisee’s breach, tells the franchisee what needs to be done to remedy the breach and allows the franchisee a reasonable time (but not more than 30 days) to remedy the breach. If the franchisee remedies the breach in this time, the franchisor cannot terminate the franchise agreement because of the franchisee’s breach;65 and • preventing the franchisor from terminating the franchise agreement under the terms of the agreement, where the franchisee is not in breach, unless the franchisor has first given reasonable notice (in writing) of the proposed termination of the franchise agreement and the reasons for it to the franchisee.66 A franchisor does not have to comply with the termination procedures set out in cls 27 and 28 above if: • certain special circumstances set out in cl 29 occur (including the franchisee becoming bankrupt, the franchisee no longer holding a licence required for the franchised business, the franchisee voluntarily abandoning the franchised business or the franchisee operating the franchised business in a way that endangers public health) and the franchise agreement allows the franchisor to terminate in these circumstances;67 • the franchisor and franchisee mutually agree to terminate the franchise agreement.68 Under the Franchising Code, franchisors are also required: • to notify a franchisee in writing as to whether the franchisor intends to either extend the agreement or enter into a new agreement when the term of the agreement ends. The notice period required depends on whether the term of 64 Franchising Code cl 26. However, the franchisor may deduct from the amount repaid its reasonable expenses if the expenses or their method of calculation have been set out in the franchise agreement: cl 26(4). 65 Franchising Code cl 27. 66 Franchising Code cl 28. 67 Franchising Code cl 29(1)(a)–(g). 68 Franchising Code cl 29(2).
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the franchise agreement is more than six months (notice must be given at least six months before the end of the term) or less than six months (notice must be given at least one month before the end of the term);69 • not to unreasonably withhold consent to any transfer of the franchise agreement by the franchisee to another person;70 • to maintain a separate bank account for marketing fees and advertising fees contributed by franchisees;71 and • not to engage in conduct that would restrict or limit the freedom of existing or prospective franchisees to form an association or their ability to associate with one another for a lawful purpose.72
Resolving disputes under the franchise agreement 18.21 Part 4 (cls 34–45) of the Franchising Code deals with dispute resolution relating to franchise agreements. The Franchising Code requires franchisors to include in the franchise agreement an internal complaint handling procedure that complies with Pt 4 Div 2 of the Franchising Code.73 In addition, the Franchising Code provides its own framework for resolving disputes in Pt 4 Div 3. If a dispute arises under a franchise agreement, the franchisor or the franchisee may choose either to resolve the dispute by using the internal complaint handling procedure set out in the franchise agreement or to follow the procedure set out in the Franchising Code.74 The obligation of both parties to act in good faith will apply during the dispute resolution process.75
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Enforcement and compliance with the Franchising Code 18.22 The ACCC investigates alleged breaches of the Franchising Code and can take enforcement action where appropriate. If the Franchising Code is breached, there is also a breach of s 51ACB of the Competition and Consumer Act which states: ‘A corporation must not, in trade or commerce, contravene an applicable industry code.’ The ACCC uses a range of compliance and enforcement tools in order to encourage compliance, taking into account a broad range of factors, which are outlined in the ACCC’s ‘Compliance and Enforcement Policy and Priorities’.76 The
69 70 71 72 73 74 75 76
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Franchising Code cl 18. Franchising Code cl 25(2). Franchising Code cl 31. Franchising Code cl 33. Franchising Code cl 34. Franchising Code cl 35. Franchising Code cl 6(2)(a). This is outlined on the ACCC website and the compliance and enforcement priorities are updated each year.
Chapter 18: Franchising
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Act provides for a number of sanctions and orders for non-compliance with the Franchising Code, including ‘civil penalty provisions’. If there is a breach of a civil penalty provision, the ACCC may take the matter to court seeking a penalty of up to 300 penalty units for each breach.77 Other orders a court can make include: injunctions (s 80); damages (s 82); or other relief (s 87). A breach of the Franchising Code, however, does not make the contract unenforceable: Master Education Services Pty Ltd v Ketchell.78 Alternatively, the ACCC can issue infringement notices where the ACCC has reasonable grounds to believe that a civil penalty provision has been breached.79 Infringement notices are a timely and cost effective way of resolving the ACCC’s concerns and avoiding legal proceedings.80 The ACCC is more likely to consider using an infringement notice in circumstances81 where: • the conduct relates to isolated or non-systemic instances of non-compliance; • there have been low levels of franchisee harm or detriment; • the facts are not in dispute. On 4 May 2017, Domino’s Pizza Enterprises Ltd became the first company to pay an infringement notice in relation to alleged non-compliance with the Franchising Code since infringement notices were made available for breaches of the Franchising Code in 2015. Domino’s paid $18,000 after the ACCC issued it with two infringement notices in relation to its failure to comply with the requirement in the Franchising Code to provide franchisees with copies of the 2015/16 marketing fund financial statement and auditor’s report within the time limits prescribed by the Franchising Code.82 The ACCC may also accept formal undertakings under s 87B of the Competition and Consumer Act in which the ACCC and the party agree to certain actions (such as admitting a contravention), ceasing the offending conduct or requiring the implementation of a compliance program. If an undertaking is breached, the Federal Court may make enforcement and compensation orders. For example, on 27 August 2018 the ACCC accepted a court-enforceable undertaking from Husqvarna Australia Pty Ltd (a subsidiary of the Husqvarna Group, a global power tool manufacturer based in Sweden) after it admitted it was likely to have 77 Under Commonwealth law (ie, the Crimes Amendment (Penalty Unit) Act 2017 (Cth)), the value of one (1) penalty unit is (since 1 July 2017) $210, as per s 4AA of the Crimes Act 1914 (Cth). On 1 July 2020, the first automatic adjustment of the penalty unit to the Consumer Price Index (CPI) will occur with automatic indexation to occur on 1 July every three years thereafter. 78 [2008] HCA 38. 79 Competition and Consumer Act 2010 Pt IVB Div 2A. 80 ACCC Submission, ‘Inquiry into the operation and effectiveness of the Franchising Code of Conduct’, 11 May 2018, at p 30. 81 See ACCC, ‘Franchising penalties & infringements’ available at . 82 See ACCC, ‘Domino’s pays penalty for alleged Franchising Code breach’, media release, 8 May 2017 and ACCC Submission, ‘Inquiry into the operation and effectiveness of the Franchising Code of Conduct’, 11 May 2018, at p 17.
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misled its franchisees when it stated that the Franchising Code did not apply to their ‘dealership agreements’. Husqvarna acknowledged that this was likely to be misleading and in breach of the Australian Consumer Law and was likely to have given the dealers the impression they were not entitled to protections under the Franchising Code.83 Husqvarna also acknowledged that it is likely to have terminated one or more dealership agreements in breach of various clauses of the Franchising Code, including cl 27, and, in consequence, s 51ACB of the Competition and Consumer Act. In addition, Husqvarna acknowledged that its dealership agreement also contained several clauses that were potentially unfair contract terms and therefore void and unenforceable under Pt 2-3 of the Australian Consumer Law. To address the ACCC’s concerns, Husqvarna provided the ACCC with a s 87B undertaking84 to: • offer any new dealers a new agreement that complies with the Franchising Code and does not contain unfair terms; • provide all existing dealers with a written notification, in a form approved by the ACCC, that the Franchising Code applies to their current dealer agreement, as well as the opportunity to transition to the new agreement; • not enforce any of the unfair terms in the old agreement; • provide all new and existing dealers with a disclosure document and any other documents required by the Franchising Code; and • implement and maintain an Australian Consumer Law compliance program for a period of three years.
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Two recent actions taken by the ACCC against franchisors Ultra Tune and Geowash are discussed at 18.24C1 and 18.25C.
Application of the Competition and Consumer Act to franchise agreements 18.23 In addition to the obligations and protections provided under the Franchising Code, franchisors and franchisees are also subject to the other laws of general application to the operation of businesses in Australia, including the Competition and Consumer Act.85 The Australian Consumer Law, set out in Sch 2
83 See ACCC, ‘Franchisee rights denied in Husqvarna code breach’, media release, 29 August 2018. 84 See ‘Husqvarna Australia Pty Ltd’ on the ACCC Undertakings register at . 85 ACCC Submission, ‘Inquiry into the operation and effectiveness of the Franchising Code of Conduct’, 11 May 2018, at p 33.
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to the Act, provides protections for franchisees beyond those expressly provided for in the Franchising Code. In particular, the Australian Consumer Law: • prohibits false representations and misleading or deceptive conduct;86 • prohibits unconscionable conduct;87 and • provides a means of challenging unfair contract terms in standard form small business contracts,88 which can include franchise agreements. The Competition and Consumer Act also imposes the following additional obligations on the franchisor and franchisee: • It prohibits the franchisor from requiring the franchisee to acquire goods and services from particular suppliers if doing so has the purpose, effect or likely effect of substantially lessening competition.89 • It prohibits the franchisor from providing the franchisee with an exclusive territory if doing so has the purpose, effect or likely effect of substantially lessening competition.90 • It prohibits the franchisor and franchisee from agreeing to minimum prices for the sale of the franchisee’s goods or services.91 As discussed in Chapters 12, 13, 14, 15, 16 and 17, this anti-competitive conduct can be authorised by the ACCC where the public benefits of engaging in the conduct outweigh the public detriments.
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Franchisor must not act deceptively 18.24 A franchisor (or indeed any supplier) must not engage in conduct that is misleading or deceptive within the meaning of s 18 of the Australian Consumer Law. The general principles applying to s 18 were discussed in Chapter 10 and also apply in a franchising context. When the ACCC investigates alleged breaches of the Franchising Code there is often an associated action in misleading or deceptive conduct under s 18. This was the case in the recent actions taken by the ACCC against the Ultra Tune92 and Geowash93 franchise systems, discussed at 18.24C1 and 18.25C. If there has been a breach of s 18, the court may award damages under s 82 of the Australian Consumer Law, grant an injunction under s 80, or make any of the orders provided by s 87. Where the conduct of concern falls under one of the
86 87 88 89 90 91 92 93
Australian Consumer Law ss 18 and 29. Australian Consumer Law s 21. Australian Consumer Law s 23. Competition and Consumer Act 2010 s 47. Competition and Consumer Act 2010 s 45. Competition and Consumer Act 2010 s 48. Ultra Tune Australia Pty Ltd v ACCC [2019] FCAFC 164; ACCC v Ultra Tune Australia Pty Ltd [2019] FCA 12. ACCC v Geowash Pty Ltd (Subject to a Deed of Company Arrangement) (No 3) [2019] FCA 72.
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specific prohibitions in s 29 of the Australian Consumer Law, the conduct is subject to a civil pecuniary penalty. Ultra Tune Australia Pty Ltd v ACCC [2019] FCAFC 164 18.24C1
Facts: Ultra Tune Australia Pty Ltd (Ultra Tune) is a franchisor for motor vehicle engine repair and maintenance services provided by a national network of approximately 200 franchises operating in New South Wales, Queensland, Victoria and Western Australia.94 The ACCC alleged that in 2015 Ultra Tune failed to act in good faith in its dealing with a prospective franchisee, and failed to provide the prospective franchisee with particular documents specified under the Code before accepting a non-refundable payment. In addition, the ACCC claimed that Ultra Tune made false or misleading representations about the franchise site, in breach of the ACL.95
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Further, it was alleged that Ultra Tune failed to provide marketing fund financial statements and audit reports for three financial years to its franchisees. The ACCC also claimed that Ultra Tune failed to provide these documents for the 2015 financial year within the time period prescribed by the Code and that Ultra Tune also allegedly failed to update its disclosure document or provide it within the relevant times under the Code.96 Decision at first instance:97 Ultra Tune had breached the Australian Consumer Law by making false or misleading representations to the prospective franchisee about the price of the franchise, the ongoing rent of the premises and the age of the franchise. The prospective franchisee was also told that a $33,000 deposit was refundable when it was not. Ultra Tune breached the Franchising Code by: • failing to act in good faith by applying undue pressure to prospective franchisees to pay a deposit, refusing to release critical information about a franchise site, making false representations about that site and making false representations about the refundable nature of the deposit; • failing to provide a disclosure document, franchise agreement (in executable form) and a copy of the Franchising Code to the prospective franchisees before accepting a nonrefundable payment; • failing to prepare marketing fund statements within the required timeframes, failing to provide these statements and audit reports to franchisees and, by merely providing general categories of expenditure, failing to include ‘sufficient detail’ to provide ‘meaningful information’ to franchisees in the breach of cl 15(1); • failing to update its disclosure document, or provide copies of it, within the time periods set out in the Franchising Code.98 The Federal Court imposed a $2,604,000 penalty against Ultra Tune for breaching both the Franchising Code and the Australian Consumer Law. Ultra Tune was also ordered to pay the prospective franchisee the $33,000 deposit back with interest, publish corrective advertising,
94 ACCC v Ultra Tune Australia Pty Ltd [2019] FCA 12 at [1]. An unrelated entity, which was not a party to this matter, operates Ultra Tune branded businesses in South Australia and the Northern Territory. 95 ACCC, ‘ACCC takes action against Ultra Tune under Franchising Code’, media release, 19 May 2017. 96 ACCC, ‘ACCC takes action against Ultra Tune under Franchising Code’, media release, 19 May 2017. 97 ACCC v Ultra Tune Australia Pty Ltd [2019] FCA 12. 98 ACCC Submission, ‘Inquiry into the operation and effectiveness of the Franchising Code of Conduct’, 11 May 2018, at p 18; see also ACCC, ‘ACCC takes action against Ultra Tune under Franchising Code’, media release, 19 May 2017.
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Chapter 18: Franchising and implement a compliance program.99 Ultra Tune appealed against the primary judge’s determination that it contravened a disclosure obligation owed to franchisees in cl 15(1) of the Franchising Code to provide ‘sufficient detail’ and also appealed the imposition of penalties in respect of that and other admitted contraventions of the disclosure obligations in the Franchising Code. It did not appeal the other aspects of the judgment. Decision on appeal: The Full Federal Court (Allsop CJ, Jagot and Abraham JJ) dismissed Ultra Tune’s appeal against the primary judge’s conclusion that Ultra Tune contravened cl 15(1) of the Franchising Code but allowed the appeal against penalty.100 It affirmed that Ultra Tune had breached cl 15(1) of the Franchising Code by failing to ensure its marketing fund statements contained ‘sufficient detail’ to provide ‘meaningful information’ to franchisees about how the funds were spent.101 The court found that there was no meaningful information in simply stating that funds had been spent on television advertising and there were obvious details that should have been provided to franchisees. As the Full Federal Court put it:102 For example, it is obvious that such information could have included a breakdown of expenditure by reference to pay TV or free to air, or the channels on which the television advertising had appeared. The facts of the particular case will determine the issue of sufficiency … that a franchisor would be well advised to err on the side of candour. As it is, the financial statements contain only the item itself and no information about the item. However, the Full Federal Court allowed the appeal on penalty and reduced the penalties imposed against Ultra Tune from $2.6 million to $2.014 million after finding that Ultra Tune’s breach was a result of ‘egregious inadvertence’ to its obligations rather than any deliberate or wilful action.103
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Poulet Frais Pty Ltd v Silver Fox Co Pty Ltd (2005) 220 ALR 211; [2005] FCAFC 131 Facts: ‘Lenard’s Poultry Shop’ is a franchise arrangement with many stores throughout Australia. The franchising concept relates to the business of preparing fresh, ready to cook, gourmet poultry and other products for sale in retail outlets. In South Australia, the franchise is operated by Poulet Frais under a Master Franchise agreement. Poulet Frais locates suitable franchise sites, finds suitable franchisees, trains the franchisees, and provides the usual ongoing advice and supervision associated with a retail franchise. Mr and Mrs Baker (through their company, Silver Fox) decided to acquire a Lenard’s franchise. They were offered a new store in a new shopping centre. They were provided with the usual materials (including a disclosure statement). They received a financial package which set out various possible financial targets, the lowest of which was based on a weekly turnover of $8,000. They were told to seek and in fact did receive independent accounting and legal
99 See ACCC, ‘Ultra Tune to pay $2.6 million penalty’, media release, 18 January 2019. Note, as discussed in Chapter 11, while the maximum penalty for a breach of the Australian Consumer Law has recently increased to the greater of $10 million, or three times the value of the benefit obtained, or 10% of annual turnover in the preceding 12 months if the value of the benefit cannot be determined, the Ultra Tune case preceded the increase in maximum penalties so they did not apply. 100 Ultra Tune Australia Pty Ltd v ACCC [2019] FCAFC 164 at [2]. 101 ACCC, ‘Full Federal Court confirms franchisor obligations in Ultra Tune appeal decision’, media release, 23 September 2019. 102 Ultra Tune Australia Pty Ltd v ACCC [2019] FCAFC 164 at [47], [49]. 103 [2019] FCAFC 164, at [59], [60].
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Marketing and the Law advice. The franchise agreement (and all other material supplied by the franchisor) made it clear that the Bakers had to do their own homework before accepting the franchise. All the materials contained clear warnings that Lenard’s did not guarantee the success of the franchise or any particular turnover. The Bakers alleged that, as a result of the documents provided by Lenard’s and Poulet Frais (taken as a whole), Poulet Frais and Lenard’s had represented that: • the franchise, if operated according to the Lenard’s system, would return turnover of greater than $8,000 per week (the sales or profitability representation); and • the site selected by Poulet Frais as a Lenard’s franchise was chosen carefully according to Lenard’s criteria to achieve that kind of return (the site quality representation). Despite working hard, and despite following the Lenard’s system and taking advice from various Lenard’s representatives, the store failed to return the expected turnover. The Bakers were unable to pay Poulet Frais the advertising and other franchising fees owing. Eventually the franchise was terminated by Lenard’s pursuant to the franchise agreement (just as the franchise had started to return the expected turnover). The Bakers lost everything. They sued Lenard’s and Poulet Frais for breaches of the Trade Practices Act s 52 (the representations — now s 18 of the Australian Consumer Law) and s 51AC (the termination — now s 22 of the Australian Consumer Law). At trial the Bakers succeeded on both representations. Lenard’s and Poulet Frais appealed. Decision: The appeal was successful. Whether Lenard’s conduct was misleading depends on how that conduct would be viewed by a reasonable person, having regard to all the circumstances. • With regard to the sales or profitability representation, no reasonable person could conclude that Lenard’s was making a representation that any particular turnover could be achieved. Everything in the documentation refuted this suggestion. • With regard to the site quality representation, in hindsight Poulet Frais probably made a mistake about the site, but it had not acted carelessly. It applied the criteria used by Lenard’s. Therefore, the representation that the site had been chosen carefully according to Lenard’s criteria was not false.
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Whether the franchisor’s conduct is misleading depends on how that conduct would be viewed by a reasonable person, having regard to all the circumstances.
Franchisor must not act unconscionably 18.25 A franchisor must not engage in unconscionable conduct within the meaning of s 20 or s 21 of the Australian Consumer Law. A detailed discussion of the principles relating to unconscionability under the common law and the Australian Consumer Law was provided in Chapter 11 and those principles also apply in the context of franchising. In some instances where a party is in breach of the Franchising Code, they may also be in breach of s 21 of the Australian Consumer Law; for example, where a franchisor has deliberately failed to disclose upfront costs in the franchise agreement and then sought payments not provided for under the franchise agreement.
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Section 20 applies the equitable notion of unconscionability, as described in Commercial Bank of Australia Ltd v Amadio.104 Section 21 of the Australian Consumer Law prohibits a person, in trade or commerce, in connection with the supply or acquisition of goods or services from engaging in conduct that is in all the circumstances unconscionable. Although the term ‘unconscionable conduct’ is not defined, the section is explicitly not limited by the unwritten law relating to unconscionable conduct.105 Section 22 of the Australian Consumer Law contains a non-exhaustive list of items that a court may have regard to in determining whether conduct is unconscionable. The list includes such matters as the relative strengths of the bargaining positions of the parties involved, any discriminatory tactics, the terms of any relevant industry code of practice, and the extent to which the parties exhibited good faith in their dealings with each other. A summary of the principles that Australian courts have developed in relation to unconscionable conduct is set out in ACCC v Get Qualified Australia Pty Ltd (in liq) (No 2).106 As the Federal Court stated in a franchising context in ACCC v Geowash Pty Ltd (Subject to a Deed of Company Arrangement) (No 3):107 The focus of the provision is upon proscribing conduct that is against conscience; that is against an inner sense of what is right and wrong. Therefore, the statutory provision requires conduct to be measured against norms of commercial behaviour guided by a business conscience ‘permeated with accepted and acceptable community values’: Paciocco v Australia and New Zealand Banking Group Limited [2015] FCAFC 50; (2015) 236 FCR 199 at [298] (Allsop CJ).
Further:108
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… unconscionable conduct is characterised by a substantial departure from that which is generally acceptable commercial behaviour. It is a departure which is so plainly or obviously contrary to the behaviour to be expected of those acting in good commercial conscience that it is offensive.
ACCC v Geowash Pty Ltd (Subject to a Deed of Company Arrangement) (No 3) [2019] FCA 72 Facts: From 2013 until 2016 Geowash Pty Ltd (Geowash), a former national franchisor, offered carwash franchises to interested parties in Australia. The franchises were for hand car wash and detailing businesses to be conducted at particular sites (café areas and/or car parks near shopping areas). The standard Geowash franchise agreement provided that the franchisee was responsible for the payment of the costs of fit-out. Franchisees also had to pay Geowash for the equipment required to conduct the carwash business and there were other fees payable
104 (1983) 151 CLR 447; 46 ALR 402; 57 ALJR 358. 105 Australian Consumer Law s 21(4)(a); ACCC v Medibank Private Ltd [2018] FCAFC 235. 106 ACCC v Get Qualified Australia Pty Ltd (in liq) (No 2) [2017] FCA 709 at [60]–[66]. 107 [2019] FCA 72 at [659]; discussed at 18.25C. 108 [2019] FCA 72 at [662].
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Marketing and the Law by franchisees such as an establishment fee, documentation fee, site selection costs and expenses and an initial training fee. The ACCC claimed that Geowash engaged in misleading or deceptive conduct or conduct likely to mislead or deceive in contravention of s 18 of the Australian Consumer Law and also made false representations to prospective franchisees.109 Further, the ACCC claimed that Geowash engaged in unconscionable conduct in contravention of s 21 of the Australian Consumer Law in the manner in which it dealt with franchisees in respect of the costs of establishing a franchise. In addition, in relation to its dealings with franchisees that occurred after 1 January 2015, the ACCC claimed that Geowash did not act in good faith, in contravention of cl 6 of the Franchising Code. At all material times, Ms Sanam Ali was the sole director of Geowash and Mr Charles Cameron was the ‘national franchising manager’ for Geowash.110 Decision (per Colvin J): The Court found that Geowash made false or misleading representations on its website by: • suggesting that prospective franchisees could make revenues of $70,216 and estimated profits of $30,439 in an average 28-day period when Geowash had no reasonable basis for making those representations (revenue representation and the profit representation, respectively); • representing that Geowash had commercial affiliations with certain major corporate brands (Nissan, Kia, Renault, Audi, Emirates, Shell, Hertz, Holden, Ikea and Thrifty) when it did not (affiliation representation).111
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The Court found that Geowash engaged in unconscionable conduct towards franchisees as to its charging practices for the establishment and fit-out of Geowash franchise sites.112 The amount Geowash charged its franchisees did not reflect any real and genuine assessment by Geowash of expected costs of establishing those sites but instead the amount franchisees were willing and able to pay.113 Geowash was also found to have created the false impression that the amounts charged to franchisees would go directly towards the fit-out of their carwash site when in fact large amounts went to commission payments for Geowash’s director and its franchising manager and on other Geowash expenses.114 The Court held that as to the dealings with franchisees that occurred after 1 January 2015, Geowash breached cl 6(1) of the Franchising Code by failing to act towards four of its franchisees in good faith concerning its charging practices. Specifically, the manner in which Geowash said it would charge its franchisees in the disclosure document and the manner in which it did charge its franchisees (being respectively matters arising under the Franchising Code and the franchise agreement) involved a failure to act in good faith.115 In addition, the Court found that Geowash’s sole director, Ms Ali, was knowingly concerned in and a party to all the contravening conduct of Geowash. Geowash’s national franchising manager, Mr Cameron, was knowingly concerned in all the contravening conduct except the making of the revenue, profit and affiliation representations.116
109 [2019] FCA 72 at [8], [9]. 110 At [6]. 111 At [17], [18]. ACCC, ‘Court finds former car wash franchisor Geowash acted unconscionably’, media release, 11 February 2019. 112 ACCC, ‘Court finds former car wash franchisor Geowash acted unconscionably’, media release, 11 February 2019. 113 [2019] FCA 72, at [53], [572]. ACCC, ‘Court finds former car wash franchisor Geowash acted unconscionably’, media release, 11 February 2019. 114 [2019] FCA 72 at [580]. 115 At [752]. 116 At [15], [766]–[778].
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Any trading restraints must be reasonable and not breach Pt IV of the Competition and Consumer Act 18.26 The objectives of a supplier and its distributor may be quite different. Whereas the supplier probably wants to maximise sales of its own product, the distributor is probably looking to maximise its overall sales, including sales of products that compete with the suppliers. Because of this, the supplier may try to convince, or even force, the distributor to restrain some of its activities. For example, a supplier may: • insist that a distributor not deal in competing products; • tie the supply of one product to the supply of a secondary product; for instance, a supplier of photocopiers may insist that purchasers acquire their photocopying paper from the supplier (full line forcing) or from a subsidiary of the supplier (third line forcing); or • insist that a buyer not resell the supplier’s products in particular geographic areas or to particular customers.
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Restraints are not exclusively downward. Buyers may impose restraints upon a supplier. For example, a retail chain (the buyer) may agree to stock a supplier’s product on the basis that the supplier: • does not make the product available to other stores; or • does not supply the product direct to the public. In other words, the buyer wants some form of exclusivity. Franchise operations commonly include both supplier and buyer restraints; for example: • the franchisee is often required to obtain goods or services only from the franchisor or someone nominated by the franchisor; • the franchisee may be limited to a particular area; or • the franchisor often agrees not to license any person other than the franchisee in the franchise area. Any restraints of trade must be lawful, both at common law and under Pt IV of the Competition and Consumer Act. At common law, this means the restraint must be reasonable in the public interest and as between the parties: see Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd.117 Franchising is also subject to the anti-competitive conduct provisions in Pt IV of the Competition and Consumer Act. Thus, care must be taken not to engage in price fixing or market sharing between competitors, unlawful exclusive dealing (s 47) and resale price maintenance (s 48). If there is any possibility of these unlawful acts occurring, the franchise should give consideration to seeking authorisation or notification. These matters are discussed in Chapters 13, 16, and 17.
117 [1894] AC 535; [1891–4] All ER Rep 1, see 3.34C.
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In addition to the application of general law to any restraint of trade in a franchising context, cl 23 of the Franchising Code may provide some protection. This will be the case if a franchisee seeks in writing to extend the franchise agreement on substantially the same terms but the franchisor chooses not to grant the extension and the franchisor later attempts to enforce a restraint of trade clause against the franchisee. For the protection to apply, the franchisee needs to meet particular conditions set out in cl 23 (including that the franchisee was not in breach of the agreement and had not infringed the intellectual property of the franchisor or breached any confidentiality agreement).
Obligations of the Franchisee 18.27 The obligations of the franchisee are normally set out in the franchise agreement. Typically they include obligations: • to pay the franchise fee(s); • not to compete with the franchise; and • to act in good faith towards the franchisor under and in relation to the franchise.
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Marketing Advice 18.28 Advice for franchisors: • Know your obligations under the Franchising Code particularly in relation to the disclosure of information to the franchisee. • Know your rights and obligations under the franchise agreement. • Consult the ACCC website including its online resources about franchising including publications such as ‘The Franchisor Compliance Manual’. • Remember that the law expects franchisors to act in good faith towards the franchisee. Advice for franchisees: • Investigate the franchise before agreeing to anything. Entering into a franchise is a major commitment. At the very least you should: – read and understand the information statement, disclosure document, franchise agreement and a copy of the Franchising Code provided by the franchisor; – seek independent legal, accounting and business advice from professionals with expertise in franchising in relation to the franchise system;
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• •
•
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• •
– talk to existing and former franchisees who can provide an insight into how the franchise system works and the relationship that franchisor has with its franchisees.118 Know your rights under the Franchising Code. Know your rights and obligations under the franchise agreement. In particular, clauses on termination, renewal, end of term and transfer of the franchise and what will happen in the event that a franchisor becomes insolvent. Consult the ACCC website and its online resources on franchising including ACCC publications such as ‘The Franchisee Manual’. Complete the free Online Pre-Entry Franchise Education program.119 Remember that the law expects franchisees to act in good faith towards the franchisor.
118 Under item 6 of the disclosure document franchisors are required to provide prospective franchisees with details of current franchisees as well as franchisees who have left the system in the last three years unless the former franchisee has requested in writing that their details not be disclosed (see cl 32 of the Franchising Code). 119 Available at .
