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Lindgren, Justice Kevin --- "The Interface between Intellectual Property and Antitrust" (FCA) [2004] FedJSchol 20

2nd ANNUAL UNIVERSITY OF SOUTH AUSTRALIA
TRADE PRACTICES WORKSHOP
29 – 30 October 2004


“The Interface between Intellectual Property and Antitrust”


Justice Kevin Lindgren
A Judge of the Federal Court of Australia
President of the Copyright Tribunal[1]


INTRODUCTION


This paper is divided into three parts:

1. The interface between intellectual property and antitrust in general;

2. Collecting societies;

3. Recent suggestions for reform.

1. The interface between intellectual property and antitrust in general[2]

The subject indicated by the title of this session appears to have received much more attention in the United States than in Australia. In the United States whole treatises are devoted to it: see Hovenkamp, Janis and Lemley, IP and Antitrust: An Analysis of Antitrust Principles applied to Intellectual Property Law (Aspen Law & Business, 2 vols, loose-leaf service); and William C Holmes, Intellectual Property and Antitrust Law (Thomson West, 2 vols, loose-leaf service). Appended to this paper is a short select bibliography of relevant Australian reports and journal articles.

1.1 Australian legislation

In Australia s 51(3) of the Trade Practices Act 1974 (Cth) (‘the TP Act’) addresses the interface expressly, whereas in the United States, the Sherman Act of 1890 does not do so. Perhaps oddly, notwithstanding this difference, it is questionable whether s 51(3), or at least s 51(3)(a), within the limited area within which it operates (see below) would ever require a different result on the facts of any particular case. That is to say, it is questionable whether its existence makes any difference in practice.

In both countries, the ultimate question for the courts remains: how to resolve the tension between the exercise of the exclusive rights given by intellectual property legislation, and the country’s particular prohibitions against anti-competitive conduct found in antitrust (trade practices or competition) legislation. The United States opinions grappling with this issue are pertinent in Australia, even though the terms of that country’s antitrust legislation differ from those of Pt IV of the TP Act.

Section 51(1) of the TP Act provides that in deciding whether a person has contravened Part IV of that Act, certain things must be disregarded. The first of these is:

‘(a) anything specified in, and specifically authorised by:

(i) an Act (not including an Act relating to patents, trade marks, designs or copyrights); or

(ii) regulations made under such an Act; ...’


This provision does not reach, for example, the form of intellectual property provided for by the Plant Breeders Rights Act 1994 (Cth), but I will ignore such omissions and deal with ‘intellectual property legislation’ at a level of generality.

So far as s 51(1) is concerned, in deciding whether a person has contravened Part IV, it is permissible to have regard to anything specified in, and specifically authorised by, intellectual property legislation.

The issue is taken up expressly, however, in s 51(3) which provides:

‘A contravention of a provision of this Part IV other than section 46, 46A or 48 shall not be taken to have been committed by reason of:

(a) the imposing of, or giving effect to, a condition of:

(i) a licence granted by the proprietor, licensee or owner of a patent, of a registered design, of a copyright or of EL rights within the meaning of the Circuit Layouts Act 1989, or by a person who has applied for a patent or for the registration of a design; or


(ii) an assignment of a patent, of a registered design, of a copyright or of such EL rights, or of the right to apply for a patent or for the registration of a design;

to the extent that the condition relates to:

(iii) the invention to which the patent or application for a patent relates or articles made by the use of that invention;

(iv) goods in respect of which the design is, or is proposed to be, registered and to which it is applied;

(v) the work or other subject matter in which the copyright subsists; or

(vi) the eligible layout in which the EL rights subsist;

(b) the inclusion in a contract, arrangement or understanding authorizing the use of a certification trade mark of a provision in accordance with rules applicable under Part XI of the Trade Marks Act 1955, or the giving effect to such a provision; or

(c) the inclusion in a contract, arrangement or understanding between:

(i) the registered proprietor of a trade mark other than a certification trade mark; and

(ii) a person registered as a registered user of that trade mark under Part IX of the Trade Marks Act 1955 or a person authorized by the contract to use the trade mark subject to his or her becoming registered as such a registered user;

of a provision to the extent that it relates to the kinds, qualities or standards of goods bearing the mark that may be produced or supplied, or the giving effect to the provision to that extent.’ (my emphasis)

Section 46 is the well known prohibition against taking advantage of a substantial degree of power in a market for certain prohibited purposes. Section 46A is concerned with misuse of market power in a trans-Tasman market. Section 48 prohibits a corporation or other person from engaging in the practice of resale price maintenance. Of these three provisions, s 46 is of greatest present interest and, for convenience, I will refer to it alone. Subsection (1) of s 46 is as follows:

‘A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of:
(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;
(b) preventing the entry of a person into that or any other market; or
(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.’

Where the allegation is one of contravention of s 46, s 51(3) has nothing to say. In other words, a contravention of s 46 may be taken to have been committed by reason of, for example, the imposing of, or giving effect to, a condition of a licence granted by a patentee, even ‘to the extent that the condition relates to’ the subject invention. In the result, in the context of s 46, Australian courts, like those in the United States, are faced with the bare terms of the competition law and the intellectual property laws, with no indication by the legislature of how the tension between them is to be resolved.

It is plain that ‘to suggest that there is a distinction between taking advantage of market power and taking advantage of property rights is to suggest a false dichotomy, which lacks any basis in the language of s 46’, and that property rights, including intellectual property rights, can be a source of market power attracting liability under s 46: NT Power Generation Pty Ltd v Power and Water Authority (2004) 210 ALR 312 at [125] per McHugh ACJ, Gummow, Callinan and Heydon JJ.

