Commercial notes No. 24

No. 24
30 June 2007

This issue

Commonwealth intellectual property management
Commercialisation of technology in the Commonwealth
context

Domain name issues for agencies
Trade mark infringements

COMMONWEALTH INTELLECTUAL PROPERTY
MANAGEMENT

Philip Crisp

Canberra
Philip Crisp Special
Counsel, Commercial
T 02 6253 7159
F 02 6253 7306
philip.crisp@ags.gov.au

This article reviews the development of policy relating
to the Commonwealth's management of its intellectual
property (IP), and briefly presents one way of structuring
thinking about an IP management policy for an agency.

The Attorney-General has recently released Intellectual
Property Principles for Australian Government Agencies (the 'Statement of Principles') regarding
management of IP within the Commonwealth. FMA Act agencies
are required to comply with the principles, and report
on their compliance, by 1 July 2008. A guidebook, the 'IP
Better Practice Manual' is expected to be published
by the Attorney-General's Department later this
year to provide agencies with up-to-date information
on implementing the principles, including the development
of agency IP policies.

Background

The IT IP Guidelines

The first comprehensive attempt by the Commonwealth to
articulate an approach to its management of IP was the
Commonwealth IT IP Guidelines1 launched by the government
in early 2001 as part of its Innovation Package.

The main messages of the IT IP Guidelines were as follows.

  • Commonwealth agencies should be conscious of the significance
    of their role as a major producer, instigator and consumer
    of IT-related IP, and the value of that IP as a national
    strategic resource.
  • It is desirable that IP be recorded, valued, managed
    and utilised to best effect, as with any other asset.
  • There is some scope for greater use of IP inventories
    and valuations of IP within the Commonwealth; however,
    this may be cost-effectively undertaken on a selective
    rather than a comprehensive basis.
  • IP management (like asset management and strategic
    IT planning) is an important aspect of accountability
    that should be addressed in agencies' annual reports.
  • In contracts relating to IT-related IP, agencies should
    not automatically assume that all IP rights must be vested
    in the Commonwealth, but should consider whether vesting
    IP in, or granting a licence to, the supplier or contractor
    might yield savings and a product that in the
    long term more effectively meets agency objectives.
  • As appropriate, IT contracting should take account
    of broader industry development and other policy objectives
    of the Commonwealth.
  • Relevant Commonwealth financial arrangements should
    allow incentives for agencies to acquire only the IP
    they really require, and to allow commercialisation of
    their IP if this is appropriate.
  • Decision makers should be encouraged to develop an
    understanding of the issues, options and risks in management
    and commercialisation of IT-related IP. The guidelines
    are intended to promote this understanding.
  • Agencies should take steps to ensure that suitable
    training in IP management, based on these guidelines,
    is made available to decision makers within the Commonwealth.
  • Decision makers should obtain appropriate, early professional
    advice to assist in identification and resolution of
    IP planning and management issues.
  • Commercialisation by government agencies is generally
    a peripheral activity; accordingly commercialisation
    needs should not be allowed to dominate to the extent
    that an agency's proper governmental objectives
    are jeopardised.
  • The Commonwealth should seek to be a model citizen
    in respecting the IP rights of private individuals and
    organisations.

The IT IP Guidelines applied primarily to FMA Act agencies,
and were expressed to be 'flexible, rather than prescriptive'.
Whilst the guidelines principally concern IT-related IP
materials, many of the observations and conclusions have
equal relevance to other categories of material.

One conclusion given prominence was, in effect, that agencies
should adopt a flexible approach to IP ownership in ICT
contracts; and that in general IP was better vested in
the party best able to use, improve and leverage it for
the broad purposes of the agency and other stakeholders.
Also of note was the recommendation that:

Individual agencies are encouraged to adopt the guidelines
as a core part of the development of their own internal
IP management policies. In doing so, each agency may
develop complementary IP policies taking account of their
corporate mission, the nature of their work, the characteristics
of IP material produced, professional specialisations
represented in its workforce, financial and other ways
in which it seeks to recognise the work of its staff,
[and the interests of relevant target groups and other
stakeholders].2

First ANAO Audit Report, February 2004

The recommendation quoted above is consistent with later
recommendations of the ANAO in its Audit Report of February
2004.3 The ANAO examined whether agencies have systems
in place to efficiently, effectively and ethically manage
their intellectual property assets in accordance with their
obligations under the FMA Act4 or equivalent provisions
of the CAC Act.5

The 2004 report made recommendations for policy formation
at two levels:

  • An agency IP policy: 'In order to ensure the
    effective and efficient management of intellectual property
    agencies should develop an intellectual property policy
    appropriate for agency circumstances and functions, and
    implement the required systems and procedures to support
    such a policy'.
  • Overarching IP policy for the Commonwealth: 'In
    order to ensure the Commonwealth's interests are
    protected, the Attorney-General's Department, the
    Department of Communications, Information Technology
    and the Arts, and IP Australia6 (together with other
    relevant agencies), should work together to develop a
    whole-of-government approach and guidance for the management
    of the Commonwealth's intellectual property, taking
    into account the different functions, circumstances and
    requirements of agencies across the Commonwealth, and
    the need for agency guidance and advice on intellectual
    property management.'7

An 'overarching' IP policy for the Commonwealth

This recommendation was supported in quick succession
by two further reports.

First, in April 2005 the then Copyright Law Review Committee
(the CLRC) released its Crown Copyright Report.8 That report
mainly concerned the provisions governing subsistence and
ownership of Crown copyright in sections 176–179
of the Copyright Act. However it also recommended that:

[T]he Australian Government should develop and implement
comprehensive intellectual property (IP) manage-ment
guidelines to promote best practice and assist agencies
to meet their responsibilities. Education and training
of government employees must also be a high priority.

Second, the Joint Committee of Public Accounts and Audit
(JCPAA) reported in November 2005 recommending:

… development of a whole-of-government approach
to the management of the Commonwealth's intellectual
property … by May 2006 …9

Implementation of the ANAO recommendations

Progress towards a whole-of-Commonwealth IP policy was
initially delayed, largely due to the concentration by
lead agencies on the negotiation of the Australia – United
States Free Trade Agreement, which was heavily concerned
with IP. In a follow-up report in February 2007 (the second
ANAO Report) the ANAO recommended that the overarching
approach to IP management be finalised as soon as practicable.10 The
second ANAO Report noted that in the absence of the overarching
guidance, a number of agencies had pressed ahead with the
development of agency-specific policies.

The work of the 'lead agencies' to put in
place an overarching IP framework was envisaged in two
parts.

First, a Statement of IP Principles would provide 'a
focal point for understanding legislation, policies and
guidelines as they apply to the management of IP by Australian
Government agencies'. A draft of the IP Principles
was released for public comment in September 2005, together
with an Issues Paper to inform targeted consultations which
were conducted in October 2005.

Second, the Attorney-General's Department commissioned
an IP Better Practice Manual, intended as 'a tool
for agencies to implement the IP Principles in the context
of their operations'.

Latest developments

Statement of IP Principles

On 11 May 2007 the Attorney-General released the final
version of the Intellectual Property Principles for
Australian Government Agencies (the IP Principles) regarding management
of IP within the Commonwealth.

The IP Principles follow work undertaken over the last
2–3 years by the Attorney-General's Department
and other lead agencies.

A headline theme of the Attorney-General's press
release is that business should now be given more opportunities
to commercialise IP developed under government contracts.
This aspect reinforces similar policy messages in recent
years, and on balance can be viewed as an incremental rather
than a revolutionary change. Indeed the press release balances
this message with the converse observation that '[s]ometimes
it is appropriate for Government to maintain public ownership
of IP such as crucial defence or national security IP'.

Agencies should give careful thought to distinguish:

  • cases in which IP should be retained in public ownership
    because of its strategic value, relevance to core functions
    or importance in setting standards
  • cases in which procurement savings can appropriately
    be made by enabling the contractor to commercialise the
    IP they develop for the Commonwealth.