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e-Marketing and e-Commerce
1 19
e-Marketing ........................................................................................ 19.1 Distribution ........................................................................................ 19.2 Selling online and electronically-formed contracts ................ 19.3 United Nations Commission on International Trade Law (UNCITRAL) ............................................................ 19.4 A. Model Law on Electronic Commerce ............................... 19.4 B. Australian Electronic Transactions Acts ........................... 19.5 C. Contract formation ............................................................. 19.6 D. Online advertising and website content ........................... 19.7 E. Online selling ....................................................................... 19.8 F. Terms in e-commerce contracts ....................................... 19.9 Promotion ....................................................................................... 19.10 Email and SMS marketing ......................................................... 19.10 A. The Spam Act ...................................................................... 19.11 B. What is unsolicited? ......................................................... 19.12 C. Meaning of commercial .................................................... 19.13 D. Exemptions .......................................................................... 19.14 E. Penalties and remedies ...................................................... 19.15 Telemarketing ............................................................................... 19.16 A. Do Not Call Register .......................................................... 19.17 B. Marketing calls..................................................................... 19.18 C. Breaches of the Do Not Call Register Act ...................... 19.19 D. Washing .............................................................................. 19.20 E. Remedies and penalties ..................................................... 19.21 F. Telephone-based marketing research ............................ 19.22 G. When may calls be made?................................................ 19.23 H. What information must be provided? ........................... 19.24 785
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Marketing and the Law
I. When must telemarketing or research calls be terminated? ........................................................................ 19.25 Privacy .......................................................................................... 19.26 A. Collecting and using personal information ................... 19.27 B. Overview of the Privacy Act ............................................ 19.28 C. Application of the Privacy Act ......................................... 19.29 D. Meaning of personal information ................................... 19.30 E. Australian privacy principles ............................................ 19.31 i. Principle 1 — open and transparent management of personal information ............................................... 19.32 ii. Principle 2 — anonymity and pseudonymity .............. 19.33 iii. Principle 3 — collection of solicited personal information .................................................................. 19.34 iv. Principle 4 — dealing with unsolicited personal information .................................................................. 19.35 v. Principle 5 — notification of the collection of personal information .................................................. 19.36 vi. Principle 6 — use or disclosure of personal information .................................................................. 19.37 vii. Principle 7 — direct marketing ................................... 19.38 viii. Principle 8 — cross-border disclosure of personal information .................................................. 19.39 ix. Principle 9 — adoption, use, or disclosure of government-related identifiers ................................. 19.40 x. Principle 10 — quality of personal information ......... 19.41 xi. Principle 11 — security of personal information ....... 19.42 xii. Principle 12 — access to personal information ......... 19.43 xiii. Principle 13 — correction of personal information ................................................................... 19.44 F. Enforcement of the Privacy Act ...................................... 19.45 G. Notifiable data breaches .................................................. 19.46 International regulation ............................................................. 19.47 Jurisdictional issues .................................................................... 19.48 A. Contract .............................................................................. 19.49 B. Non-contractual issues .................................................... 19.50 Legal aspects of search engine marketing ............................... 19.51 A. Keyword advertising ......................................................... 19.52 B. Trade marks as keyword triggers .................................... 19.53 C. When might search engine advertisements be deceptive? .......................................................................... 19.54 D. Use of meta tags to improve web page search rankings ............................................................................... 19.55 Social network marketing .......................................................... 19.56 A. Defamation and injurious falsehood .............................. 19.57 786
Chapter 19: e-Marketing and e-Commerce
19.58 19.59 19.60 19.60 19.61 19.62 19.63 19.64 19.65 19.66 19.67 19.67 19.68 19.69 19.70
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B. Online and social marketing intellectual property issues .................................................................. C. Influencer and online reviews ........................................... Domain names ............................................................................ A. Registration ........................................................................ B. Domain name disputes ..................................................... C. ICANN dispute resolution process ................................. D. auDA dispute resolution process .................................... E. Misleading and deceptive conduct ................................. F. Passing off at common law ............................................. G. Domain names and the Trade Marks Act ...................... Codes of practice ........................................................................ A. e-Marketing Code of Practice ......................................... B. Internet industry codes of practice ................................ C. The IIA Content Code of Practice ................................... Marketing Advice ............................................................................
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e-Marketing 19.1 Electronic tools are most commonly used by business to facilitate the distribution of goods and services; or to promote goods, services, or organisations. Most businesses use some element of electronic communication or commerce in their marketing activity. There are a number of major legal issues arising from e-marketing, including: • difficulties associated with determining where transactions are concluded, and which country or state has jurisdiction; • matters of privacy, given the remarkable sophistication with which online information may be captured, exchanged and manipulated; • the difficulty of obtaining redress for purchasers or sellers when the other party is located overseas; • actual and perceived security concerns surrounding online payment; • the intrusiveness of unwanted commercial electronic messages; and • the rate and degree of change in the technological and social elements affecting e-marketing activities. Responses to these challenges can take a number of forms; legislation (see, eg, 19.11), self-regulation (see, eg, 19.68), and international cooperation (see 19.47).
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Distribution 19.2 Non-promotional aspects of e-marketing often take the form of using electronic infrastructure as a distribution channel to facilitate transactions with customers in business-to-consumer (B2C), business-to-business (B2B), and business-to-government (B2G) settings. This aspect of e-marketing is often designated as ‘e-commerce’. As markets become increasing global, marketers must be particularly mindful of jurisdictional issues affecting contracts such as distribution agreements.
Selling online and electronically-formed contracts 19.3 Businesses that sell goods or services online have matters to consider arising from contract law principles. A detailed examination of the principles of general contract law is beyond the scope of this book, but some relevant background and context are provided below. Parties to a contract are generally concerned with key questions such as: • formation — whether the contract satisfies the legal requirements to be enforceable and when the contract was formed; • construction — if there is a valid contract, what the terms of that contract are; and 788
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• jurisdiction — determining which laws will be applicable to the contract in the event of a dispute, based on where the contract was formed and the terms of the contract. In any legal dispute, evidentiary considerations are also critical; that is, the ability of a party to provide proof of their position in relation to the above matters.
United Nations Commission on International Trade Law (UNCITRAL) A. Model Law on Electronic Commerce 19.4 As the internet developed and e-commerce became more prevalent, the United Nations Commission on International Trade Law (UNCITRAL) prepared a Model Law on Electronic Commerce1 (the UNCITRAL Model Law) in 1996. The UNCITRAL Model Law served as a template that could form the basis for electronic commerce legislation in individual countries. The Commission also considers new technological and social developments relevant to e-commerce, such as mobile commerce (m-commerce). The Model Law seeks to embrace two principles: ‘technology neutrality’ — an attempt to have the law remain flexible enough to cater to emerging technologies; and ‘functional equivalence’ — an attempt to have the law provide for the treatment of elements of e-commerce in the same manner as traditional functions wherever possible. UNCITRAL has also developed the Model Law on Electronic Signatures (2001).2
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B. Australian Electronic Transactions Acts 19.5 Australia, along with other countries, has adopted the UNCITRAL Model Law and its principles are contained in the Electronic Transactions Act 1999 (Cth); the Australian states and territories have adopted the provisions of this Act in their respective state legislation. The objectives of the Electronic Transactions Act are set out in s 3 as follows: To … provide a regulatory framework that: (a) recognises the importance of the information economy to the future economic and social prosperity of Australia; and (b) facilitates the use of electronic transactions; and (c) promotes business and community confidence in the use of electronic transactions; and (d) enables business and the community to use electronic communications in their dealings with government.
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Available at . Available at .
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The Electronic Transactions Act seeks to meet these objects by providing that ‘a transaction is not invalid because it took place by means of one or more electronic communications’, and that any of the following requirements imposed under a law of the Commonwealth can be met in electronic form:3 (a) a requirement to give information in writing; (b) a requirement to provide a signature; (c) a requirement to produce a document; (d) a requirement to record information; (e) a requirement to retain a document.
C. Contract formation 19.6 For a contract to be valid and enforceable, it must be established that the parties had legal capacity and intended to enter into a legal relationship, there was an offer, there was acceptance of that offer, and consideration was provided. The offer and acceptance requirements in an online context are important for e-marketers to understand, as conduct by a marketer that amounts to an offer will create legally enforceable obligations as soon as the offer is accepted by a customer. Marketing conduct that does not amount to an offer, but is merely an invitation to treat, means the customer is required to make the offer, which the marketer may then accept or reject.
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D. Online advertising and website content 19.7 The law typically considers advertising as not constituting an offer in the legal sense, even though the word ‘offer’ may be used as a marketing tool (eg, the phrase ‘limited offer’). Advertising is typically regarded as an ‘invitation to treat’; that is, it serves to invite the customer or buyer to make an offer to purchase from the seller.4 Forms of marketing material, such as price lists and catalogues, have also generally been held to be only invitations to treat, rather than offers in the legal sense. So marketers would be well advised to construct their websites in a way that ensures that a reasonable person would understand that the content was clearly not an offer. This could be done by the inclusion of disclaimer statements and the careful choice of button labels used in online forms — ‘submit’ or ‘I agree’ being preferable to words that imply there was an offer made by the marketer on the website, such as ‘I accept’.
3 4
Electronic Transactions Act 1999 s 4. Partridge v Crittenden [1968] 2 All ER 421.
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E. Online selling 19.8 Of course, many businesses sell via websites, rather than just using the web for advertising or providing information. In this context, when a website customer clicks on a button on the seller’s website, such as ‘submit order’, the purchaser is considered to be making an offer that the seller accepts, usually automatically by the display of a confirmation webpage or email message. A contract is formed, as the offer has been accepted and this acceptance has been communicated to the party making the offer.
F. Terms in e-commerce contracts 19.9 Once it is established that a contract has been formed, the terms of that contract determine the respective rights and obligations of the parties. These issues are referred to as dealing with the ‘construction’ of the contract. In order for a seller’s terms to be incorporated into a contract, these terms must be presented to the purchaser prior to the contract being formed. eBay International AG v Creative Festival Entertainment Pty Ltd (2006) 170 FCR 450; [2006] FCA 1768 Facts: This case concerned the online sale of tickets to the Big Day Out event. Customers who purchased tickets online were presented with the terms of the sale during the online purchase process. Customers were required to confirm they had read and agreed to these terms by clicking a box during the online ordering process. Customers who purchased tickets online were sent their tickets by post, with tickets taking over six weeks to reach customers. When the tickets were posted they contained (on the rear of the ticket) terms that differed from the terms that customers had been presented with and agreed to during the online ordering process. Copyright © 2019. LexisNexis Butterworths. All rights reserved.
The terms in question related to the resale of tickets by the original purchasers. Decision: The court held that the terms printed on the back of the ticket did not form part of the contract and were not enforceable against purchasers.
To ensure that contracts for e-commerce sales are formed on the seller’s terms, marketers should pay careful attention to the design, processes, and content of online stores. This may necessitate reviewing the content and processes that marketers may use as part of their e-commerce offering. Online order processing and fulfilment are frequently outsourced and businesses may also use ‘off the shelf’ e-commerce software, rather than develop their own systems. Marketers should ensure that all terms relating to the sale are clearly presented to customers online and that customers are required to indicate that they have read and agree to these terms. This approach is referred to as a ‘click-wrap’ agreement.
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In addition to eBay International AG v Creative Festival Entertainment Pty Ltd,5 the enforceability of contractual terms in online contracts formed in this manner has repeatedly been confirmed by US courts.6 Businesses selling online through websites that do not adopt a ‘click-wrap’ approach, may sometimes provide their terms on their website, but not require online customers to acknowledge that they have read and agree to these terms. This approach is referred to as ‘browse-wrap’ and is typically seen where a website includes a link, such as ‘Click here to see our terms and conditions’, without a requirement that customers or website users read and agree to such terms. While such a practice is not recommended, US courts seem to have become more willing to enforce terms arising from ‘browse-wrap’ online contracts, particularly in business-to-business scenarios, where the buyer is not a consumer.7
Promotion Email and SMS marketing 19.10 Spam or electronic ‘junk mail’ has become a major problem. It is estimated that well over half of all email is spam mail. Consequently, many countries, including Australia, have introduced legislation in an attempt to control unsolicited electronic commercial messages. The relevant legislation in Australia is the Spam Act 2003 (Cth).8 The regulatory authority with responsibility for enforcing the Spam Act is the Australian Communications and Media Authority (ACMA).
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A. The Spam Act 19.11 The Spam Act prohibits the sending of unsolicited commercial electronic messages that have an Australian link. A commercial electronic message includes emails, instant messaging, SMS (mobile phone text messaging), and MMS (mobile phone graphic messaging), but does not include fax or voice-to-voice telemarketing. A commercial electronic message is any electronic message advertising or offering to supply goods, services, land, or investment opportunities.
5 6
(2006) 170 FCR 450; [2006] FCA 1768, see 19.9C. For example, see Moore v Microsoft Corp 741 NYS2d 91 (NY App Div 2002); Wholesale Telecom Corp v ITC Deltacom Comm’ns Inc 176 Fed Appx 76 (11th Cir 2006). 7 M A Lemley, ‘Terms of Use’ (2006) 91 Minnesota Law Review 456–463. 8 The Telecommunications Act 1997 (Cth) contains additional provisions about commercial electronic messages.
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B. What is unsolicited? 19.12 A message is not considered spam under the Act if the recipient of the commercial message has given his or her consent to receive it. Consent may be express or inferred. Consent can be inferred where: • because of an existing business or other relationship, the recipient had a reasonable expectation of receiving that commercial electronic message from the sender; or • the recipient has conspicuously published his or her work-related electronic address, and the message sent to that address is relevant to the work of the recipient. Silence, or a recipient failing to unsubscribe, does not constitute consent. Markets should be particularly mindful of issues of consent when acquiring lists from third parties. AUSvance LLC Infringement Notice proceedings Facts: AUSvance was in the business of providing business loans. AUSvance purchased a list of email addresses for marketing purposes from a third party. The third party seller of the list claimed that the list contained email addresses from users who had opted-in and that the list had been verified.
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Decision: Following an ACMA investigation, AUSvance was unable to demonstrate that it had consent from recipients of the marketing messages that it sent using the list it had purchased. It paid a $10,200 infringement notice.
Marketers have the evidential burden of proving consent. A double opt-in process, where email or SMS subscribers confirm subscription requests by replying to an initial confirmation message before they are added to a subscription list, is an effective way to ensure that consent has been both received and recorded. Sending messages after consent has been withdrawn will also breach the Act.9
C. Meaning of commercial 19.13 Section 6 of the Spam Act places further requirements and prohibitions on businesses sending commercial electronic messages. So, even where consent exists, messages must still include information about the entity that authorised the sending of the message. The ACMA has provided the following guidance for marketers as to what constitutes a ‘commercial electronic message’. The key factor in deciding if an electronic message is a commercial electronic message is whether the message is considered to have a commercial purpose.
9
See ACMA, ‘TPG pays $360,000 price for spam breaches’ at .
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Marketing and the Law Electronic messages with a commercial purpose may do one or more of the following: • offer, advertise or promote goods or services, land (or an interest in land) or business or investment opportunity • advertise or promote a supplier of goods or services or land or a provider of a business or investment opportunity • assist or enable a person to dishonestly obtain property belonging to another person • assist or enable a person to dishonestly obtain a financial advantage or other gain from another person. The purpose of the message will be decided based on the content of the message and the way it is presented. An electronic message may also be considered to be a commercial electronic message if the information which may be accessed via hyperlinks, telephone numbers or contact information in the message has a commercial purpose. This means that even if the message itself has no commercial purpose but provides a link to a web page, which is considered to have a commercial purpose (based on presentation and content), then it may fall within the scope of a commercial electronic message.
Examples of messages that would likely not be considered to be commercial under the Spam Act include: • genuine newsletters containing factual information; • surveys; and • messages advising residents of matters that affect them.
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Grays (NSW) Pty Ltd (2013) Infringement Notice proceedings 19.13C1
Facts: Grays (NSW), runs a business which conducts commercial auctions and the GraysOnline shopping websites. Grays conducted an email campaign to introduce its new GraysEscape online hotel booking service. Approximately 700,000 messages were sent to a number of recipients, of whom about 300,000 had previously opted-out of receiving electronic messages from Grays. So, if these messages were considered as commercial under the Spam Act, then the provisions of the Act would apply, requiring, inter alia, consent and functioning unsubscribe facilities. An ACMA investigation found that Grays had made a decision that the email campaign introducing its GraysEscape website was not promotional, so the Spam Act would not apply. Outcome: The ACMA’s position was that these messages were commercial, so in sending them Grays had breached the consent and opt-out requirements of the Spam Act. Grays was issued an infringement notice and fined $165,000.
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Optus Networks Pty Ltd Infringement Notice proceedings10 Facts: Optus sent 20,000 commercial electronic messages to their customers promoting the OptusZoo entertainment service. The sender identification contained in these messages was ‘966’.
19.13C2
Decision: The ACMA was of the view that ‘966’ in these messages was not sufficient, in that it failed to provide clear and accurate sender identification. Optus was issued with infringement notices totalling $110,000.
Under s 18 of the Spam Act, all commercial electronic messages are required to contain a functional unsubscribe facility. This means that recipients must be given a simple way of indicating that they do not wish to receive commercial electronic messages in the future. There have been a number of infringement notices with financial penalties imposed on marketers whose electronic messages have not met this requirement.
D. Exemptions 19.14 Electronic messages from certain sources, such as government, charitable, educational, and religious bodies, are exempt from the legislation. As mentioned above, messages that are not commercial in nature are not covered by the Spam Act. The Spam Act is supplemented by the Australian e-Marketing Code of Practice: see 19.67. The following case represents the first prosecution under the Spam Act and illustrates many of the key provisions of the Act.
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Australian Communications and Media Authority v Clarity1 Pty Ltd (2006) 155 FCR 377; [2006] FCA 1399 Facts: Following the introduction of the Spam Act in 2004, Clarity1 and its director were responsible for sending out over 200 million commercial electronic messages. Decision: The Federal Court held that by sending unsolicited commercial electronic messages and using harvested address lists, both Clarity1 and its director were in breach of a number of provisions of the Spam Act. The defendants unsuccessfully attempted to rely on various defences, including that they relied on the inferred consent of recipients as the recipients had the opportunity to withdraw their consent and did not. The court rightly rejected this defence. In an ‘opt-in’ approach, the ‘silence’ or non-response of recipients cannot be a basis for consent. Financial penalties of $4.5 million were awarded against Clarity1 Pty Ltd and of $1 million against its managing director.
10 See ACMA, ‘Optus pays second highest penalty to date for alleged breaches of the Spam Act’, media release 5/2009, 14 January 2009, available at .
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E. Penalties and remedies 19.15 As with some provisions of other statutes discussed in this book, the ACMA may either issue infringement notices or bring a matter before the courts where a business is alleged to be in breach of the Spam Act. Where the matter goes before a court, breaches of the Spam Act can result in penalties for individuals of up to $68,000 per day that the breaches occurred; and up to $340,000 for corporations. These penalties increase to a maximum of $340,000 per day for individuals and $1.7 million for corporations where a court has previously awarded a penalty for a breach of the Spam Act. Section 24 of the Spam Act sets out the factors to be considered by courts when determining penalties as follows: (2) In determining the pecuniary penalty, the Court must have regard to all relevant matters, including: (a) the nature and extent of the contravention; and (b) the nature and extent of any loss or damage suffered as a result of the contravention; and (c) the circumstances in which the contravention took place; and (d) whether the person has previously been found by the Court in proceedings under this Act to have engaged in any similar conduct; and (e) if the Court considers that it is appropriate to do so — whether the person has previously been found by a court in a foreign country to have engaged in any similar conduct.
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The ACMA successfully brought a series of actions against a number of parties involved in sending unsolicited SMS messages in Australian Communications and Media Authority v Mobilegate Ltd.11 Courts awarded penalties totalling over $24 million against eight respondents (three corporations and five individuals). Australian Communications and Media Authority v Mobilegate Ltd (2009) 261 ALR 326; [2009] FCA 1225 19.15C
Facts: The respondents created and registered fake profiles on dating and social networking websites. These profiles were used to collect Australian mobile telephone numbers from other members on these websites, who thought they were corresponding with other members seeking to meet them and form relationships through the website. Unsolicited SMS messages were then sent to the mobile telephone numbers that had been collected using premium rate telephone shortcodes, which offered to supply a ‘singles club’ or ‘fantasy chat’ service, or falsely represented that the fake members of the websites wanted to communicate with the recipient using the respondent’s ‘Safe Divert’ or ‘Maybemeet’ services, which were charged at premium rates (up to $5 per message). Users were led to believe that the premium number service was used to enable communication without disclosing mobile phone numbers as a matter of caution. 11 (2009) 261 ALR 326; [2009] FCA 1225, see 19.15C.
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Chapter 19: e-Marketing and e-Commerce The respondents allegedly obtained over $2 million through this scheme.
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Decision: The Court held that this conduct contravened s 16 of the Spam Act, which prohibits the sending of, or causing to be sent, unsolicited commercial electronic messages that have an Australian link. The court imposed penalties that it considered significant enough to deter such businesses and reflected the systematic, deliberate, and covert nature of the conduct.
This case is an example where heavy penalties were awarded based on the court’s application of the considerations set out in s 24 of the Spam Act. As an alternative to bringing a matter before the court, the ACMA may issue infringement notices where it has reasonable grounds to believe there have been contraventions of the Spam Act. The maximum penalty under an infringement notice is $34,000 per day for individuals and $1.7 million per day for corporations. A court may also make orders for the recovery of any financial benefit received through breaches of the Spam Act: s 29 (any amounts recovered under such orders are paid to the Commonwealth); and/or orders for the payment of compensation to victims who have suffered loss or harm as a result of the contraventions: s 28. A court may also grant injunctions: s 32. Enforceable undertakings may also be required of a party in connection with breaches of the Spam Act. Some leading brands, including Virgin Blue Airlines and Tiger Airways, have been the subject of both enforceable undertakings and financial penalties. The ACMA may also issue formal warnings under s 14 of the Spam Act. Examples of these formal warnings and details of formal warnings that have been issued are available on the ACMA website. For the Spam Act to apply, an ‘Australian link’ must be present. This will include messages that originate or are commissioned by a marketer in Australia and are sent to recipients in any location, and messages that are sent from outside Australia to an address in Australia.
Telemarketing 19.16 Some aspects of telemarketing may be covered by the Australian Consumer Law legislation (as discussed in Chapter 11), but of most relevance to telemarketing is the Commonwealth Do Not Call legislation.
A. Do Not Call Register 19.17 The primary statute regulating telemarketing in Australia is the Do Not Call Register Act 2006 (Cth). Under this Act, marketers must not contact telephone numbers that have been registered on the Do Not Call Register. Some calls are
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exempt under the legislation12 and may still be made or sent, including in the following circumstances: • where recipients have expressly agreed or requested to receive calls. By default, under the legislation, express consent lasts for three months unless a different period is specified. Consent may be terminated at any time by the owner of the phone number; • where the marketer has an established business relationship with the recipient, and consent can be reasonably inferred from that relationship; for example, it would be reasonable for organisations such as banks and utility providers to contact their existing customers. This inferred consent can be expressly terminated at any time by the recipient; and • public interest calls including those from charities or charitable institutions, educational institutions, religious organisations, government bodies, registered political parties, independent members of parliament, and political candidates.13
B. Marketing calls
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19.18 Marketing calls14 are broadly described in the Do Not Call Register Act15 as calls which solicit donations, or offer to supply, provide, advertise, or promote: • goods or services; • land or an interest in land; or • a business opportunity or investment opportunity. A marketing call must have a purpose that is of a commercial nature. This is determined by considering the content of the call and its presentation. In addition to conventional telephone calls, the Act also applies to calls that play a recorded message16 or use a synthetic voice, or where a telemarketer leaves a message on an answering machine or voicemail system. The Act also applies to fax messages. Given that the use of faxes has largely been supplanted by email, both generally and as a marketing tool, only a basic overview of the fax marketing standard is included below.
12 Do Not Call Register Act 2006 Schs 1, 1A, and 2. 13 The Telecommunications Legislation Amendment (Unsolicited Communications) Bill 2019 was introduced in 2019, but did not complete its passage through parliament, it sought to amend the Spam Act and Do Not Call Register Acts to regulate political and charity marketing. 14 Do Not Call Register Act 2006 s 5. 15 Do Not Call Register Act 2006 s 5B. 16 Such tactics were used by former Prime Minister John Howard in the 2004 federal election campaign, see ‘Liberals turn to telemarketing for election strategy’, 5 October 20014, available at . Such calls by political parties would be covered by the exemptions in s 11(1) and (2) of the Do Not Call Register Act 2006.
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In 2011 the ACMA implemented the Fax Marketing Industry Standard 2011.17 The Standard was intended to encourage best practice in fax marketing and established minimum requirements in four key areas: 1. restricting times for sending marketing faxes; 2. requiring specific information to be included in marketing faxes; 3. requiring an opt-out provision; and 4. restricting the frequency that marketing faxes can be sent in a particular period to a particular number. The ACMA can bring actions against marketers whose use of fax marketing breaches this Standard. Failure to comply with the provisions of an industry standard constitutes a breach of a civil penalty provision under s 128 of the Telecommunications Act and can result in infringement notices with penalties, or in court-imposed penalties of up to $50,000 for individuals and $250,000 for corporations per breach.
C. Breaches of the Do Not Call Register Act
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19.19 Any business or person that makes (or causes to be made) a telemarketing call18 to an Australian number that has been listed on the Do Not Call Register could face pecuniary penalties. Pecuniary penalties may also apply where a person or company: • aids, abets, counsels, procures, or induces (by threats or promises or otherwise) a contravention; • is in any way, directly or indirectly, knowingly concerned in, or party to a contravention; • conspires with others to effect a contravention of the prohibition against calling a number on the register.
D. Washing 19.20 Marketers intending to use telemarketing as a tool can access the register to check (or ‘wash’) their databases and contact lists to ensure they do not contain any numbers listed on the register. There are fees applicable to this washing. Typically, telemarketing providers would undertake this on behalf of companies that engage them.
E. Remedies and penalties 19.21 Enforcement options for breaches of the Do Not Call Register Act19 include formal warnings: Telecommunications Act s 40 or s 129; enforceable undertakings: 17 Fax Marketing Industry Standard 2011, made under s 125B(1) of the Telecommunications Act 1997, available at . 18 Do Not Call Register Act 2006 s 11. 19 Do Not Call Register Act 2006 Pt 4.
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Marketing and the Law
Telecommunications Act s 572B; infringement notices with pecuniary penalties: Do Not Call Register Act Sch 3; and prosecution or injunctions in relation to contraventions of civil penalty provisions. Actions are brought in the Federal Court or the Federal Magistrates Court. Maximum penalties that can be imposed by the court are $340,000 for individuals and $1.7 million for companies. If a court finds that civil penalty provisions under the Do Not Call Register Act have been breached, a person who has suffered loss or damage as a result may apply to the court for a compensation order, requiring that the party who breached the Do Not Call Register Act compensate the injured party. This application can be made by the injured party or be made on their behalf by the ACMA. The matter of Dodo Australia Pty Ltd did not go to trial, as Dodo opted to pay a fine. In 2008, telecommunications provider Dodo was fined $147,400. The ACMA had alleged that an offshore call centre, engaged by Dodo, made telemarketing calls on behalf of Dodo to 67 numbers listed on the Do Not Call Register. In addition to the fine, Dodo also agreed to enforceable undertakings under the Telecommunications Act, including a compliance program to ensure that Dodo did not further breach the provisions of the Do Not Call Register legislation. As with many aspects of marketing, marketers often engage contractors or outsource the running of direct marketing activities, such as telemarketing, and frequently use offshore providers. In these situations, an Australian company engaging overseas providers to make calls will be responsible for the calls that the overseas call centres make. Marketers using outsourced telemarketing providers should: • have a professionally prepared contract with enforceable terms requiring call centres to comply with Australian legislation, including the Do Not Call Register legislation; • ensure that providers have established effective procedures for checking numbers against the register; • ensure that all relevant staff — both in Australia and overseas — are trained as to the requirements of the Do Not Call legislation and other relevant statutes, such as the Competition and Consumer Act 2010 (Cth) and the Australian Consumer Law;20 and • conduct routine audits of any call centre’s records to ensure that they are not contacting phone numbers on the Do Not Call Register. Sections 12 and 12C of the Do Not Call Register Act require agreements for the making of telemarketing calls to comply with the Act.
20 Competition and Consumer Act 2010 Sch 2.
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F. Telephone-based marketing research 19.22 The Telecommunications and Research Calls Industry Standard 2007 applies to any person or business making telemarketing or research calls,21 including calls made by, or on behalf of, groups, whether or not they are exempt from the Do Not Call Register Act (eg, charities, government, and educational institutions). The Standard regulates when and how telemarketing and market research calls can be made, specifically: • when telemarketing and research calls cannot be made; • what information must be provided during a telemarketing or research call (and the use of calling line identification); and • when telemarketing or research calls must be terminated. Two categories of marketing calls are covered by the Standard: • research calls — defined as a call with at least one purpose of conducting opinion polling or standard questionnaire-based research; and • telemarketing calls — defined as a call that has at least one purpose of supplying, advertising, or promoting goods or services, or an interest in land, or a business or investment opportunity, or advertising; or promoting a supplier of any of the above; or the soliciting of donations. If a call has both research and telemarketing purposes, then the call is treated as a telemarketing call for the purposes of the Do Not Call Register Act.
G. When may calls be made?
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19.23 Telemarketing and research calls are not to be made during the times in the table below, unless the recipient of the call has consented to a call during these times. The term ‘consent’ has the same meaning as in the Do Not Call Register Act. TABLE 19.1 TIMES WHEN TELEMARKETING AND RESEARCH CALLS MAY NOT BE MADE WEEKDAYS
SATURDAY
SUNDAY
NATIONAL PUBLIC HOLIDAYS
Research calls
Before 9.00 am After 8.30 pm
Before 9.00 am After 5.00 pm
Before 9.00 am After 5.00 pm
All day
Other telemarketing calls
Before 9.00 am After 8.00 pm
Before 9.00 am After 5.00 pm
All day
All day
21 Telecommunications (Do Not Call Register) (Telemarketing and Research Calls) Industry Standard 2007 s 4.
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H. What information must be provided? 19.24 The information that must be provided (and when during a call it must be provided) depends on whether the call is a research call or telemarketing call. If a call has both purposes, both purposes need to be stated immediately at the commencement of the call. TABLE 19.2 INFORMATION TO BE PROVIDED DURING CALLS TELEMARKETING CALLS Information required to be provided as soon as a call starts:
• the first name of the person calling • the purpose of the call • if the call is from a telemarketing company calling on behalf of another business, the name of that other business
Information that must be provided at the request of the recipient of the call (this information does not need to be provided if the recipient of the call does not request it):
• the full name or staff ID of the person calling • if the person calling is an employee of a business, the name and contact details of that business • if the person is not calling as an employee of business, the caller’s full name or business name and contact details • if the telemarketing business is calling on behalf of another business, the contact details of that business • the name and contact details of the person responsible for dealing with inquiries and complaints about the call
Information that must be provided within Seven days if the recipient of the call requests it:
• where the caller obtained the telephone number being called • the name of the person for whom the call was intended • the name and contact details of any organisation that provided information to the person calling
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RESEARCH CALLS Information that must be provided as soon as the call starts:
• the first given name of the caller • the purpose of the call
Information that must be provided on request or, if the consumer does not request it, before the end of the call:
• if the call is from a research company calling on behalf of another business, the name of that other business
Information that must be provided on request if applicable, but does not need to be provided if the consumer does not ask for it:
• the full name or staff ID of the caller • if the caller is calling as an employee of a business, the name and contact details of the employer • if the person is not calling as an employee of business, the caller’s full name or business name and contact details • if the call is being made on behalf of another business, the contact details of that business • the name and contact details of the person responsible for dealing with inquiries and complaints about the call
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Chapter 19: e-Marketing and e-Commerce TABLE 19.2 INFORMATION TO BE PROVIDED DURING CALLS — cont’d RESEARCH CALLS Information that must be provided within seven days if the consumer requests it:
• where the caller obtained the telephone number being called • the name of the person for whom the call was intended • the name and contact details of any organisation that provided information to the person calling
A caller must also ensure that calling line identification is enabled at the time they make any calls.