Before turning to the question of how the tension between the competition law and the intellectual property laws is to be resolved, I should say something about the remaining provisions in Part IV in relation to which s 51(3) does operate. They are s 45 (anti-competitive contracts, arrangements or understandings), s 47 (exclusive dealing), s 50 (anti-competitive acquisitions), and s 50A (anti-competitive acquisitions outside Australia). In relation to these provisions, s 51(3) provides that intellectual property rights are to prevail, but only in the respects and to the extent mentioned in the subsection.

The notion of ‘a condition ... to the extent that the condition relates to’ the very general matters mentioned in s 51(3)(a) is problematic. The s 51(3)(a) exemption is limited by the requirement that the condition, of the kind described, must be one that relates to the subject ‘invention’, ‘goods’, ‘work’ or ‘eligible layout’. In Transfield Pty Ltd v Arlo-International Ltd (1980) 144 CLR 83, Mason J said of s 51(3) (at 102 – 103):

‘In bridging the different policies of the Patents Act and the Trade Practices Act, s 51(3) recognizes that a patentee is justly entitled to impose conditions on the granting of a licence or assignment of a patent in order to protect the patentee’s legal monopoly. Even under American antitrust law, where there is no equivalent exception to s 51(3), the patentee is entitled to exercise some measure of control over the licensee consistent with the scope of the patent monopoly, though there has been some controversy as to the scope of permissible control: [treatises cited] Section 51 (3) determines the scope of restrictions the patentee may properly impose on the use of the patent. Conditions which seem to gain advantages collateral to the patent are not covered by s 51(3).(my emphasis)

The suggestion in this passage is that one must identify a ‘proper’ or ‘core’ scope of the protection intended to be given by the intellectual property legislation, and distinguish from it ‘collateral’ matters. This distinction will often be difficult to apply, but in the absence of more specific legislative guidance than the notion ‘ to the extent that it relates to ... the invention [for example]’, can a better elucidation of the statutory test be proposed? I suggest not, and that in the absence of s 51(3)(a), the distinction reflects the approach which the courts would have taken, and which they do take in the context of s 46 of the TP Act, to which s 51(3) does not apply.

1.2 Australian cases

The interface between intellectual property and antitrust has arisen in four Australian cases which I will note before turning to three overseas cases.

In Australian Performing Rights Association Ltd v Ceridale Pty Ltd (1990) 97 ALR 497, the applicant (APRA) a collecting society, and assignee of ‘the right of public performance in nearly all popular copyright music’, sought to restrain the respondents, which were all companies associated with a tavern in Ipswich, from performing, or authorising the performance, in public of relevant musical works, without APRA’s licence. A defence based on alleged contravention by APRA of s 46 was rejected by the Full Court of the Federal Court.

The Full Court had no doubt that APRA enjoyed a substantial degree of market power, amounting, indeed, to dominance in ‘the market for music rights’ (at 510). According to the joint judgment, ‘it would seem that in practical terms, it would be impossible for a nightclub or discotheque to survive without using music of [APRA]’ (at 510). The Court held, however, that APRA had not, as alleged, denied licences ‘for the purpose of deterring or preventing a person from engaging in competitive conduct in [a] market’ [cf s 46(1)(c) of the Act]. (my emphasis) According to the joint judgment, APRA’s purpose was ‘merely to prevent unauthorised use of its material and the integrity of its licensing system’ (at 511). Significantly, APRA was ready to grant licences, without any precondition about payment of arrears of licence fees under earlier expired licences, or costs, if only proper applications for licences were lodged with it. The Full Court saw the case as ‘a straightforward case of a copyright holder seeking to restrain a group of people from using copyright material unless and until they first obtain the necessary licences.’ (at 511) The Full Court held that while APRA was keen to be paid outstanding licence fees, the primary Judge’s characterisation of APRA’s actions as nothing more than an attempt to force the respondents to pay a disputed debt, was wrong.

As noted below, the position is similar in the United States: once the facts are viewed as merely involving a holder of intellectual property rights insisting that its licence is necessary (and even choosing not to grant a licence), there is no antitrust violation. The key word here is ‘merely’. In terms of s 46, the success of the intellectual property holder can be explained by saying that the holder of the intellectual property is merely taking advantage of something other than its ‘substantial degree of power in a market’, or is taking advantage of that power, merely for the legitimate purpose of protection of its intellectual property rather than for one of the illegitimate purposes specified in s 46.

In Warman International Ltd v Envirotech Australia Pty Ltd (1986) 11 FCR 478, Wilcox J rejected a defence based on alleged contravention of s 46 to an action for, inter alia, infringement of the applicant’s copyright in certain engineering drawings. His Honour held that the applicant had not, in terms of s 46, been taking advantage of a substantial degree of power in a market. Wilcox J thought that the applicant’s rights, and its position in the Court, would be exactly the same if it had held only 10 percent of the market (rather than, as the evidence suggested, approximately 90 percent). His Honour distinguished United States opinions concerning s 2 of the Sherman Act (set out below), observing that, unlike that provision, s 46 of the TP Act was not a general prohibition of monopolisation. He said (at 502):

‘To exercise in good faith an extraneous legal right, though the effect may be to lessen, or even eliminate, competition, is to take advantage of that right, not of market power: cf Top Performance Motors Pty Ltd v Ira Berk (Queensland) Pty Ltd (1975) 24 FLR 286 especially at 290.’

In Broderbund Software Inc v Computermate Products (Australia) Pty Ltd (1992) ATPR § 41-155, the applicants sought to restrain the first respondent from unlawful parallel importing into Australia of a certain computer software program. The respondent and its director cross-claimed for declarations that the applicants (cross-respondents) had contravened ss 46(1), 45(2) and 47(1) and (4) of the Act. The contravention of s 45(2) was alleged to have arisen from exclusive distributorship arrangements which the cross-respondents had entered into.