FMA Act agencies are required to comply with the IP Principles,
and report on their compliance, by 1 July 2008. In particular
agencies 'are encouraged to develop individual IP
management frameworks that reflect their own needs and
objectives, consistent with other relevant Australian Government
policies and requirements'.

Summary of Intellectual Property Principles for Australian Government Agencies

General principles

Australian government agencies are responsible for
managing IP in their control or custody in an effective,
efficient and ethical manner.

Agencies should periodically evaluate the overall
effectiveness, including cost, risks, and benefits
of the policies and practices they have in place
for the management and use of IP.

Corporate framework

Each agency should have an IP management policy
which reflects its objectives and these IP Principles.

Implementation of the IP management policy should
be supported by appropriate training and resources,
including access to expert advice.

Agencies should maintain appropriate systems and
processes to identify and record IP.

Agencies should have strategies and guidelines to
ensure that IP is protected in an appropriate manner.

Agencies should have procedures in place to reduce
the risk of infringement of the IP rights of others.

Creating and acquiring IP

Agencies should maintain a flexible approach in
considering options for ownership, management and
use of IP.

Agencies should recognise innovation and creativity
in the development of IP in an appropriate manner
which is consistent with agency objectives.

Contracts and other agreements must address IP issues
where relevant.

Contracts in which IP might be created should address
the identification of new and pre-existing IP and
arrangements that apply to the ownership and use
of the IP, including licensing arrangements. Agencies
should ensure that IP rights secured are appropriate
to identified needs and objectives and should only
obtain those rights required taking into account
questions of the efficient, effective, and ethical
use of agency resources.

Sharing, commercialisation,
disposal, and public access to IP

Agencies should encourage public use and easy access
to copyright material that has been published for
the purpose of:

  • informing and advising the public of government
    policy and activities;
  • providing information that will enable the public
    and organisations to understand their own obligations
    and responsibilities to government;
  • enabling the public and organisations to understand
    their entitlements to government assistance;
  • facilitating access to government services;
    or
  • complying with public accountability requirements.

Australian government agencies should be mindful
of opportunities to share IP for which they are responsible
with other agencies.

Agencies should be responsive to opportunities for
commercial use and exploitation of IP, including
by the private sector.

Unless commercial activities are required as an
integral part of an agency's objectives, commercialisation
of IP by an agency should be no more than an ancillary
part of its activities and should not become a core
business activity.

Where IP is commercialised or disposed of, agencies
must do so in an accountable manner consistent with
Australian government legislation, policies and guidelines.

[Extracted from the complete statement of Intellectual
Property Principles for Australian Government Agencies available on the Attorney-General's Department
website: www.ag.gov.au.]

IP Better Practice Manual

To implement the second major strand of the overarching
IP framework, it is expected that a guidebook, the IP
Better Practice Manual, will be published by the Attorney-General's
Department later this year to provide agencies with up-to-date
information on implementing the IP Principles, including
the development of agency IP policies.

It appears that the IP Better Practice Manual will absorb
and update the material contained in the IT IP Guidelines,
responding to concerns expressed by the ICT industry that
the flexible approach to IP ownership recommended in the
IT IP Guidelines was not in practice applied by government
agencies.11

The following is a draft outline for the IP Better
Practice Manual, as presented in the second ANAO Report. When published
the manual will be available at
www.ag.gov.au/cca.

Overview of the Draft IP Better Practice
Manual

Chapter No.

Chapter title

Description of chapter content

1

Introduction

Contains a copy of the IP Principles, along with
a brief description of the purpose of the manual.

2

What is IP? Who owns it?

Introduces the concept of IP, provides detailed
description of different types of IP. Covers assessment
of IP ownership.

3

Creating an IP management framework

Guidelines to assist in development of an IP management
framework.

4

Identifying, recording and managing IP

Guidance on identifying existing and newly created
IP; reviewing IP; keeping appropriate records of
IP; and monitoring and managing IP.

5

Making IP protection decisions

Outlines the decision making processes with respect
to IP protection.

6

Assessing and valuing IP

Guidance on assessing the value of IP.

7

Dealing with IP in government contracts

Guidance on determining a preferred IP position
in government procurement and funding contracts;
and IP management during life of contract and upon
contract termination or expiry.

8

Using the IP of another party

Guidance on how to identify IP of other parties
and how to access identified IP ethically.

9

Sharing and granting public access to IP

Guidance on sharing IP and making IP publicly
available.

10

Commercialisation of government IP

Step by step process for agency commercialisation
of IP; describes forms of commercialisation and information
on managing risks.

11

Enforcing IP rights

Outlines when, why and how to enforce IP rights,
associated risks, and different forms of enforcement.

12

Further assistance and guidance

Brief list of further reading and information.

(Extracted from ANAO Report No. 22 of 2006–07.)

Current options for agencies

While the IP Better Practice Manual has not yet been issued,
agencies can nonetheless be working towards developing
their agency specific policies given that any guidance
in the manual will be of necessity general and agencies
will need to develop policies that address their specific
needs. In addition, agencies have only 12 months in which
to put in place a policy.

It is not yet clear what performance measures will apply
in evaluating progress achieved by agencies by 1 July 2008.
It may be that this will be clarified by the release of
the IP Better Practice Manual.

Structure for an IP management review and policy

A well-structured IP review, and the resulting agency
IP policy document, might encompass:

  • program or organisational level at which the review
    is to be conducted12
  • legislative and policy framework in which the agency
    (or program) operates, with particular reference to the
    purposes underlying dealings with IP
  • specific contexts in which IP arises to be dealt with,
    including:
    • relationships (eg with stakeholders, clients, suppliers,
      business partners, staff, etc)
    • programs, projects and other activities
  • types and instances of IP subject matter that arise
    in the above relationships and activities
  • IP risks, opportunities and strategies
  • standard contracting strategies
  • links to pro forma documents such as standard contracts/clauses,
    a template for an IP register, etc.

It is not the purpose of this paper to provide a comprehensive
methodology for the conduct of an IP management review
and development of an agency IP policy and procedures.
AGS has previously offered guidance on a methodology based
on the above outline.13

Instead we focus on just one way of structuring the task.
The premise is a holistic one: that IP management is not
a discrete area, but should be seen as integrally connected
to every other important aspect of corporate governance:14

  • people management
  • image management
  • knowledge management
  • contract/financial/asset management
  • risk management.

The following sections enumerate some of the ways in which
an agency's IP strategies interact and overlap with
corporate strategies in other key areas.

People management

  • IP is generally the result of human creative effort;
    i.e. people create IP (see also under 'Knowledge
    management' below)
  • a modern, knowledge- and service-based organisation
    should provide the intellectual inputs, tools and resources
    to support the creative efforts of its people
  • agencies should show they value the results of those
    creative efforts, including by respecting moral rights
    where appropriate; a moral rights policy should form
    part of agency IP guidelines
  • new employees could be asked to acknowledge the moral
    rights policy at the same time as they acknowledge/give
    undertakings re: privacy, confidentiality, conflict of
    interest, acceptable internet and email use, security,
    responsible (including non-infringing) use of software,
    etc
  • similar acknowledgements/undertakings may be required
    from Contractor personnel engaged in the performance
    of services for an agency
  • arrangements re study leave, leave without pay, staff
    exchanges, academic publications, etc, should clearly
    specify ownership of any IP created; and provide for
    licences as appropriate
  • it is important for some agencies to recognise (by
    attribution and/or appropriate tangible rewards) the
    creative contribution of staff to the agency's
    intellectual capital or corporate image
  • agencies should identify resources and promote availability
    of training to facilitate the role of agency staff in
    managing IP.