I. When must telemarketing or research calls be terminated? 19.25 A caller must immediately terminate a call if the recipient requests this or otherwise indicates they do not want the call to continue. If a caller is made aware the recipient of the call is not at their usual residential address, or that the time at the recipient’s location is outside permitted calling times, then the call must be terminated unless the recipient consents to the call being continued.22 The ACMA can bring actions against marketers who breach this Standard. Failure to comply with the provisions of an industry standard constitute a breach of a civil penalty provision under s 128 of the Telecommunications Act and can result in infringement notices with penalties, or in court-imposed penalties of up to $50,000 for individuals and $250,000 for corporations per breach.
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Privacy 19.26 While privacy law affects business practices beyond just those activities that might be characterised as e-marketing, e-marketing conduct in particular should be carefully reviewed by marketers for compliance with privacy requirements.
A. Collecting and using personal information 19.27 Consumers are concerned about the collection and use of their personal information. This is particularly pertinent to e-commerce because of the inherent capacity to gather, process, and store information. Quite sophisticated consumer profiles can be built up from the information provided (often unwittingly) by internet users; for example, through the use of ‘cookies’. Initially, the Commonwealth government was reluctant to legislate for privacy in the commercial arena. Its preferred stance was to rely on market forces and industry codes to deliver what consumers wanted in terms of privacy. This view, however, placed Australia at risk of failing to comply with provisions of the European Union’s Directive on data privacy (the EU Data Protection Directive).23 22 Telecommunications (Do Not Call Register) (Telemarketing and Research Calls) Industry Standard 2007 s 7. 23 European Directive 95/46/EC.
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The EU’s General Data Protection Regulation (GDPR),24 adopted in April 2016, provides that member states of the European Union shall protect the fundamental rights and freedoms of natural persons and, in particular, their right to privacy with respect to the processing of personal data. The EU Data Protection Directive is based on the OECD Guidelines Governing the Protection of Privacy and Transborder Flows of Personal Data.25 Article 25 of the EU Data Protection Directive provides that member states of the European Union must only permit a transfer of personal data to non-European Union countries if an adequate level of protection for the data is ensured.26 The GDPR seeks to harmonise current data protection laws across EU member states. This instrument is a ‘regulation’ rather than a ‘directive’, so is directly applicable to all European Union member states without a need for each of them to implement its provisions through national legislation.
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B. Overview of the Privacy Act 19.28 The Privacy Act 1998 (Cth) regulates the collection, use, storage, and disclosure of personal information about individuals, and access to and correction of such information. The Privacy Amendment (Enhancing Privacy Protection) Act (Cth) 2012 made many significant changes to the Privacy Act. These changes (and the Privacy Regulation 2013 made under the Privacy Act) came into effect in March 2014. There are 13 ‘Australian privacy principles’ contained in Sch 1 of the Privacy Act. These Australian privacy principles are based on the OECD Guidelines (also the source of the EU Data Protection Directive: see 19.27). The Privacy Act is administered by the Office of the Australian Information Commissioner (OAIC), an independent Australian government agency established under the Australian Information Commissioner Act 2010. The Privacy Act provides for the Information Commissioner to approve and maintain a register of enforceable privacy codes that have either been developed by industry or other groups, or developed by the Information Commissioner. Provided an industry code is no less protective than the Australian privacy principles, it will be approved by the Privacy Commissioner. It then becomes enforceable under the Privacy Act. If a business is not subject to an approved code of practice, it is automatically subject to the Australian privacy principles.
24 Available at . 25 OECD Guidelines Governing the Protection of Privacy and Transborder Flows of Personal Data, originally published in 1980 and updated in 2013, see ‘OECD work on privacy’ at . There has been some debate as to whether these Guidelines are an effective set of principles for the cyberspace age: see generally M Kirby, ‘Privacy in Cyberspace’ (1998) 21 UNSWLJ 323. 26 Blocking of personal data flows is permitted under art XIV of GATS (General Agreement on Trade in Services).
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C. Application of the Privacy Act 19.29 The Privacy Act applies to businesses (and non-profit organisations) with annual turnover greater than $3 million and to all health service providers. Certain businesses with annual turnovers less than $3 million are also subject to the requirements of the Act, including businesses that: • are related to another business (such as a holding company or a subsidiary) with an annual turnover greater than $3 million; • disclose personal information for a benefit, service, or advantage, or provide someone else with a benefit, service, or advantage to collect personal information; • are contracted service providers for a Commonwealth contract; • are employee associations registered or recognised under the Fair Work (Registered Organisations) Act 2009; • are contracted service providers for a Commonwealth contract; or • are health service providers. The Privacy Act does not generally apply to: • state or territory government agencies, including health care facilities (these are covered under state and territory legislation), except in their dealings with ‘personally controlled electronic health records‘ and ‘individual healthcare identifiers‘; • government universities and public schools; • media organisations in the course of journalism if the organisation is publicly committed to observing published privacy standards; and • registered political parties and political representatives.
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D. Meaning of personal information 19.30 The Australian privacy principles apply only to personal information. Personal information is information or an opinion (including information or an opinion forming part of a database), whether true or not, and whether recorded in a material form or not, about an individual whose identity is apparent or can reasonably be ascertained from the information or opinion: Privacy Act s 6. It includes all personal information, regardless of its source. Personal information relates only to a natural living person; it does not include information about a company. Therefore, the provisions of the Privacy Act do not apply to the collection and use of information about companies.
E. Australian privacy principles 19.31 The following is a very brief summary of the Australian privacy principles.
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i. Principle 1 — open and transparent management of personal information 19.32 This principle includes a requirement that organisations must have a current and clearly worded policy covering the management of personal information by the organisation. This policy must be made readily available and must contain certain specified information.
ii. Principle 2 — anonymity and pseudonymity 19.33 This principle includes a general requirement that individuals dealing with the organisation are able to do so anonymously.
iii. Principle 3 — collection of solicited personal information 19.34 This principle includes a requirement that only information reasonably necessary for the entity’s functions or activities is collected and regulates the means of collecting personal information. The collection of sensitive information is also specifically addressed under this principle.
iv. Principle 4 — dealing with unsolicited personal information 19.35 This principle sets out how an organisation must handle personal information that it did not solicit: it is a requirement that only information reasonably necessary for the entity’s functions or activities is collected; it also regulates the means of collecting information. The collection of sensitive information is also specifically addressed under this principle.
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v. Principle 5 — notification of the collection of personal information 19.36 This principle sets out what an organisation must tell individuals when the organisation collects personal information, including the fact that personal information has been collected, the purposes for such collection, any other organisations that may receive the personal information, details of the organisation’s privacy policy, and how an individual may access the personal information the organisation holds regarding them.
vi. Principle 6 — use or disclosure of personal information 19.37 This principle covers when and how an organisation may use or disclose personal information that it has collected for a secondary purpose.
vii. Principle 7 — direct marketing 19.38 This principle sets out how and when an organisation may use or disclose personal information for the purpose of direct marketing. The general position is that if an organisation holds personal information about an individual, the organisation must not use or disclose the information 806
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for the purpose of direct marketing unless such use falls into one of the following categories: • The organisation collected the information from the individual (ie, did not acquire the information from a third party), the individual could reasonably expect such use to be made of the information, and the organisation has provided an opt-out process that the individual has not utilised. • The individual has given their consent for such use of the information, and any such use contains an opt-out facility. • If an organisation is a contracted service provider for a Commonwealth contract and collects information to fulfil a contractual obligation, then direct marketing use or disclosure will be permitted if doing so is necessary to meet such contractual obligations. Organisations must promptly action any opt-out requests made by individuals in relation to the use of information for marketing. Principle 7 does not apply to the extent that any provisions of the Do Not Call Register Act, the Spam Act, or any other legislation apply.
viii. Principle 8 — cross-border disclosure of personal information 19.39 This principle includes the requirement that an organisation that discloses personal information outside Australia, must take reasonable steps in the circumstances to ensure that an overseas recipient does not breach the Australian privacy principles.
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ix. Principle 9 — adoption, use, or disclosure of government-related identifiers 19.40 This principle restricts the use or disclosure by organisations of governmentrelated identifiers, which could include information such as driver licence, passport, or Medicare numbers.
x. Principle 10 — quality of personal information 19.41 This principle requires that organisations take reasonable steps to ensure that personal information they collect, use, or disclose is accurate, up to date, relevant, and complete.
xi. Principle 11 — security of personal information 19.42 This principle requires organisations holding personal information to take reasonable steps to protect such information from misuse, interference, loss, unauthorised access, modification, or disclosure. An organisation is also required to destroy or de-identify any personal information that is no longer required, unless such information must be retained by law. 807
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xii. Principle 12 — access to personal information 19.43 This principle requires that, generally, individuals are to be given access to personal information that an organisation holds regarding them, unless the organisation believes that such access would pose a serious threat to public or individual health or safety, or would unreasonably impact on the privacy of another person.
xiii. Principle 13 — correction of personal information 19.44 This principle requires that organisations holding personal information must take reasonable steps to correct any incorrect, incomplete, non current, irrelevant, or misleading information, or must provide explanations as to why such corrections are not made.
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F. Enforcement of the Privacy Act 19.45 Complaints about an organisation to which the Privacy Act applies can be made to the Information Commissioner. When the Commissioner receives a complaint, the individual must in most cases be referred back to the organisation to give the organisation a chance to resolve the complaint directly: Privacy Act s 40(1A). If the individual and the organisation cannot resolve the complaint between themselves, the Office of the Information Commissioner conciliates the complaint using letters and phone calls, or in some cases, face-to-face meetings. In the majority of cases, the complaint is resolved in this way. As a last resort, the Commissioner can make a formal determination. If an organisation does not comply with the determination, either the Commissioner or the complainant can seek to have the determination enforced by the Federal Court. The Commissioner may also investigate an act or practice that may be a breach of privacy even if there is no complaint: Privacy Act s 40(2). Copies of determinations from complaints and more general public interest determinations are available on the Commissioner’s website.27 If an organisation has decided to be bound by a privacy code that has its own complaints handling procedures, the individual would complain to the privacy code adjudicator. A privacy code adjudicator or the complainant can seek to have a determination enforced by the Federal Court. The Commissioner has the power to review a complaint heard by a privacy code adjudicator. Section 13G of the Privacy Act provides that an organisation that seriously or repeatedly interferes with the privacy of an individual or individuals, may be subject to civil penalties of up to $340,000. The Commissioner may also seek pecuniary penalties in the Federal Court of up to $340,000 for individuals and $1.7 million for companies. 27 See .
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The court must consider all relevant matters in determining whether to impose a pecuniary penalty, including the circumstances, nature, and extent of the contravention, loss or damage suffered as a result of the contravention, and any previous findings of a court against the organisation under the Privacy Act. Telstra Corporation Ltd (2013) Investigation of the Office of the Australian Information Commissioner28 Facts: The Privacy Commissioner received allegations that personal information about Telstra customers was publicly accessible online. Telstra was notified of the breach and took immediate steps to respond to the breach. An investigation also determined that the breach led to personal information, including names, addresses, and phone numbers of approximately 15,775 customers (including a number of customers with silent or unlisted numbers) being compromised. Personal information held by Telstra on this same platform had previously been breached in 2011, resulting in the personal information of approximately 734,000 customers being made publicly available online. At the time of the data breach, Telstra was taking remedial steps in response to the 2011 breach. Decision: The Commissioner found that Telstra: • failed to take reasonable steps to ensure the security of the personal information that it held; • failed to take reasonable steps to destroy or permanently de-identify the personal information it held; and • disclosed personal information other than for a permitted purpose. Telstra acted appropriately in response to the breach, by immediately disabling all public access to files containing the data. Since the breach, Telstra had ‘undertaken an appropriate review of the incident and data involved, and taken appropriate steps to notify potentially affected customers. Telstra [had] also partially addressed the [Office of the Australian Information Commissioner’s] recommendations and is in the process of addressing those remaining’.
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The Commissioner decided to close the investigation.
In 2019, the Commonwealth government announced proposed amendments to the Privacy Act, including: • increased penalties for all entities covered by the Act, which includes social media and online platforms operating in Australia, from the current maximum penalty of $2.1 million for serious or repeated breaches to $10 million or three times the value of any benefit obtained through the misuse of information or 10% of a company’s annual domestic turnover — whichever is the greater; • providing the OAIC with new infringement notice powers backed by new penalties of up to $63,000 for bodies corporate and $12,600 for individuals for failure to cooperate with efforts to resolve minor breaches;
28 See ‘Telstra Corporation Limited: Own motion investigation report’, 1 March 2014, at .
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• expanding other options available to the OAIC to ensure breaches are addressed through third-party reviews, and/or publishing prominent notices about specific breaches and ensuring those directly affected are advised; • requiring social media and online platforms to stop using or disclosing an individual’s personal information upon request; • introducing specific rules to protect the personal information of children and other vulnerable groups.29 At the time of writing, these proposed amendments had not been enacted.
G. Notifiable data breaches 19.46 From February 2018 firms to which the APPs apply have statutory obligations to report eligible data breaches where they have reasonable grounds to believe a breach has occurred.30 Affected individuals and the OAIC must be notified of such breaches. An eligible data breach is a breach where: • there is unauthorised access to or unauthorised disclosure of personal information, or a loss of personal information, that an entity holds, • this is likely to result in serious harm to one or more individuals, and • the entity hasn’t been able to prevent the likely risk of serious harm with remedial action.
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Examples of unauthorised access or disclosure could include: • loss or theft of a device containing personal information about customers; • unauthorised access to a database containing personal information; and • personal information being provided in error to a party to which it should not have been. Notifications made to individuals must include details of the breach and recommendations about actions the individuals should take as a result of the data breach.
International regulation 19.47 One of the major problems facing regulators is the often international character of e-marketing and e-commerce. When is a trader resident outside Australia bound by Australian law? By creating a web page, a firm immediately makes itself subject to the possibility of action by regulatory authorities around the world. Different countries have different rules. For instance, traders wishing to run a competition over the internet ought to pay close attention to the rules of eligibility. Some jurisdictions require permits; others do not allow competitions at all. Perhaps 29 See . 30 Privacy Amendment (Notifiable Data Breaches) Act 2017.
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more pertinent than jurisdiction, is the issue of enforcement. How does a consumer in Australia obtain prompt and adequate redress against a seller resident in the US with no physical presence in Australia? What action can the Australian Competition and Consumer Commission (ACCC) take against a firm operating a fraudulent scam over the internet, if the firm is located somewhere in Europe? There are two aspects to resolving these problems. First, attempts have to be made to get some international harmonisation of laws. Second, national regulatory authorities must cooperate where possible to enforce those laws. These challenges were identified by regulators early in the era of e-commerce,31 but still largely remain a vexing challenge for the international organisations seeking to find a resolution to these matters. The OECD has released a set of agreed guidelines for the protection of consumers in the electronic marketplace.32 The guidelines seek to ensure that consumers are no less protected when they purchase online as when they buy from a physical store or order from a catalogue. Although not binding, the guidelines may very well become the standard for e-commerce regulation, just as the OECD Guidelines Governing the Protection of Privacy and Transborder Flows of Personal Data have tended to become the international norm for privacy protection. The guidelines are based on the principle that online consumers ought to be accorded transparent and effective protection that is no less than the protection consumers enjoy in more traditional forms of commerce. To achieve this, the guidelines call for:33 • fair business, advertising, and marketing practices; • clear information about an online business’s identity, the goods or services it offers, and the terms and conditions of any transaction; • a transparent process for the confirmation of transactions; • secure payment mechanisms; • fair, timely, and affordable dispute resolution and redress; • privacy protection; and • consumer and business education. The Australian approach is to rely on market forces, supported by self-regulation. It should be noted that the OECD guidelines are similar to the provisions of the Direct Marketing Code of Practice (see 11.46), and the Internet Industry Privacy Code of Practice (see 19.68). At the enforcement level, the ACCC works with various national and international organisations, such as the International Marketing Supervision Network (IMSN), which conducts regular worldwide sweeps of the internet for scams. 31 For example, see the ACCC’s discussion paper, The Global Enforcement Challenge: Enforcement of Consumer Protection Laws in a Global Marketplace, 1997. 32 OECD, Guidelines for Consumer Protection in the Context of Electronic Commerce, December 1999. 33 OECD, Guidelines for Consumer Protection in the Context of Electronic Commerce, December 1999.
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Jurisdictional issues 19.48 The advent of the internet and e-commerce has led to many more transactions involving parties in different countries. Determining which law should apply and which courts should hear disputes in such circumstances poses significant legal challenges. A detailed discussion of international or interstate jurisdiction is beyond the scope of this book. However, some general principles relevant to e-commerce are set out below.
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A. Contract 19.49 As discussed earlier in this chapter, determining when a contract is formed is fundamental in ascertaining on which party’s terms the contract is made. Determining when a contract is formed will also affect the law applicable to the contract and any disputes that arise from it. The reasons for this may be twofold: there may be a term of the contract specifying the applicable law; or the place where the final act in the creation of a contract (acceptance by the party receiving the offer) takes place will determine where the contract was formed and hence the applicable law. So, in an ideal online purchase, the purchaser is presented with the seller’s terms, then makes an offer by clicking on a ‘submit’ or similar button, with the seller then accepting that offer by confirming the order. So the contract will generally be formed when and where the acceptance is received by the buyer. However, this location may be difficult to determine; for example, Australian customers may purchase online from an Australian website when they are travelling overseas (possibly even literally while they are travelling overseas, with in-flight internet now offered by some airlines). The Electronic Transactions Act, discussed at 19.5, clarifies such circumstances, providing that the receipt of electronic messages, such as the acceptance of a website customer’s order by the seller, is deemed to take place at the recipient’s place of business or ordinary place of residence.34
B. Non-contractual issues 19.50 Online marketers may face jurisdictional issues in relation to matters other than contract, including liability for torts (such as passing off, negligence, or defamation (see 19.57)), or issues under statute (such as copyright, trade mark, or trade practices legislation). Approaches adopted in a number of decisions by US courts can provide some guidance as to the factors that courts may consider in determining a party’s connection to a particular jurisdiction. Sending email
34 Electronic Transactions Act 1999 s 14 and state equivalents.
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messages to recipients in a particular jurisdiction35 and operating a website36 or posting content to another’s website37 that is available within a jurisdiction, have been held to establish sufficient connection with a jurisdiction.
Legal aspects of search engine marketing 19.51 Search engine marketing has seen extremely rapid growth since the early to mid-1990s, when it first became available as a promotional tool. This medium is now accounting for more advertising expenditure than traditional means of advertising. Search engine marketing may take a number of forms, but the focus of this section is on keyword advertising and the use of meta tags, which pose some particular issues for marketers. There have been arguments that these problems are new, and another view is that the legal questions raised by this practice are similar to those in the offline world.38
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A. Keyword advertising 19.52 Keyword advertising is the basis upon which search providers, such as Google, are able to offer internet users powerful search engine capability without charging the users. Advertisers nominate keywords or phrases that they expect their potential customers may be using to conduct searches on internet search engines. For example, a car-parts retailer might expect their potential customers to be using a search engine to search for the keywords ‘car parts’ or ‘spark plugs’. The advertiser would nominate these keywords as triggers to display their online paid advertising along with the ‘organic’ search results that the search engine displays to internet users when they do a search. These advertisements (sometimes referred to as ‘sponsored links’) typically appear to the right of or above the organic search results and are marked as advertising or sponsored links. The advertisers hope that their advertisements will appeal to the web user and be relevant to the keywords being searched, so that the user will click on the advertisement and be taken to the advertiser’s website. The advertiser may be charged by the search engine per click, or each time their advertisement is displayed, making this form of advertising both targeted and measurable. Two key legal issues highlighted by keyword search engine marketing have been: the use of another’s trade mark (such as the mark of a competitor)
35 Hall v La Ronde 66 Cal Rpt 2d 399 (1997). 36 Abiomed Inc v Turnbull 379 F Supp d 90 (D Mass 2005). 37 Zippo Manufacturing Co v Zippo.com Inc USPQ 2d 1062 (1997) (including where an agent posts on the defendant’s behalf: Uebeler v Boss Media AB 03 CV 4790 (2006)). 38 See, for example, E Goldman, ‘Brand spillovers’ (2009) 22 Harvard J L & Tech 381.
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as a keyword to trigger the display of advertising; and whether search engine advertising may mislead or deceive internet users.
B. Trade marks as keyword triggers
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19.53 The use of another’s trade mark as a keyword trigger in search engine marketing will not amount to an infringement of that mark, as such use is not ‘use as a mark’, as discussed in Chapter 7. Google, the dominant search provider, had previously implemented a policy in Australia (and some other locations) that was more favourable to trade mark owners than in most other areas around the world where Google operates. Previously, if Google received a complaint from a trade mark owner alleging that their mark was being used as a keyword by an advertiser, Google would prevent the advertiser from using the trade mark as a keyword. In 2013, Google changed its policy in Australia (and some other locations) so that Google will now not investigate or restrict the use of another’s trade mark by a marketer either as a search term (keyword) or in the display URL (that appears below an advertisement on Google, or via its network), even if Google has received a trade mark complaint from the owner of the mark. Google’s stated rationale for this approach (that it will not investigate or restrict the use of a trade mark in a display URL) is because the trade mark in the display URL may not necessarily constitute trade mark use, particularly in post-domain paths or subdomains. Google has, however, retained a policy restriction on advertisers using registered trade marks in the visible text portion of an advertisement on Google, where the owner of the mark has lodged a trade mark complaint with Google.39 The foregoing highlights the ‘quasi regulatory’ role that dominant players can assume in a market space.
C. When might search engine advertisements be deceptive? 19.54 Misleading and deceptive conduct is covered by the Australian Consumer Law, as discussed in Chapters 10 and 11. Essentially, any conduct, in trade or commerce, that is misleading or deceptive, or is likely to mislead or deceive, will breach the Australian Consumer Law. Two aspects of search engine marketing that could give rise to allegations of such conduct are: 1. the content of the displayed advertisements, just as the content of advertising in any other medium has the capacity to be misleading and deceptive; and 2. more unique to search engine advertising, the nature of the advertisements (ie, is it clear to consumers that advertising is advertising, as opposed to organic search results).
39 See ‘Trademarks’ in the ‘Advertising Policies Help’ section of .
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Sponsored links not being clearly identified as advertising, and/or not being sufficiently distinguished from organic search results, could amount to misleading and deceptive conduct, as could the copy that an advertiser uses in its search advertising (eg, advertising that suggests a connection with a competitor’s product). Both these issues have featured in action by the ACCC against Google and one of their advertisers, Trading Post. Google Inc v ACCC (2013) 249 CLR 435; 294 ALR 404; 99 IPR 197; [2013] HCA 1 Facts: The ACCC commenced an action against Google in July 2007, alleging breaches of ss 52 and 53(d) of the Trade Practices Act (now ss 18 and 29(1)(h) of the Australian Consumer Law), claiming misleading or deceptive conduct and misrepresenting that a corporation has a sponsorship, approval, or affiliation it does not have. The ACCC alleged misleading and deceptive conduct in Google’s failure to adequately distinguish ‘sponsored links’ from ‘organic’ search results. The ACCC further alleged that Trading Post (as Google’s client and advertiser in this case) contravened ss 52 and 53(d) of the Trade Practices Act in 2005 when the business names ‘Kloster Ford’ and ‘Charlestown Toyota’ appeared in sponsored links to Trading Post’s website that appeared on Google search result pages. Kloster Ford and Charlestown Toyota are Newcastle businesses that compete against Trading Post in automotive sales. When an internet search was conducted for ‘Kloster Ford’ or ‘Charlestown Toyota’, internet users were presented with the sponsored links to the Trading Post website on the right hand side and/or at the top of the Google results page.
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The ACCC sought declarations, injunctions, implementation of trade practices compliance programs, corrective notice, and costs. Decision: The court held that Google had not breached these provisions because, when it displayed sponsored links (advertisements), Google was ‘only a means of communication between advertisers and consumers’ by delivering automated responses to a user’s search request. The display of these advertisements was ‘wholly determined by the keywords and other content … which the advertiser has chosen. Google does not create, in any authorial sense, the sponsored links that it publishes or displays’ and so the display of the advertising ‘does not render Google the maker, author, creator or originator of the information in a sponsored link’.
The ACCC had locked horns with Trading Post on this issue previously, resulting in Trading Post agreeing to stop using competitors’ names and trade marks in sponsored links on the internet, although it did not admit that its conduct was misleading under the Trade Practices Act. Clearly Trading Post pursued a different path, leading to the ACCC action. It is important to note that in Google Inc v ACCC40 the actual copy of the advertisements that appeared on the Google search results page contained the trade mark, rather than the trade mark being used merely as a keyword trigger, 40 (2013) 249 CLR 435; 294 ALR 404; 99 IPR 197; [2013] HCA 1, see 6.34C and 19.54C.
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invisible to internet users. The display of another’s trade mark in the copy of an advertisement is more likely to amount to ‘use as a mark’, as required to establish trade mark infringement, and also will likely have greater propensity to mislead and deceive consumers.
D. Use of meta tags to improve web page search rankings 19.55 In addition to paying search engines to have advertising appear alongside (or above) organic search results, marketers may undertake ‘search engine optimisation’ (SEO). This involves structuring the layout and content of a website in such a way that search engines will rank the site highly when displaying search results. The exact methods that search engines use to rank websites are kept confidential, but one approach often adopted by marketers is the use of meta tags to attempt to improve the ranking of their website on search results pages. Meta tags are text contained in the code of web pages, not visible to human visitors to a website, but which search engines use for their indexing and ranking of web pages. Legal issues may arise when meta tags contain another’s registered trade mark or other content that may amount to misleading and deceptive conduct. Mantra Group Pty Ltd v Tailly Pty Ltd (No 2) (2010) 267 ALR 347; 86 IPR 19; [2010] FCA 291
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19.55C
Facts: Mantra ran an accommodation complex on the Gold Coast and had registered trade marks for the name of the property Circle on Cavill. The apartments in the complex were owned by many independent parties and Mantra did not have management rights for all the apartments in the complex. Tailly had management rights for a number of apartments in the complex and conducted a range of marketing activities promoting the apartments it managed in the complex, using the words ‘Circle on Cavill’ and other derivations, including common misspellings of Mantra’s trade mark. This use by Tailly included using the trade mark as a meta tag in their websites. Decision: The court ruled that the use of the trade marks in meta tags was not ‘good faith’ use within the provisions of s 122(1)(b) of the Trade Marks Act 1995 (Cth) and the respondents were permanently restrained from using the applicant’s trade mark in their marketing, including as part of a domain name, meta tag, or search engine keyword.
Social network marketing 19.56 As new functionality and consumer behaviours develop, marketers adapt to emerging environments, tools and consumer conduct, to establish or maintain connections with their customers. In recent times the trend toward social network marketing has become more commonplace. Social network marketing may include the use of tools such as blogs, chat forums, LinkedIn, Twitter, Facebook, Pinterest, Instagram, and other online offerings. The use of these tools can potentially give rise to a number of legal issues for marketers. 816
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A. Defamation and injurious falsehood 19.57 Defamation is a statement by one party that damages the reputation of another.41 An action for defamation requires the plaintiff to establish three elements: publication, identification, and defamatory meaning. Not all statements that are harmful to an individual’s reputation will result in a plaintiff succeeding in an action for defamation, as there are a number of defences that apply, including that a statement was true, justified, an expression of opinion about a matter of public interest, subject to some form of privilege, trivial, or innocently disseminated. In Australia the law relating to defamation is found in common law and uniform state and territory legislation. Oral statements have traditionally been known as ‘slander’ and printed statements referred to as ‘libel’. Under the state legislation, there is now no distinction made between these forms of conduct.42 An action for defamation must also generally be brought within 12 months of the conduct under the legislation. It is established that online content can be actionable under defamation law. The High Court has also affirmed that the borderless nature of the internet has implications in defamation cases, as is evident from Dow Jones & Co Inc v Gutnick.43 Dow Jones & Co Inc v Gutnick (2002) 210 CLR 575; 194 ALR 433; [2002] HCA 56
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Facts: Gutnick was a Melbourne-based businessman and one-time president of the Melbourne Football Club. Dow Jones publishes, online and in hard copy, a finance magazine, Barron’s, which contained some references to Gutnick that he alleged were defamatory. Dow Jones’s web servers were located in the US and there were a small number of subscribers in Melbourne who had access to the allegedly defamatory material. The plaintiff, Gutnick, wished to have the matter heard in Victoria, as US law makes defamation harder for a plaintiff to establish. Decision: The High Court held that the case could be heard in Victoria and that, ‘if people wish to do business in, or indeed travel to, or live in, or utilise the infrastructure of different countries, they can hardly expect to be absolved from compliance with the laws of those countries. The fact that publication might occur everywhere does not mean that it occurs nowhere’. Publication was held to have occurred to a sufficient extent in Victoria. The matter was settled with the defendant paying $180,000 in damages and $400,000 in fees.
Again, Dow Jones & Co Inc v Gutnick concerned publication by the website owner, rather than a third party poster.
B. Online and social marketing intellectual property issues 19.58 Any environments, such as blogs, Facebook pages, and the like, that marketers use to permit or encourage online contributions or dialogue from those 41 See, for example, Radio 2UE Sydney Pty Ltd v Chesterton (2009) 238 CLR 460; 254 ALR 606; [2009] HCA 16. 42 Defamation Act 2005 s 7(1). 43 (2002) 210 CLR 575; 194 ALR 433; [2002] HCA 56, see 19.57C.
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outside their business, such as customers, require close monitoring to ensure others’ intellectual property rights are not infringed. These issues are probably most likely to arise in relation to copyright material. Copyright is discussed in depth in Chapter 4. Marketers contemplating the use of online tools that include functionality to have others contribute content, such as posts, comments etc, should carefully consider the potential liability under authorisation principles of copyright law.
C. Influencer and online reviews
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19.59 Misleading and deceptive conduct,44 as it applies generally, is discussed elsewhere in this book. However the ACCC’s publications45 relating to online reviews and associated marketing activity suggest that it is sufficiently concerned about such activities to draw marketers’ attention to how these tools should be used. Businesses and review platforms have an obligation to manage online reviews to ensure that consumers are not misled or deceived, or likely to be misled or deceived by such activities. There are particular risks when firms offer incentives in exchange for reviews. Where incentives are offered to encourage online reviews, such incentives should only be offered if: • incentives are offered equally to consumers likely to be complimentary and consumers likely to be critical, and positive and negative reviews are treated the same; • reviewers are expressly informed that any incentives are available regardless of whether the review is positive or negative; and • any incentives are prominently disclosed to users who will see the reviews. Because any commercial relationships between online review platforms and businesses may influence factors such as the overall rating a particular business may have on a rating site, such relationships should be disclosed so that consumers can better make informed decisions about how they use the reviews presented. The selective removal, omission or editing of reviews, particularly negative reviews, by businesses and review platforms can also have the effect of misleading consumers in that the collection of reviews presented would not actually reflect the feedback provided by consumers who have submitted reviews.