Beaumont J found contravention of ss 45 and 47 of the TP Act not established, without finding it necessary to refer to s 51(3). In relation to s 46(1), his Honour’s conclusion was that the cross-respondents had not been shown to have enjoyed a substantial degree of power in a market in the first place. His Honour went on, however, also to conclude that it had not been shown that they had taken advantage of their market power for any of the purposes specified in s 46(1). He distinguished the decision of the Court of First Instance of the European Community in the Independent Television case (see below), as one in which the applicant was using copyright in television program listings in order to secure a monopoly in the derivative market of weekly television guides in Ireland and Northern Ireland.

The fourth Australian case is the Universal Music case (Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission [2003] FCAFC 193; (2003) 131 FCR 529 (FC), on appeal from Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (2001) 115 FCR 442 (Hill J)). This litigation concerned proceedings brought by the Australian Competition and Consumer Commission against Universal Music Australia Pty Ltd (‘Universal’) and Warner Music Australia Pty Ltd (‘Warner’) and officers of theirs, based on alleged contravention of ss 45, 46 and 47 of the TP Act. An amendment of the Copyright Act 1968 (Cth) (‘the Act’) by the Copyright Amendment Act (No 2) 1998 made lawful the practice of importation into Australia of, relevantly, compact discs, the manufacture of which did not infringe the copyright laws of their country of manufacture. In response, Universal and Warner, which were wholesalers of recorded music, took steps directed to dissuading retailers in Australia from engaging in that practice. Each had a monopoly in the supply of its own label. Each threatened to refuse to supply, and otherwise threatened, retailers who ‘parallel imported’ its recordings.

I need say nothing about the reasoning of Hill J at first instance or of the Full Court on appeal from his Honour. Notwithstanding that Universal and Warner ‘had a statutory monopoly on the manufacture in Australia and thus wholesale sale of CDs of their respective labels as a result of the copyright protection they enjoyed’ ((2001) 115 FCR at [5] per Hill J), both Hill J and the Full Court were able to resolve the issues before them without referring to s 51(3) of the TP Act, even though, again, contraventions of ss 45 and 47 were alleged. So far as the judgments reveal, there was no suggestion, in either the primary Judge’s judgment or in that of the Full Court, of a submission by Universal or Warner that their purpose was merely to protect their copyright. Those judgments may therefore be put to one side for my present purposes, other than to support the suggestion that s 51(3) has not proved to be a provision of great practical importance.

1.3 Overseas cases

The United States provision to be compared with s 46 of the TP Act is s 2 of the Sherman Act which provides:

‘Every person who shall monopolise, or attempt to monopolise, or combine or conspire with any other person or person, to monopolise any part of the trade or commerce among the several States, or with foreign nations shall be guilty of a felony...’

As noted earlier, this provision differs from s 46. One obvious difference is the purposive element of the prohibition contained in s 46.

In Image Technical Services Inc v Eastman Kodak Co [1997] USCA9 2479; 125 F 3d 1195 (9th Cir 1997), Kodak manufactured, sold and serviced photocopiers and micrographic (or microfilm) equipment, as well as the parts necessary for the servicing of them. Competition in those markets was strong. Kodak’s parts were not, however, interchangeable with those of its competitors.

Kodak sold and installed replacement parts for its equipment. It manufactured many of those parts itself and purchased the others from independent manufacturers. Kodak held 220 valid patents covering 65 of the thousands of parts required for the servicing of its machines. In the service market, Kodak repaired at least 80 percent of the machines it manufactured. Independent service organisations (ISOs) began servicing Kodak machines in the early 1980s. The ISOs obtained parts from various sources, including, at one time, Kodak. As ISOs became more competitive, Kodak began restricting their access to parts. It ceased selling parts to ISOs and secured agreements from the independent manufacturers not to sell parts to them.

Eleven ISOs complained that Kodak was exercising a monopoly in the service market. A jury awarded treble damages of $71.8m against Kodak. The District Court granted an injunction for ten years requiring Kodak to sell ‘all parts’ to the ISOs on ‘reasonable and non-discriminatory terms and prices’.

Jury instruction No 37 was as follows:

‘[i]f you find that Kodak engaged in monopolization or attempted monopolization by misuse of its alleged parts monopoly ... then the fact that some of the replacement parts are patented or copyrighted does not provide Kodak with a defense against any of those antitrust claims.’ (at 1214)

On Kodak’s appeal, the Circuit Court of Appeals for the Ninth Circuit held:

The Appeals Court held that the failure of Jury Instruction No 37 to give any weight to Kodak’s intellectual property rights was an error, but was probably harmless. The fact was, according to the Appeals Court, that Kodak photocopy and micrographics equipment required thousands of parts, of which only 65 were patented. Yet Kodak’s refusal to license was a blanket one covering both protected and unprotected parts. Kodak’s Parts Manager testified that patents ‘did not cross [his] mind’ when Kodak adopted its parts policy.

The Appeals Court held that the jury probably would have found Kodak’s presumptively valid business justification (exercise of its patent rights) rebutted on the grounds of pretext.

I suggest that the result may well have been the same if the case had been decided under Australian law: it may well have been found that Kodak was taking advantage of its substantial power in the servicing market for one or more of the impermissible purposes identified in s 46(1) (set out earlier).