Image management

  • some forms of IP are directly employed to promote
    the image of the agency or the Commonwealth, and/or to
    protect associated insignia or brands
  • even where there is not a commercial purpose an agency
    may deploy its IP rights in order to protect the integrity
    of its publications, i.e. to prevent them being misrepresented
    or improperly attributed.

Knowledge management

  • This broad area includes IT strategic planning, document
    and record management and corporate know-how
  • corporate know-how may 'crystallise' as
    a category of material under an ' IP regime' (e.g.
    copyright; confidential information)
    • however, some knowledge always remains 'informal':15 'informal' know-how
      may be too commonplace or fluid to be captured as IP,
      so leveraging it depends on retention of staff
  • a records and document management system (RDMS) is
    an important area of knowledge management; an RDMS may
    serve in part as an IP register
  • an IT strategic plan is also an important area of
    knowledge management:
    • a lot of important IP is IT-related
    • some of the more complex IP issues arise in an IT
      context because of the capacity of computers to copy
      and communicate documents and to manipulate information
      to create derivatives, giving rise to complex layering
      of foreground and background
    • licences for software and digital data products
      must be managed carefully to lessen the risk of infringement
    • agencies may need to catalogue licences (perhaps
      part of an IP/assets register)
    • there are related issues of privacy, security, acceptable
      internet and email use, responsible (including non-infringing)
      use of software
    • IT managers may adopt 'open source' software,
      but IP and product warranties may be problematic.

Contract/financial/asset management

  • in dealing with contractors, clients and business
    partners, an agency should make sensible strategic decisions
    about the allocation of IP rights (including ownership
    and licence rights)
  • IP is a form of property, albeit intangible
  • thus it attracts accountability obligations as an
    asset under the FMA Act (s.44) and the CAC Act
  • it has a value that can be quantified in some cases
  • there is substantial overlap between IP and 'intangible
    assets'; however, they are not completely congruent,
    because:
    • not all intangible assets crystallise as a form
      of IP. Notably, there is a layer of corporate know-how
      residing in personnel, which does not qualify as confidential
      information and does not fall under any IP regime
    • some IP subject matters are not counted as intangible
      assets under current accounting rules because of difficulties
      in valuation16
  • any contract to procure a product or service or to
    develop a solution
    (e.g. an IT system) for the benefit of the agency will
    typically involve the acquisition or development of IP
  • a decision not to claim all the IP rights may achieve
    favourable pricing; note that this is an indirect reflection
    of value
  • where appropriate, an agency may make money by the
    sale of products embodying IP, or by incorporating IP
    as part of a service delivered to a client or customer
  • for agencies engaged in commercialisation, IP is an
    important factor in distinguishing an agency's
    products or services from those of competitors, and an
    important source of leverage to create competitive advantage.

Risk management

  • loss of 'IP' (e.g. failure to register
    patent or leaking of confidential information into public
    domain)
  • liability to third parties for infringement, especially
    in relation to software
  • third party infringement of agency IP (e.g. 'branding' deceptively
    similar to agency programs)
  • asserting control of IP unnecessarily or too closely
    so as to deprive industry and other target groups
  • lack of guidance and encouragement of staff which
    may stifle innovation
  • inability to properly identify and value IP
  • possibility of disposing of IP without a sound process
    to assess value and ensure probity
  • loss of control over IP assets that are central to
    the work of the agency
  • failure (or delay) in achieving potential benefits
    from leveraging IP appropriately, including agency, industry
    and broader social benefits
  • more generally: there are risks to an agency flowing
    from its actions, or failure to act, in relation to IP
    (including risk of lost opportunity, potential loss of
    certain IP from failure to register in time, and risks
    of litigation for infringement – either by the
    agency or by third parties using the agency's materials
    improperly).

Summary

In summary: our conception of an IP policy is of a policy
organically connected to other major drivers of an agency's
activities. Given that agencies routinely document their
policies and practices in relation to HR management, public
relations, information management, IT planning, financial
management, contracting, risk management, etc, it seems
entirely appropriate that they also put in place an IP
policy, properly integrated with other core policies.

Philip Crisp is the leader of AGS's
national Technology and IP Network. He has extensive
experience advising on Crown copyright, protection of
software and databases, IT agreements, website legal
issues, trademarks, confidential information, R&D
joint ventures, commercialisation of IP, and moral rights.
Philip is responsible for a number of standard IP contract
forms used widely within the Commonwealth, and wrote
the Commonwealth IT IP Guidelines. He is widely recognised
for his conception and development of an innovative solution
for web-based copyright management called AEShareNet.
Philip has participated in copyright reform processes,
including the 'digital agenda' review, reforms
flowing from AUSFTA, the fair use review and the recent
inquiry into technological protection measures.

Notes

  1. The guidelines' full title is: Commonwealth
    Guidelines relating to the Management and Commercialisation
    of Intellectual Property in the field of Information
    Technology. Available at: http://www.dcita.gov.au/home/intellectual_property/commonwealth_it_ip_guidelines2.
  2. The final words enclosed in brackets have been slightly
    re-phrased for clarity.
  3. Audit Report on Intellectual Property Policies
    and Practices in Commonwealth Agencies, No. 25 of 2003–04,
    5 February 2004, available on ANAO's website at
    http://www.anao.gov.au.
  4. Section 44 of the Financial Management and Accountability
    Act 1997 provides that Chief Executives must manage the
    affairs of their agencies in a way that promotes efficient,
    effective and ethical use of the Commonwealth resources
    for which the Chief Executive is responsible – Commonwealth
    resources would clearly include IP resources.
  5. For example, an officer of a Commonwealth authority
    must exercise his or her powers and discharge his or
    her duties with care and diligence: see section 22 of
    the Commonwealth Authorities and Companies Act 1997.
    In addition statutory authorities are normally required
    by their enabling legislation to use money and other
    resources (including IP resources) for the purpose of
    properly carrying out their functions.
  6. The group of 'lead agencies' was later
    enlarged to include the Department of Finance and Administration.
  7. See paragraphs 2.24 and 2.26 of the ANAO Report (2004).
    It is of interest that the Auditor-General chose to put
    the recommendations in this order, suggesting perhaps
    that agencies should proceed with their IP policies in
    parallel with the development of an overarching Commonwealth
    policy.
  8. The Report is available from the CLRC website, at:
    http://www.ag.gov.au/agd/WWW/clrHome.nsf/.
  9. Report 404, Review of Auditor-General's Reports
    2003–2004 Third & Fourth Quarters; and First
    and Second Quarters of 2004–2005, JCPAA, Canberra,
    2005. The report is available from the JCPAA's
    website: www.aph.gov.au/house/committee/jpaa/reports.htm.
  10. Audit Report on Management of intellectual property
    in the Australian government sector, No. 22 of 2006–07,
    6 February 2004, available on ANAO's website at
    http://www.anao.gov.au.
  11. See 'Intellectual Property – Understanding
    our IP Potential', subtitled 'Maximising
    the mutual benefits of Intellectual Property developed
    under ICT contracts', Australian Information Industry
    Association (AIIA), 2006.
  12. An agency might consist of elements with significantly
    different policy drivers.
  13. AGS has also published more general guidance on methodology
    for an IP review – see, for example: Philip Crisp:
    Conducting a Strategic IP Management Review, in proceedings
    of the First AGS IP Policy and Practice Seminar, 20 July
    2004. The paper may be requested from the author.
  14. The analysis presented here is adapted from the AGS
    case study: 'Bird Flu and the Da Vinci Code',
    included in proceedings of the Third AGS IP Law, Policy
    and Practice Seminar, 27 July 2006. The case study may
    be downloaded from AGS's website, www.ags.gov.au – see 'Areas
    of Law': Intellectual Property
    .
  15. That is, it resides in the techniques, skills and
    know-how of people. Where possible it should be converted
    to a recognisable form of intellectual property. But
    so long as it remains intangible it can only be leveraged
    by retaining those people, and by encouraging them to
    share their knowledge within the agency and to use it
    for the agency's purposes, whatever they might
    be.
  16. Australian Standard AASB 138 'Intangible Assets' excludes
    certain things, such as 'internally developed mastheads,
    publishing titles and customer lists'. The standard
    provides that an intangible asset will be recognised
    only if: (a) it is probable that the expected future
    economic benefits that are attributable to the asset
    will flow to the entity; and (b) the cost of the asset
    can be measured reliably.