44 Australian Consumer Law ss 18, 29, 151. 45 ACCC, What you need to know about: Online reviews — a guide for business & review platforms, 2013, available at .
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Domain names46 A. Registration 19.60 Domains with an .au suffix are regulated by .au Domain Administration Limited (auDA). The Federal government holds reserve powers in relation to domain names under the Telecommunications Act and has endorsed auDA as the administrator of .au domains, giving auDA responsibility for policy and industry self-regulation. auDA also facilitates the .au dispute resolution policy, discussed below. It is important for marketers to note that there are no proprietary rights arising from the registration of a domain name, as there are, for example, with a trade mark. A party who registers a domain name does not ‘own’ that name, but holds a licence to use the domain name for a specified time period and subject to the terms and conditions set out by the administrators of .au domain names in Australia. These terms include restrictions on the transfer of the licence to use a domain name.47 Domains with an .au suffix may only be registered where the registrant is:48 (a) an Australian registered company; or (b) trading under a registered business name in any Australian state or territory; or (c) an Australian partnership or sole trader; or (d) a foreign company licensed to trade in Australia; or (e) an owner of an Australian registered trade mark; or (f) an applicant for an Australian registered trade mark; or (g) an association incorporated in any Australian state or territory; or (h) an Australian commercial statutory body.
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.com.au and .net.au domain names must:49 (a) exactly match, or be an acronym or abbreviation of the registrant’s company or trading name, organisation or association name or trade mark; or (b) be otherwise closely and substantially connected to the registrant.
A registered trade mark does not confer any better entitlement to a domain name than a registered business name, nor are there any checks by the domain name registrar to ascertain whether a proposed domain name is identical or similar to any company name, business name, or trade mark registered or used by another party. Domain name licences are allocated on a ‘first come, first served’ basis.
46 Some of the material in this section is based on M Bender, ‘What’s in a name: names, domains and trademarks’, (2007) 3(2) Monash Business Review 38. 47 Australian Domain Name Administrator, Clarification of Domain Name Licence — Prohibition on Sale of Domain Name, Policy No 2005-05 (2005), available at . 48 Australian Domain Name Administrator, Domain Name Eligibility and Allocation Policy Rules for the Open 2LDs, Policy No 2005-01 (2005), available at . 49 See Domain Name Eligibility and Allocation Policy Rules for the Open 2LDs, above n 48.
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Provided the relevant eligibility rules above are satisfied, the first registrant to apply for a particular domain name will be permitted to license it. The registration process is much more open with regard to the ‘top level domain names’, such as .com, .net, .org. The registration of these domain names is regulated by the Internet Corporation for Assigned Names and Numbers (ICANN), an international non-profit corporation, not auDA, and there are effectively no pre-conditions for registrations of top level domain names. Any party may therefore register a .com, .net, .org etc domain name that is similar or identical to an Australian registered trade mark or company name.
B. Domain name disputes50
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19.61 ’Evidence suggests that bad faith registration of domain names has increased in recent years’.51 It is common for a trade mark owner to become aware of the existence of this situation by being approached by, or on behalf of, a party who has registered a domain name similar or identical to the trade mark. This deliberate action of ‘bad faith, abusive registration and use of the distinctive trade marks of others as internet domain names, with the intent to profit from the goodwill associated with those trade marks’ is referred to as ‘cybersquatting’. In the USA, cybersquatting is specifically prohibited under statute.52 There is no such statute in Australia. As domain names are registered purely on a first come, first served basis, a mechanism is needed to settle disputes that arise over rights to domain names. There are two dispute resolution processes that are applicable in Australia: the ICANN Uniform Domain Name Dispute Resolution Policy (UDRP)53 applies to top level domain name registrations (.com, .net, .org, etc); and the auDA dispute resolution policy (auDRP)54 is applicable to disputes over .au domain names.
C. ICANN dispute resolution process 19.62 It is a term of top level domain name licences that anyone registering domains agrees to adopt the UDRP as a dispute resolution process. The process was primarily designed for disputes where one party has legitimate rights or interests and the other party does not, the typical cybersquatting scenario, rather than a situation where two parties have some apparent legitimate interests. The UDRP does not exclude the jurisdiction of national courts.
50 Australian Domain Name Administrator, .au Dispute Resolution Policy (auDRP) — Clarification of Registrar Obligations, Policy No 2003-01 (2003), available at . 51 Advisory Council on Intellectual Property, Review of the relationship between trade marks, business names, company names and domain names (2006), available at . 52 Anticybersquatting Consumer Protection Act, 15 USC [1125] (1999). 53 ICANN, Uniform Domain-Name Dispute-Resolution Policy (1999), available at . 54 See .auDA, auDRP, available at .
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The UDRP is an international, private, inexpensive,55 quick, and largely online dispute resolution procedure available to parties wishing to dispute the registration of top level domain names. The three requirements for establishing a successful action under the UDRP are set out in para 4(a) of the UDRP as follows: (i) [the disputed] domain name is identical or confusingly similar to a trade mark or service mark in which the complainant has rights; and (ii) [the registrant has] no rights or legitimate interests in respect of the domain name; and (iii) [the] domain name has been registered and is being used in bad faith.
The sole remedy available under the UDRP is an order for the cancellation or transfer to the complainant of a disputed name.56 The unavailability of damages as a remedy under the UDRP has also been raised as a criticism of the policy.57 The UDRP provides guidance as to how a registrant (defendant) can demonstrate its rights or legitimate interests in a domain name in response to an arbitration action.58 These ‘defences’ include the original registrant being able to demonstrate that:59
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(i) they had made use of, or demonstrable preparations to use, the domain name or a name corresponding to the domain name in connection with a bona fide offering of goods or services; or (ii) they have been commonly known by the domain name, even if they acquired no trade mark or service mark rights [in the name]; or (iii) they are making a legitimate non-commercial or fair use of the domain name, without intent for commercial gain to misleadingly divert customers or to tarnish the trade mark or service mark at issue.
This list is not exhaustive; arbitrators may consider other evidence that an original registrant can provide in support of their claim to the domain name. The UDRP also contains a non-exclusive list of factors that may be indicative of bad-faith use of a domain name. The claimant must establish that the other party (the registrant):60 (i) has registered or acquired the domain name primarily for the purpose of selling, renting, or otherwise transferring the domain name registration to the complainant, who is the owner of the corresponding trade mark or service mark, or to a competitor of the complainant, for valuable consideration … ; or 55 See World Intellectual Property Organization, Schedule of Fees under the UDRP (2002), available at . 56 ICANN, Rules for Uniform Domain-Name Dispute-Resolution Policy (1999), r 4(i), available at . 57 M Searing, ‘What’s In a Domain Name? A Critical Analysis of the National and International Impact on Domain Name Cybersquatting’ (2000) 40 Washburn Law Journal 110. 58 ICANN, Rules for Uniform Domain-Name Dispute-Resolution Policy, above n 56, r 4(c). 59 ICANN, Rules for Uniform Domain-Name Dispute-Resolution Policy, above n 56, r 4(b). 60 ICANN, Rules for Uniform Domain-Name Dispute-Resolution Policy, above n 56, r 4(b).
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Marketing and the Law (ii) has registered the domain name in order to prevent the owner of the trade mark or service mark from reflecting the mark in a corresponding domain name, provided that [the registrant has] engaged in a pattern of such conduct; or (iii) has registered the domain name primarily for the purpose of disrupting the business of a competitor; or has, by using the domain name, intentionally attempted to attract, for (iv) commercial gain, internet users to their website … by creating a likelihood of confusion with the complainant’s mark as to the source, sponsorship, affiliation, or endorsement of [the registrant’s] website or location or of a product or service [available on that] website or location.
It has been established in a number of matters, including a dispute that Telstra instigated over the domain name telstrashop.com,61 that merely holding, without actively making use of a domain name where the registrant cannot demonstrate a legitimate interest under the tests discussed above, can be sufficient to establish bad faith use.
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D. auDA dispute resolution process 19.63 The au Dispute Resolution Policy (auDRP) is administered by auDA and is a close adaptation of the UDRP, discussed at 19.62. Other legal remedies are not excluded by the auDRP. The process relies on a ‘good faith’ test, rather than other legal standards, to determine just outcomes. Under the auDRP, either registration or subsequent use in bad faith will support a complaint. This provision provides that mere registration and subsequent inactivity amounts to use of a domain name in bad faith, whereas under the UDRP both elements are required. There are a number of differences between the auDRP and the UDRP that strengthen the position of a complainant under the auDRP by making it easier to establish bad faith use. Both the UDRP and the auDRP specifically provide for legal action prior to or following the arbitration process, and there is no appeal path from arbitration under either dispute resolution process. Possible grounds for further or alternative legal actions are outlined below.
E. Misleading and deceptive conduct 19.64 The misleading and deceptive conduct provisions of the Australian Consumer Law discussed in Chapter 6 may have application in domain name disputes. In Macquarie Bank Ltd v David,62 a declaration was made by the court ‘that the Respondent has engaged in conduct that is misleading and deceptive or likely 61 Telstra Corporation Ltd v Barry Cheng Kwok (WIPO Administrative Panel decision, 21 June 2000, unreported). 62 (2008) 79 IPR 72; [2008] FCA 1417. The respondent in this case also faced similar actions as a result of cybersquatting domains linked to ICI, Harvey Norman, Westpac, and others.
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to mislead and deceive, contrary to s 52 of the Trade Practices Act’ (now s 18 of the Australian Consumer Law) following cybersquatting of a number of domain names related to Macquarie Bank.
F. Passing off at common law 19.65 As discussed in Chapter 6, to succeed in an action for passing off, a plaintiff must satisfy all the following elements: • that they have a reputation or goodwill; • that a misrepresentation has been made by the defendant that is likely to confuse or mislead the relevant public as to an association between the plaintiff and the defendant; and • that damage, or likelihood of damage, has been suffered as a result of the misrepresentation. Marks & Spencer Plc v One In A Million Ltd (1997) 42 IPR 309; [1998] FSR 26563 Facts: The defendant dealt in domain names by registering domain names related to wellknown companies and trade marks and attempting to sell the domain names they registered to the owners of the goodwill in those names. They had registered domains for a number of large companies in the UK, including British Telecom, Burger King, and large retailers, including Marks & Spencer, the prominent English department store chain.
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Decision: The court held that the registration of the Marks & Spencer domain name amounted to a misrepresentation that the party who had registered the domain name was in some way connected or associated with Marks & Spencer, the legitimate owner of the goodwill and reputation in the name. The misrepresentation would be conveyed to those who knew the identity of the registrant, for example, from checking the ownership of a domain in the ‘whois’ database. Such misrepresentations diminish the exclusive goodwill in the name, leading to damage or the likelihood of damage, to the owner of the reputation and goodwill. It was further held that the registration of a domain name consisting of a well-known name with the intention of ‘appropriating the respondents’ property, their goodwill, and with an intention of threatening dishonest use by them or another’ could constitute an ‘instrument of fraud’, and lead to an injunction being awarded against the registrant.
This decision has also been followed in the Australian case of Kailash Centre for Personal Development Inc v Yoga Magik Pty Ltd.64
G. Domain names and the Trade Marks Act 19.66 There have been a number of challenges where the holder of a registered trade mark has brought an infringement action against a domain name registrant who has registered a domain name using the holder’s registered trade mark. 63 See also 6.33C2. 64 [2003] FCA 536.
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19.65C
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As discussed in Chapter 7, in order to establish infringement, ‘use as a mark’ must be established. Merely using a trade mark will not necessarily establish infringement unless it can be shown that such use was ‘as a mark’: Trade Marks Act s 120(1). To the extent that domain names are understood to function as mere addresses on the internet, the ‘use as a mark’ requirement may be difficult to establish in all cases: Capital Webworks Pty Ltd v Adultshop.com Ltd.65 However, many domain names act as more than just an address. Many users of the internet, if uncertain of a company’s domain name, will often use the company name or one of its trade marks to try and locate the company’s website, as most businesses incorporate their business name or trade mark into their domain names, ‘logically creating in the mind of consumers an association or connection between domain names and the business’.66
Codes of practice A. e-Marketing Code of Practice 19.67 A code of practice covering the email and mobile marketing industry (prepared by a national committee chaired by the Association for Data-Driven Marketing and Advertising (ADMA)) was registered with the ACMA in March 2005.67 The code complements Australia’s anti-spam legislation and is binding on organisations that use either email or mobile telephones as a primary form of marketing. Registration of the code with the ACMA provides consumers with an additional layer of protection, as the ACMA can issue warnings and fines to any company not complying with the code of practice.
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B. Internet industry codes of practice 19.68 The peak industry body for internet-related activities is the Internet Industry Association (IIA). The IIA has published a number of voluntary codes of practice, including Content Codes and a Privacy Code. The aims of the Codes are: • to establish confidence in and encourage use of the internet; • to support systems for the management of access to content on the internet; • to improve the fairness and accuracy of disclosure to users of the internet and the community in general; • to provide standards of confidentiality and privacy afforded to users of the internet;
65 [2000] FCA 492. 66 A Dufty and J Lahore, Patents, Trade Marks and Related Rights, LexisNexis Butterworths, Sydney, vol 1, 4 Trade Marks — Trade Marks, Domain Names and the Internet, ‘Potential Infringement of Australia’s Trade Mark Act’ at [67,195]. 67 ADMA, Code of Practice, updated in 2018, available at .
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• to provide a transparent mechanism for complaints handling for the internet industry and to ensure that complaints against Code subscribers are handled in a fair and efficient manner; and • to promote positive user relations with the internet industry. The members of IIA include not only e-commerce traders but also telecommunications carriers such as Telstra, internet content hosts, internet service providers, content providers, and web page developers and programmers.
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C. The IIA Content Code of Practice 19.69 This Code is mainly concerned with matters such as consumer access to the internet and the content of web pages and mobiles. It primarily aims to raise user confidence in using the internet and mobile devices. The Code is registered with the Australian Broadcasting Authority (ABA) under the Broadcasting Services Act 1992 (Cth), which means the ABA can evaluate content on the basis of complaints received and direct internet service providers (ISPs), mobile carriers, and internet content hosts (ICHs) to comply with the Code. It is therefore another example of co-regulation. The IIA has introduced branding rights (via a ladybird logo) for those complying with the Code. Its main features are: • the identification of a range of alternative ‘access prevention’ tools by which users can control the access of content into the home or to mobiles, as listed in Sch 1 of the Code. Code members are not expected to meet the costs of installing these tools; • the obligation on ICHs and mobile carriers to restrict content to some end users (minors), and to remove prohibited (or potentially prohibited) content hosted in Australia upon notification by the ABA; • an opt-in scheme to the sending of unsolicited email (spam) rather than an optout scheme (ADMA’s approach). Code subscribers must not send unsolicited emails unless the recipient has had a pre-existing business or professional relationship with the sender or has consented to receive such mail; and • the requirement for Code subscribers to comply with the Code’s disputehandling provisions, which are designed to be low cost and to promote the speedy resolution of complaints. If traders do not resolve complaints within a reasonable time, an independent Code Administration Council can arbitrate upon complaints.
Marketing Advice 19.70 Given the technical nature of marketing by electronic means, it is common place for marketers to need to engage specialist outside firms to provide many of the services necessary for e-marketing. The engagement of such firms and the 825
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contracts that govern these relationships should be carefully reviewed by specialist legal practitioners to ensure compliance with legal regimes including: • privacy; • intellectual property; • Do Not Call legislation; • spam legislation; and • relevant industry codes.
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Marketers should also note and, as required, take legal advice on, the standard terms that apply when using marketing mediums such as Google, Facebook, Twitter, and YouTube. It is noteworthy that a number of high profile businesses have faced infringement actions for their electronic marketing activities, including TPG,68 Ticketek Pty Ltd69 and Foxtel,70 highlighting the need for compliance training and monitoring programmes in firms of all sizes.
68 See ACMA, ‘TPG pays $360,000 price for spam breaches’, above n 9. 69 See ‘Action on unsolicited communications’, Ticketek, formal warning, 22 March 2019, available at . 70 See ACMA, ‘Foxtel pays $25,200 for telemarketing breaches’, available at .
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Index
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References are to paragraph numbers
A AANA see Australian Association of National Advertisers (AANA) AASC see Australian Advertising Standards Council (AASC) Abuse market power .… 12.17 patent rights .… 2.43 ACCC see Australian Competition and Consumer Commission (ACCC) Access essential input, restricting .… 14.21, 14.21C essential services see Essential services/ facilities personal information, to .… 19.43 regime, certification of .… 14.42 Accessory false or misleading conduct .… 10.56, 10.56C1, 10.56C2 Account of profits breach of confidence, for .… 3.28 copyright infringement .… 4.69 promotional photographs, use of .… 4.69C patent infringement .… 2.54 ACL see Australian Consumer Law (ACL) ACT see Australian Competition Tribunal (ACT) Acts Interpretation Acts interpretation of statutes .… 1.20
ADMA see Australian Direct Marketing Association (ADMA) Adverse publicity orders contravention of ACL provisions lay-by agreements .… 11.36 unsolicited agreements .… 11.44 Advertised resale price maintaining .… 16.23 Advertising see also Marketing ACL and .… 10.3 agencies, liability of .… 10.55–10.56 bait see Bait advertising calls .… 19.18 comparative .… 10.27, 10.27C1–10.27C5 compliance programs .… 10.70 corrective .… 10.69 deceptive see Misleading and deceptive conduct defence for publisher .… 10.60 disclaimers .… 10.21, 10.22 disputes between advertisers .… 10.77 education programs .… 10.70 email .… 19.10 false .… 10.7–10.54 search engine advertising .… 19.54 fax .… 19.11 keyword .… 19.52, 19.53 passing off .… 6.34, 6.34C trade marks, and .… 19.53
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Marketing and the Law Advertising — cont’d marketing advice .… 10.80 material copyright protection .… 4.11 misleading see Misleading and deceptive conduct online .… 19.7 penalties for false .… 10.33–10.54 relevant audience .… 10.12, 10.12C impression conveyed to .… 10.13, 10.13C inducement to error .… 10.14 reasonable representative .… 10.13, 10.14 role of .… 10.1 self-regulation .… 10.75–10.79 AANA Code of Ethics .… 10.78 Australia, in .… 10.77 pros and cons .… 10.76 television and radio stations .… 10.79 slogans .… 6.37 passing off .… 6.37, 6.37C SMS .… 19.10 stakeholders in regulation of .… 10.2 television and radio stations .… 10.79 themes .… 6.37 passing off .… 6.37, 6.37C Advertising and Marketing Communications to Children Code .… 10.77 Advertising Claims Board .… 10.77 Advertising Standards Board .… 10.77 Advertising Standards Bureau (ASB) .… 10.77 Advisors, professional duty of confidence .… 3.17 Advisory Council on Intellectual Property (ACIP) .… 2.35, 5.33 Affiliation false or misleading representations .… 10.44 Agents liability for acts of .… 10.10 products to market, getting .… 18.1 single selling .… 13.29 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) .… 2.63, 4.75, 5.34 Agreements see also Contract anti-competitive .… 13.45–13.56 bid rigging .… 13.40–13.43 purpose of agreement .… 13.43, 13.43C1–13.43C4
828
collective buying .… 13.73, 13.73C collective exclusive dealing .… 13.54 collusive .… 13.5, 13.6 e-commerce .… 19.9 contract formation .… 19.6 jurisdictional issues .… 19.49 terms .… 19.9, 19.9C electronic .… 19.3 employment agreements .… 3.35 exclusionary see Exclusionary agreements exclusivity .… 17.8, 17.9 horizontal .… 13.45, 13.51 information exchange .… 13.28, 13.52 loyalty .… 17.8, 17.10 market sharing .… 13.36–13.39 agreement, purpose of .… 13.39, 13.39C1, 13.39C2 maximum resale price maintenance .… 13.65 minimum quantity .… 17.8, 17.12 output restriction .… 13.32–13.35 purpose of agreement .… 13.35, 13.35C partnering .… 13.53 price discrimination .… 13.56 price fixing .… 12.17, 13.5, 13.19–13.31 resource sharing .… 13.51 sale of business .… 3.34 Alternative dispute resolution .… 1.42 Ambush marketing misleading and deceptive conduct .… 10.30 Amendment trade marks .… 7.60–7.64 Anonymity privacy principles and .… 19.33 Anti-competitive agreements examples .… 13.50 collective exclusive dealing agreements .… 13.54, 13.54C information-exchange agreements .… 13.52 joint ventures .… 13.53 partnering agreements .… 13.53 price discrimination agreements .… 13.56, 13.56C resource-sharing agreements .… 13.51 strategic alliances .… 13.53 terms of trading agreements .… 13.55, 13.55C horizontal agreements .… 13.45 purpose of agreement .… 13.47
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Index substantially lessening competition .… 13.47 future with and future without test .… 13.48 substantial, definition .… 13.49 vertical agreements .… 13.45 Anti-competitive conduct see also Cartels; Collusive conduct mergers and acquisitions .… 12.17 Anton Piller order copyright infringement .… 4.70 patent infringement .… 2.56 ANZFRMC see Australia New Zealand Food Regulation Ministerial Council (ANZFRMC) APRA see Australasian Performing Right Association (APRA) Arrangement see also Agreements; Contract; Understanding definition .… 13.8 Artistic works artistic craftsmanship .… 4.20 functional constraints .… 4.20C1 skill, nature of .… 4.20C2 copyright protection .… 4.15 original see Original works ASB see Advertising Standards Bureau (ASB) ASIC see Australian Securities and Investments Commission (ASIC) Assets acquisition of .… 15.6, 15.7 mergers .… 15.2 divestiture of .… 15.22 Assignee duty of confidence by potential .… 3.24 Assignment copyright .… 4.35, 4.36 licences .… 4.36 patent rights .… 2.42 monopolies and exclusive dealing .… 2.43 Assignors duty of confidence .… 3.23, 3.24 au Dispute Resolution Policy (auDRP) .… 19.63 Auctions statutory guarantees relating to supply of goods .… 9.15 Australasian Performing Right Association (APRA) infringement of copyright, authorising .… 4.59
live music .… 4.59 control of premises .… 4.59C Australia New Zealand Closer Economic Relations Trade Agreement misuse of market power .… 14.29 Australia New Zealand Food Regulation Ministerial Council (ANZFRMC) Health Star Rating .… 8.25 purpose .… 8.22 Australian Advertising Standards Council (AASC) .… 10.77 Australian Association of National Advertisers (AANA) .… 10.77 Code of Ethics .… 10.77, 10.78 Australian Broadcasting Authority Code of Practice .… 10.79 Australian Communications and Media Authority (ACMA) email and SMS marketing .… 19.10 penalties and remedies .… 19.15 Telemarketing (Do Not Call Register) (Telemarketing and Research Calls) Industry Standard .… 11.39 Australian Competition and Consumer Commission (ACCC) administrator of ACL .… 1.39, 1.47 authorisation by see Authorisation by ACCC cartel conduct and .… 12.21, 13.15 immunity program .… 13.16 codes see Codes competition law and .… 12.5, 12.20, 12.31, 12.57, 12.61 compliance enforcement activities .… 1.47 enforceable undertakings to .… 12.27 fraudulent global internet scams and .… 19.47 Guidelines on Mergers .… 15.8 immunity program for cartel conduct .… 13.16 infringement notices by see Infringement notices (ACCC) mergers see Mergers notification of see Notification of ACCC product safety regime and .… 8.8 public warning notices .… 10.65 regulation of lotteries .… 11.4 substantiation notices .… 10.64 undertakings to .… 10.63, 12.27 unfair selling techniques and .… 11.8, 11.28, 11.30 unit pricing breaches .… 8.21
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Marketing and the Law Australian Competition Tribunal (ACT) appeals .… 14.37 competition law, regulation of .… 12.32, 12.57, 12.61 review of decisions ACCC merger authorisations .… 15.17 essential service declarations .… 14.40 exclusive dealing authorisations .… 17.29 exclusive dealing notification .… 17.28 Australian Consumer Law (ACL) see also Competition and Consumer Act 2010 (Cth) advertising regulation, and .… 10.3, 10.34 consumer, definition .… 9.14, 9.32, 9.42 consumer guarantees .… 9.13–9.47 creation of .… 10.5 direct selling techniques .… 11.37–11.44, 19.16 food labels and packaging .… 8.26 framework, operation of .… 10.6 goods, definition .… 9.14 historical background .… 1.13, 10.4 liability elements of consumer guarantees .… 9.61 liability elements of defective goods .… 9.62 manufacturer, definition .… 9.31, 9.50 misleading or deceptive conduct .… 6.1, 6.17–6.28 advertising .… 10.7–10.32 defences and exemptions .… 10.57–10.62 domain name disputes .… 19.64 product liability .… 9.1, 9.13 promotional selling techniques .… 11.2–11.7 remedies for breaches .… 10.7 safety defects .… 9.48–9.62 unfair selling techniques .… 11.8–11.36 Australian Direct Marketing Association (ADMA) industry codes .… 11.45, 11.46, 19.67 Australian government history of .… 1.6 Australian Official Journal of Patents notification of patent grant .… 2.25 Australian privacy principles .… 19.31–19.44 access to personal information .… 19.43 adoption, use, or disclosure of governmentrelated identifiers .… 19.40 anonymity and pseudonymity .… 19.33 collection of solicited personal information .… 19.34
830
correction of personal information .… 19.44 cross-border disclosure of personal information .… 19.39 dealing with unsolicited personal information .… 19.35 direct marketing .… 19.38 notification of the collection of personal information .… 19.36 open and transparent management of personal information .… 19.32 quality of personal information .… 19.41 security of personal information .… 19.42 use or disclosure of personal information .… 19.37 Australian Securities and Investments Commission (ASIC) Business Name Register .… 7.72 Authorisation collusive conduct exemptions see Collusive conduct defence to breach of competition law .… 12.28 misuse of market power, and .… 14.28 Authorisation by ACCC anti-competitive conduct .… 12.28, 12.56–12.62 balancing detriment and benefits .… 12.60 public benefit, determination of .… 12.59 public detriment, determination of .… 12.58 review by ACT .… 12.61 revocation of authorisation .… 12.62 tests .… 12.57 collusive conduct .… 13.69–13.74 exclusive dealing .… 17.1, 17.27, 17.29, 17.29C mergers .… 12.57, 15.14, 15.15 ACT review .… 15.17 revocation of authorisation .… 15.16 resale price maintenance .… 16.25, 16.25C revocation .… 12.62 tests .… 12.57 Authorisation by ACT mergers .… 12.57, 15.17 Authorising infringement of copyright .… 4.57 clubs and live music venues .… 4.59, 4.59C computer hardware .… 4.60 ISPs .… 4.63, 4.63C libraries .… 4.58
Index
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software .… 4.61 website linking .… 4.62 Authorship human .… 4.8 joint .… 4.33 originality, concept of .… 4.8 right of integrity .… 4.26 cartoons .… 4.26C2 music .… 4.26C3 sculpture .… 4.26C1 B Bait advertising defences .… 11.16 elements .… 11.13 nature of .… 11.12 reasonable period, interpretation .… 11.14 reasonable quantities, interpretation .… 11.15 availability of goods or services .… 11.15, 11.15C1 undisclosed conditions .… 11.15, 11.15C2 switching .… 11.17, 11.17C ‘Bait and switch’ sales techniques .… 11.17 Banning of products dangerous goods .… 9.68, 9.68C Barriers to entry competition, and .… 12.13, 12.47, 12.51 market structure .… 12.48, 12.52, 14.11 measuring .… 12.14, 12.15 Beneficial ownership copyright .… 4.32, 4.32C Berne Convention copyright protection .… 4.2, 4.4, 4.75 Bid rigging agreements .… 13.5, 13.40–13.43 competitors, between .… 13.42 bid, definition .… 13.40 price fixing, and .… 13.30 purpose of agreement .… 13.43, 13.43C1–13.43C4 Biotechnology .… 2.11 Books non-copyright infringing .… 4.66 parallel importing .… 4.66 Boycott, collective resale price maintenance, and .… 16.31 Brand markets .… 12.46 Brand name .… 1.50, 6.1, 6.11
competitive advantage .… 1.49 corresponding design, defence .… 4.54 parallel importing .… 4.67 passing off .… 6.2, 6.3, 6.30, 6.30C statutory passing off, and .… 6.25 trade marks .… 7.1, 7.69, 7.77 Branding continuum .… 7.77 Breach of confidence commercial value of information .… 3.6 confidential information, meaning .… 3.4 elements of action .… 3.3–3.26 injunction against .… 3.28, 3.29 introduction to .… 3.1 obligation of confidence .… 3.16–3.25 privacy and .… 3.15 public knowledge of information .… 3.5 remedies for .… 3.28 unauthorised use of information .… 3.26 ‘Browse wrap’ e-commerce contract terms .… 19.9 Buildings and building models copyright protection .… 4.15, 4.19 Bundling of products exclusive dealing .… 17.8, 17.11 misuse of market power .… 14.4, 14.22 Business business to business contracts .… 11.31, 11.31C method, patent for .… 2.8 portfolio management .… 2.8C2 reverse mortgage .… 2.8 smart cards .… 2.8C1 secrets see Trade secrets Business names definition .… 7.71 legislation .… 7.70 purpose of .… 7.72 nature and purpose .… 6.1 passing off .… 6.32, 6.32C refusal of registration .… 7.73 registration .… 1.14 rights following registration .… 7.75 Buyer exclusive dealing .… 17.16 customer restraints .… 17.19 examples .… 17.19–17.20 substantial lessening of competition .… 17.18 supply on condition .… 17.17
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Copyright © 2019. LexisNexis Butterworths. All rights reserved.