In the second United States case, In re Independent Services Organisations Antitrust Litigation [2000] USCAFED 54; 203 F 3d 1322 (Fed Cir 2000), Xerox, which manufactured, sold and serviced high volume photocopiers, refused to sell patented parts and copyrighted manuals, and to license software, to ISOs, including CSU, L.L.C. (‘CSU’). The District Court dismissed summarily a claim by CSU that Xerox’s refusal violated the antitrust laws. The Court of Appeals for the Federal Circuit affirmed the District Court’s judgment, holding:

In one respect, the Court declined to follow the Ninth Circuit in Image Technical Services. The Court noted that the Ninth Circuit in that case had concluded that the jury must have rejected the presumptively valid business justification as ‘pretextual’, with the result that the misdirection to the jury was shown to be harmless. The Tenth Circuit Court of Appeals said, however (at 1327):

‘This logic requires an evaluation of the patentee’s subjective motivation for refusing to sell or license its patented products for pretext. We decline to follow Image Technical Services.’

It is always difficult to be confident whether a motion for summary dismissal will succeed: the judge may think that the evidence does not rise to the high standard necessary to deprive the other party of its presumptive right to its day in court. A motion for summary dismissal would have succeeded in Australia only if the court had been sufficiently confident to conclude that on a final hearing the ISOs’ evidence could not establish that Xerox acted for any one or more of the purposes proscribed by s 46(1), as distinct from the mere purpose of protecting its intellectual property.

‘Purpose’ in s 46(1) signifies an intended result: Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1 at [31] per Gleeson CJ, Gummow, Hayne and Callinan JJ, citing Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd [1989] HCA 6; (1989) 167 CLR 177 at 214 per Toohey J.

Although ‘motivation’ may not be synonymous with ‘purpose’, it is the purpose of (result intended by) the particular corporation that is in question, and that purpose clearly involves a subjective element. That subjective element may be inferred: cf s 46(7) of the TP Act. Moreover, it is enough that the corporation takes advantage of its market power for purposes which include the prohibited purpose, provided that the prohibited purpose is a substantial purpose of the corporation: TP Act, s 4F.

All of these considerations, arising from the particular terms of s 46, would have had to be taken into account on a motion for summary dismissal of CSU’s claim in Australia.

In the European case, Radio Telefis Eirann and Independent Television Publications Ltd v Commission of the European Communities [1995] ECR 1–743, Radio Telefis Eirann (RTE) and Independent Television Publications Ltd (ITP) provided broadcasting television services: RTE in the Republic of Ireland and ITP in the United Kingdom. According to the Court of First Instance, most households in Ireland and 30 to 40 percent of those in Northern Ireland can receive television programs broadcast by RTE, ITV and the BBC. Each television station published its own weekly television guide, but there was no comprehensive guide on the market in Ireland or in Northern Ireland.

RTE, ITV and the BBC allowed newspapers to reproduce their daily program schedules free of charge, but, generally speaking, there was an embargo on their doing so earlier than 24 hours before the broadcast. Magill Television Guide Ltd (Magill) wished to publish a comprehensive weekly program guide but was prevented from doing so by RTE, ITV and the BBC, which obtained injunctions against Magill.

Article 86 (renumbered 82 by Article 12 of the Treaty of Amsterdam which came into effect on 1 May 1999) of the Treaty Establishing the European Economic Community provided:

‘Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States.

Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices or unfair trading conditions;
(b) limiting production, markets or technical development to the prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.’ (my emphasis)

Magill lodged a complaint with the Commission of the European Communities (now the European Commission), seeking a declaration that RTE, ITV and the BBC were abusing their dominant position by refusing to grant licences to publish their respective weekly listings. The Commission decided that there had been a breach of Article 86, and ordered RTE, ITV and the BBC to put an end to that breach by supplying to third parties, on request and on a non-discriminatory basis, their individual advance weekly program listings, and by permitting the third parties to reproduce those listings.

The Court of First Instance of the European Communities upheld that decision, and the Court of Justice of the European Communities dismissed an appeal by RTE and ITV.

The Court of Justice ruled that the Court of First Instance was correct in confirming the Commission’s assessment that RTE and ITV, along with the BBC, occupied a dominant position, not because of mere ownership of an intellectual property right (the Court of Justice emphasised), but because of their monopoly power over the basic information (as to channel, day, time and title of programs) used to compile listings for the television programs received in most households in Ireland and 30 to 40 percent of those in Northern Ireland. They were therefore in a position to prevent effective competition in the market in weekly television programs.

Was the Court of First Instance correct in finding that the appellants, RTE and ITV, abused that dominant position? The Court of Justice thought so. That Court characterised the appellants’ arguments as wrongly presupposing that where the conduct of an undertaking in a dominant position consists of the exercise of a right which a national law classifies as ‘copyright’, that conduct can never be reviewed under Article 86. On the contrary, so the Court held, ‘the exercise of an exclusive right by the proprietor [of intellectual property] may, in exceptional circumstances, involve abusive conduct.’ (at [50])

The Court of Justice held that the appellants’ conduct was abusive because it prevented the emergence of a new product (a weekly comprehensive guide to television programs) which the appellants alone were in a position to offer, but did not offer, and for which there was a potential consumer demand. The appellants were the only sources of the basic information on program scheduling, which was the indispensable raw material for compiling a weekly television guide, and they were reserving to themselves the secondary market of weekly television guides. That was ‘abuse’ consisting in ‘limiting production, markets or technical development to the prejudice of consumers’ (cf par (b) of the second paragraph of Art 86, set out earlier).

There are differences between Article 86 of the Treaty and s 46 of the TP Act. Article 86 requires that there be a ‘dominant position’ within the common market or a substantial part of it, but provides that ‘abuse’ of such a position may, in particular, consist of any one of the four forms of conduct described in the Article. Section 46(1) invokes the less demanding ‘substantial degree of power in a market’, but reduces its scope by the limitation that the corporation must have taken advantage of that power for one or more of the purposes specified.