COMMERCIALISATION OF TECHNOLOGY IN
THE COMMONWEALTH CONTEXT: SOME ISSUES

Kenneth Eagle

Melbourne
Kenneth Eagle Senior Executive Lawyer
T 03 9242 1290
F 03 9242 1481
kenneth.eagle@ags.gov.au

Commonwealth agencies are often involved in the development
of new technology – while there are obvious candidates
(such as CSIRO or DSTO), new technology can often be
created as a result of the activities of a 'less
obvious' agency. Having found itself in the possession
of this new technology, an agency may turn its mind to
the best way to exploit the new technology. The purpose
of this paper is to identify and briefly discuss some
of the issues that an agency would need to consider as
part of any decision to exploit new technology.

The Constitution, enabling legislation and the FMA Act

As with any activity undertaken by an agency, the threshold
question is whether the agency has the 'power' to
undertake the relevant activity.

The Constitution does not contain a 'general' power
for the Commonwealth to engage in commercial activities.
It is therefore necessary to consider whether the proposed
activity falls within the scope of one of the general heads
of power1 or is otherwise 'ancillary' to the
exercise of a constitutional power.

Where an entity has been created by legislation (which
is the case for many FMA and CAC bodies), the enabling
legislation will also need to be considered. Usually, the
enabling legislation will contain a list of 'powers' and 'functions'.
The entity will need to ensure that any proposed commercialisation
activity falls within the scope of these provisions. Often,
there is a 'catch-all' provision, referring
to anything else 'necessary or convenient' to
enable the entity to carry out its functions. While this
is a broad statement, it is nonetheless linked back to
the entity's other functions and needs to be interpreted
in this context. It is also important to remember that
the enabling legislation itself is subject to the constitutional
limitations referred to above. It is not possible for legislation
to 'confer' on a statutory body a function
or power that is outside the scope of the Commonwealth's
legislative power – therefore the entity's
powers and functions, including any 'catch-all' provision,
need to be considered in the context of the constitutional
power that underpins the relevant legislation.

Intellectual property rights are an asset or a Commonwealth
resource – they have 'value' and are
able to bought, sold and licensed. Therefore the general
rules that apply to the use and management of Commonwealth
assets also apply to intellectual property. The Financial
Management and Accountability Act 1997 (FMA Act) requires
Chief Executives to manage agencies in a way that 'promotes
proper use of … Commonwealth resources'.2 The
FMA Act also makes it an offence to 'misapply public
property or improperly dispose of, or improperly use, public
property'.3 The definition of 'public property' is
sufficiently broad to capture intangible property, such
as intellectual property.4

Broadly speaking, any commercialisation of technology
by an agency will involve either the sale or the licensing
of the relevant intellectual property rights. While it
may be theoretically possible for an agency to fully develop
a product and market and support it itself (notwithstanding
the issues regarding 'power' identified above),
it is not always the case that the agency would have the
necessary skills or resources to do this effectively and
efficiently. Query also whether such 'commercial' activity
would fall within the scope of the agency's core
business.

The sale or assignment of intellectual property rights
involves the disposal of Commonwealth property – bringing
into play the FMA Act. An agency's own Chief Executive
Instructions may also be relevant – these CEIs may
deal generally with the disposal of 'property'.
As noted above, intellectual property is a form of property.

The licensing of intellectual property involves entering
into a contract. As with any contract, the licence will
create rights and obligations on both parties. The licence
will need to be managed. The licence will also potentially
create an 'asset' – a contractual obligation
on the licensee to pay a licence fee to the agency. This
income stream has value and would need to be accounted
for like any other agency asset. It will also need to be
appropriately audited. Valuation of this asset can be quite
difficult. Licence fees are often calculated as a percentage
of sales revenue. Where the licence involves 'new' technology,
the potential revenue may not be known and may be difficult
to estimate, particularly in the early years of any licence.

Expectations: commercial entity vs the Commonwealth

What the commercial entity wants

Any commercial entity who takes on the technology will
be looking to obtain a financial return. It will also be
looking for some certainty regarding its rights in relation
to the intellectual property. It is likely that a commercial
entity will have a preference for ownership – that
is, that the agency will assign or transfer the intellectual
property rights in the technology to the commercial entity.
This will give the commercial entity greater control over
the technology, particularly other people's use – including
the agency and any other Commonwealth entities. Ownership
of any improvements to the technology developed by the
commercial entity will also need to be considered.

The commercial entity may also want to see what, if any,
steps the agency has taken to protect the intellectual
property in the technology – for example, whether
any patents have been obtained or designs registered. The
commercial entity would not want to invest significant
resources in preparing products for the market, only to
find that the technology has already found its way on to
the market via other means.

In many cases, the technology will comprise a number of
different pieces or layers of technology, potentially with
different 'owners' of the relevant intellectual
property rights. The commercial entity will be seeking
some certainty of ownership and its right to use not just
the 'new' technology, but also any of the underlying
layers of technology that support or are otherwise necessary
to 'exploit' the technology. This is often
referred to as a 'third party intellectual property
warranty'. The agency may not be in a position to
provide such a warranty – possibly due to uncertainty
as to the ownership of all the underlying technology. In
a situation where the 'owner' of the underlying
technology is known, the agency may not want to get involved
in commercial negotiations between two commercial entities
in relation to the use of this technology.

Obviously, the commercial entity will want to be certain
that the technology 'works' – that is
does what it is supposed to do. The commercial entity is
likely to be seeking 'fitness for purpose' or
similar warranties from the agency. It may also seek indemnities
from the agency in relation to any loss it suffers, in
the event the technology does not operate as intended.
The commercial entity may also be seeking some form of
ongoing support of the technology by the agency, as well
as access to any improvements or upgrades of the technology
that are subsequently developed by the agency. Similarly,
the agency may wish to have access to any improvements
developed by the commercial entity where the ownership
arrangements provide for these to vest in the commercial
entity.

Obviously any warranty (whether in relation to third party
intellectual property infringement or fitness for purpose)
and any related indemnity raises policy considerations.
In particular, FMA Regs 13 and 10 will need to be considered.5

And finally, and probably most importantly, the commercial
entity wants to be assured that there is a market for the
technology. While the extent or scope of any potential
market is largely something for the commercial entity to
satisfy itself about, in many instances, the most 'obvious' market,
at least in the initial stages, is possibly going to be
Commonwealth agencies – and in many cases, the agency
itself. The extent to which the commercial entity has access
to this market – or conversely, the extent to which
the Commonwealth market enjoys access to the technology
other than through the commercial entity – may be
a significant issue when the commercial entity is 'valuing' the
technology and the commercialisation opportunity.

What the Commonwealth agency wants

In some situations, the technology will no longer be of
any interest to the agency, in which case an assignment
may be acceptable. However, in many situations, the agency
will want to have ongoing access to and use of the technology – whether
as part of its operations (eg, for the purpose that it
was originally created) or for further research and development.
Where the technology is to be assigned to the commercial
entity, this would require a licence back to the agency
from the commercial entity.

As noted above, often, the commercial entity will be further
developing the technology. This will be the case particularly
where the technology is licensed or assigned to the commercial
entity in a 'not market ready' state. In this
situation, the agency itself may not yet have reaped significant
benefit from the technology and may be the commercial entity's
most obvious 'first customer'. The agency may
seek to incorporate favourable terms for its own use of
any product as part of any licence or assignment. This
could cover the 'base' product and also extend
to any improvements or upgrades subsequently developed
by the commercial entity. The agency could seek to extend
these 'favoured customer' terms to other Commonwealth
agencies. As noted above, this could have the effect of
reducing the 'value' of the technology in the
eyes of potential commercial entities, particular where
the technology is most obviously applicable to a Commonwealth
or public sector setting.