Buyer — cont’d supply side retail customer restraint arrangement, effect .… 17.19 supply side wholesale customer restraint arrangement, effect .… 17.19 territorial restraints .… 17.20 Buying power refusal to purchase .… 14.23 C Calculation tables price fixing, and .… 13.27 Cancellation trade marks .… 7.60–7.64 Capable of distinguishing trade mark registration requirement .… 7.11 Cartels see also Collusive conduct civil penalties .… 12.21, 13.5, 13.6, 13.16, 13.17 contestable markets .… 12.15 criminal penalties .… 12.21, 13.6, 13.16, 13.17 assessment of .… 12.25 individuals, for .… 12.24 definition .… 13.5 flowchart .… 13.76 immunity program .… 13.16 marketing advice .… 13.75 misuse of market power .… 14.6 proving collusion .… 13.10, 13.10C circumstantial evidence .… 13.14, 13.14C oligopolies .… 13.12 parallel conduct .… 13.11, 13.11C public benefit exclusions .… 13.71 types of .… 13.2 unlawful competitive practices .… 12.17 penalties .… 12.21 Case law case citations .… 1.29 common and civil systems, distinguished .… 1.24 doctrine of precedent .… 1.25 equity .… 1.31 finding .… 1.29 hierarchy of courts Australian states .… 1.26 England .… 1.28 federal courts .… 1.27 other jurisdictions .… 1.28 nature of .… 1.23
832
online .… 1.30 parliamentary law compared .… 1.33 using .… 1.32 Cases civil .… 1.39 criminal .… 1.39 Casual Mall Licensing Code of Practice .… 11.45 CDPP see Commonwealth Director of Public Prosecutions (CDPP) Celebrities advertising and .… 10.2 character merchandising .… 6.42, 6.43 domain name pirates and .… 6.33 product promotion .… 10.29, 10.29C sponsorship .… 6.42, 6.43, 6.43C voice passing off .… 6.44 Certification marks nature and purpose .… 7.66 Character fictitious, protection of .… 6.45 merchandising .… 6.42–6.45 unlawful reproduction of .… 4.42, 4.42C2 Chief Executive Officer of Customs importing trade-marked goods .… 7.54 Choice resale price maintenance, and .… 16.5 Cinematographic films see Films Circuit layouts design protection .… 5.2 rights .… 5.35 originality .… 5.35 Civil law cases .… 1.39 common law, distinguished .… 1.24 Civil penalties cartel provisions, breach .… 12.21, 13.5, 13.6, 13.16, 13.17 collusive conduct .… 12.21, 13.5, 13.6, 13.16, 13.17 competition law .… 12.21–12.25 assessment of penalties .… 12.25 cartels .… 12.21 corporations, for .… 12.23 individuals, for .… 12.24 misleading advertising .… 10.33, 10.59 retail price maintenance .… 16.28
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Index unsolicited consumer agreement provisions, breach .… 11.44 Claims country of origin .… 8.14, 8.16, 10.28 food .… 8.26 misleading representations .… 8.14, 8.14C1, 8.16C environmental .… 8.11, 8.13 free range eggs .… 8.13C geographical indicators .… 8.16 ‘made in’ .… 8.14, 8.15 vitamin capsules .… 8.15C origin .… 8.11, 8.14–8.16 food .… 8.26 geographical indicators .… 8.16 indirect misrepresentations .… 8.14C2 ‘made in’ .… 8.14, 8.15, 8.15C ‘product of’ .… 8.16, 8.16C price reduction .… 8.11, 8.12 dual pricing .… 8.12C ‘product of’ .… 8.16 indigenous art .… 8.16C scientific .… 10.26, 10.26C software circumvention devices, against .… 4.74 standard patent .… 2.27 unjustified infringement design, relating to .… 5.27 patent, relating to .… 2.59 Class action damages for false or misleading advertising .… 10.74 Classification goods and services .… 7.6, 7.8 symbols, dangerous goods .… 8.27 trade marks .… 7.6 ‘Click wrap’ e-commerce contract terms .… 19.9 Clubs infringement of copyright .… 4.59 Codes Advertising and Marketing Communications to Children .… 10.77 Association of National Advertisers (AANA) .… 10.77, 10.78 Australian Association of National Advertisers (AANA) .… 10.77, 10.78 Australian Broadcasting Authority .… 10.79
Australian Direct Marketing Association (ADMA) .… 11.46 Casual Mall Licensing .… 11.45 Commercial Radio .… 10.79 Commercial Television Industry .… 10.79 Competition .… 12.34 Dangerous Goods .… 8.28 Direct Marketing .… 11.45, 11.46, 19.47, 19.67 e-marketing .… 19.14 Environmental Claims in Advertising and Marketing .… 10.77 essential services access .… 14.44 Food and Beverages Advertising and Marketing Communications .… 10.77 Food Standards .… 8.2, 8.22, 8.24 Franchising see Franchising Code of Conduct Horticulture .… 11.45 Internet Industry Association Content .… 19.68, 19.69 Internet Industry Association Privacy .… 19.47, 19.68 marketing .… 11.45 Oil .… 11.45 Outdoor Advertising Association of Australia .… 10.79 regulation by ACCC .… 11.45 Unit Pricing .… 8.21, 11.45 Voluntary .… 11.45 Wheat Port .… 11.45 Coercion bait advertising .… 11.17 sales technique, as .… 11.1 unfair sales techniques .… 11.32 Collective acquisitions acquisition groups .… 13.73, 13.73C exemption to collusive conduct .… 13.63, 13.67 bargaining exemption to collusive conduct .… 13.60, 13.65 boycott see also Exclusionary agreements resale price maintenance, and .… 16.31 buying groups .… 13.73, 13.73C exclusive dealing agreements .… 13.54 Collusive conduct see also Cartels arrangements .… 13.5, 13.6
833
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Marketing and the Law Collusive conduct — cont’d authorisation of .… 13.69–13.74 case study petroleum markets .… 13.13 civil penalties .… 12.21, 13.5, 13.6, 13.16, 13.17 common law, and .… 13.4 concerted practice .… 13.9 contestable markets .… 12.15 criminal penalties for .… 12.21, 13.6, 13.16, 13.17 assessment of .… 12.25 individuals .… 12.24 evidentiary requirements .… 13.10–13.14 exemptions .… 13.57 anti-overlap provisions .… 13.64 authorisation .… 13.59, 13.65, 13.69–13.74 collective acquisitions .… 13.63, 13.67 collective bargaining .… 13.60, 13.65 joint venture .… 13.62, 13.66 related-bodies .… 13.61, 13.65 flowchart of .… 13.76 horizontal collusion .… 13.1 marketing advice .… 13.75 output .… 12.15 proving collusion .… 13.10, 13.10C circumstantial evidence .… 13.14, 13.14C oligopolies .… 13.12 parallel conduct .… 13.11, 13.11C resale price maintenance .… 16.31 types of .… 13.18 Colours trade marks .… 7.6 examples registered in Australia .… 7.26 refusal of registration .… 7.26C registration .… 7.22, 7.23, 7.26 Commercial definition .… 19.13 electronic message, definition .… 19.11 secrets, employees’ duties in respect of .… 3.39 secrets, protection of .… 3.1–3.39 value of information .… 3.6 Common law case citations .… 1.29 common and civil systems, distinguished .… 1.24 doctrine of precedent .… 1.25 equity .… 1.31 finding .… 1.29
834
hierarchy of courts Australian states .… 1.26 England .… 1.28 federal courts .… 1.27 other jurisdictions .… 1.28 nature of .… 1.23 online .… 1.30 parliamentary law compared .… 1.33 using .… 1.32 Commonwealth Director of Public Prosecutions (CDPP) cartel conduct, penalties for .… 13.16 role .… 1.39 Commonwealth Standard for the Uniform Scheduling of Medicines and Poisons .… 8.27 Community service order misleading or deceptive advertising .… 10.71 Company directors duty of confidence .… 3.20 Company names see also Business names passing off .… 6.32, 6.32C trade marks .… 7.70, 7.74 rights .… 7.75 Comparative advertising misleading and deceptive conduct .… 10.27, 10.27C1–10.27C5 Compensation see Damages Competition Code .… 12.34 competitive harm theories .… 15.10 competitive process .… 1.54 concept of .… 12.47–12.62 definition .… 12.38, 12.47 export success and .… 12.12 intra-brand .… 16.1, 16.2 law see Competition law market .… 11.1, 11.3 market conduct and .… 12.53 market performance and .… 12.54 market structure and .… 12.48–12.52 measuring .… 12.14, 12.15 misuse of market power .… 14.1 legislative changes .… 14.2 responding to competition, distinguished .… 14.5 policy .… 12.1–12.5 ACCC, role of .… 12.5
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Index aims .… 12.3 dynamic efficiency, and .… 12.11 economies of scale and scope .… 12.10 role .… 12.4 relevant market .… 12.38 sources of evidence .… 12.55 substantial lessening of .… 12.36, 13.5 assessment of effect .… 14.17 authorisation tests .… 12.57 consumer welfare versus convenience .… 17.24, 17.24C definition .… 14.18 exclusive dealing .… 17.7, 17.18, 17.22–17.26 ‘future with and future without’ test .… 12.37, 17.23 likely effect .… 14.17 natural monopolies .… 17.25, 17.25C proof of purpose .… 14.16 public detriment .… 12.58 unlawful practices .… 12.17, 14.15 unlawful purpose and unlawful effect, distinguished .… 17.26, 17.26C workable .… 12.13 Competition and Consumer Act 2010 (Cth) see also Australian Consumer Law (ACL) anti-overlap provisions .… 13.65 authorisations .… 12.28, 12.56–12.62 balancing detriment and benefits .… 12.60 public benefit, determination of .… 12.59 public detriment, determination of .… 12.58 review by ACT .… 12.61 revocation of authorisation .… 12.62 tests .… 12.57 cartel conduct .… 12.15, 12.17, 13.1, 14.6 collusive conduct .… 12.15, 12.17, 13.1 Competition Code .… 12.34 franchising and .… 18.23 historical background .… 1.13 injunctions for breaches .… 12.26 mergers see Mergers misuse of market power see Misuse of market power notifications .… 12.29 objectives .… 12.6 offshore mergers .… 15.18–15.21 price signalling .… 13.68 purpose of s 46 .… 14.2–14.6 regulatory bodies .… 12.30 restrictive trade practices .… 12.17
Competition law ACCC, role of .… 12.5 access regime .… 12.19 administration of .… 12.30–12.33 authorisation .… 12.28 fundamental concepts of .… 12.36–12.62 international .… 12.35 introduction to .… 12.1 jurisdictional reach domestic .… 12.34 international .… 12.35 marketing advice .… 12.63 notification .… 12.29 overview .… 1.36, 12.16–12.29 penalties .… 12.21–12.25 assessment of .… 12.25 cartels .… 12.21 corporations, for .… 12.23 individuals, for .… 12.24 remedies .… 12.26, 12.27 compliance programs .… 12.27 damages .… 12.26 enforceable undertakings .… 12.27 injunctions .… 12.26 telecommunications industry .… 12.20 unlawful competitive practices .… 12.17 exemptions .… 12.18 Competitions games of chance .… 11.2, 11.3 lotteries .… 11.4 legislation .… 11.7 permits .… 11.5, 11.6 sales techniques .… 11.1, 11.3 marketing advice .… 11.48 trade promotion .… 11.3 conditions of conduct .… 11.7 legislation .… 11.7 permits .… 11.5, 11.6 Competitors allocating customers, supplies or territories .… 13.39 bid-rigging agreements .… 13.42 output restriction agreements .… 13.34 price fixing see Price fixing Compliance avoiding costs of breaching law .… 1.46 Franchising Code of Conduct .… 18.22 legal .… 1.43 programs .… 1.44
835
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Marketing and the Law Compliance — cont’d ACCC enforcement activities .… 1.47 benefits .… 1.45 competition law breaches .… 12.27 effective, designing .… 1.48 misleading or deceptive advertising .… 10.70 resale price maintenance offences .… 16.29 Component parts design protection .… 5.9 Composition definition .… 10.37 goods, of false or misleading representations .… 10.37 Compulsory licences .… 2.44, 4.36 recall of products .… 9.69 Computer hardware infringement of copyright by .… 4.60, 4.60C programs copyright protection .… 4.12, 4.23 non-copyright infringing .… 4.66 parallel importing .… 4.66 permissible reproduction .… 4.50 unlawful reproduction of .… 4.43 software claims against circumvention devices .… 4.74 copyright protection .… 4.12 infringement of copyright by .… 4.61 parallel importing .… 4.66 Concerted practice collusive conduct .… 13.9 Conduct collusive see Collusive conduct ‘in trade or commerce’ .… 10.9 unconscionable see Unconscionable conduct unlawful purpose of .… 14.15–14.18 assessment of effect .… 14.17 likely effect .… 14.17 proof .… 14.16 Confidence breach of see Breach of confidence duty of .… 3.16–3.25 Confidential information .… 3.4 breach of, defence .… 3.27 commercial value of .… 3.6
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confidential nature of .… 3.4–3.15 employees’ duties .… 3.39 employer’s .… 3.8, 3.19 exceeding employee know-how .… 3.8 factors in determining whether .… 3.8C1 importance to plaintiff .… 3.7 nature of .… 3.4, 3.7 obligation of confidence .… 3.16–3.25 protection of .… 2.2, 3.2, 3.40 public interest defence .… 3.27 publicly known .… 3.5 unauthorised use of .… 3.26 Confidentiality grace periods .… 2.17 public disclosure, and .… 2.16 Confusion passing off, and .… 6.11 distinctive brand name .… 6.11C1, 6.11C2, 6.11C3 proof, absence of .… 6.11C2 Conglomerate merger nature of .… 15.2, 15.4 anti-competitive coordinated effects .… 15.11 anti-competitive unilateral effects .… 15.11 Conspiracy tort .… 13.4 Consultancy relationship employment, distinguished .… 2.39 Consultant duty of confidence .… 3.17 employee, distinguished .… 2.38, 3.17 Consumer ACL reforms .… 9.29 agreements, unsolicited .… 11.37–11.44 contract definition .… 11.27 unfair terms .… 11.26–11.31 unsolicited agreements .… 11.39–11.40 contractual rights .… 10.49, 10.49C1, 10.49C2 requirement to pay for right .… 10.50 convenience .… 17.24 definition .… 9.14, 9.32, 9.42 guarantees see Guarantees information gathering .… 10.32 Product Safety Standards .… 8.8C protection .… 1.35 law .… 1.35
Copyright © 2019. LexisNexis Butterworths. All rights reserved.
Index misleading information regarding rights .… 10.31 product liability .… 9.1, 9.65, 9.66 trade marks, 7.1, 7.4 remedies against misleading sales talk .… 11.20 rights compensation against manufacturer .… 9.39 contractual .… 10.49, 10.49C1, 10.49C2, 10.50 misleading sales material .… 10.31 requirement to pay for .… 10.50 state and territory legislation .… 9.64 welfare .… 17.24 Contract see also Agreements consumer definition .… 11.27 unfair terms .… 11.26–11.31 unsolicited agreements .… 11.39, 11.40 definition .… 13.7 distributorship .… 18.14 franchise .… 17.11, 18.16 customer restraints .… 17.3, 17.13 good faith .… 18.14 territorial restrictions .… 17.3, 17.14, 17.20 law, product liability and .… 9.2, 9.3 restraint of trade clauses .… 3.33 services, for .… 2.39 standard form .… 11.28 substantially lessening competition .… 12.17, 13.5 termination of .… 9.47 unfair terms of .… 11.26 business to business contracts .… 11.31, 11.31C consequences .… 11.30 consumer contract, nature of .… 11.27 definition .… 11.29, 11.29C onus of proof .… 11.29 standard form contract, nature of .… 11.28 voiding of .… 12.26 Contractor assignment of copyright .… 4.35 licences .… 4.36 Contributory infringement of patent .… 2.51 baking enzyme, use of .… 2.51C2 dosage splitting (drugs) .… 2.51C1
misleading or deceptive conduct, and .… 2.51 Conventions Berne .… 4.2, 4.4, 4.75 European Patent .… 2.65 Paris (Protection of Industrial Property) .… 2.62, 5.34 Rome .… 4.4 Universal Copyright .… 4.4 Cooling off period extension of .… 11.41 right to terminate agreement .… 11.42 Cooperation, market see Collusive conduct Copies for personal use defence to copyright infringement .… 4.52 Copyright account of profits for infringement .… 4.69 advertising material .… 4.11 artistic craftsmanship .… 4.20 artistic works .… 4.15–4.20, 4.23 assignment of .… 4.35 beneficial ownership .… 4.32, 4.32C buildings .… 4.19 categories of .… 4.2 cinematographic films .… 4.21 computer software .… 4.12 concepts relating to .… 4.34.8 Copyright Act 1968 (Cth) see Copyright Act 1968 (Cth) data compilations .… 4.10, 4.10C direct infringement of .… 4.38–4.48 dramatic works .… 4.13, 4.23 duration .… 4.37 equitable ownership .… 4.32, 4.32C films .… 4.21 infringement of see Infringement of copyright international law .… 4.4, 4.75 licences .… 4.36 logos .… 4.17 marketing advice .… 4.76 marketing designs .… 4.17 models of buildings .… 4.19 moral rights of owners .… 4.25–4.27, 4.27C musical works .… 4.14, 4.23 nature and purpose .… 4.3 original artistic works .… 4.15–4.20, 4.23 original dramatic works .… 4.13, 4.23 original musical works .… 4.14, 4.23 original works see Original works overview .… 4.2
837
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Marketing and the Law Copyright — cont’d ownership of see Ownership of copyright parallel importing .… 4.66, 4.67, 5.23 Part IV material .… 4.21, 4.24, 4.34 photographs .… 4.16 product designs .… 4.18 production moulds .… 4.18 protection, nature of .… 4.5 expression not idea, protection of .… 4.5C, 4.39 prototypes .… 4.18, 4.18C1 published edition .… 4.21 rights of owners .… 4.22–4.24 sound broadcasts .… 4.21 sound recordings .… 4.21 symbol .… 4.2 television broadcasts .… 4.21, 4.21C trade names .… 4.11, 4.11C unlawful reproduction .… 4.40 Copyright Act 1968 (Cth) copyright, application to .… 4.2 Designs Act, compared .… 2.2 industrial designs .… 5.30 overview of .… 2.2 passing off, compared .… 2.2 Patents Act, compared .… 2.2 patents, application to .… 2.2 Trade Marks Act, compared .… 2.2 Corrective advertising misleading or deceptive advertising .… 10.69 Corresponding design defence to copyright infringement .… 4.53–4.56 definition .… 4.54 registration of .… 4.54 Costing assistance price fixing, and .… 13.27 Country of origin claims packaging and labelling .… 8.16, 10.28 food .… 8.26 geographical indicators .… 8.16 indigenous art .… 8.16C indirect misrepresentations .… 8.14C2 ‘made in’ .… 8.14, 8.15, 8.15C ‘product of’ .… 8.16, 8.16C Court orders see also Account of profits; Damages; Injunctions Anton Piller .… 2.56, 4.70
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blocking online sites .… 4.71 cartel provision breaches .… 12.26 community service .… 10.71 compliance and education programs .… 12.27 copyright proceedings .… 4.68–4.71 corrective advertising orders .… 10.69 delivery up for destruction of products, for .… 2.58 disqualifying persons from managing corporations .… 10.73 e-marketing offences, relating to .… 19.15 enforcing undertakings to the ACCC .… 10.72, 12.27 false or misleading advertising offences community service orders .… 10.71 compensation .… 10.74 compliance and education programs .… 10.70 corrective advertising .… 10.69 disqualification from managing corporations .… 10.73 enforcement of undertakings to ACCC .… 10.72 fines .… 10.67 injunctions .… 10.68, 10.68C interlocutory .… 4.70 John and Jane Doe .… 2.56 probation .… 12.27 unsolicited consumer agreement provisions orders on breach of .… 11.44, 11.44C Courts, hierarchy of England .… 1.28 federal .… 1.27 other jurisdictions .… 1.28 states .… 1.26 Cover pricing bid rigging .… 13.43, 13.43C3 Craftmanship artistic .… 4.20, 4.23 functional constraints .… 4.20C1 skill, nature of .… 4.20C2 Criminal law cases .… 1.39 liability for product safety and information .… 9.63–9.72 Criminal offences bait advertising .… 11.12 elements .… 11.13 food legislation, under .… 8.23
Copyright © 2019. LexisNexis Butterworths. All rights reserved.
Index misleading gift promotions .… 11.10 misrepresentation of design .… 5.28 Criminal penalties cartel provisions, breach .… 12.21, 12.24, 12.25, 13.6, 13.16, 13.17 collusive conduct .… 12.21, 12.24, 12.25, 13.6, 13.16, 13.17 competition law .… 12.21–12.25 assessment of penalties .… 12.25 cartels .… 12.21 corporations, for .… 12.23 individuals, for .… 12.24 copyright infringement .… 4.72 design infringement .… 5.28 misleading advertising .… 10.33 non-compliance with product safety and information standards .… 8.9, 8.9C trade mark infringement .… 7.59 unsolicited consumer agreement provisions, breaches .… 11.44, 11.44C Customer allocating market sharing agreements .… 13.37 lists .… 3.14 restraints of trade exclusive dealing .… 17.8, 17.13, 17.19 supply side retail customer restraint arrangement, effect .… 17.19 supply side wholesale customer restraint arrangement, effect .… 17.19 Customs importing trade-marked goods .… 7.54 Cybersquatting dispute resolution .… 19.62 domain name registration .… 19.61 passing off .… 6.33, 6.33C2, 6.33C3 international cooperation and enforcement .… 6.33 second level domain names .… 6.33, 6.33C4 D Damages accessories false or misleading conduct .… 10.56 account of profits, and .… 4.69 breach of confidence, for .… 3.28, 3.29 competition law breaches .… 12.26 consumer guarantee, breach .… 9.39, 9.40 attempt to qualify rights .… 9.40
consumer rights .… 9.39 conversion .… 4.69 copyright infringement .… 4.68, 4.69 unjustified claims .… 4.73 defective goods .… 9.53, 9.54, 9.56 inadequate warnings .… 9.53C1 limitations .… 9.56 time limits .… 9.58 Do Not Call Register Act, breach .… 19.21 false or misleading advertising .… 10.74 goods produced negligently .… 9.6 manufacturers, against .… 9.53, 9.53C2, 9.54, 9.56 defective goods, for .… 9.53, 9.53C2, 9.54, 9.56 inadequate warnings .… 9.53C1 time limits .… 9.58 misleading advertising .… 10.34 misuse of market power .… 14.27 negligence .… 9.6 passing off .… 6.15, 6.16 statutory .… 6.28 patent infringement .… 2.54 retail price maintenance .… 16.30, 16.30C unsolicited consumer agreement, breach .… 11.44 Dangerous goods classification symbols .… 8.27 Code .… 8.28 legislation .… 8.2, 8.28 product safety requirements bans .… 9.68, 9.68C public warnings .… 9.67 Dangerous substances legislation .… 8.2, 8.28 Data breaches notifiable .… 19.46 Data compilations copyright protection .… 4.10 telephone directories .… 4.10C Databases unlawful reproduction .… 4.41 television programming information .… 4.41C washing .… 19.19 Dealers independent .… 18.1 Dealing exclusive see Exclusive dealing
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Marketing and the Law Dealing — cont’d fair .… 4.50 infringement of copyright by .… 4.65–4.67 Debt collection unfair sales techniques .… 11.32 Deception confusion, distinguished .… 10.19 passing off, and .… 6.11 distinctive brand name .… 6.11C1, 6.11C2, 6.11C3 proving .… 6.12 Deceptive conduct see Misleading and deceptive conduct Deceptively similar trade marks .… 7.34 cigarettes .… 7.34C1, 7.34C2 importing trade-marked goods .… 7.54 non-use of trade mark .… 7.62 opposition to registration .… 7.42, 7.42C1 international marks .… 7.42C3, 7.42C5 refusal to register .… 7.35, 7.37, 7.63 similarity test .… 7.48 description rather than sign .… 7.48C2 imperfect recollection .… 7.48C1 passing off .… 7.48 substantially identical, distinguished .… 7.48 trade mark infringement .… 7.45 related goods or services .… 7.52 same goods or services .… 7.46–7.48 similar goods or services .… 7.49–7.52 Defamation injurious falsehood .… 19.57, 19.57C Defects defective goods .… 9.48–9.62 ACL, under .… 9.48, 9.49 damages as a result of .… 9.53, 9.53C2 defences .… 9.55, 9.55C definition .… 9.51 excluded losses .… 9.54 safety defects, liability for .… 8.5, 9.48 test to determine .… 9.52 warnings .… 9.51 design of products .… 9.10, 9.10C1 marketing process .… 9.11 adequate warnings .… 9.11C packaging material .… 9.10C2 production process .… 9.9 specifications of products .… 9.10 Defences authorisation .… 12.28
840
bait advertising .… 11.16 breach of confidential information public interest .… 3.27 defective goods .… 9.55, 9.55C exercising due diligence .… 10.62 false or misleading conduct .… 10.57–10.62 civil penalty actions .… 10.59 due diligence .… 10.62, 10.62C media .… 10.58, 10.58C publishers .… 10.60 reasonable mistake of fact .… 10.61, 10.61C reasonable precautions .… 10.62, 10.62C infringement of copyright .… 4.50–4.56 copying industrial products .… 4.53–4.56 dealing with computer programs .… 4.51 fair dealing .… 4.50 moral rights .… 4.27, 4.27C personal use copies .… 4.52 infringement of design .… 5.25 infringement of patents .… 2.17, 2.50 compulsory licences .… 2.44 infringement of trade marks .… 7.56 good faith .… 7.56C1–7.56C4 manufacturers .… 9.55, 9.55C prior user .… 2.17 public benefit .… 12.28 raincheck .… 11.16 reasonable mistake of fact .… 10.61 reasonable precautions .… 10.62 substitution .… 11.16 unconscionable conduct .… 11.25 Defensive trade marks examples .… 7.65 nature and purpose .… 7.65 Delivery up breach of confidence, for .… 3.28 destruction .… 2.58 goods or services passing off, remedy for .… 6.16 Demand substitution .… 12.42, 12.44 supply substitution tests .… 12.41–12.43, 14.9 Descriptive words non-descriptive (distinctive), distinguished .… 6.27 prevention of use by other traders .… 6.27 nature of service offered .… 6.27C1, 6.27C2 secondary meaning, acquisition of .… 6.27C3, 6.27C4
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Index reputation, establishing .… 6.9 hire cars .… 6.9C Design circuit layout rights .… 5.35 component parts .… 5.9 copyright protection .… 4.18 confidentiality .… 4.18C1 corresponding .… 4.53–4.56 defences against infringement .… 5.25 definition .… 5.5 distinctiveness .… 5.12 criteria .… 5.12 function .… 5.8, 5.8C industrial .… 5.29–5.32 industrial products .… 4.53–4.56 industrially applied .… 4.18, 4.18C2, 4.20 corresponding design not registered .… 4.55 infringement see Infringement of design innovation versus functional innovation .… 5.3 international law .… 5.34 marketing advice .… 5.36 nature of .… 5.5–5.9 newness .… 5.11 passing off .… 2.2, 5.32 furniture .… 5.32C practical application .… 5.4 prior artbase .… 5.10 exempt public use or publication .… 5.16 public use in Australia .… 5.14 publication within or outside Australia .… 5.15, 5.15C registration of designs .… 5.22 priority date .… 5.10, 5.22 products .… 4.18 passing off .… 6.36, 6.36C relationship to design .… 5.7, 5.7C public use .… 5.14 exemptions .… 5.16 publication .… 5.15 registration see Registration of designs remedies for infringement .… 5.26–5.28 rights .… 5.18 spare parts .… 5.9 system, review of .… 5.33 unjustified claims, making .… 5.27 visual feature .… 5.8
Designs Act 2003 (Cth) .… 2.2, 5.1 Copyright Act, compared .… 2.2, 5.30 copyright protection, and .… 4.5 introduction to .… 5.2 Patents Act, compared .… 2.2, 5.31 purpose of .… 5.3 Trade Marks Act, compared .… 2.2 Destruction documents breach of confidence .… 3.28 goods or materials passing off .… 6.16 products breach of confidence .… 3.28 Device marks passing off .… 6.38, 6.38C trade marks .… 7.6, 7.16 Differentiation of products market structure and competition, 12.50 statutory passing off, and .… 6.25 case law .… 6.25 Direct infringement original copyright works .… 4.38–4.47 Part IV material .… 4.48 peer to peer file sharing .… 4.48 television broadcasts .… 4.48C Direct marketing code of practice .… 11.47 marketing advice .… 11.48 privacy principles .… 19.38 selling techniques .… 11.37–11.47, 19.38 Direct Marketing Code of Practice .… 11.45, 11.46, 19.47, 19.67 Directions for use packaging and labelling .… 8.27 Director disqualification as .… 12.24 misuse of market power .… 14.27 duty of confidence .… 3.20 Disciplinary Rules of the Mortgage and Finance Association of Australia (MFAA) .… 11.45 Disclaimer passing off, and .… 6.14 statutory passing off, and .… 6.26 music industry .… 6.26C Disclosure document franchise agreement .… 18.16
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Marketing and the Law Disclosure — cont’d franchises .… 18.16–18.19 government-related identifiers .… 19.40 information, unauthorised .… 3.26 personal information .… 19.37, 19.39 Discounting resale price maintenance, and .… 16.1, 16.2 flowchart .… 16.33 withholding supply .… 16.18, 16.21, 16.22 Dispute resolution alternative .… 1.42 courts, through .… 1.41 nature and purpose .… 1.40 Distinctiveness designs .… 5.12 criteria .… 5.12 Distinguishing trade marks goods and services .… 7.11 inherently adapted .… 7.11–7.28 device marks .… 7.16 invented words .… 7.14 logos .… 7.16 marks not inherently adapted .… 7.21, 7.21C1, 7.21C2 marks partially inherently adapted .… 7.22–7.24 non-descriptive words .… 7.13, 7.13C scents .… 7.20 shapes .… 7.18 signature of applicant .… 7.15 sounds .… 7.19 Distribution structures agents .… 18.1 e-marketing see e-marketing franchising see Franchising independent dealers .… 18.1 products to market, getting .… 18.1 vertical .… 18.1 Do Not Call legislation .… 19.16 breaches .… 19.19 Do Not Call Register .… 19.17 penalties .… 19.21 remedies .… 19.21 Doctrines precedent .… 1.25–1.28 separation of powers .… 1.15 Documents destruction of, for breach of confidence .… 3.28
842