Notwithstanding the differences between Article 86 of the Treaty and s 46 of the TP Act, I suggest that a contravention of s 46 may well have been found. An Australian court might well have concluded that each of RTE, ITV and the BBC was taking advantage of its power in a market for the purpose of ‘preventing the entry of a person [Magill] into that or any other market’ (cf s 46(1)(b) of the TP Act), that is to say, for the purpose of preventing Magill from entering the market for weekly television guides.

2. Collecting societies[3]

2.1 Who are they?

The next, and rather different, subject which I wish to address is that of the Australian collecting societies. The main ones are:

With the exception of PPCA (which is an Australian company limited by shares), these six collecting societies are all incorporated as Australian public companies limited by guarantee.

(In addition, there are ASDACS (the Australian Screen Directors Authorship Collecting Society, established by the Australian Screen Directors Association – see http://www.asdafilm.org.au); AWGACS (the Australian Writers Guild Authorship Collecting Society, established in 1996 by the Australian Writers Guild – see http://www.awg.com.au); and the ‘church collecting societies’, Christian Copyright Licensing Asia-Pacific Pty Limited, LicenSing (a division of MediaCom Inc), and Word of Life Pty Ltd, which collect royalties on behalf of US publishers of church music.)

Since APRA’s members are required to assign to APRA the right to perform their works in public and the right to broadcast their works, a person wishing to obtain a licence to do either of those things must deal with APRA. In the case of the other collecting societies, the members appoint the collecting society as their agent to grant licences.

2.2 Two forms of licensing

There are two forms of licensing in which the collecting societies engage: voluntary and statutory. The voluntary category encompasses any licence other than a statutory one, that is to say one created by the Act. The terms of a voluntary licence are, at least in principle, a matter for negotiation between the collecting society and the intending licensee, although, in practice, the collecting societies have their own standard printed forms of licence.

2.3 The statutory licences

There are four forms of statutory licences. I will briefly describe the régime under Part VA of the Act; the régimes under Parts VB and VC are generally similar.

Part VA provides for a statutory licence in favour of educational institutions and institutions assisting persons with an intellectual disability, in respect of the copying of broadcasts, and the communicating of copies of broadcasts. The key provision in Pt VA is s 135E. It provides that if the body administering the institution gives a ‘remuneration notice’ to the collecting society which is declared under s 135P by the Attorney-General to be the collecting society for the purposes of Pt VA, undertaking to pay to that collecting society equitable remuneration for copies of broadcasts made by the administering body or on its behalf, or for communications by it on its behalf of such copies, the copyright in the broadcast, or in any work, sound recording or cinematograph film included in the broadcast, is not infringed by such copying or communication, but the administering body is obliged to pay to the declared collecting society equitable remuneration, as agreed between the administering body and the collecting society, or failing agreement, as determined by the Copyright Tribunal

Section 135P empowers the Attorney-General, by notice in the Gazette, to declare a body named in the notice to be the collecting society, and s 135Q empowers the Attorney-General, by notice in the Gazette, to revoke such a declaration. By a ‘remuneration notice’, the administering body undertakes to pay equitable remuneration to the collecting society for the copies of broadcasts or communications of copies: s 135G. Part VA contains detailed provisions directed to enabling a figure to be assigned to the number of copies or number of communications. Finally, there is provision for the collecting society to recover the amount of equitable remuneration in the Federal Court of Australia or in any other court of competent jurisdiction, as a debt due to the society.

Screenrights has been declared as the collecting society for the purposes of Pt VA.

Part VB concerns the statutorily licensed reproduction and communication of documents in hard copy form by educational institutions, institutions assisting persons with an intellectual disability, and institutions assisting persons with a print disability. CAL is the collecting society declared by the Attorney-General under s 135ZZB for the purposes of Part VB.

Part VC provides for a statutory licence to retransmit free to air broadcasts by, in practice, pay or subscription television companies. The collecting society declared by the Attorney-General under s 135ZZT for the purposes of Part VC is Screenrights.

Part VII Div 2 of the Act is concerned with the use of copyright material for Commonwealth or State governments ‘for the services of the Commonwealth or a State’. Section 183 in Div 2 of Pt VII provides, in wide terms, that copyright is not infringed by the doing by the government of the Commonwealth or of a State for the services of the Commonwealth or of the State, of any act comprised in copyright. The Commonwealth or State must notify the copyright owner of the doing of the act, and is made statutorily liable to pay to the owner equitable remuneration as agreed or as determined by the Copyright Tribunal.

The régime under Pt VII Div 2 differs in four important respects from those in Pts VA, VB and VC. First, it is not the Attorney-General but the Copyright Tribunal which is empowered to declare, and to revoke declarations of, collecting societies for the purposes of Pt VII Div 2. The giving of these powers to the Tribunal, a body independent of government, is understandable: the Commonwealth or a State will be a party to any application to the Tribunal under Pt VII Div 2. The powers to declare and to revoke a declaration are found in ss 153F and 153J respectively, both within Pt VI of the Act.

Second, s 153F(5) allows for the declaration of different collecting societies in relation to different classes of government copies.

Third, non-infringement is not triggered by the giving of a ‘remuneration notice’ containing an undertaking to pay equitable remuneration, although the Commonwealth or State must notify the copyright owner of the doing of the act which triggers the statutory obligation to pay such remuneration.

Fourth, the statutory licence is in respect of any of the acts comprised in the copyright in all classes of works and of subject matter other than works, that are provided for in the Act.