In many situations, the agency will not want any ongoing
role or responsibilities in relation to the technology,
other than to collect the royalties. As noted above, a
commercial entity may seek to obtain warranties or indemnities
regarding the technology and its use, or seek to require
the agency to rectify any 'defects' in the
technology. A relevant consideration here is the fact that,
while the technology remained 'within' the
agency, its use could be closely controlled. Once it is
out 'on the market', a commercial entity could
identify any number of possible applications for the technology,
possibly well beyond those originally envisaged by the
agency. In this context, it is important that any proposed
warranties and indemnities are carefully considered (noting
also the requirements of the FMA Act and regulations).
A strong argument could be made that as the commercial
entity has 'control' of the technology, and
will derive most of the benefit of the commercialisation
of the technology, it should bear this risk.

And finally, the agency will be looking to obtain a reasonable
return on its own, sometimes sizeable, investment in the
development of the technology.6

Who is the commercial entity?

Often, the technology will have been created by a contractor
for the agency under a contract, the terms of which vest
all intellectual property rights in material created under
the contract in the agency. In other situations, the technology
may have been created by the agency's own personnel
(this would often be the case where the agency is a body
with research functions). It is also possible that the
technology has been developed as part of a collaboration
between the agency and other public or private entities.

Where the development of the technology has involved a
contractor, the contractor itself may approach the agency
with a commercialisation proposal. In other situations,
an existing contractor or supplier to the agency may express
an interest in the technology. In these situations, the
agency will need to consider whether this initial proposal
is necessarily the 'best option' for the agency,
or whether a more competitive selection process should
be undertaken, again, to ensure that Commonwealth resources
are used 'properly'.

Depending on the nature of the technology, the most likely
commercial entities may be foreign companies, or Australian
subsidiaries of multinationals. Dealing with overseas companies
and 'foreign parents' can add significantly
to the time and resources required to negotiate a commercialisation
arrangement. Foreign companies will often seek to contract
under foreign law – this can add to the cost of both
negotiating the agreement (as the advice of foreign lawyers
may be required) and of contract management (as any disputes
will again require the input of foreign lawyers and may
also result in any proceedings being conducted in a foreign
jurisdiction).

The commercial entity may also suggest an arrangement
involving sub-licensing of the technology (either to its
own customers or to other members of its corporate group).
A difficulty with sub-licensing is that it can increase
the complexity in contract management and also the agency's 'control' of
the use and dissemination of the technology, as the agency
will be one further step removed from the action.

Where the technology has been developed in-house, it is
possible that the agency's own personnel will seek
to be involved in the commercialisation by way of a 'spin-off'.
There are two main ways in which a 'spin-off' could
occur. In one, the 'parent' (in this case the
agency) would incorporate a subsidiary, assign or license
to it the intellectual property rights in the relevant
technology and then allow the subsidiary to exploit the
technology. Even if an agency were able to undertake such
an activity (noting the possible constitutional and legislative
barriers referred to above), in setting up a company the
agency would need to comply with all applicable Commonwealth
policy and administrative requirements.

A second scenario involves the personnel leaving the agency
and setting up their own entity (usually a company), which
would become the licensee/assignee and commercialise the
technology. This raises a number of issues – many
of which relate to the fact that the personnel most likely
to be involved in the spin-off will be those who were most
closely involved in the development of the technology in
the first place. This raises complex issues concerning
such matters as confidentiality, conflict of interest,
probity, and 'value for money' under the FMA
Act.

Another problem with 'spin-offs' in the Commonwealth
context is that, unlike in the private sector, the Commonwealth
agency is unlikely to be able to provide any 'seed
capital' to the spin-off to help it get started.
This will usually mean that the individuals concerned will
need to source this capital from elsewhere. While providers
of venture capital do exist, once this third level is involved,
negotiations of the commercial terms can become more difficult.
There may also be additional tensions and difficulties
during the term of the licence and with contract management,
particularly if the 'spin-off' is not as successful
as initially envisaged.

Any proposal to commercialise via a 'spin off' should
therefore be approached with caution and should be carefully
considered with appropriate financial and legal advice
prior to any action being taken.

Some commercial considerations

The commercialisation will involve the transfer of rights
in the technology from the agency to the commercial entity.
As noted above, this could be an assignment (with or without
a licence back to the agency) or a licence. Where the technology
is licensed, the following issues would need to considered
and clearly set out in the agreement:

  • term: how long is the licence to run? It will need
    to be long enough for the commercial entity to obtain
    a proper return on its investment
  • field: does the licence cover the entire market, or
    only particular sectors? Will there be different licensees
    for different sectors of the market?
  • territory: does the licence only relate to Australia,
    or is it world-wide? Will there be more than one licensee,
    with different territories?
  • exclusivity: will the commercial entity be the only
    licensee, or will the agency license the technology to
    a number of commercial entities?

An important issue will be the setting of the licence
fees. While it is common for royalties to be used – that
is, a set dollar amount per sale, or percentage of total
sales revenue, from products incorporating the technology,
this is not the only possible approach. A flat, one-off
licence fee could be charged, or a stepped fee could be
imposed, where the amount of the fee increases as specified
sales are achieved. Regardless of the method that is adopted,
the agency will need to ensure that it is in a position
to effectively monitor the commercial entity's performance
and compliance, to ensure that the appropriate fees are
being paid.

The agency will also need to ensure that the commercial
entity is 'encouraged' to maximise sales – via
minimum performance levels and performance against a marketing
or business plan. And consequences will need to flow from
a failure on the part of the commercial entity to meet
these levels – these could include termination of
the licence or conversion of the licence from an exclusive
arrangement to a non-exclusive arrangement.

A commercial entity may wish to take the technology to
the world. Depending on the technology, export controls
may become relevant. The commercial entity may incorrectly
assume that, because the originator of the technology is
a Commonwealth agency, there is a blanket approval for
any exports.

Summary

Commercialisation in the Commonwealth context raises a
number of issues that need to be carefully considered before
embarking on a commercialisation project. As with any significant
undertaking, taking the time to carefully scope and analyse
the project before commencing will assist in ensuring that
issues are identified and dealt with effectively and, should
problems arise, the agency is well-placed to respond to
them.

Commercialisation of an agency's technology is a
way of 'transferring' technology to the market.
It can be seen as a way to encourage the development and
maintenance of an industrial 'critical mass'.
In some sectors, it can be an important tool in ensuring
that industry is developing and in a position to assist
in relation to the Commonwealth's future needs.

Kenneth Eagle practises in the areas
of commercial law, including competitive tendering and
contracting, contract drafting, risk allocation and management,
as well as intellectual property, including technology
development and licensing agreements. In addition, he
has gained expertise in the handling of complex legal
issues and processes through his involvement in major
privatisation and corporatisation projects.

Notes

  1. For example, one of the heads of power set out in
    section 51 of the Constitution.
  2. See FMA Act section 44 – 'proper' is
    defined to mean 'efficient, effective and ethical'.
  3. See FMA Act section 41.
  4. See also the Explanatory Memorandum to the FMA Bill
    1996, at page 4.
  5. See also Finance Circular 2003/02 and Financial Management
    Guidance No. 6 – Guidelines for Issuing and Managing
    Indemnities, Guarantees, Warranties and Letters of Comfort.
    These issues are discussed in detail in AGS Legal
    Briefing 79
    .
  6. Again, FMA Act considerations will be relevant here,
    particularly the requirement in section 44 to promote
    the 'proper' use of Commonwealth resources.