franchise disclosure .… 18.16–18.19 Domain names disputes .… 19.61 resolution of .… 19.62 e-marketing .… 19.60–19.66 misleading and deceptive conduct .… 19.64 passing off .… 6.33, 6.33C1 cybersquatting .… 6.33, 6.33C2, 6.33C3 international cooperation and enforcement .… 6.33 second level domain names .… 6.33, 6.33C4 pirates .… 6.33 registration of .… 19.60 trade marks, as .… 7.47, 7.76, 19.66 Door-to-door selling coercion or harassment .… 11.32 direct selling .… 11.37 marketing advice .… 11.48 sales technique, as .… 11.1 unconscionable conduct .… 11.24, 11.24C unsolicited selling .… 11.38, 11.38C breaches of ACL, consequences .… 11.44, 11.44C exclusion of ACL provisions .… 11.43 modification of ACL provisions .… 11.43 non-compliance with ACL .… 11.41 obligations following agreement .… 11.40 obligations of dealers and suppliers .… 11.39 right to terminate .… 11.42 Dramatic works copyright protection .… 4.13, 4.23 Drawings artistic craftsmanship .… 4.20 copyright protection .… 4.15, 4.18, 4.23, 4.44 building models .… 4.19 confidentiality .… 4.18C1 corresponding design, defence .… 4.54 industrial application of artistic work .… 4.18C2 licences .… 4.36 logos .… 4.44 unlawful reproduction .… 4.40 Drugs legislation .… 8.27 packaging and labelling .… 8.27 Dual listed company arrangements .… 12.17 pricing .… 8.12
Index
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Due diligence defence .… 10.62 Duty of care manufacturers .… 9.4, 9.5 breach of duty .… 9.5, 9.5C foreseeable effect .… 9.4 reasonable care .… 9.4C1 special precautions for abnormality .… 9.4C2 Duty of confidence advisors .… 3.17 assignees, potential .… 3.24 assignors .… 3.23 company directors .… 3.20 consultants .… 3.17 directors .… 3.20 employees .… 3.18 ex-employees and .… 3.19 existence of .… 3.16–3.25 joint venturers .… 3.21 licensees .… 3.22 potential .… 3.24 partner .… 3.21 Duty of good faith franchising agreements .… 18.14 Duty regarding commercial secrets by employees .… 3.39 Dynamic efficiency competition policy, and .… 12.11 E e-commerce see also e-marketing agreements .… 19.9 contracts formation .… 19.6 jurisdictional issues .… 19.49 terms .… 19.9, 19.9C international aspects .… 19.47, 19.48–19.50 jurisdictional issues .… 19.48–19.50 Model Law .… 19.4 Economies of scale competition policy, and .… 12.10 Efficiency dynamic .… 12.11 productive .… 12.9 technical .… 12.9 Electronic commerce see e-commerce contracts .… 19.3
literary items .… 4.66 parallel importing .… 4.66 marketing see e-marketing message, definition .… 19.11 music items .… 4.66 parallel importing .… 4.66 Email marketing commercial, definition .… 19.13, 19.13C1, 19.13C2 exemptions .… 19.14, 19.14C infringement notices .… 19.15 junk mail .… 19.10 nature of .… 19.10 opt-in process .… 19.12, 19.12C penalties for offences .… 19.15 remedies .… 19.15, 19.15C Spam Act .… 19.11 unsolicited, definition .… 19.13 e-marketing see also e-commerce Code of Practice .… 19.14 distribution .… 19.2–19.9 domain names .… 19.60–19.66 electronic contracts .… 19.3 Electronic Transactions Acts .… 19.5, 19.49 intellectual property issues social media .… 19.58 international regulation .… 19.47, 19.48–19.50 jurisdictional issues of .… 19.48–19.50 legal issues .… 19.1 liability for torts .… 19.50 marketing advice .… 19.70 Marketing Supervision Network (IMSN) .… 19.47 nature of .… 19.1 online reviews .… 19.59 privacy .… 19.26–19.46 promotion .… 19.10–19.69 codes of practice .… 19.67–19.69 domain names .… 19.60–19.66 email and SMS marketing .… 19.10–19.15 international regulation .… 19.47 jurisdiction .… 19.48–19.50 privacy .… 19.26–19.46 search engine marketing .… 19.51–19.55 social network marketing .… 19.56–19.59 telemarketing .… 19.16–19.25 search engine .… 19.51–19.55
843
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Marketing and the Law e-marketing — cont’d selling online .… 19.3 SMS see SMS marketing social network .… 19.56–19.59 telemarketing .… 19.16–19.25 Employee conduct of compliance programs .… 1.48 resale price maintenance offences .… 16.28 consultant, distinguished .… 2.38, 3.17 duties during and after employment .… 3.39 duty as to commercial secrets .… 3.39 duty of confidence .… 3.18 ex-employees .… 3.19 ex-employees duty of confidence .… 3.19 non-solicitation agreements .… 3.19, 3.35 inventions .… 2.38–2.40 know-how .… 3.8, 3.8C1, 3.19 liability for acts of .… 10.10 ownership of copyright by .… 4.29 computer software .… 4.29C Employer confidential information of .… 3.8, 3.19 Employment agreements .… 3.35 invention created in course of .… 2.40 relationship .… 2.39 Enforceable undertakings competition law breaches .… 12.27 Do Not Call Register Act, breaches .… 19.21 Franchising Code of Conduct .… 18.22 Spam Act, breaches .… 19.15 Engravings copyright protection .… 4.15, 4.18, 4.23 duration .… 4.37 ownership .… 4.31 Environmental claims .… 8.11, 8.13 free range eggs .… 8.13C standards .… 8.13 Environmental Claims in Advertising and Marketing Code .… 10.77 Equitable ownership of copyright nature of .… 4.32, 4.32C Equity common law, and .… 1.31 Espionage, industrial .… 3.16, 3.25
844
Essential services/facilities access codes .… 14.43 access disputes .… 14.39 arbitration .… 14.39 access regimes certification of effective .… 14.42 undertakings .… 14.43 competition and .… 12.19 declaration of .… 14.35–14.41 access disputes .… 14.39 ACT review .… 14.40 Minister, role of .… 14.37, 14.37C recommendations .… 14.36 terms of access .… 14.38 unlawful conduct .… 14.41 definition .… 14.31 National Third Party Access Regime .… 14.34 problems associated with monopolies .… 14.32 solutions .… 14.33 service provider, negotiations .… 14.38 service user terms of access .… 14.38 undertaking re access .… 14.43 European Patent Convention (EPO) .… 2.65 European Union Data Protection Directive .… 19.27, 19.28 Event names passing off .… 6.39 ‘Evergreening’ .… 2.9 Exaggerations advertising, misleading conduct in .… 10.23, 10.23C1 Exclusion clauses liability of suppliers of services .… 9.43 Exclusionary agreements cartel provisions and .… 12.17 collusive conduct .… 13.5, 13.44 public benefit exclusions .… 13.71 Exclusive dealing agreements, collective .… 13.54 authorisation of .… 17.27, 17.29, 17.29C buyer, by .… 17.16 customer restraints .… 17.19 examples .… 17.19, 17.20 substantial lessening of competition .… 17.18 supply on condition .… 17.17 territorial restraints .… 17.20
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Index leases and .… 17.21 legislative overlap .… 17.4 licences and .… 17.21 marketing advice .… 17.31 misuse of market power .… 14.4 natural monopolies and .… 17.25 nature of .… 17.1 notification of .… 17.27, 17.28 patent rights .… 2.43 substantial lessening of competition .… 17.7, 17.22–17.26 consumer welfare versus convenience .… 17.24, 17.24C exclusive dealing by buyer .… 17.18 ‘future with and future without’ test .… 17.23 natural monopolies .… 17.25, 17.25C unlawful purpose and unlawful effect, distinguished .… 17.26, 17.26C substantial market power, and .… 17.4 supplier, by .… 17.5–17.14 customer restraints .… 17.13 examples .… 17.8 exclusivity agreements .… 17.9, 17.9C loyalty agreements .… 17.10 minimum quantity agreements .… 17.12 product tying/bundling .… 17.11, 17.11C1, 17.11C2 substantial lessening of competition .… 17.7 supply on condition .… 17.6 territorial restraints .… 17.14 supply side retail customer restraint arrangement, effect .… 17.19 supply side wholesale customer restraint arrangement, effect .… 17.19 types .… 17.1 unlawful competitive practices .… 12.17 Exclusive licence assignment of copyright .… 4.36 Exclusivity agreements exclusive dealing .… 17.8, 17.9 Ex-employee duty of confidence by .… 3.19 non-solicitation agreements .… 3.19, 3.35 protection of competition by .… 3.1 Exemptions collusive conduct .… 13.57 anti-overlap provisions .… 13.64 authorisation .… 13.59, 13.65, 13.69–13.74
collective acquisitions .… 13.63, 13.67 collective bargaining .… 13.60, 13.65 joint venture .… 13.62, 13.66 related-bodies .… 13.61, 13.65 e-marketing .… 19.14 non-disclosure rules .… 2.17 unlawful competitive practices .… 12.18 Exploit definition .… 2.41 Explosives dangerous goods (substances) legislation .… 8.28 Exports competition, and .… 12.12 Express licence assignment of copyright .… 4.36 Extrinsic materials interpretation of statutes .… 1.20 F Fair trading dealing .… 4.50 state and territory legislation .… 9.64 False advertising see Misleading and deceptive conduct Falsehood, injurious defamation .… 19.57, 19.57C Faxes e-marketing .… 19.11 Fax Marketing Industry Standard 2011 .… 19.18 Federal Circuit Court intellectual property section .… 2.50 Federal courts hierarchy of .… 1.27 Federalism nature of .… 1.7 Federation of Australian Commercial Television Stations (FACTS) .… 10.79 Fictitious characters protection of .… 6.45 Field of activity passing off, and .… 6.13, 6.13C Films copyright .… 4.2, 4.21, 4.34 duration .… 4.37 parallel importing .… 4.66 peer to peer file sharing .… 4.48 unlawful public performance .… 4.46 parallel importing .… 4.66
845
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Marketing and the Law Financial methods patents .… 2.8, 2.8C2 Fines misleading or deceptive advertising .… 10.67 First aid instructions packaging and labelling .… 8.27 Fit for purpose goods .… 9.18 skill/judgment of supplier/manufacturer, reliance on .… 9.18C1, 9.18C2 Fixing prices see Price fixing Flowcharts breach of cartel provisions .… 13.76 collusive conduct .… 13.76 liability elements under ACL consumer guarantees .… 9.61 defective goods .… 9.62 negligence, tort of .… 9.60 overlap between s 18 ACL and passing off .… 6.19 passing off action .… 6.16 patent application procedure .… 2.26 protection under s 18 ACL .… 6.28 registrability of trade marks .… 7.40 resale price maintenance .… 16.33 Food country of origin claims .… 8.26 genetically modified .… 8.24 labelling .… 8.24 ACL, under .… 8.2 public health and safety information .… 8.24 legislation .… 8.2, 8.22–8.26 nutritional information .… 8.24 packaging .… 8.24 ACL, under .… 8.2 public health and safety information .… 8.24 Standards Australia New Zealand (FSANZ) .… 8.22 Standards Code .… 8.2, 8.22, 8.24 packaging and labelling requirements .… 8.24 purpose .… 8.24 specific conditions .… 8.24 Food and Beverages Advertising and Marketing Communications Code .… 10.77 Forcing full line .… 17.11
846
third line .… 17.15, 17.15C1, 17.15C2 bundling, and .… 17.15 effect .… 17.15 persuasion, distinguished .… 17.15 Franchising advantages .… 18.3 franchisee, to .… 18.4 franchisor, to .… 18.4 disputes .… 18.6 resolution of .… 18.21 distribution structures .… 18.1 framework .… 18.9 franchise agreement .… 17.11, 18.16, 18.20 CCA, application of .… 18.23 Code, application of .… 18.11, 18.13 customer restraints .… 17.3, 17.13 definition .… 18.13 disputes .… 18.21 form and content .… 18.20 prohibited clauses .… 18.20 requirements .… 18.15, 18.16–18.19 termination .… 18.20 territorial restrictions .… 17.3, 17.14, 17.20 franchisee advantages .… 18.4 obligations of .… 18.27 written statements .… 18.15 franchisor advantages .… 18.5 deceptive conduct .… 18.24, 18.24C1, 18.24C2 disclosure document .… 18.16, 18.18, 18.18C documentation, required .… 18.16–18.19 information statement .… 18.17 obligations .… 18.6, 18.16–18.20 unconscionable conduct .… 18.25, 18.25C manufacturing franchises .… 18.2 marketing advice .… 18.28 operating problems .… 18.8 process franchises .… 18.2 product franchises .… 18.2 restraints, limitations of .… 18.26 start-up problems .… 18.7 systems franchises .… 18.2 types of franchise .… 18.2 Franchising Code of Conduct .… 11.45 application .… 18.11, 18.13 exclusions .… 18.13
Index
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binding nature of .… 18.11 CCA, relationship to .… 18.10 compliance .… 18.22 dispute resolution .… 18.21 enforcement .… 18.22 franchise agreements .… 18.11, 18.13 regulation of terms .… 18.20 franchisor obligations .… 18.20 industry code, as .… 18.10 inquiry into .… 18.9 recommendations .… 18.9 mandatory code, as .… 18.11 purpose .… 18.12 Fraud, industrial .… 3.25 Full line forcing .… 17.11 Functional innovation design innovation, distinguished .… 5.3 ‘Future with and future without’ test competition law .… 12.37 G Gambling market games .… 11.3 trade promotions .… 11.4 Games chance, of .… 11.2 competitions .… 11.2, 11.3 lotteries .… 11.4 legislation .… 11.7 permits .… 11.5, 11.6 sales techniques .… 11.1, 11.3 marketing advice .… 11.48 trade promotion .… 11.3 conditions of conduct .… 11.7 legislation .… 11.7 permits .… 11.5, 11.6 GATT-WTO Agreements .… 2.63 Gene sequences .… 2.11 practical applications .… 2.11C Genes .… 2.11 Genetically modified food packaging and labelling conditions .… 8.24 Geographical names indicators .… 8.16 trade mark registration .… 7.21, 7.21C2, 7.28, 7.28C Gifts free, offering .… 11.2, 11.8, 11.10, 11.11 misleading promotions .… 11.9
breach, proof of .… 11.11 failure to provide prize .… 11.10, 11.10C purchase, with .… 11.9 Golden rule interpretation of statutes .… 1.18 Good faith franchising, duty in .… 18.14 Goods and services see also Services acceptable quality .… 9.15, 9.17, 9.20, 9.24, 9.35, 9.35C, 9.61 damages .… 9.34 defence to statutory guarantee .… 9.38 major failure to comply with guarantee .… 9.17C1 negligence in manufacturing process .… 9.17C2 accessories false or misleading representations .… 10.43 agreement to acquire .… 10.40 approval of .… 10.43 false or misleading representations .… 10.43 benefits of .… 10.43 false or misleading representations .… 10.43 characteristics of .… 10.51 misleading conduct .… 10.51 classes of .… 7.6, 7.8 closely related .… 7.51, 7.51C, 7.56 opposition to registration .… 7.42 refusal to register .… 7.35, 7.39 same description .… 7.50 trade mark infringement .… 7.45, 7.49 composition of .… 10.37 correspondence with description .… 9.19, 9.19C sample .… 9.20 warranty .… 9.21 dangerous bans .… 9.68, 9.68C public warnings .… 9.67 defective see Defective goods definition .… 9.14 destruction of passing off, remedy for .… 6.16 distinguishing .… 7.11 false or misleading representations accessories .… 10.43 affiliation .… 10.44 agreement to acquire .… 10.40A, 10.40C
847
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Marketing and the Law Goods and services — cont’d approvals .… 10.43, 10.44 benefits .… 10.43 contract rights of consumers .… 10.49, 10.49C1, 10.49C2 need for goods or services .… 10.48 newness of goods .… 10.38 performance characteristics .… 10.43 place of origin .… 10.47 price .… 10.45, 10.45C1, 10.45C2 purported testimonials .… 10.41, 10.41C repair facilities, availability .… 10.46 requirement to pay for contractual right .… 10.50 spare parts, availability .… 10.46 sponsorship .… 10.43, 10.44 standards and quality .… 10.36–10.38 testimonials .… 10.42 uses .… 10.43 fit for purpose .… 9.18 reliance on skill/judgment of supplier/ manufacturer .… 9.18C1, 9.18C2 grade of .… 10.37 importing trade-marked .… 7.54 liability of manufacturer .… 9.30–9.40 liability of supplier .… 9.13–9.28 manufacturing process .… 10.51 misleading conduct .… 10.51 model of .… 10.37 nature of .… 10.51 misleading conduct .… 10.51, 10.51C need for .… 10.48 false or misleading representations .… 10.48 newness .… 10.39 false or misleading representations .… 10.39 offer for reasonable period .… 11.13, 11.14 offer of reasonable quantities .… 11.13, 11.15 particular history of .… 10.37 performance characteristics .… 10.43 false or misleading representations .… 10.43 place of origin .… 10.47 previous use of .… 10.37 price false or misleading representations .… 10.45 pricing .… 10.52–10.54 product liability see Product liability purported testimonials .… 10.41
848
false or misleading representations .… 10.41, 10.41C quality of .… 10.37 quantity of .… 10.51 bait advertising .… 11.13, 11.15 misleading conduct .… 10.51 refusal to supply .… 14.4, 14.20 rejection for breaches of statutory guarantees .… 9.25, 9.26 consequences of rejection .… 9.26 exceptions .… 9.25 repair of false or misleading representations .… 10.46 same .… 7.46–7.48 same description .… 7.50 second-hand trade-marked .… 7.55 clothing .… 7.55C similar .… 7.38, 7.49–7.52 substantially identical, distinguished .… 7.48, 7.48C1, 7.48C2 spare parts, availability false or misleading representations .… 10.46 sponsorship .… 10.43 false or misleading representations .… 10.43 standard of .… 10.37 statutory guarantees .… 9.15 acceptable quality .… 9.17, 9.17C1, 9.17C2 breaches, remedies for .… 9.23–9.27 description, correspondence with .… 9.19, 9.19C exclusion or modification of .… 9.22, 9.22C extension beyond purchaser .… 9.28 fitness for any disclosed purpose .… 9.18, 9.18C1, 9.18C2 ‘in trade or commerce’ .… 9.16 sample, correspondence with .… 9.20 warranty, correspondence with .… 9.21 style of .… 10.37 suitability for purpose .… 10.51 misleading conduct .… 10.51 supplied ‘in trade or commerce’ .… 9.16 testimonial relating to .… 10.41, 10.42 false or misleading representations .… 10.42 trade mark classification .… 7.6, 7.8 uses of .… 10.43
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Index false or misleading representations .… 10.43 value of .… 10.37 Goodwill assets .… 15.2 reputation in the marketplace .… 6.4–6.9, 6.21 descriptive words or material .… 6.9, 6.9C level of business activity .… 6.5, 6.5C1, 6.5C2 market where no business activities carried on .… 6.6, 6.6C multiple traders .… 6.8, 6.8C owner personally known .… 6.7 Government history of Australian .… 1.6 separation of powers .… 1.7, 1.15 Government-related identifiers disclosure of .… 19.40 Grade definition .… 10.37 goods, of .… 10.37 false or misleading representations .… 10.37 ‘Green’ claims packaging and labelling .… 8.11, 8.13 free range eggs .… 8.13C Guarantees consumer .… 9.13–9.47 acceptable quality .… 9.17, 9.17C1, 9.17C2, 9.35, 9.35C compensation for breach .… 9.39 damages .… 9.34 defences to .… 9.38 description, goods correspond with .… 9.19, 9.36 exclusion of .… 9.22, 9.37, 9.43 extent of .… 9.28 fitness for purpose .… 9.18, 9.18C1, 9.18C2 limitation of .… 9.43, 9.44, 9.44C modification of .… 9.22, 9.44 reforms, proposed .… 9.29 remedies for beaches .… 9.23–9.27, 9.45 sample, goods correspond with .… 9.20 warranty, goods correspond with .… 9.21 H Harassment sales technique .… 11.1
switching, and .… 11.17 unfair sales techniques .… 11.32 Harper Review Panel competition policy, and .… 12.4 exemptions .… 12.18 exclusive dealing .… 17.30 resale price maintenance .… 16.32 Health Acts drugs, regulation of .… 8.27 poisons, regulation of .… 8.27 Star Rating system .… 8.25 therapeutic goods, regulation of .… 8.27 Horizontal agreements .… 13.45, 13.51 collusion .… 13.1 merger .… 15.2, 15.3 anti-competitive coordinated effects .… 15.10 anti-competitive unilateral effects .… 15.10 price fixing .… 13.19 agreement between competitors .… 13.21 examples of possible agreements .… 13.26–13.31 purpose of agreement .… 13.22–13.25 Horticulture Code .… 11.45 Human body, methods for treating .… 2.10, 2.10C life, generation of .… 2.11 Hypothetical monopolist test competition law .… 12.42 I ICANN (Internet Corporation for Assigned Names and Numbers) dispute resolution process .… 19.62 domain names .… 19.60 disputes .… 19.61 Ideas not patentable .… 3.2 protection of .… 4.1, 4.5 reproduction of .… 4.41–4.45 Identical products infringement of design .… 5.24 ownership and validity of design .… 5.24C Identifiers, government-related adoption, use, or disclosure of .… 19.40 IIA see Internet Industry Association (IIA) Implied licence artwork .… 4.36C assignment of copyright .… 4.36
849
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Marketing and the Law Importing parallel accessories to imported articles .… 4.67 copyright material .… 4.66 trade-marked goods .… 7.54 Imports copyright infringement circumvention devices .… 4.74 criminal penalties .… 4.72 indirect copyright infringement .… 4.65 ‘In trade or commerce’ interpretation .… 10.9 Independent dealers distribution systems .… 18.1 Indirect infringement of copyright dealing, through .… 4.65 importing, through .… 4.65, 4.65C Industrial application of a design .… 4.55 designs .… 5.29–5.32 espionage .… 3.16, 3.25 fraud .… 3.25 passing off .… 5.29–5.32 furniture .… 5.32C processes .… 3.11 products .… 3.11 corresponding design .… 4.53–4.56 theft of confidential information .… 3.25 Industrial relations competition law, and .… 12.2 Industrially applied designs artistic craftsmanship .… 4.20 copyright protection .… 4.18, 4.18C2, 4.55 Industry policy .… 12.2 Inertia selling unfair selling techniques .… 11.8, 11.35, 11.35C Informal merger review and authorisation ACCC authorisation .… 15.14 review .… 15.13 assessments, types of .… 15.12 Information commercial value of .… 3.6 confidential .… 2.2, 3.4 exchange agreements .… 13.52 price fixing, and .… 13.28 personal see Personal information product, standards .… 8.8, 8.9
850
bean bag covers .… 8.8C care labelling .… 9.71 enforcement of .… 9.72 non-compliance penalties .… 8.9, 8.9C provider defence to misleading conduct .… 10.58 public knowledge, part of .… 3.5 specificity of .… 3.3 unauthorised disclosure or use of .… 3.26 Infringement notices (ACCC) Do Not Call Register Act, breach .… 19.21 Franchising Code of Conduct .… 18.22 misleading advertising .… 10.33, 10.66 Spam Act, breach .… 19.15 Infringement of copyright authorising infringement .… 4.57 defences .… 4.50–4.56 copying industrial products .… 4.53–4.56 dealing with computer programs .… 4.51 fair dealing .… 4.50 personal use copies .… 4.52 direct .… 4.38–4.48 indirect .… 4.57–4.67 authorising, through .… 4.57–4.63 importing and dealing .… 4.65–4.67 parallel importing .… 4.66, 4.67 injunction against .… 4.70 nature of .… 4.38 remedies .… 4.68–4.74 unjustified claims, damages for .… 4.73 Infringement of design court orders .… 5.26 defences .… 5.25 parallel importing, and .… 5.23 primary infringement .… 5.23 remedies .… 5.26–5.28 test .… 5.23 timing .… 5.23 Infringement of patents .… 2.46–2.52 account of profits .… 2.54 contributory .… 2.51 baking enzyme, use of .… 2.51C2 dosage splitting (drugs) .… 2.51C1 misleading or deceptive conduct, and .… 2.51 definition .… 2.46 essential elements of claim .… 2.48, 2.48C exceptions .… 2.49 prior user rights .… 2.52
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Index remedies .… 2.53–2.58 rules .… 2.46 scope of claims .… 2.47 Infringement of trade marks criminal liability .… 7.59 counterfeit copies .… 7.59C dealing in second-hand trade-marked goods .… 7.55 clothing .… 7.55C deceptively similar sign .… 7.45–7.48 description rather than sign .… 7.48C2 imperfect recollection .… 7.48C1 passing off .… 7.48 defences .… 7.56 good faith .… 7.56C1–7.56C4 importing trade-marked goods .… 7.54 remedies .… 7.57–7.59 same goods or services .… 7.46–7.48 similar goods or services .… 7.49–7.52 substantially identical sign .… 7.45–7.48 unjustified threats .… 7.58 unrelated goods or services .… 7.53 use of a domain name .… 7.47 Injunctions blocking (online) .… 4.71 breach of confidence .… 3.28, 3.29 competition law breaches .… 12.26 copyright infringement .… 4.70 online sites providing access to overseas locations .… 4.71 Do Not Call Register Act, breach .… 19.21 Mareva .… 2.57, 4.70 misleading advertising .… 10.34, 10.68 passing off .… 6.15, 6.16 patent infringement .… 2.55 remedies for misuse of market power .… 14.27 retail price maintenance .… 16.28 Spam Act, breach .… 19.15 statutory passing off .… 6.28 unsolicited consumer agreement provisions, breach .… 11.44 Injurious falsehood defamation .… 19.57, 19.57C Innovation patents .… 2.4, 2.5, 2.31–2.35 duration of .… 2.34 innovative step .… 2.32 inventive step .… 2.18 process .… 2.33
purpose .… 2.32 standard patents, distinguished .… 2.4 system review .… 2.35 Innovative step meaning of .… 2.32, 2.32C Instant messaging e-marketing .… 19.11 Instruction manuals parallel importing .… 4.67 Intellectual property issues relating to e-marketing .… 19.58 laws .… 2.2 licensing of .… 17.11 marketing, and .… 2.2 meaning of .… 2.1 physical property, distinguished .… 4.6 rights .… 2.2 Internet domain names see Domain names safe harbour defences online intermediaries .… 4.64 search engine optimisation passing off .… 6.35, 6.35C service providers (ISPs), copyright infringement by .… 4.63 Internet Industry Association (IIA) Content Code of Practice .… 19.68, 19.69 Privacy Code of Practice .… 19.47, 19.68 Interpretation Acts interpretation of statutes .… 1.20 Invented words trade marks .… 7.14 Invention containing an inventive step .… 2.18–2.21 disclosure act of .… 2.16, 2.16C1, 2.16C2 prior patent application, by .… 2.13, 2.14 public document, by .… 2.15, 2.16C1 employee .… 2.38–2.40 created in course of employment .… 2.40, 2.40C2 employment relationship .… 2.39, 2.40C1 research outside course of employment .… 2.40C3 manner of manufacture .… 2.7–2.12 non-patentable .… 2.12 novelty of .… 2.13–2.17 patentable .… 2.7–2.23, 3.2 secret use of .… 2.23
851
Marketing and the Law Invention — cont’d use of .… 2.23 usefulness of .… 2.22 Inventive steps .… 2.18–2.21 Inventiveness factors for assessing .… 2.21 combination patents .… 2.21C1, 2.21C2 Inventor patent .… 2.37 IP Australia .… 2.3, 7.3 fees .… 7.9
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J John and Jane Doe orders .… 2.56 Joint authorship .… 4.33 Joint ventures anti-competitive agreements .… 13.53 duty of confidence .… 3.21 exemption to collusive conduct .… 13.62, 13.66 public benefit .… 13.72, 13.72C Journalists ownership of copyright .… 4.30 Junk mail e-marketing .… 19.10 Jurisdiction e-marketing, issues .… 19.1 K Keyword advertising passing off .… 6.34, 6.34C search engine marketing .… 19.52, 19.53 trade marks .… 19.53 Know-how, employee .… 3.8, 3.19 trade secrets distinguished .… 3.19 Knowledge objective .… 3.8, 3.8C1, 3.19 subjective .… 3.8, 3.19 L Labelling see also Packaging common representations .… 8.11–8.16 food .… 8.24 public health and safety information .… 8.24 importance of .… 8.1 legislation .… 8.1, 8.2 marketing advice .… 8.30
852
minimum standards for .… 8.6–8.9 misleading .… 6.10, 6.10C, 8.10–8.16 parallel importing and .… 4.67 regulation of .… 8.2 unfair practices .… 8.10 misrepresentation .… 8.10C Law case law .… 1.23–1.32 common law .… 1.23–1.32 competition see Competition law consumer protection .… 1.35 definition .… 1.4 marketing .… 1.1, 1.3 negligence see Negligence parliamentary .… 1.5–1.22 patent .… 2.3 private .… 1.38 public .… 1.38 sources of .… 1.4 Lay-by selling nature of .… 11.36 Leases exclusive dealing and .… 17.21 restraint clauses .… 3.33 Legal compliance see Compliance Legitimate interests protection of .… 13.4 Lessening definition .… 12.36, 13.48 Liability accessories false or misleading conduct .… 10.56, 10.56C1, 10.56C2 advertising agencies false or misleading conduct .… 10.55 agents, for .… 10.10 disclaimers .… 9.57 employees, for .… 10.10 media false or misleading conduct .… 10.55 product see Product liability Libraries infringement of copyright .… 4.58 Licence assignment of copyright .… 4.36 compulsory .… 2.44, 4.36 definition .… 2.42 exclusive .… 4.36 exclusive dealing and .… 17.21
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Index express .… 4.36 implied .… 4.36 non-exclusive .… 4.36 patent rights, compulsory .… 2.44 Licensees duty of confidence .… 3.22 potential .… 3.24 Licensing patent rights .… 2.42 monopolies and exclusive dealing .… 2.43 Licensing agreements restraint clauses .… 3.33 Likely definition .… 12.36 Limitation clauses liability of suppliers of services .… 9.43 ‘Limited offer’ meaning .… 11.14 Literal rule interpretation of statutes .… 1.17 Literary works advertising material .… 4.11 computer software .… 4.12 copyright protection .… 4.23 data compilations .… 4.10 phone directories .… 4.10C originality .… 4.9 trade names .… 4.11 branding criteria .… 4.11C single words .… 4.11 Live performances control of premises .… 4.59C copyright infringement, authorising .… 4.59 music venues control of premises .… 4.59C infringement of copyright .… 4.59 ownership of copyright .… 4.34 Locarno Agreement international classification of products .… 5.21 Logos copyright protection .… 4.17 passing off .… 6.38, 6.38C trade mark protection .… 7.1, 7.6, 7.16 Loss leading .… 11.12, 16.2 withholding supply .… 16.22 passing off, compensable .… 6.15