Two collecting societies have been declared under s 153F by the Copyright Tribunal for the purposes of Div 2 of Pt VII. On 18 January 1999 the Tribunal declared CAL to be the collecting society for the purposes of Pt VII Div 2 ‘in relation to Government copies of works and published editions of works, other than works that are included in a sound recording, cinematograph film or a television or sound broadcast’. On 4 May 2000 the Tribunal declared Screenrights to be the collecting society for the purposes of Pt VII Div 2 in relation to:

‘the relevant copyright owners of the following classes of copyright material:
(i) a sound recording; or
(ii) a cinematograph film; or
(iii) a television or sound broadcast; or
(iv) a work that is included in a sound recording, a cinematograph film or a television or sound transmission.’

in respect of the application of the copyright to the making of a copy of a transmission of a sound broadcast or a television broadcast including (to avoid doubt) a sound broadcast, or a television broadcast transmitted for a fee and a television transmission to subscribers to a diffusion service.’

Recently Australian Spatial Copyright Collections Ltd (‘Australian Spatial’) applied to the Tribunal under s 153F of the Act for a declaration that it be a collecting society for the purposes of Div 2 of Pt IV of the Act in relation to:

‘Government copies of the works described in the schedule to [the] application other than works described in the schedule that are included in a:
(a) sound recording, cinematographic film or a television or sound broadcast; and
(b) book, magazine, journal, and newspaper.’

The schedule to Australian Spatial’s application was as follows:


‘SCHEDULE
Survey plans (whether registered or unregistered), design plans, as-constructed plans, digital cadastral data bases, identification plans, plans lodged in relation to mining tenures, permanent mark sketch plans, topographic plans, hydrographic plans, aerial photos and their derivatives, survey reports and field notes and other supporting documentation, level books, and electronic data recorder information:

(a) that are reduced into writing or into any other material form including, whether visible or not, any form of storage from which such copyright material or a substantial part of such copyright material can be reproduced; and
(b) in which copyright subsists under the Act.’

Pursuant to s 153F(2) of the Act, the Tribunal joined CAL as a party to the application, because it was already the declared collecting society in respect of, inter alia, government copies of the same works.

Australian Spatial did not succeed in displacing CAL: Reference by Australian Spatial Copyright Collections Ltd [2004] ACopyT 1. The proceeding raised interesting questions in relation to the strength of an incumbent declared collecting society’s monopoly, and the kinds of considerations which might persuade the Tribunal to substitute for it, in whole or in part, a different collecting society.

Obviously, collecting societies have considerable market power (see the discussion of APRA’s market power in Australian Performing Rights Association Ltd v Ceridale Pty Ltd (1990) 97 ALR 497 earlier).

It was complaints about the dominant market position of APRA, the earliest Australian collecting society, that led to the appointment of a Royal Commission in 1932 under the chairmanship of Justice Owen (then of the Supreme Court of New South Wales) to inquire into, and report upon, the exploitation of performing rights (Report of the Royal Commission on Performing Rights (1933)). In particular, the complaints related to the level of fees and licence terms which APRA imposed. Justice Owen concluded that APRA was ‘to all intents and purposes, a super-monopoly controlling or claiming to control most of the music which users in public must use and is able to dictate its own terms’. Justice Owen recommended the creation of some sort of tribunal to arbitrate in disputes between APRA and users of music, particularly over licence fees and conditions.

The recommendation was not acted upon immediately, but eventually the Tribunal was established by Part VI of the Act which came into operation on 1 May 1969.

APRA applied for, and obtained from the Australian Competition Tribunal an authorisation until 30 June 2004 under s 88(1) of the TP Act in relation to its system: Re Application by Australian Performing Right Association Ltd [1999] ACompT 3; (1999) 45 IPR 53. By ‘its system’ I refer to:

The Competition Tribunal, reviewing a refusal by the ACCC to grant authorisation, formed the view that:

‘ ... the public benefits arising from APRA’s collective administration of performing rights exceed the anti-competitive detriments following from its operations ...’ (at [360])

The reason why the authorisation was granted only until 30 June 2004 is that the Competition Tribunal considered that as technological and other changes were constantly having an impact on the relevant market, a change in circumstances might suggest a different result over time. An application by APRA for renewal of its authorisation has been made and is pending.

There have been some recent suggestions in Australia for reform of the legislation pertinent to the interface between intellectual property and trade practices law, both in the present respect and others, as noted below.

3. Recent suggestions for reform

I will address the recent suggestions for reform relevant to the subject matter of this paper in chronological sequence.

3.1 Hilmer Committee, 1993

In August 1993 the Hilmer Committee presented its report: National Competition Policy: Report by the Independent Committee of Inquiry. The Trade Practices Commission submitted to the Committee that the limited exemption created by s 51(3) of the TP Act in favour of intellectual property should be repealed, and that intellectual property licensing matters should be addressed in the authorisation process. In its consideration of the issue, the Committee observed that in the absence of any ‘definitive judicial interpretation’ of the expression ‘relates to’ in s 51(3), the scope and significance of the provision was uncertain.

The Committee stated (at 150) that it had not been presented with persuasive arguments as to why intellectual property rights should receive protection beyond that available under the authorisation process. The Committee also expressed concern (at 151) that the current form of the exemption was uncertain and treated differently the various forms of intellectual property right.

Ultimately, however, the Committee thought it was ‘not in a position to make expert recommendations on the matter’ (at 151), and recommended only that the exemption be examined by relevant officials in consultation with interested groups.

Shane Simpson, 1995

In 1995, Shane Simpson produced a lengthy and detailed report to the Minister for Communications and the Arts and the Minister for Justice, Review of Australian Copyright Collecting Societies. Mr Simpson had no doubt that the collecting societies occupied a ‘dominant position in the market place with respect to the types of rights that each controls’. He thought there was ‘little Trade Practices significance’ in the fact that copyright owners grant exclusive licences to their collecting societies (as noted earlier, APRA is exceptional in this respect because it takes assignments of copyright). He raised the question, however, whether there was competition between collecting societies in respect of the same kinds of rights, and observed that there had been some competition in relation to CAL’s ‘worship’ licence. Mr Simpson noted the advantage to, for example, Departments of Education, in having to deal with only one entity rather than having to seek out and deal with numerous copyright owners.