WHAT'S IN A DOMAIN NAME? DOMAIN
NAME ISSUES FOR AGENCIES

Rachel Chua

Canberra
Rachel Chua Senior
Executive Lawyer
T 02 6253 7086
F 02 6253 7306
rachel.chua@ags.gov.au

Domain names are highly prized resources and are essential
to an entity's online presence and marketing success.
Because of their intrinsic value, so-called 'internet
entrepreneurs' commonly register domain names containing
well-known names and marks in order to sell them, or
more commonly in recent times, to divert internet traffic
to their own websites.

These types of activities have been increasingly directed
towards government agencies and the programs they deliver.
For instance, internet entrepreneurs have sought to capitalise
on the high profile of Australian government agencies
by registering agency names as domain names in popular
domain name spaces, such as .com and .com.au, and setting
up websites under these names in an attempt to capture
internet traffic intended for the official sites. In
recent times, agencies such as the Australian Taxation
Office (ATO) have been targeted.1

However, there are 'preventative' and 'curative' measures
that agencies can take against such third party activities.

What is a domain name?

In simple terms, a domain name functions as an address
on the World Wide Web. Domain names are easy-to-remember
alphanumeric equivalents of IP addresses that ultimately
correspond to websites. However, domain names are far more
than mere web addresses. A name that is intuitively linked
to an entity – because it contains the entity's
name or mark – will clearly function more effectively
as that entity's web address.

Domain names are registered on a 'first come, first
served' basis – subject to meeting any relevant
eligibility criteria. Perhaps most critically, only one
person or entity can register and use a particular domain
name at a given time.

The registration of a domain name does not confer ownership
rights in the name. Rather, the domain name registrant
becomes the 'licensee' of the name under a
licence agreement with the relevant domain name registrar.
The licence permits the registrant to use the domain name
exclusively for a period and requires compliance with the
relevant policies.

The licence agreement normally also includes warranties,
exclusions of liability and indemnities in favour of the
registrar and the registry operator or auDA.2 In view of
this, agencies seeking to register domain names may need
to have regard to their financial management and accountability
obligations in agreeing to such provisions.3 In some circumstances,
agencies may be able to successfully negotiate the removal
of some of these provisions from domain name licence agreements.

Entrepreneurial domain name practices

Internet entrepreneurs commonly register domain names
containing other parties' valuable names and marks,
which has led to an increasing number of domain name disputes.4 Such domain name practices include:

  • 'cybersquatting' or 'domain name
    trafficking' involving the speculative acquisition
    of domain names for the purpose of selling the domain
    name registrations to the trade mark owners or their
    competitors for a profit
  • 'cyberjacking' which involves registering
    and using a domain name containing another party's
    name or mark in order to divert internet traffic to a
    website. This may be done for commercial gain or for
    non-commercial purposes such as operating a criticism
    website
  • 'typosquatting' which is a form of cyberjacking
    and relies on internet users making a common error or
    spelling mistake in entering a web address.

In recent times, these types of practices have been increasingly
directed towards government agencies. For example, third
parties have registered agency names in popular domain
name spaces, such as .com and .com.au, and used those names
in web addresses to divert traffic intended for agencies' official
websites to their own.

Typosquatting example

A few years ago, a business called 'All Too Often'5 registered the domain name ato.com.au and set up a corresponding
website under the name.6 The website boasted 1,000 'hits' per
day and sold website advertising space on that basis.7 It seems likely that the site was mainly getting 'hits' from
people attempting to locate the ATO's official website.

The material on the ato.com.au website reinforced any
misconceptions by users that the site was the official
ATO website. The website contained a 'map of Australia' device
which was reminiscent of the map of Australia logo then
used by the ATO.8 The website also supplied a link to the
etax.com.au website. This is the website of an accounting
practice that specialises in preparing tax returns from
information supplied via its website, but which has no
relationship with the ATO or its e-tax software product.

Disgruntled members of the public contacted the ATO after
being charged for using 'e-tax' services accessed
via the link on the ato.com.au website.

The ATO successfully took remedial action against the
website.9

What action can agencies take against such activities?

There are 'preventative' and 'curative' measures
that agencies can take against such third party activities.

Preventative measures

The main preventative measure that agencies should consider
is 'defensive registration' of their names
and valuable marks (and similar names and marks) as domain
names in a number of popular domain name spaces – such
as .com, .com.au, .net and .org – in addition to
the .gov.au domain name space. This will assist in preventing
the opportunistic and potentially abusive registration
and use of these domain names by third parties. Clearly,
defensive registration of domain names should be undertaken
prior to the public announcement of any high profile agency,
program or initiative.

If agencies register their names and marks in multiple
domain name spaces, the resulting domain names can also
be 'set up' to automatically redirect users
to the agencies' preferred web addresses, which will
assist users in locating these sites.

Defensive registration strategies for domain names should
also be reflected in agencies' IP policies relating
to, amongst other things, protection of their valuable
names and marks. This is particularly the case given the
recent release by the Attorney-General of the Intellectual
Property Principles for Australian Government Agencies,10 which agencies must comply with by 1 July 2008.

Curative measures

When internet entrepreneurs have registered and are using
agency names and marks as domain names, the main curative
measures for agencies include:

  • taking action under domain name dispute resolution
    policies
  • instituting legal proceedings for misleading or deceptive
    conduct under section 52 of the Trade Practices Act (the
    TPA), the common law tort of 'passing off' and/or
    trade mark infringement
  • informal measures involving auDA or the relevant registrars.

Dispute resolution policies

Agencies may seek to challenge domain name registration
of their names and marks under dispute resolution policies
such as the Uniform Dispute Resolution Policy (UDRP) and
the .au Dispute Resolution Policy (auDRP). Where such proceedings
are instituted, domain name registrants must submit to
the relevant dispute resolution processes in accordance
with their domain name licence agreements.11

In order to take action under a dispute resolution policy,
it is generally necessary to demonstrate that the domain
name registrant has engaged in abusive or 'bad faith' registration
of the complainant's name or mark as a domain name.12

The key benefit of attempting to resolve a domain name
conflict under a dispute resolution policy is that the
corresponding process is generally quicker and cheaper
than court proceedings. There is no formal 'hearing' to
attend – the process is conducted on the basis of
written material submitted to a panellist (or panel). A
decision is usually made within six weeks of filing the
complaint.

However, the remedies available to a successful complainant
are limited to the cancellation or transfer of the offending
domain name. There is also no ability to recover costs
under the UDRP or the auDRP.

It is notable that panellists deciding disputes under
the UDRP or the auDRP are not bound by precedent established
in earlier decisions. Rather, they are only required to
adjudicate such disputes on the basis of the documents
submitted, the relevant dispute resolution policy and associated
procedural rules, and any other rules and/or principles
of law they deem applicable.13 This means that the outcome
of any given dispute resolution process can be unpredictable.

However, if the outcome of any such process is unsatisfactory
to either party, that party may still have recourse to
court proceedings.14

Legal proceedings

The legal grounds on which action could be taken against 'entrepreneurial' use
and registration of agency names and marks as domain names
include misleading or deceptive conduct in breach of section
52 of the TPA, passing off and/or trade mark infringement.
The remedies available for succeeding under these causes
of action would include orders for cancellation or transfer
of the domain names and damages or an account of profits.

For example, in Architects (Australia) Pty Ltd v Witty
Consultants Pty Ltd15 the court held that the registration
and use of the domain name architectsaustralia.com.au by
the defendant (in respect of an internet directory of architects)
constituted passing off and contravened section 52 of the
TPA. The plaintiff had traded under the name 'Architects
Australia' for 20 years. In the circumstances, the
court considered that the domain name was used as an 'instrument
of fraud'. The similarity between the plaintiff's
trading name and the defendant's domain name gave
rise to an inherent risk that reasonable consumers may
be misled or deceived.16

However, where a web address containing an agency's
name or mark is not being used 'in the course of
trade' or in relation to goods or services in respect
of which an agency's trade mark is registered – or
alternatively, where it is clear from the web address (or
the website itself) that the site is a criticism website,
rather than the official agency website – it may
be difficult to establish contravention of section 52 of
the TPA, passing off and/or trade mark infringement.