Lotteries market games and competitions .… 11.4 legislation .… 11.7 permits .… 11.5, 11.6 Loyalty agreements exclusive dealing .… 17.8, 17.10 Loyalty rebates misuse of market power .… 14.4, 14.25 M ‘Made in’ claims geographical indicators .… 8.16 misrepresentations .… 8.15, 8.15C Madrid Protocol international trade mark registration .… 7.67 Major failure definition .… 9.24, 9.46 reform proposals .… 9.29 remedy for breach of statutory guarantees .… 9.24 Manuals parallel importing and .… 4.67 Manufacturer damages against defective goods, for .… 9.53, 9.53C2, 9.54, 9.56 inadequate warnings .… 9.53C1 time limits .… 9.58 defences .… 9.55, 9.55C definition .… 9.31, 9.50 duty of care .… 9.4, 9.5 breach of duty .… 9.5, 9.5C foreseeable effect .… 9.4 reasonable care .… 9.4C1 special precautions for abnormality .… 9.4C2 liability of .… 9.3–9.12, 9.30–9.40, 9.48–9.62 scope of .… 9.6 negligence .… 9.8–9.12 avoiding liability for .… 9.7 defects in design or specifications .… 9.10, 9.10C1, 9.10C2 defects in marketing .… 9.11, 9.11C failure to provide adequately safe systems .… 9.12, 9.12C omissions or defects in the production process .… 9.9 warnings, adequacy of .… 9.11, 9.11C product liability .… 9.3–9.12, 9.30–9.40, 9.53–9.62
853
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Marketing and the Law Manufacturing franchise .… 18.2 manner of manufacture .… 2.7–2.12 agricultural industry .… 2.7C computer software .… 2.7 process of goods .… 10.51 misleading conduct .… 10.51 unsafe products .… 1.1 Mareva injunction .… 2.57 Margins squeezing .… 14.4, 14.24 Market barriers to entry .… 12.13–12.15, 12.47, 12.48, 12.51, 12.52, 14.11 brand .… 12.46 competitions see Competitions concentration .… 12.49 concept of .… 12.38–12.46 conduct .… 12.14, 12.53, 14.11 cooperation see Collusive conduct functional aspect .… 12.39 games see Games geographic aspect .… 12.39, 12.44, 12.44C impact .… 14.29 mutual recognition legislation, role of .… 8.29 performance and competition .… 12.14, 12.54 power see Market power product aspect .… 12.39 relevant .… 14.9, 14.9C1, 14.9C2 rigging .… 11.1 sector .… 12.45 segment .… 12.45 share .… 14.11 sharing .… 12.17, 13.36–13.39 agreement, purpose of .… 13.39, 13.39C1, 13.39C2 price fixing, and .… 13.30 sub .… 12.45 test of substitution .… 12.41–12.44 time, importance of .… 12.40 well-performing, nature of .… 12.6–12.12 Market power aggregation of .… 14.13 barriers to entry .… 14.11, 14.11C competition and .… 12.6, 12.17 determination of .… 14.10 misuse see Misuse of market power proof of .… 14.11
854
conduct affecting competition factors .… 14.11 market structure factors .… 14.11 substantial degree .… 14.8–14.14 aggregated power .… 14.13 determination of .… 14.10–14.14 multiple firms .… 14.2 proof .… 14.11 relevant market .… 14.9, 14.9C1, 14.9C2 threshold requirement .… 14.14 Market structure competition, and .… 12.14, 12.48–12.52 conduct-performance model .… 12.14 market power, determination of .… 14.11 Marketing see also Advertising ambush .… 10.30, 10.30C boards .… 13.29 calls .… 19.18 codes of practice .… 11.45 designs .… 4.17 direct .… 11.37–11.47, 19.38 email .… 19.10 environment variables .… 1.3 fax .… 19.11 function of .… 1.2 information as a trade secret .… 3.13 intellectual property and .… 2.2 law .… 1.1, 1.3 manager’s framework .… 1.3 parasite .… 10.30 research, telephone-based see Telemarketing search engine .… 19.51–19.55 similarities and statutory passing off .… 6.25 case law .… 6.25 SMS .… 19.10 social network .… 19.56–19.59 Marketing advice advertising .… 10.80 collusive conduct .… 13.75 competition law .… 12.63 copyright .… 4.76 designs .… 5.36 e-marketing .… 19.70 exclusive dealing .… 17.31 franchising .… 18.28 mergers .… 15.23 misuse of market power .… 14.45 packaging and labelling .… 8.30
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Index passing off .… 6.46 product liability .… 9.73 resale price maintenance .… 16.33 selling techniques .… 11.48 trade marks .… 7.77 Material form original works .… 4.7 Media false or misleading conduct defences .… 10.58 liability .… 10.55 Medicines Commonwealth Standard for the Uniform Scheduling of Medicines and Poisons .… 8.27 drugs, regulation of .… 8.27 poisons, regulation of .… 8.27 therapeutic goods, regulation of .… 8.27 Merchandising, character passing off .… 6.42–6.45 Mergers ACCC Guidelines .… 15.8 anti-competitive .… 12.17 authorisation for .… 12.57 ACCC, by .… 15.14, 15.15 ACT review .… 15.17 revocation of .… 15.16 benefits .… 15.5 competition, effect of .… 15.8 conglomerate .… 15.2, 15.4 anti-competitive coordinated effects .… 15.11 anti-competitive unilateral effects .… 15.11 definition .… 15.2 horizontal .… 15.2, 15.3 anti-competitive coordinated effects .… 15.10 anti-competitive unilateral effects .… 15.10 innovation yields .… 15.5 marketing advice .… 15.23 nature of .… 15.1, 15.2 offshore .… 15.18–15.21 ACT powers .… 15.21 anti-competitive conduct .… 15.20 Australian markets, and .… 15.18 laws relating to .… 15.19, 15.20 remedies against .… 15.22 sanctions against .… 15.22 test .… 15.6–15.8
vertical .… 15.2, 15.4 anti-competitive coordinated effects .… 15.11 anti-competitive unilateral effects .… 15.11 Messaging, instant e-marketing .… 19.11 Meta tags web page search rankings .… 19.55, 19.55C MFAA see Mortgage and Finance Association of Australia Microeconomic policy competition law, and .… 12.2 aims .… 12.3 Minimum price resale price maintenance .… 16.12 Minimum quantities agreements exclusive dealing .… 17.8, 17.12 Mischief rule interpreting statutes .… 1.19 Misleading and deceptive conduct advertising .… 10.7–10.32 actions of corporation .… 10.10 ambush marketing .… 10.30, 10.30C celebrities, using .… 10.29, 10.29C collection of consumer information .… 10.32 comparisons .… 10.27, 10.27C1–10.27C5 conduct judged as a whole .… 10.16, 10.16C confusion and deception, distinguished .… 10.19 constituent parts, accuracy of .… 10.16, 10.16C country of origin claims .… 10.28 disclaimers .… 10.21, 10.21C evidence of persons being misled .… 10.17 exaggerations .… 10.23, 10.23C1 false advertisement cured at point of sale .… 10.22, 10.22C future matters, representations .… 10.35 general principles .… 10.15 ‘in trade or commerce’ .… 10.9 intent .… 10.18, 10.18C multiple messages .… 10.20 opinions .… 10.23, 10.23C2 predictions .… 10.24, 10.24C sales material and consumer rights .… 10.31
855
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Marketing and the Law Misleading and deceptive conduct — cont’d scientific claims .… 10.26, 10.26C1, 10.26C2 silence .… 10.25 sponsorship .… 10.30, 10.30C state of mind of corporation .… 10.10 test .… 10.11–10.14 court orders relating to community service orders .… 10.71 compensation .… 10.74 compliance and education programs .… 10.70 corrective advertising .… 10.69 disqualification from managing corporations .… 10.73 enforcement of undertakings to ACCC .… 10.72 fines .… 10.67 injunctions .… 10.68, 10.68C defences .… 10.57–10.68 domain name disputes .… 19.64 examples of .… 10.23–10.32 franchisor, by .… 18.24, 18.24C1, 18.24C2 general principles .… 10.15–10.22 gift promotions .… 11.9–11.11 failure to provide gift .… 11.10, 11.10C information, providing mergers, relating to .… 15.16 infringement notices .… 10.66 infringement of patents .… 2.51 intent to deceive .… 6.12, 6.24 labelling .… 8.10–8.16 misrepresentation .… 6.10 common field of activity .… 6.13, 6.13C disclaimer, use of .… 6.14, 6.14C intent to deceive .… 6.12, 6.24 proof of confusion or deception .… 6.11, 6.11C1, 6.11C2, 6.11C3 similar logos/names .… 6.10C packaging .… 8.10–8.16 passing off see Passing off public warning notices .… 10.65 sales talk .… 11.18 contracting out of liability .… 11.21 form and content .… 11.19 remedies .… 11.20 search engine marketing .… 19.54 statutory passing off see Statutory passing off substantiation notices .… 10.64
856
test for .… 10.11–10.14 undertakings to ACCC .… 10.63, 12.27 Mistake of fact defence .… 10.61 Misuse of market power Australia-New Zealand market .… 14.29 authorisation .… 14.28 cartels see Cartels commercial activities .… 14.4, 14.5 competition, nature of .… 14.1 Competition and Consumer Act 2010, under .… 14.1 changes to legislation .… 14.2 elements .… 14.7 legislative history .… 14.2 objective of s 46 .… 14.3 definition .… 14.7 examples .… 14.19–14.26 guidelines .… 14.19 loyalty rebates .… 14.4, 14.25 marketing advice .… 14.45 prevention of abuse .… 14.3 remedies .… 14.27 sanctions .… 14.27 substantial lessening of competition .… 12.36, 13.5 assessment of effect .… 14.17 authorisation tests .… 12.57 definition .… 14.18 exclusive dealing .… 17.7, 17.18 ‘future with and future without’ test .… 12.37 likely effect .… 14.17 proof of purpose .… 14.16 public detriment .… 12.58 unlawful practices .… 12.17, 14.15 threshold requirement .… 14.2 Model building .… 4.19 definition .… 10.37 Model Law on e-Commerce nature and purpose .… 19.4 Money-back guarantees contract rights of consumers .… 10.49 Monopolies cartel conduct .… 12.15 competition policy, and .… 12.4, 12.10, 14.30 dynamic efficiency .… 12.11 essential services .… 12.19, 14.31–14.44
Index
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contestable markets theory .… 12.15 demand substitution .… 12.42 essential services, access to .… 14.30, 14.44 access undertakings .… 14.43 certification of effective access regime .… 14.42 declaration of essential services .… 14.35–14.41 definition .… 14.31 National Third Party Access Regime .… 14.34 problems .… 14.32 solutions to problems .… 14.33 market power .… 14.10 substitution test .… 12.41, 12.41C Moral rights copyright owners .… 4.25–4.27 infringement, defences .… 4.27, 4.27C Mortgage and Finance Association of Australia (MFAA) nature and purpose .… 11.45 Multiple pricing misleading conduct .… 10.53 Music trade mark registration .… 7.31 venues, infringement of copyright .… 4.59 control of premises .… 4.59C Musical works copyright protection .… 4.14, 4.23 Mutual recognition legislation marketing and .… 8.29 N ‘Name pirates’ trade marks .… 7.42, 7.42C4 Names brand see Brand names business see Business names company see Company names copyright protection .… 4.11, 4.11C domain see Domain names place, trade marks .… 7.28 refusal of registration .… 7.28C surnames as trade marks .… 7.27 examples .… 7.27 National Competition Council competition law, regulation of .… 12.33 declaration of essential service .… 14.37, 14.37C
Negligence avoiding liability for .… 9.7 contributory .… 9.6 law of .… 1.34 packaging and labelling .… 8.2, 8.4 product liability .… 9.3–9.12, 9.60 manufacturer liability .… 9.3–9.12, 9.60 avoiding liability .… 9.7 defects in design or specifications .… 9.10, 9.10C1, 9.10C2 defects in marketing .… 9.11, 9.11C failure to provide adequately safe systems .… 9.12, 9.12C omissions or defects in the production process .… 9.9 warnings, adequacy of .… 9.11, 9.11C New product ideas .… 3.12 Newness designs .… 5.11 goods false or misleading representations .… 10.39 Non-descriptive words trade marks .… 7.13 Non-disclosure rules exemptions .… 2.17 Non-exclusive licence assignment of copyright .… 4.36 Non-inventive skilled person description .… 2.20 test .… 2.19, 2.19C Non-patentable inventions .… 2.12 Non-solicitation clause .… 3.19, 3.35 Notification of ACCC anti-competitive conduct .… 12.29 exclusive dealing .… 17.27, 17.28 Novelty .… 2.13–2.17, 3.5 destruction of .… 2.16C1, 2.16C2 O Objective knowledge .… 3.8, 3.8C1, 3.19 OECD see Organisation for Economic Development and Cooperation (OECD) Office of Australian Information Commissioner (OAIC) Privacy Act, administration of .… 19.28, 19.45, 19.45C Offshore mergers ACT powers .… 15.21
857
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Marketing and the Law Offshore mergers — cont’d anti-competitive conduct .… 15.20 Australian markets, and .… 15.18 laws relating to .… 15.19 Competition and Consumer Act, extension of .… 15.20 Oil Code .… 11.45 Oligopolies collusive conduct, and .… 13.12 competition policy, and .… 12.10 Online advertising .… 19.7 payment e-marketing, issues .… 19.1 safe harbour defences online intermediaries .… 4.64 selling .… 19.3, 19.8 Opinions deceptive .… 10.23, 10.23C2 Organisation for Economic Development and Cooperation (OECD) Guidelines Governing the Protection of Privacy and Transborder Flows of Personal Data .… 19.27 Origin claims packaging and labelling .… 8.11, 8.14–8.16 geographical indicators .… 8.16 indirect misrepresentations .… 8.14C2 ‘made in’ .… 8.14, 8.15, 8.15C ‘product of’ .… 8.16, 8.16C Original works artistic .… 4.15–4.20, 4.44 basic concepts .… 4.3–4.8 communication to the public .… 4.47 unlawful .… 4.47 copyright in .… 4.2 direct infringement of .… 4.38–4.47 dramatic .… 4.13 duration of copyright .… 4.37 literary see Literary works material form .… 4.7 musical .… 4.14, 4.45, 4.66 originality, concept of .… 4.8 performance in public .… 4.46 unlawful .… 4.46 reproduction of, unlawful .… 4.40–4.45 subject matter other than .… 4.2, 4.21, 4.24 Outdoor Advertising Association of Australia .… 10.79
858
Output collusion .… 12.15 restriction .… 12.17, 13.5 agreements .… 13.32–13.35 price fixing, and .… 13.30 Overcharging resale price maintenance .… 16.5 Ownership of copyright assignment .… 4.35 employees, by .… 4.29 computer software .… 4.29C engravings .… 4.31 journalists, by .… 4.30 licences .… 4.36 photographs .… 4.31 portraits .… 4.31 works .… 4.28 P Packaging common representations .… 8.11–8.16 deceptive .… 8.17 defective .… 9.10, 9.10C2 food .… 8.24 public health and safety information .… 8.24 importance of .… 8.1 legislation .… 8.1, 8.2 marketing advice .… 8.30 minimum standards for .… 8.6–8.9 misleading .… 6.10, 6.10C, 8.10–8.16 parallel importing, and .… 4.67 passing off, and .… 6.31, 6.31C colour recognition .… 6.31 regulation of .… 8.2 unfair practices .… 8.10 misrepresentation .… 8.10C unsuitable .… 9.10, 9.10C2 Parallel conduct collusion, and .… 13.11, 13.11C Parallel importing copyright material, of .… 4.66, 4.67, 5.23 design protection .… 5.23 films, of .… 4.67 instruction manuals .… 4.67 labelling and .… 4.67 packaging and .… 4.67 software, of .… 4.66 Parasite marketing misleading and deceptive conduct .… 10.30
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Index Paris Convention for the Protection of Intellectual Property .… 2.62, 5.34 Parliamentary law courts, role of .… 1.16 creation of .… 1.11 division of powers .… 1.8 federalism .… 1.7 finding .… 1.9 historical background .… 1.5, 1.6 interpreting .… 1.16–1.22 marketing, and .… 1.12–1.14 primacy of .… 1.33 Parliaments division of powers .… 1.8 structure of .… 1.10 Parodies passing off actions .… 6.44 Part IV material direct infringement .… 4.48 peer to peer file sharing .… 4.48 television broadcasts .… 4.48C duration of copyright .… 4.37 indirect infringement .… 4.65, 4.65C authorising infringement .… 4.57 ownership of copyright .… 4.34 Partner duty of confidence .… 3.21 Partnering agreements anti-competitive conduct .… 13.53 Passing off .… 2.2 advertising themes/slogans .… 6.37, 6.37C brand names .… 6.30, 6.30C character merchandising .… 6.42, 6.43 common law elements .… 6.3–6.15, 19.65, 19.65C compensable loss .… 6.15 decision tree .… 6.16 definition .… 6.3 devices .… 6.38, 6.38C disclaimer, use of .… 6.14, 6.14C domain names see Domain names industrial designs, and .… 5.32 furniture .… 5.32C injunction against .… 6.15, 6.16 keyword advertising .… 6,34, 6.34C logos .… 6.38, 6.38C marketing advice .… 6.46 misrepresentation .… 6.10 common field of activity .… 6.13, 6.13C
disclaimer, use of .… 6.14, 6.14C intent to deceive .… 6.12 proof of confusion or deception .… 6.11, 6.11C1, 6.11C2, 6.11C3 similar logos/names .… 6.10C overview .… 2.2 packaging .… 6.31, 6.31C colour recognition .… 6.31 labelling, and .… 8.2, 8.3, 8.3C product design .… 6.36, 6.36C product quality/standards .… 6.41, 6.41C program names .… 6.39 proof .… 6.2 remedies .… 6.16, 6.16C potential for success flowchart .… 6.16 reputation, existence of .… 6.4 descriptive words or material .… 6.9, 6.9C level of business activity .… 6.5, 6.5C1, 6.5C2 market where no business activities carried on .… 6.6, 6.6C multiple traders .… 6.8, 6.8C owner personally known .… 6.7 statutory see Statutory passing off titles of publications .… 6.40 tort of .… 6.2 elements .… 6.3 trade marks legislation, and .… 7.69 types .… 6.29–6.45 Patent Cooperation Treaty .… 2.64 Patentable inventions .… 2.6–2.35, 3.2 Patented products purchasers of .… 2.45 Patents account of profits .… 2.54 addition, of .… 2.30 advantages .… 2.67, 2.68 business method .… 2.8 costs of .… 3.30 disadvantages .… 2.66, 2.68 infringement see Infringement of patents injunctions .… 2.55 innovation see Innovation patents international aspects .… 2.61–2.65 inventor of .… 2.37 legislation .… 2.3, 2.17 licences .… 2.42 compulsory .… 2.44
859
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Marketing and the Law Patents — cont’d litigation .… 2.50C case management .… 2.50 cost of .… 2.50 marketing advice .… 2.70 opposition to .… 2.26 overview .… 2.3 ownership of .… 2.36–2.40 petty .… 2.5 prior user rights .… 2.52 reasonable trial .… 2.17 revocation .… 2.60 rights .… 2.41–2.45 abuse of .… 2.43 assigning .… 2.42 licencing .… 2.42 nature of .… 2.41 prior user .… 2.52 protection of .… 2.50 standard see Standard patents trade secrets, compared .… 3.30 types .… 2.4 unitary .… 2.65 Patents Act 1990 (Cth) .… 2.2, 2.3 copyright protection, and .… 4.5 design protection, and .… 5.3, 5.31 lifespan of patents under .… 3.2 overview of .… 2.3 Patents Office examination by .… 2.25 lodgment of applications .… 2.3, 2.13 provisional .… 2.24 Penalties see Civil penalties; Criminal penalties Performance characteristics of goods and services .… 10.43 false or misleading representations .… 10.43 live control of premises .… 4.59C copyright ownership .… 4.34 infringement of copyright, authorising .… 4.59 public .… 4.46 unlawful .… 4.46 Performer’s rights attribution .… 4.25 integrity .… 4.25 prevent false attribution .… 4.25
860
Permits trade promotion, for .… 11.3 avoiding the need to obtain .… 11.6 requirements .… 11.5 Personal information access to .… 19.43 collecting .… 19.27, 19.34 notification .… 19.36 correction of .… 19.44 definition .… 19.30 disclosure .… 19.37 cross-border .… 19.39 management of .… 19.32 notifiable data breaches .… 19.46 quality of .… 19.41 security .… 19.42 solicited .… 19.34 unsolicited .… 19.35 use of .… 19.27, 19.37 Personal Property Securities Register patent licence as security interest .… 2.42 Petty patent .… 2.5 Photographs copyright .… 4.15, 4.16, 4.21, 4.44 ownership of .… 4.31 originality .… 4.8 Physical property intellectual property, distinguished .… 4.6 Piracy circumvention devices .… 4.74 Place names marketing, and .… 1.2, 1.53 origin of goods .… 10.47 trade marks .… 7.21, 7.21C2, 7.28 Plant breeder’s rights legislation .… 2.10, 2.69 nature and purpose .… 2.69 varieties, patenting of .… 2.10 Poisons legislation .… 8.2, 8.27 dangerous goods .… 8.28 Policy competition .… 12.1–12.5 ACCC, role of .… 12.5 aims .… 12.3 dynamic efficiency, and .… 12.11 economies of scale and scope .… 12.10 role .… 12.4 industrial relations .… 12.2
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Index industry .… 12.2 microeconomic .… 12.2, 12.3 taxation .… 12.2 Portraits ownership of copyright .… 4.31 Power buying .… 14.23 competitive .… 14.10 market .… 12.6, 12.17, 14.10 Precedent doctrine of .… 1.25–1.28 Predatory pricing misuse of market power .… 14.4, 14.29, 14.29C unlawful competitive practices .… 12.17 Predictions misleading and deceptive advertising .… 10.24, 10.24C Presumptions interpretation of statutes .… 1.21 Price see also Marketing advertised resale, maintaining .… 16.23 competition, elimination of .… 16.4 competitive advantage, and .… 1.51 discrimination .… 13.56 dual pricing .… 8.12, 8.12C false or misleading representations .… 10.45 fixing see Price fixing maintenance, resale see Resale price maintenance marketing, and .… 1.2 matching .… 14.5 minimum .… 16.12 reduction claims .… 8.11, 8.12 dual pricing .… 8.12C signalling .… 12.17, 13.68 single .… 10.54, 10.54C specialised .… 11.13 specification of .… 16.9 approximation .… 16.10 examples .… 16.10 exceptions .… 16.11 maximum price, setting .… 16.12 squeezing .… 14.4, 14.24 Price fixing agreement between competitors .… 13.21 allowances, using .… 13.24 arrangement, by .… 13.7–13.14, 13.20
purpose or likely effect .… 13.22 bid rigging .… 13.30 calculation tables .… 13.27 collusive conduct .… 13.5, 13.19–13.31 contract, by .… 13.7–13.14, 13.20 purpose or likely effect .… 13.22 costing assistance .… 13.27 discounts, using .… 13.24, 13.24C examples .… 13.26–13.30 exceptions to illegality .… 13.31 failed attempts .… 13.25 ‘fixing, controlling, or maintaining prices’ .… 13.23, 13.23C1, 13.23C3 flexible interpretation .… 13.23, 13.23C2, 13.23C4 special facts, consideration of .… 13.23, 13.23C3 horizontal .… 13.19 agreement between competitors .… 13.21 examples of possible agreements .… 13.26–13.31 purpose of agreement .… 13.22–13.25 information-exchange agreements .… 13.28 market sharing .… 13.30 marketing boards, creation of .… 13.29 output restrictions .… 13.30 rebates, using .… 13.24 single selling agents .… 13.29 time manuals .… 13.27 understanding, by .… 13.7–13.14, 13.20 purpose or likely effect .… 13.22 unlawful competitive practices .… 12.17 Pricing competitive .… 14.5 cover .… 13.43, 13.43C3 misleading conduct .… 10.53, 10.54 multiple .… 10.53 predatory .… 12.17, 14.4, 14.27 single price, statement of .… 10.54, 10.54C Prior art base designs .… 5.10 exempt public use or publication .… 5.16 public use in Australia .… 5.14 publication within or outside Australia .… 5.15, 5.15C registration of .… 5.22 patents .… 2.6, 2.13, 2.14, 2.18, 2.18C, 2.20, 2.32
861
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Marketing and the Law Prior user defence .… 2.17 prior use .… 2.52 rights .… 2.52 Priority date design .… 5.10 exempt public use or publication .… 5.16 public use in Australia .… 5.14 publication within or outside Australia .… 5.15, 5.15C registration of .… 5.22 patent .… 2.6, 2.13, 2.15, 2.16, 2.17, 2.24, 2.29, 2.32, 2.52 importance of date .… 2.28 provisional specification as .… 2.28C Privacy anonymity .… 19.33 Australian privacy principles .… 19.31–19.44 access to personal information .… 19.43 adoption, use, or disclosure of government-related identifiers .… 19.40 anonymity and pseudonymity .… 19.33 collection of solicited personal information .… 19.34 correction of personal information .… 19.44 cross-border disclosure of personal information .… 19.39 dealing with unsolicited personal information .… 19.35 direct marketing .… 19.38 notification of the collection of personal information .… 19.36 open and transparent management of personal information .… 19.32 quality of personal information .… 19.41 security of personal information .… 19.42 use or disclosure of personal information .… 19.37 breach of confidence and .… 3.15 direct marketing .… 19.38 e-marketing and .… 19.26–19.46 collecting personal information .… 19.27 using personal information .… 19.27 law reform proposals .… 19.45 legislation .… 19.28, 19.29 personal information, definition .… 19.30 pseudonymity .… 19.33
862
Privacy Act 1998 application .… 19.29 enforcement .… 19.45, 19.45C overview .… 19.28 reform proposals .… 19.45 Private law public law, distinguished .… 1.38 Prizes competitions see Competitions games see Games misleading gift promotions .… 11.9 breach, proof of .… 11.11 failure to provide prize .… 11.10, 11.10C sales technique, as .… 11.1, 11.8 unfair techniques .… 11.8–11.11 Process franchise nature of .… 18.2 Product see also Marketing ban .… 9.68, 9.68C bundling .… 14.4, 14.22 exclusive dealing .… 17.8, 17.11 celebrity promotion .… 10.29, 10.29C competitive advantage, and .… 1.50 compulsory recall .… 9.69 defects adequate warnings .… 9.11C design .… 9.10, 9.10C1 marketing process .… 9.11, 9.11C packaging material .… 9.10C2 production process .… 9.9 specifications .… 9.10 definition .… 4.54, 5.6 design copyright protection .… 4.18 passing off .… 6.36, 6.36C relationship to product .… 5.7, 5.7C destruction of, for breach of confidence .… 3.28 development .… 4.18 confidentiality and copyright protection .… 4.18C1 industrial application of artistic work .… 4.18C2 differentiation .… 12.50 statutory passing off, and .… 6.25 disclaimers .… 9.57 franchise .… 18.2 ‘get up’ of .… 6.2
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Index misleading .… 6.10 passing off actions .… 6.31, 6.31C improvements .… 2.9 industrial .… 3.11, 4.53–4.56 information standards .… 8.8, 8.9 bean bag covers .… 8.8C care labels .… 9.71 enforcement of .… 9.72 non-compliance penalties .… 8.9, 8.9C marketing, and .… 1.2 packaging see Packaging quality passing off .… 6.41, 6.41C recall compulsory .… 9.69 voluntary .… 9.70 refusal to supply .… 14.4, 14.20 safety standards .… 8.7, 8.9 children’s nightwear .… 8.7C, 8.9C enforcement of .… 9.66, 9.66C1, 9.66C2 establishment .… 9.65 non-compliance penalties .… 8.9, 8.9C standard passing off .… 6.41, 6.41C switching .… 11.17 tying .… 14.4, 14.22 exclusive dealing .… 17.8, 17.11 voluntary recall .… 9.70 warnings .… 9.11, 9.11C Product liability consumer guarantees .… 9.13–9.28, 9.61 contract law, under .… 9.2 defective goods .… 9.62 distributors .… 9.1, 9.3, 9.4 manufacturers .… 9.3–9.12, 9.30–9.40, 9.48–9.62 avoiding liability for negligence .… 9.7 breach of duty .… 9.5, 9.5C duty of care .… 9.4, 9.4C1, 9.4C2 negligence .… 9.8–9.12 scope of liability .… 9.6 marketing advice .… 9.73 negligence, in .… 9.3–9.12 product safety and information .… 9.63–9.72 retailers .… 9.3 suppliers of goods .… 9.2–9.28 ACL, under .… 9.13–9.28 fault introduced/caused by manufacturer .… 9.2C negligence law .… 9.3–9.12
suppliers of services .… 9.41–9.47 ‘Product of’ claims misrepresentation .… 8.16, 8.16C Production moulds copyright protection .… 4.18 Productive efficiency well-performing markets, and .… 12.9 Professional advisors duty of confidence .… 3.17 Program compliance .… 1.43 ACCC enforcement activities .… 1.47 benefits .… 1.45 competition law breaches .… 12.27 effective, designing .… 1.48 misleading or deceptive advertising .… 10.70 resale price maintenance offences .… 16.29 education .… 12.27 misleading or deceptive advertising .… 10.70 names passing off .… 6.39 Prohibited signs refusal of trade mark registration .… 7.30 Promotion competitive advantage, and .… 1.52 gift with purchase .… 11.9 marketing, and .… 1.2 misleading .… 11.9–11.11 permits for .… 11.3 avoiding the need to obtain .… 11.6 requirements .… 11.5 Promotional selling techniques .… 11.2–11.7 Property physical and intellectual, distinguished .… 4.6 Protection consumer .… 7.1, 7.4 trader .… 7.1, 7.5 Prototypes copyright protection .… 4.18 Pseudonymity privacy principles and .… 19.33 Public communication of work .… 4.47 detriment .… 12.58 exclusive dealing .… 17.1 knowledge .… 3.5
863
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Marketing and the Law Public — cont’d law .… 1.38 performance of work .… 4.46 use of design .… 5.14 exemptions .… 5.16 warning notices .… 10.65 Public benefit authorisations .… 12.57, 12.59 collusive conduct .… 13.70 defence .… 12.28 definition .… 12.59 detriment balancing .… 12.60 distinguished .… 12.28 exclusive dealing .… 17.1, 17.29 mergers .… 15.14 resale price maintenance .… 16.25, 16.25C Public interest defence breach of confidential information .… 3.27 Publication designs, of .… 5.15 titles passing off .… 6.40, 6.40C Publishers of advertisements defences against misleading advertising .… 10.60 Puff misleading sales talk .… 11.18 form and content .… 11.19 Puffery misleading conduct .… 10.23, 10.23C1 need for goods or services .… 10.48 Purchase refusal to .… 14.23, 14.23C Purchasers patented products .… 2.45 Purpose definition .… 12.36 unlawful .… 17.26 Pyramid selling unfair selling techniques .… 11.8, 11.34 Q Qualified person author of original work .… 4.4 Quality definition .… 10.37 product, of .… 10.37 passing off .… 6.41, 6.41C
864
R Radio advertising .… 10.79 broadcasts copyright .… 4.2, 4.48 duration of copyright .… 4.37 infringement of copyright, authorising .… 4.59 Raincheck defence bait advertising .… 11.16 Reasonable mistake of fact, defence .… 10.61 period of goods offered .… 11.13, 11.14 precautions .… 10.62 quantities of goods offered .… 11.13, 11.15 trial .… 2.17 Rebate schemes targeted .… 17.10 Rebuttable presumptions interpretation of statutes .… 1.21 Recall of products compulsory .… 9.69 voluntary .… 9.70 Referral selling unfair selling techniques .… 11.8, 11.33, 11.33C Refunds contract rights of consumers .… 10.49 Register of trade marks business names .… 7.75 nature and purpose .… 7.2, 7.3 Registrar of Trade Marks .… 7.3, 7.11 conditions and limitations, imposition of .… 7.43 refusal of registration .… 7.21, 7.22, 7.25, 7.31, 7.63 revocation of trade marks .… 7.60 Registration of designs copyright protection, and .… 5.30 distinctiveness .… 5.10, 5.12 duration .… 5.19 examination process .… 5.22 newness .… 5.10, 5.11 passing off .… 5.32, 5.32C patent protection, and .… 5.31 prior art base .… 5.10, 5.13 exempt public use or publication .… 5.16 public use in Australia .… 5.14 publication within or outside Australia .… 5.15, 5.15C