On the specific question of repeal of s 51(3) Mr Simpson said (at 260):

‘It is recommended that the existing limited exemption accorded to collecting societies by Section 51(3) of the Trade Practices Act remain (albeit in amended form) PROVIDED THAT each society brings its structure, procedures, functions and conduct within certain guidelines which will work to ensure that there is sufficient scrutiny of a society’s conduct to protect its members, licensees, potential users, and owners of the relevant copyright.’

Essential to Mr Simpson’s recommendations was the introduction of a new concept: the ‘Qualified Society’. The Qualified Society would be a collecting society whose structures, procedures, functions and conduct were within certain guidelines to be issued. Qualified Societies would be subject to the regular scrutiny of government, and only they would enjoy the benefit of s 51(3) of the TP Act. This would place them ‘in the same position as they would have been in if they had received authorisations from the [ACCC]’ (par 33.6.2 at 260).

Mr Simpson’s recommendations which concluded Ch 33 (‘Trade Practices Issues and Collecting Societies’) of his report were as follows (at 261):

‘33.7 RECOMMENDATIONS

The recommendations have not yet been acted upon.

3.3 National Competition Council, March 1999

In March 1999 the National Competition Council (NCC) recommended that the exemption in s 51(3) be retained, but be amended to remove protection of price and quantity restrictions and horizontal agreements. The NCC also recommended that the ACCC issue guidelines as to:

The NCC noted what it viewed as acceptance today of intellectual property rights as exclusive ‘property’ rights. It thought that only rarely did producers using intellectual property have sufficient market power to enable them to lessen competition in the markets in which they compete. In the result, the NCC did not think there was a conflict between intellectual property rights and competition law (at 13, 157-160).

3.4 Ergas Committee, December 2000

In December 2000 the final report (dated September 2000) of the Intellectual Property and Competition Review Committee, ‘Review of intellectual property legislation under the Competition Principles Agreement’, was released by the Federal Government. In relation to s 51(3), the report’s Executive Summary stated as follows (at 11-12):

‘The exclusive privileges that intellectual property legislation confers on right owners are designed to promote innovation. The Committee believes that these privileges should be able to be exercised, even if this involves, as it generally must, the exclusion of others. In addition, the Committee believes it is desirable for right owners to have the scope to enter into efficient contracts that involve intellectual property rights, and to be able to do so free of onerous and ultimately counter-productive regulatory burdens. However, that is not to say the Committee believes that intellectual property rights should be used to go beyond the market power these rights directly confer, or that they should be extended into a wider right of exclusion, which may be used to substantially lessen competition.

The Committee maintains the view that intellectual property rights are sufficiently different from other property rights and assets to warrant special exemptions from the general provisions of the Trade Practices Act (TPA). However, the Committee believes that the existing intellectual property exemptions under s 51(3) of the TPA are seriously flawed, as the extent and breadth of the exemptions are unclear, and may well be over-broad. In the Committee’s view, these exemptions do not provide an appropriate balance between the needs of the intellectual property system and the wider goals of competition policy. Further, the Committee believes the recommendations for changes to s 51(3) proposed by the National Competition Council (NCC) do not adequately address the deficiencies in the current provisions.

The Committee believes an appropriate balance can be achieved by amending the TPA to ensure conditions in a contract, arrangement or understanding related to the subject matter of the intellectual property statute, do not contravene Part IV or s 4D of the Act – unless those conditions are likely to result in a substantial lessening of competition. The test of whether a substantial lessening of competition is likely should be defined and interpreted in a manner consistent with the case law under the TPA. The Committee also recommends that the Australian Competition and Consumer Commission (ACCC) issue guidelines to provide sufficient direction to intellectual property right owners, clarifying the types of behaviour likely to result in a breach of the Act’s provisions.

The Committee believes its proposed recommendations to the TPA will support the efficient development and exploitation of intellectual property, while ensuring that intellectual property rights are not used to extend market power beyond the scope of the right initially allowed.

As a consequence of these amendments to the TPA, the Committee also recommends that the compulsory licensing provisions of the Patents Act be amended to include a competition test; and that certain provisions in the Patent Acts relating to licensing contracts be repealed.’

In relation to collecting societies, the Executive Summary stated (at 8–9):

‘The activities of collecting societies under the Copyright Act are also of concern. The Committee recognises the importance of collective rights administration to an efficient copyright system and, in that respect, strongly endorses the role of the collecting societies. However, there are potential effects on competition that can flow from the market position of collecting societies. Several of the Committee’s recommendations are aimed at making the collecting societies more open and accountable, and at achieving a more appropriate balance between public access to copyright material and producer incentives for innovation.

The Committee’s views are influenced by the fact that the coordinated nature of the collecting societies’ activities reduces competition between entities that would otherwise be competitors in some way. By eliminating that competition, the societies may significantly enhance efficiency; but the resulting balance needs to be tested – with continued attention to opportunities for encouraging more competition without reducing the efficiency gains of collective rights administration. With this end in mind, the Committee’s recommendations are aimed at providing for more effective scrutiny of the societies’ operations.

Specifically, the Committee recommends that the wider economic aspects of a collecting society’s conduct should be taken into account when reviewing a society’s declared status.