Informal measures

It would seem that auDA may occasionally take pre-emptive
action to deregister domain names that appear to have been
registered in contravention of the relevant .au domain
name eligibility policies. For example, auDA reported that
the domain names brantwebb.com.au and toddrussell.com.au
were registered hours after the two miners emerged from
the Beaconsfield Goldmine in Tasmania.17

While auDA considered it possible that the domain names
were 'legitimate', its initial reaction was
that the registrations were 'more likely to be an
attempt to cash in'. It sent the registrant a notice
asking them to explain within 24 hours why they were eligible
to register the names – as no satisfactory response
was received, auDA proceeded to delete the domain names.18

Given this precedent, agencies whose names or trade marks
have been 'illegitimately' registered by third
parties in contravention of domain name eligibility policies
may wish to contact auDA or the registrars concerned in
an attempt to obtain deregistration of the corresponding
domain names on this basis.

Conclusion

Domain names continue to be an important resource for
agencies. While opportunistic and abusive registration
of agency names and marks as domain names is increasing,
agencies have a range of measures available to them in
dealing with such activities. However, preventative measures
often provide the most effective form of protection, and
these measures should be reflected in agencies' IP
policies and implemented where appropriate.

Rachel Chua is a Senior Executive Lawyer
specialising in the areas of IP, IT and commercial law.
She regularly advises agencies on complex legal issues
relating to protection and management of IP. Rachel also
acts for agencies in significant IT procurement and contracting
matters. She has a particular interest in strategic IP
management and technology-related legal issues.

Notes

  1. Sam Varghese, 'ATO Seeks to Stop Web of Confusion',
    The Sydney Morning Herald, 26 July 2002, available
    at <http://www.smh.com.au/articles/2002/07/26/1027497405586.html>.
  2. au Domain Administration Ltd (auDA) is the policy
    authority and industry self-regulatory body for the .au
    domain name space: <http://www.auda.org.au>.
  3. See, for example, Regulations 9 and 10 of the Financial
    Management and Accountability Regulations 1997.
  4. See generally <http://www.wipo.org>.
  5. The business name was registered in Victoria in respect
    of 'health advice on ageing'.
  6. Sam Varghese, 'ATO Seeks to Stop Web of Confusion',
    Sydney Morning Herald, 26 July 2002.
  7. See <http://web.archive.org/web/20020604052820/ato.com.au/advertising/intro.htm>.
  8. See <http://web.archive.org/web/20020119175352/http://ato.com.au>.
  9. The ato.com.au website is now owned and operated by
    a different party following the 'take down' of
    the original website. In the week ending 21 April 2006,
    it was the 11th most visited accounting portal: Ben Woodhead, 'Cybersquatter
    Taxes officials', Australian Financial Review,
    28 April 2006, p 3.
  10. The principles can be accessed at <http://www.ag.gov.au/cca>.
  11. The UDRP is the dispute resolution policy for global
    top level domain names such as .com, .net, .org, .biz,
    .info and .name. The auDRP is the dispute resolution
    policy for domain names in the .au domain name space.
    It was modelled on the UDRP and is therefore substantially
    similar in its terms.
  12. See paragraph 4(a) of each of the UDRP and the auDRP
    for details of the disputes to which these policies apply.
  13. See paragraph 15(a) of each of the UDRP and auDRP
    Rules.
  14. However, that would clearly depend upon whether the
    party had a valid cause of action.
  15. [2002] QSC 139.
  16. [2002] QSC 139, para 47.
  17. Ben Woodhead, 'Squatter Kicked Off Miners' Names',
    Australian Financial Review, 12 May 2006, p 73.
  18. Ibid.

ISSUES IN TRADE MARK INFRINGEMENTS

Adrian Snooks

Canberra
Adrian Snooks Senior Lawyer
T 02 6253 7192
F 02 6253 7306
adrian.snooks@ags.gov.au

This article offers an overview of two recent and important
trade mark matters that demonstrate the diversity of trade
marks that are available for registration, the practical
commercial issues that arise for enforcing such trade marks – including
the importance of good drafting in technology based agreements – and
the public policy issues involved with the use of trade
marks.

The two matters examined are the Cadbury litigation in
which Cadbury Limited attempted to register the colour
purple, and Apple v Apple, a dispute between the recording
label founded by the Beatles (Apple Corps) and Apple Computer.

Cadbury litigation

This matter involved a series of attempts by Cadbury beginning
in 1998 to register several shades of the colour purple
as a trade mark for chocolate. 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 one person
from goods or services dealt with by another. Since the
passing of the Trade Marks Act 1995, both shapes and colours
can be registered as trade marks.

A primary issue considered in determining whether a colour-based
trade mark should be registered is whether the colour is
inherently adapted to distinguish the goods or services
of one person from another. Key to this consideration is
determination of whether there is a competitive need for
the colour by other players in the industry or whether
the colour is essential to the functionality or utility
of the product.

In the initial trade marks hearing,1 the examining officer
found that the colour purple could reasonably be expected
to be used by other chocolate manufacturers and the colour
could have a functional purpose – for example, to
indicate the chocolate-covered, berry-flavoured filling.
The officer also determined that the colour purple was
associated with luxury or richness and was thus a colour
that other manufacturers may want to use in relation to
chocolate on the basis that chocolate was a luxury product
rather than an essential food item.

As a result of this determination Cadbury was required
to prove that the relevant shades of purple were associated
exclusively with its chocolate. This requires more than
just the simple use of a colour in relation to certain
goods – instead it needs to raise in the public mind
a connection with those goods – an education of the
public that the colour is a trade mark. Cadbury produced
evidence of the use of purple on its products dating back
to the 1920s. However, this was not deemed sufficient as
Cadbury needed to show that its purple packaging had acquired
a secondary meaning (that is to say an indicator of the
supplier) in addition to its ordinary meaning of being
an attractive packaging for chocolate.

The examiner decided that the marketing surveys put forward
by Cadbury to demonstrate how well the public was educated
to its colour mark were not conclusive, particularly because
the surveys were conducted 18 months after the trade mark
application had been made and Cadbury had therefore had
further time to educate the public – thereby 'colouring' the
results of the survey. In conclusion, the trade mark examiner
found that the colour purple as an aspect of packaging
for chocolate is not inherently adapted to distinguish
Cadbury's product from that of other traders and
that there had not been sufficient evidence with respect
to use of the colour by Cadbury to distinguish its chocolate
prior to the application being made.

Cadbury appealed to the Federal Court and the matter settled
by consent with the Registrar of Trade Marks, accepting
Cadbury's trade mark application in 2003. This was
then opposed by Darrell Lea and Nestlé. Darrell
Lea had for a number of years used purple and copper colouring
for its Christmas promotions, and Nestlé also used
purple in relation to chocolate bars such as Violet Crumble.

The decision of the trade mark hearings officer in Darrell
Lea's opposition to the trade mark was handed down
in 2006.2 The hearings officer agreed with the earlier
decision to the extent that the colour purple lacks any
inherent capacity to distinguish Cadbury's chocolates.
However, the hearings officer appeared to disagree with
the previous decision in relation to the use of the colour
being customary within the chocolate industry to signify
a particular filling or to denote richness or luxury. The
hearings officer also found that the use of purple by Cadbury
had achieved a certain distinctiveness in the public mind
but only in relation to one shade of purple and only in
relation to moulded block chocolate and the Cadbury Milk
Tray product. The Cadbury trade mark application was therefore
rejected unless amended in line with the officer's
decision.