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Index priority date .… 5.10, 5.17 procedure .… 5.21 mistake in registration .… 5.21C reasons for .… 5.29–5.32 registrability .… 5.10–5.17 requirements .… 5.10 who may register .… 5.20 Registration of trade marks capable of distinguishing .… 7.11 classifications .… 7.8 goods .… 7.8 services .… 7.8 duration of protection .… 7.44 grounds for opposing .… 7.42–7.42C5, 7.63 confusion and deception .… 7.63C2 descriptive term .… 7.63C1 inherently adapted to distinguish .… 7.12 device marks .… 7.16 invented words .… 7.14 logos .… 7.16 non-descriptive words .… 7.13, 7.13C scents .… 7.20 shapes .… 7.18 signature of applicant .… 7.15 sounds .… 7.19 likely to deceive or cause confusion .… 7.34 cigarettes .… 7.34C1, 7.34C2 limitations on .… 7.10–7.39 mark cannot be represented graphically .… 7.31 marks distinguished through extensive use .… 7.25 colours .… 7.26, 7.26C place names .… 7.28, 7.28C shapes .… 7.26 surnames .… 7.27 marks not inherently adapted to distinguish .… 7.21 geographical names .… 7.21C2 ordinary usage .… 7.21C1 marks partially inherently adapted to distinguish .… 7.22 colours .… 7.24 slogans .… 7.23 opposition to .… 7.42 international marks .… 7.42C3, 7.42C5 procedure .… 7.7–7.9 prohibited signs .… 7.30 refusal .… 7.21
geographical names .… 7.21C2 grounds .… 7.29–7.39 likely to deceive or cause confusion .… 7.34, 7.34C1, 7.34C2 mark cannot be represented graphically .… 7.31 ordinary usage .… 7.21C1 prohibited signs .… 7.30 scandalous marks .… 7.32 similarity to other registered mark .… 7.35–7.39 use contrary to law .… 7.33 Registrar see Registrar of trade marks requirements .… 7.10–7.39 scandalous marks .… 7.32 similarity to other registered mark .… 7.35 closely related goods or services .… 7.39 deceptively similar .… 7.37 similar goods or services .… 7.38 substantially identical .… 7.36 timing .… 7.40 decision tree .… 7.40 use contrary to law .… 7.33 Regulation Codes see Codes food .… 8.22 labelling .… 8.2 law, and .… 1.37 lotteries .… 11.4 packaging .… 8.2 Rejection of goods breaches of statutory guarantees consequences of rejection .… 9.26 exceptions .… 9.25 Related-bodies exemption collusive conduct, and .… 13.61, 13.65 Relevant market market power, determination of .… 14.9 steel industry .… 14.9C1 tourist industry .… 14.9C2 Remedies breach of confidence .… 3.28 competition law breaches .… 12.26, 12.27 compliance programs .… 12.27 damages .… 12.26 enforceable undertakings .… 12.27 injunctions .… 12.26 copyright infringement .… 4.68–4.74 misleading sales talk .… 11.20
865
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Marketing and the Law Remedies — cont’d misuse of market power .… 14.27 passing off .… 6.16, 6.16C patent infringement .… 2.53–2.58 statutory passing off .… 6.28 trade marks infringement .… 7.57–7.59 Repair of goods availability of facilities false or misleading representations .… 10.46 repair, definition .… 5.25 Reputation advertising stakeholders .… 10.2 marketplace .… 6.4–6.9, 6.21 descriptive words or material .… 6.9, 6.9C level of business activity .… 6.5, 6.5C1, 6.5C2 market where no business activities carried on .… 6.6, 6.6C multiple traders .… 6.8, 6.8C owner personally known .… 6.7 Resale price maintenance actions that constitute .… 16.13–16.22 agreeing or offering to agree .… 16.16 inducing or attempting to induce .… 16.15, 16.15C1, 16.15C2 ‘making it known’ .… 16.14 refusal to supply subject to price maintenance .… 16.14, 16.14C specification of price by supplier .… 16.15 statements of price, using .… 16.17, 16.17C withholding supply .… 16.18–16.22 advertised prices, maintaining .… 16.23, 16.23C1 minimum price policy .… 16.23C1 authorisation .… 16.25, 16.25C competition law, comparison .… 16.31 consequences .… 16.27–16.30 definition .… 16.1 exemption, seeking .… 16.26 injunction against .… 16.28 marketing advice .… 16.33 maximum, agreements relating to .… 13.64 notification .… 16.26 penalties .… 16.28 financial .… 16.28, 16.28C1, 16.28C2 persuasion to ‘stop discounting’, distinguished .… 16.10 prohibition, reasons for .… 16.3 elimination of price competition .… 16.4
866
inefficiency .… 16.7 loss of choice .… 16.6 overcharging .… 16.5 reasons for .… 16.2 remedies .… 16.30 damages .… 16.30C services and .… 16.24 specification of resale price .… 16.9 approximation .… 16.10 examples .… 16.10 exceptions .… 16.11 maximum price, setting .… 16.12 test for .… 16.8 unlawful competitive practices .… 12.17 withholding supply .… 16.18, 16.18C definition .… 16.19 exceptions .… 16.22, 16.22C1 illegality .… 16.20, 16.20C1, 16.20C2 reasons for .… 16.21, 16.21C Research and development material .… 3.10 Resource-sharing agreements .… 13.51 Resources efficient allocation of .… 12.8 Restraint of trade .… 3.31–3.38 clauses .… 3.1 invalid .… 3.36 meaning .… 3.31 multiple descending .… 3.37 validity of .… 3.32 common law, under .… 3.38 contracts containing .… 3.33–3.35 customer .… 17.13, 17.19 supply side retail customer restraint arrangement, effect .… 17.19 supply side wholesale customer restraint arrangement, effect .… 17.19 franchisee .… 18.26 patent rights .… 2.43 reasonableness .… 3.32 sale of business agreements .… 3.34 territorial .… 17.3, 17.14, 17.20 vertical .… 17.2, 17.3 anti-competitive .… 17.3 pro-competitive .… 17.2 Restraints of Trade Act 1976 (NSW) .… 3.36 Restrictive trade practices unlawful competition .… 12.17 Reverse infringement test .… 2.13
Index
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Revocation patents .… 2.60 trade marks .… 7.60–7.64 Rigging bid see Bid rigging market .… 11.1 Rights attribution .… 4.25 author integrity .… 4.25, 4.26 cartoons .… 4.26C2 music .… 4.26C3 sculpture .… 4.26C1 copyright owner’s .… 4.22–4.24 moral .… 4.25–4.27, 4.27C performer integrity .… 4.25 prevent false attribution .… 4.25 Rome Convention international copyright law .… 4.4 Royalties payment of .… 4.36 S Safe harbour defences online intermediaries .… 4.64 Safety defects in goods .… 9.48–9.62 liability .… 8.5 standards, product .… 8.7 dangerous goods .… 8.28 enforcement of .… 9.66, 9.66C1, 9.66C2 establishment .… 9.65 poisons, drugs and therapeutic goods .… 8.27 Sale of business agreements restraint of trade causes .… 3.34 Sale of goods legislation product liability .… 9.2, 9.64 Sales material consumer rights .… 10.31 puff .… 11.18 talk, misleading .… 11.18 contracting out of liability .… 11.21 form and content .… 11.19 remedies .… 11.20 Scandalous trade marks registration of .… 7.32 Scents trade marks .… 7.6, 7.17, 7.20 graphic representations .… 7.31
Scientific claims advertising, and .… 10.26, 10.26C Sculptures copyright protection .… 4.15, 4.18 Search engine e-marketing .… 19.51–19.55 deceptive conduct .… 19.54, 19.54C keyword advertising .… 19.52 meta tags .… 19.55, 19.55C trade marks and keyword triggers .… 19.53 optimisation .… 6.35, 19.55 meta tags .… 19.55, 19.55C passing off .… 6.35, 6.35C Second-hand trade-marked goods dealing in .… 7.55 clothing .… 7.55C Secrecy of information .… 3.2, 3.7 patents, advantages over .… 3.2, 3.30 Secret use of inventions .… 2.23 prior demonstration .… 2.23C1, 2.23C2 reasonable testing .… 2.23 Security of personal information privacy principles .… 19.42 Self-regulation advertising .… 10.75–10.79 sales codes .… 11.45 Sell definition .… 16.23 Selling direct .… 11.37 door-to-door .… 11.1 unconscionable conduct .… 11.24, 11.24C unfair sales techniques .… 11.32 unsolicited selling .… 11.38–11.44 inertia .… 11.8, 11.35, 11.35C lay-by .… 11.36 marketing advice .… 11.48 online .… 19.3, 19.8 pyramid .… 11.8, 11.34 referral .… 11.8, 11.33, 11.33C techniques direct .… 11.37–11.47, 19.38 promotional .… 11.2–11.7 unfair .… 11.8–11.36 unsolicited .… 11.37–11.44 Separation of powers doctrine .… 1.15 Service providers, internet authorising copyright infringements .… 4.63
867
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Marketing and the Law Service providers, internet — cont’d safe harbour defences online intermediaries .… 4.64 Services see also Goods and services agreement to acquire .… 10.40 approval of .… 10.43 false or misleading representations .… 10.43 benefits of .… 10.43 false or misleading representations .… 10.43 characteristics .… 10.52 misleading conduct .… 10.52 classification for trade mark purposes .… 7.8 closely-related .… 7.51, 7.56 opposition to registration .… 7.42 refusal to register .… 7.35, 7.39 same description .… 7.50 trade mark infringement .… 7.45, 7.49 contract for .… 2.39 definition .… 9.41 grade of false or misleading representations .… 10.38 liability of supplier .… 9.41–9.47 nature .… 10.52 misleading conduct .… 10.52 need for .… 10.48 false or misleading representations .… 10.48 performance characteristics of .… 10.43 false or misleading representations .… 10.43 price false or misleading representations .… 10.45 purported testimonials .… 10.41 quality false or misleading representations .… 10.38 quantity .… 10.52 misleading conduct .… 10.52 recreational liability, limitation of .… 9.22 retail price maintenance and .… 16.24 similar .… 7.38, 7.48, 7.49 sponsorship of .… 10.43 false or misleading representations .… 10.43
868
standard false or misleading representations .… 10.38 testimonials relating to .… 10.42 value false or misleading representations .… 10.38 Settings unlawful reproduction .… 4.42 Shapes trade marks .… 7.6, 7.17, 7.18, 7.26 Shares acquisition .… 15.6, 15.7 mergers .… 15.2 divestiture .… 15.22 Sign definition .… 7.6 prohibited .… 7.30 Signature of applicant trade mark registration .… 7.15 Significant and non-transitory increase in the competitive price (SSNIP) test competition law .… 12.42 Similar goods and services .… 7.38, 7.48, 7.49 description rather than sign .… 7.48C2 imperfect recollection .… 7.48C1 passing off .… 7.48 trade marks, registration of .… 7.35–7.39 Single price .… 10.54, 10.54C Single selling agents .… 13.29 Skilled person, non-inventive description .… 2.20 test .… 2.19, 2.19C ‘Slack filling’ practice of .… 8.17 Slogans advertising .… 6.37 passing off .… 6.37, 6.37C trade mark registration .… 7.22, 7.23 SMS marketing commercial, definition .… 19.13, 19.13C1, 19.13C2 exemptions .… 19.14, 19.14C infringement notices .… 19.15 junk mail .… 19.10 nature of .… 19.10 opt-in process .… 19.12, 19.12C penalties for offences .… 19.15
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Index remedies .… 19.15, 19.15C Spam Act .… 19.11 unsolicited, definition .… 19.13 Social network marketing defamation .… 19.57, 19.57C influencer reviews .… 19.59 injurious falsehood .… 19.57, 19.57C intellectual property issues .… 19.58 nature of .… 19.56 online reviews .… 19.59 Software copyright protection .… 4.12 parallel importing .… 4.66 Sound broadcasts .… 4.48 copyright .… 4.2, 4.21, 4.23 moral rights .… 4.25 recordings .… 4.48 copyright .… 4.2, 4.21, 4.23, 4.24 duration of copyright .… 4.37 ownership .… 4.34, 4.36 parallel importing .… 4.66, 4.67 trade marks .… 7.6 registration requirements .… 7.17, 7.19, 7.31 Spam Act 2003 (Cth) e-marketing .… 19.10, 19.11, 19.38 exemptions .… 19.14 injunction against breaches .… 19.15 Spare parts for goods availability false or misleading representations .… 10.46 design protection .… 5.9 repair, definition .… 5.25 Sponsorship misleading and deceptive conduct .… 10.30 false representations .… 10.43, 10.44 passing off, and .… 6.41–6.45 ‘Springboarding’ .… 3.26 patent infringement, and .… 2.49 SSNIP test competition law .… 12.42 Standard patents .… 2.6–2.30 see also Invention addition, of .… 2.30 application for .… 2.24–2.30 flowchart of procedure .… 2.26 legal advice .… 2.24 business method .… 2.8 claims .… 2.27
duration of .… 2.29 examination by Patents Office .… 2.25 genes .… 2.11 grace periods .… 2.17 innovation patents, compared .… 2.4 inventive step .… 2.18 assessment factors .… 2.21 skilled person test .… 2.19, 2.20 manner of manufacture .… 2.7 meaning .… 2.6 method for treating human body .… 2.10 non-patentable inventions .… 2.12 novelty .… 2.13 prior act .… 2.16 prior patent application .… 2.14 public document, disclosure in .… 2.15 opposing .… 2.26 patentability .… 2.6–2.23 priority date .… 2.24, 2.28 product improvement .… 2.9 secret use .… 2.23 test for .… 2.6 usefulness .… 2.22 Standards ACMA Telemarketing (Do Not Call Register) (Telemarketing and Research Calls) Industry .… 11.39 care labelling information .… 9.71 Consumer Product Safety Standard .… 8.8C Country of Origin Food Labelling Information Standard .… 8.26 definition .… 10.37 environmental claims labelling .… 8.13 Fax Marketing Industry Standard .… 19.18 Food Standard .… 8.2, 8.22, 8.24 goods, false representations .… 10.37 non-compliance with, penalties .… 8.9 children’s nightwear .… 8.9C packaging, minimum .… 8.6–8.9 patents see Standard patents Poison Standard .… 8.27 Product Information Standard .… 8.8, 8.9, 9.72 bean bag covers .… 8.8C Product Safety Standard .… 8.7, 8.9, 9.65, 9.66 children’s nightwear .… 8.7C Safety and Information Standard .… 8.6 Telecommunications and Research Calls Industry .… 19.22
869
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Marketing and the Law Statutory guarantees see Guarantees Statutory passing off advantages .… 6.20–6.23 damage, proof of .… 6.23 misrepresentation, proof of .… 6.22, 6.22C reputation, establishing .… 6.21 advertising themes/slogans .… 6.37, 6.37C brand names .… 6.30, 6.30C character merchandising .… 6.42, 6.43 common law passing off, and .… 6.19 domain names see Domain names elements .… 6.18 injunction against .… 6.28 keyword advertising .… 6,34, 6.34C nature and purpose .… 6.17 packaging .… 6.31, 6.31C colour recognition .… 6.31 product design .… 6.36, 6.36C product quality/standards .… 6.41, 6.41C program names .… 6.39 remedies against infringement .… 6.28 titles of publications .… 6.40 types .… 6.29–6.45 Strategic alliances anti-competitive agreements .… 13.53 Structure-conduct-performance model measuring competition .… 12.14 Subjective knowledge .… 3.8, 3.8C1, 3.19 Sub-markets competition law, and .… 12.45 Substantial definition .… 13.49, 14.18 degree of market power .… 14.8–14.14 lessening of competition .… 12.36, 13.5 assessment of effect .… 14.17 authorisation tests .… 12.57 definition .… 14.18 exclusive dealing .… 17.7, 17.18 ‘future with and future without’ test .… 12.37 likely effect .… 14.17 mergers .… 15.8, 15.8C1, 15.8C2 proof of purpose .… 14.16 public detriment .… 12.58 unlawful competitive practices .… 12.17, 13.47, 13.56, 14.15, 17.5, 17.7 part of copyright work .… 4.39 Substantially identical deceptively similar, distinguished .… 7.48
870
description rather than sign .… 7.48C2 imperfect recollection .… 7.48C1 passing off .… 7.48 infringement of design .… 5.24 ownership and validity of design .… 5.24C infringement of trade marks .… 7.45, 7.46–7.53 related goods or services .… 7.52 same goods or services .… 7.46–7.48 similar goods or services .… 7.49–7.52 substantial identity test .… 7.48 trade marks importing trade-marked goods .… 7.54 non-use of trade mark .… 7.62 opposition to registration .… 7.42, 7.42C2 refusal to register .… 7.35, 7.36, 7.63 Substantiation notices false or misleading conduct .… 10.64 Substitution defence .… 11.16 demand .… 12.42, 12.44 supply .… 12.43, 12.44 test for markets .… 12.41, 12.41C Suitability for purpose goods .… 10.51 misleading conduct .… 10.51 Supplier exclusive dealing by .… 17.5–17.14 customer restraints .… 17.13 examples .… 17.8 exclusivity agreements .… 17.9, 17.9C loyalty agreements .… 17.10 minimum quantity agreements .… 17.12 product tying/bundling .… 17.11, 17.11C1, 17.11C2 substantial lessening of competition .… 17.7 supply on condition .… 17.6 territorial restraints .… 17.14 product liability see Product liability remedy for breach of statutory duty .… 9.27 right of indemnity against manufacturer .… 9.33 unsolicited consumer agreements obligations .… 11.39, 11.40 Supply allocating market sharing agreements .… 13.39, 13.39C1, 13.39C2
Index
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condition, on .… 17.6, 17.17 statutory guarantees relating to goods .… 9.15 acceptable quality .… 9.17, 9.17C1, 9.17C2 breaches, remedies for .… 9.23–9.27 description, correspondence with .… 9.19, 9.19C exclusion or modification of .… 9.22, 9.22C extension beyond purchaser .… 9.28 fitness for any disclosed purpose .… 9.18, 9.18C1, 9.18C2 ‘in trade or commerce’ .… 9.16 sample, correspondence with .… 9.20 warranty, correspondence with .… 9.21 substitution .… 12.43, 12.44 withholding .… 16.18, 16.18C definition .… 16.19 exceptions .… 16.22, 16.22C1 illegality .… 16.20, 16.20C1, 16.20C2 reasons for .… 16.21, 16.21C Surnames trade marks as .… 7.27 Switching bait advertising .… 11.17 Symbols prohibited .… 7.30 trade marks .… 7.1, 7.16 Systems franchise nature of .… 18.2 T Take overs see also Mergers acquisition of shares .… 15.2 Target rebate schemes exclusive dealing .… 17.10 Taxation policy competition law, and .… 12.2 Technical efficiency well-performing markets, and .… 12.9 Telecommunications industry competition law .… 12.20 Telecommunications and Research Calls Industry Standard .… 19.22 Telemarketing database ‘washing’ .… 19.20 direct marketing .… 11.37–11.47 Do Not Call legislation .… 19.16 breaches .… 19.19
penalties .… 19.21 remedies .… 19.21 Do Not Call Register .… 19.17 marketing calls, definition .… 19.18 telephone-based marketing research .… 19.22 information to be provided .… 19.24 termination of calls .… 19.25 when may call be made .… 19.23 Television advertising .… 10.79 broadcasting schedule data compilation, as .… 4.10 broadcasts .… 4.48 building models, depiction of .… 4.19 copyright .… 4.2, 4.21, 4.21C, 4.24, 4.36 duration of copyright .… 4.37 infringement of copyright, authorising .… 4.59 owner’s rights .… 4.24 guides copyright protection .… 4.10 Terms of trading agreements anti-competitive conduct .… 13.55 Territorial restraints of trade exclusive dealing .… 17.8, 17.14, 17.20 Territory allocation market sharing agreements .… 13.39, 13.39C2 Testimonials false or misleading representations .… 10.41, 10.42 Tests authorisation .… 12.57 deceptive similarity .… 7.48 defective goods .… 9.52 demand and supply substitution .… 12.41–12.43, 14.9 ‘future with and future without’ .… 12.37, 17.23 hypothetical monopolist .… 12.42 mergers .… 15.6–15.8 biscuits .… 15.8C1 wholesale groceries .… 15.8C2 misleading and deceptive conduct .… 10.11–10.14 non-inventive skilled person .… 2.19, 2.20 resale price maintenance .… 16.8–16.24 reverse infringement .… 2.13
871
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Marketing and the Law Tests — cont’d significant and non-transitory increase in the competitive price (SSNIP) .… 12.42 standard patents .… 2.6 substantial identity .… 7.48 substitution for markets .… 12.41–12.44 ‘with and without’ .… 12.37, 13.48, 17.23 Theft industrial .… 3.25 Themes advertising .… 6.37 passing off .… 6.37, 6.37C unlawful reproduction of .… 4.42, 4.42C1 Therapeutic Goods Acts state and territory legislation .… 8.27 dangerous goods .… 8.28 Third line forcing bundling, and .… 17.15 effect .… 17.15 nature of .… 17.15, 17.15C1, 17.15C2 persuasion, distinguished .… 17.15 Third parties trade secrets and .… 3.29 Threats making unjustified .… 2.59 Three-dimensional designs corresponding design, defence .… 4.54 Time manuals .… 13.27 shifting .… 4.52 Titles for publication passing off .… 6.40, 6.40C Trade associations collusive conduct authorisations .… 13.74, 13.74C public safety or protection .… 13.74, 13.74C Trade marks ability to distinguish .… 7.11 bad faith applications .… 7.62 business names .… 1.14, 6.32, 7.70–7.75 cancellation .… 7.60–7.64 capable of distinguishing .… 7.11 certification .… 7.66 colours as .… 7.22, 7.26, 7.26C company names .… 7.70, 7.74, 7.75 conditions .… 7.43 confusing .… 7.34, 7.42, 7.52 contrary to law .… 7.33
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deceptive .… 7.34, 7.52 cigarettes .… 7.34C1, 7.34C2 deceptively similar importing trade-marked goods .… 7.54 non-use of trade mark .… 7.62 opposition to registration .… 7.42, 7.42C1 refusal to register .… 7.35, 7.37, 7.63 trade mark infringement .… 7.45–7.53 defences to infringement .… 7.56 good faith .… 7.56C1–7.56C4 defensive .… 7.65 definition .… 7.6 descriptive sign .… 7.61 descriptive words and .… 7.41 device marks .… 7.16 disclaiming rights to exclusive use .… 7.41 distinguished through extensive use .… 7.25–7.28 domain names as .… 6.33, 7.47, 7.76, 19.66 duration of protection .… 7.44 geographical names as .… 7.21, 7.21C2, 7.28, 7.28C history of protection .… 7.2 inability to be represented graphically .… 7.31 infringement see Infringement of trade marks inherent adaptation of .… 7.12–7.28 inherently distinctive .… 7.11–7.28 international registration .… 7.54, 7.62, 7.67 importing trade-marked goods .… 7.54 introduction to .… 7.1 invented words .… 7.14 keyword triggers, as .… 19.53 limitations .… 7.43 logos as .… 7.16 management .… 7.68 marketing advice .… 7.77 music as .… 7.31 ‘name pirates’ .… 7.42, 7.42C4 non-descriptive words .… 7.13 non-use of .… 7.62 not inherently adapted to distinguish .… 7.21 geographical names .… 7.21C2 ordinary usage .… 7.21C1 partially inherently adapted to distinguish .… 7.22–7.24 colours .… 7.24 slogans .… 7.23 place names as .… 7.28, 7.28C
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Index prohibited signs .… 7.30 registration of see Registration of trade marks revocation of .… 7.60–7.64 rights .… 7.43 scandalous .… 7.32 scents .… 7.17, 7.20 graphic representations .… 7.31 shapes as .… 7.17, 7.18, 7.26 signature of applicant as .… 7.15 similar .… 7.35–7.39 slogans as .… 7.22, 7.23 sounds .… 7.17, 7.19 graphic representations .… 7.31 substantially identical importing trade-marked goods .… 7.54 non-use of trade mark .… 7.62 opposition to registration .… 7.42, 7.42C2 refusal to register .… 7.35, 7.36, 7.63 trade mark infringement .… 7.45–7.53 surnames as .… 7.27 use as, meaning of .… 7.47 recognised names .… 7.47C1, 7.47C2, 7.47C3 search terms .… 7.47C4 Trade Marks Act 1995 (Cth) .… 2.2 see also Australian Consumer Law (ACL) domain names .… 19.66 overview .… 7.3–7.5 Trade Marks Office application form to register mark .… 7.31 certification marks .… 7.66 disclaiming rights to exclusive use, and .… 7.41 establishment .… 7.3 international registration .… 7.67 opposition to registration .… 7.42 international marks .… 7.42C3, 7.42C5 sign, definition .… 7.6 Trade measurements legislation .… 8.18 function of .… 8.19 marketing, and .… 8.18 principles .… 8.20 unit pricing .… 8.21 Trade names copyright protection .… 4.11, 4.11C single words .… 4.11 Trade Practices Act historical background .… 1.13
Trade promotion games and competitions .… 11.3 conditions of conduct .… 11.7 legislation .… 11.7 permits .… 11.5, 11.6 Trade secrets .… 3.2 see also Confidential information common examples .… 3.9–3.14 confidential information, meaning .… 3.4 customer lists .… 3.14 employee know-how distinguished .… 3.19 industrial products/processes .… 3.11 marketing information .… 3.13 new product ideas .… 3.12 patents, compared .… 3.2, 3.30 protection of .… 3.2, 3.40 research and development material .… 3.10 third parties and .… 3.29 Trader protection trade marks .… 7.1, 7.5 Trading agreements, terms of .… 13.55 unfair .… 11.3, 11.8–11.11 Training resale price maintenance offences, following .… 16.29 Trial reasonable .… 2.17 TRIPS Agreement .… 2.63, 4.75, 5.34 U Unauthorised use/disclosure of information .… 3.26 notifiable data breaches .… 19.46 UNCITRAL see United Nations Commission on International Trade Law (UNCITRAL) Unconscionable conduct consequence of engaging in .… 11.25 contracts .… 11.22, 11.22C defence .… 11.25 disqualification orders .… 11.25 elements .… 11.24 franchisor, by .… 18.25, 18.25C guarantees .… 11.22C inequality of bargaining strengths .… 11.23, 11.24C sales techniques .… 11.22–11.25 statutory intervention .… 11.23
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Marketing and the Law Understanding see also Agreements; Arrangement; Contract definition .… 13.8 Undertakings enforceable see Enforceable undertakings essential services, access to .… 14.43 false or misleading conduct, relating to .… 10.63 Unfair contract terms .… 11.26 business to business contracts .… 11.31, 11.31C consequences .… 11.30 consumer contract, nature of .… 11.27 definition .… 11.29, 11.29C onus of proof .… 11.29 standard form contract, nature of .… 11.28 practices .… 11.8 packaging and labelling .… 8.10, 8.10C selling techniques .… 11.8–11.36 trading .… 11.3 Unilateral conduct contestable markets .… 12.15 Unit pricing breaches .… 8.21 Code .… 8.21, 11.45 nature of .… 8.21 Unitary patent .… 2.65 United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Commerce .… 19.4 Model Law on Electronic Signatures .… 19.4 Universal Copyright Convention international copyright law .… 4.4 Unjustified threats design infringement .… 5.27 patent infringement .… 2.59 trade mark infringement .… 7.58 Unlawful communication of work to the public .… 4.47 uploading material .… 4.47 conduct lessening competition .… 14.15 effect .… 17.26 performance of work in public .… 4.46 purpose .… 17.26 reproductions artistic works .… 4.44, 4.44C characters, of .… 4.4, 4.42C2
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computer programmes .… 4.43 copyright works .… 4.40–4.45 databases .… 4.41, 4.41C musical works .… 4.45, 4.45C original copyright works .… 4.40–4.45 settings .… 4.42 themes, of .… 4.42, 4.42C1 Unpublished copyright works duration of copyright .… 4.37 Unsolicited consumer agreements consequences of non-compliance .… 11.41 obligations regarding .… 11.39–11.40 termination .… 11.42 definition .… 19.12 personal information .… 19.35 selling .… 11.38, 11.38C breaches of ACL, consequences .… 11.44, 11.44C exclusion of ACL provisions .… 11.43 modification of ACL provisions .… 11.43 non-compliance with ACL .… 11.41 obligations following agreement .… 11.40 obligations of dealers and suppliers .… 11.39 right to terminate .… 11.42 Unsubscribe facility e-marketing .… 19.13 US-Australia Free Trade Agreement .… 4.75 Use disclaimer, of passing off, and .… 6.14 statutory passing off, and .… 6.26, 6.26C information, unauthorised .… 3.26 personal information .… 19.27, 19.37 trade mark, as .… 7.47 recognised names .… 7.47C1, 7.47C2, 7.47C3 search terms .… 7.47C4 Usefulness of inventions .… 2.22 Using definition .… 5.25 V Value definition .… 10.37 goods, of false or misleading representations .… 10.37
Index Vertical distribution structures .… 18.1 integration .… 12.50, 18.1 mergers .… 15.2, 15.4 anti-competitive coordinated effects .… 15.11 anti-competitive unilateral effects .… 15.11 restraints anti-competitive .… 17.3 pro-competitive .… 17.2 Visual feature of design function, distinguished .… 5.8, 5.8C Voice protection of passing off actions .… 6.44 Voiding of contract competition law breaches .… 12.26
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W Warning notices, public false or misleading conduct, relating to .… 10.65 statements poisons, drugs and therapeutic goods .… 8.27
Website content .… 19.7 linking, copyright infringement by .… 4.62 Wilful blindness false or misleading conduct .… 10.56, 10.56C2 intent, and .… 10.56 WIPO see World Intellectual Property Organisation (WIPO) Withholding supply resale price maintenance, and .… 16.18, 16.18C definition .… 16.19 exceptions .… 16.22, 16.22C1 illegality .… 16.20, 16.20C1, 16.20C2 reasons for .… 16.21, 16.21C Words invented .… 7.14 non-descriptive .… 7.13 World Intellectual Property Organisation (WIPO) international registration of trade marks .… 7.67 World Trade Organization (WTO) international copyright law .… 4.4 parallel importing laws .… 4.66
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