Cadbury was also simultaneously running an action against
Darrell Lea in the Federal Court3 for passing off and contravention
of the Trade Practices Act in respect to Darrel Lea's
purple packaging.4 The court found that the passing off/trade
practices action by Cadbury could only succeed if the colour
purple when used in relation to chocolate would lead consumers
to conclude that the chocolate must be Cadbury's.
Because of the existence of bars such as Violet Crumble
and the Darrell Lea products, this could not be substantiated,
and Cadbury lost the case.

This appears likely to be a bitter fight as Darrell Lea
has indicated that it will appeal the decision of the hearings
officer in the trade mark opposition hearing and Cadbury
has appealed the Federal Court decision.5

Apple vs Apple

This recent court action in the UK involved Apple Corps
(the music publisher founded by the Beatles) suing Apple
Computer.6 The case revolved around an agreement that the
two parties made in 1991 to settle a series of court battles.
The agreement allowed Apple Computer to keep its name and
logo in return for not entering into the music business
or conducting any record sales or distribution.

It is interesting to note that Steve Jobs when he set
up Apple Computer reportedly chose the name because of
his love of the Beatles' music. But as the Beatles
were to show in 1980 when the two parties settled their
first dispute for $80,000, contrary to their own song lyrics,
money can buy you love. The later 1991 settlement further
demonstrated that love is expensive when Apple Computer
paid a further $26.5m including the promise to stay out
of the music business.

The problem then was the creation by Apple Computer of
the iTunes music store – the online store where songs
can be bought and downloaded for use with the Apple iPod.
The point at issue in the case was whether the computer
firm had the right to attach its apple logo to the iTunes
music store, and what damage that might have caused to
Apple Corps. Given that Apple Computer has made more than
$1billion in revenue from iTunes, there was the potential
for a significant damages award.

The 1991 Agreement essentially created two fields of use
for the trade marks of each company. Apple Computer's
field of use for its trade marks was defined as the computer,
data processing and telecommunications area while Apple
Corps field of use for its trade marks was defined as the
record business, the Beatles and other recording artists
signed to the label.

When using the iTunes software required to access the
music site, the Apple Computer logo can plainly be seen
in the middle upper panel of the screen. The logo also
appears when using the iTunes music store site. Apple Corps
alleged that the appearance of the logo during the use
of the music store breached the agreement on the use of
their respective trade marks, specifically because it was
(using the wording of the agreement) 'a use on or
in connection with musical content' which was squarely
within Apple Corps field of use.

Apple Computer relied upon the fact that the information
included with song tracks identified the owners of the
song and thus indicated that Apple Computer was not the
owner of the music on the store. In other words, the contention
of Apple Computer was that its trade mark franks the iTunes
software and not the musical content of the store.

So the case essentially turned on the correct interpretation
of the legal agreement between the two parties. Of course
the interpretation of the agreement by each party differed,
and as the trial judge said: 'Both parties submitted
that the position is simple and straightforward, which
is a pretty good indication that it is not',7 demonstrating
the importance in any contractual matter of ensuring that
the drafting of the relevant agreement is clear, and free
from ambiguity.

The construction of the words 'on or in connection
with musical content' were critical. The court decided
that Apple Computer was transmitting music and that its
use of its trade mark was associated with this transmission.
The transmission of music was a service rather than musical
content and the way in which the relevant clauses of the
agreement were drafted suggested that this would not be
a breach.

In particular, the reference in the key clause of the
agreement to 'physical media (i.e. CDs) delivering
content' created a problem for Apple Corps and the
judge considered that even though the agreement could apply
to technology that was not developed at the time the agreement
was drafted it was necessary for the agreement to actually
contemplate this – which in this case it did not.
This is an important lesson for government agencies as
well – when drafting long-term agreements relating
to technology it is necessary to ensure agreements also
contemplate and encompass the possibility of future technological
change.

In the end the court decided that it was necessary to
consider whether users of the iTunes music store would
consider that the music store was more than just a retailer
of music. The court found that use of the Apple Computer
logo in the iTunes music store merely denotes the service
provided by the store and not any particular connection
with the content. That is, the use of the Apple Computer
trade mark does not go beyond the retail connection. The
incorporation of ownership details in relation to songs
on the iTunes music site was taken by the judge to also
be consistent with this conclusion. In other words, Apple
Computer won.

In early February 2007 it was announced by both Apple
Corps and Apple Computer (now Apple Inc) that the parties
have come to a commercial settlement of their trade mark
dispute. The settlement allows Apple Inc to have ownership
of the 'Apple' brand and logo in return for
a licence back of those trade marks to Apple Corps and
a payment of a reported $50–100 million. In an interesting
postscript, the Beatles complete collection will reportedly
soon be available on iTunes. So perhaps in the end the
apples have decided that, to borrow from a Beatles song, 'we
can work it out'.

What we can learn from the cases

The Cadbury and Apple litigation, in addition to showing
the breadth of potential trade mark claims, also demonstrates
how concerned organisations are to protect elements of
their branding. Agencies should be aware of this motivation
when dealing with trade-mark-related issues. Agencies may
need to consider the legitimacy of trade mark claims in
light of the relevant law and be cautious in order to avoid
acquiescing to conduct that could improperly reduce competition
in the private sector.

Finally the Apple case demonstrates the importance, when
entering long-term agreements in relation to intellectual
property, of anticipating possible future circumstances
that may arise in relation to technological developments,
and catering for those possibilities. This may mean, for
example, ensuring that references to a particular technology
(e.g. CDs) are not limited solely to that technology, but
extend to 'other data storage and transmission technologies'.

Adrian Snooks has considerable experience in intellectual
property law and commercial drafting. He has advised on
some of the largest procurements of technology by the Australian
government and has worked in the field of intellectual
property and technology law both in the UK and Australia.

Notes

  1. Cadbury Limited [2002] ATMO 56; (2002) 55 IPR 561.
  2. A full transcript of the decision is available at:
    http://www.ipaustralia.gov.au/pdfs/trademarks/hearings/779336_0406.pdf.
  3. Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate
    Shops Pty Ltd (No. 4) [2006] FCA 446.
  4. In a remarkable coincidence the court handed down
    its decision on the same day as the officer's decision
    on the opposition to the trade mark.
  5. In response to this appeal by Cadbury, the Federal
    Court of Appeal found on 21 May 2007 that the trial judge
    had incorrectly ruled on the admissibility of key evidence
    and have directed that the matter be reheard.
  6. Apple Corps Ltd. v Apple Computer, Inc [2006] EWHC
    996 (Ch).
  7. Mann J in Apple Corps Ltd. v Apple Computer, Inc [2006]
    EWHC 996 (Ch) at para. 58.

AGS contacts

AGS has a national team of lawyers specialising in advising
agencies on a wide range of intellectual property (IP)
and technology matters including establishing agency specific
IP policies, managing IP in connection with specific transactions
and initiatives and handling IP disputes. For assistance
with any intellectual property matters, please contact
our national IP network leader, Phil Crisp, or one of our
specialist IP lawyers:

Philip Crisp

Canberra
Philip Crisp Special
Counsel, Commercial
T 02 6253 7159
F 02 6253 7306
philip.crisp@ags.gov.au

Canberra

Rachel Chua
Tony Beal
Adrian Snooks

02 6253 7086
02 6253 7231
02 6253 7192

Sydney

John Berg
Kate Brophy

02 9581 7624
02 9581 7678

Melbourne

Kenneth Eagle
Paul Lang

03 9242 1290
03 9242 1322

Brisbane

Peter Blennerhassett

07 3360 5767

Perth

Scott Slater

08 9268 1789

Adelaide/Darwin

Andrew Schatz

08 8205 4201

Hobart

Peter Bowen

03 6210 2104

ISSN 1443-9549 (Print)
ISSN 2204-6550 (Online)

The material in these notes is provided to AGS clients
for general information only and should not be relied
upon for the purpose of a particular matter. Please
contact AGS before any action or decision is taken
on the basis of any of the material in these notes. © AGS
All rights reserved