In particular, these wider aspects of a society’s conduct should be considered when determining whether the society is “functioning adequately” as a collecting society. Issues such as the adequacy of a society’s dispute resolution mechanism could play a part in this evaluation. The Committee also recommends that collecting societies be more fully exposed to the authorisation processes of the Trade Practices Act. Finally, the Committee sets out a process for allowing the referral of disputes that involve the societies, in their non-statutory activities, to the Copyright Tribunal.’

The Ergas Committee’s actual recommendations in relation to s 51(3) were as follows (at 19 and 215):

‘The Committee recommends that intellectual property rights continue to be accorded distinctive treatment under the Trade Practices Act (TPA). This should be achieved by:

The ACCC should be required by the legislation to issue guidelines as to the manner in which it will implement any enforcement activities related to these provisions. These guidelines should provide sufficient direction to owners of intellectual property rights to clarify the types of behaviour likely to result in a substantial lessening of competition. Provisions should exist within the guidelines for parties to seek a written clearance from the ACCC. This written clarification process should operate in a similar fashion to the “letters of comfort” provision included in the ACCC’s Merger Guidelines. The ACCC should be required to consult widely with intellectual property owners, users, licensees, facilitators and the public generally in preparing these guidelines.’

The Ergas Committee’s actual recommendations relating to collecting societies were as follows (at 15 and 127):

‘The Committee recommends that:

The grounds for ministerial revocation (s 135ZZC of the Copyright Act) be broadened to cover all collecting society arrangements, both input and output, including the disclosure of information to members and the public. Relevant ministers should issue guidelines to each collecting society, in the spirit of a contract between the society and the community, that specify the Government’s expectations regarding the society’s conduct, including in terms of the information required to be disclosed and the process for disclosure.

Assuming a continued role for the Copyright Tribunal over the output arrangements of statutory societies in respect of compulsory licences, there should be scope for the Tribunal to play a similar role in respect of other licences. The required mechanism should be for the ACCC to determine whether a reference should be made to the Copyright Tribunal, based either on the application by a collecting society, or from an actual or potential licensee, taking account of:
If the Committee’s proposed changes to s 51(3) of the Trade Practices Act are accepted, then collecting societies would have to seek authorisation from the ACCC for those activities that fall within the scope of the prohibitions in Part IV of the Trade Practices Act. If the Committee’s proposed changes to s 51(3) of the Trade Practices Act are not accepted, the Government should ensure a requirement for such authorisation through specific legislative amendment. In the Committee’s view, the ACCC should ensure that such authorisations are reviewed periodically (for example, every three years).’

On 28 August 2001, the Government asked the Australian Competition and Consumer Commission (ACCC) to issue guidelines on the application of Pt IV of the TP Act to intellectual property.

3.5 Dawson Committee, January 2003

In January 2003, the Trade Practices Act Review Committee (the Dawson Committee) presented to the Treasurer its report, Review of the Competition Provisions of the Trade Practices Act. The Committee noted:

The Dawson Committee noted that the extent to which intellectual property confers market power on the owners of intellectual property for the purposes of s 46 was a question then before the courts on appeal from the decision of Hill J in ACCC v Universal Music Australia Pty Ltd (2001) 115 FCR 442.

Ultimately the Dawson Committee’s only recommendation of present relevance was that the ACCC comply with the Government’s request of 28 August 2001 to issue guidelines on the application of Pt IV of the TP Act to intellectual property, recommending that the ACCC consult with industry first. Even this recommendation is dulled by the Committee’s observation that it appreciated that the ACCC might be awaiting the final decision in Universal Music. The appeal in Universal Music was decided on 22 August 2003, and the decision on the appeal was discussed earlier (in section 1.2). It is understood that the ACCC is still consulting with interested bodies with a view to issuing guidelines.

Conclusion

Notwithstanding the many recent opportunities noted above, no legislative formulation of a clear dividing line between proper and acceptable exercise of intellectual property rights on the one hand, and improper and unacceptable anti-competitive behaviour on the other, has been proffered. Is the task simply too difficult? Certainly, s 51(3) has not played a significant role in any case decided to date. On the other hand, the specification of prohibited purposes in s 46 should not be overlooked: it plays a role in the drawing of that dividing line. But it must be questioned whether, at least s 51(3)(a) serves any useful purpose. Perhaps it has escaped repeal because it seems to be ineffectual and to do no harm.


SELECT BIBLIOGRAPHY


Reports


Independent Committee of Inquiry into National Competition Policy (the Hilmer Committee), National Competition Policy (August 1993).


Intellectual Property and Competition Review Committee (the Ergas Committee), Review of intellectual property legislation under the Competition Principle Agreement (September, 2000).


National Competition Council, Review of Sections 51(2) and 51(3) of the Trade Practices Act 1974 (1999).


Shane Simpson, Review of Australian Collecting Societies (1995).


Trade Practices Act Review Committee (the Dawson Committee), Review of the Competition Provisions of the Trade Practices Act (January, 2003).


Trade Practices Commission, Application of the Trade Practices Act to Intellectual Property (Background Paper, July 1991).


Journal Articles


Brudenall, Peter, ‘The Collective Administration of Copyright and Competition Policy: Tensions in the Digital Age’, (1999) 8 AIPJ 121.


Eagles, Ian and Longdin, Louise, ‘Competition in Information and Computer Technology Markets: Intellectual Property Licensing and s 51(3) of the Trade Practices Act 1974(2003) 3(1) QUTLJJ 28.


Lang, John Temple, ‘Compulsory Licensing of Intellectual Property in European Antitrust Law’ (a submission of Cleary, Gottlieb, Steen and Hamilton for Department of Justice/ Federal Trade Commission hearings, Washington DC, May 2002).


Gummow, WMC, ‘Abuse of Monopoly: Industrial Property and Trade Practices Control’ [1976] SydLawRw 2; (1976) 7 Sydney Law Review 339.


McKeough, Jill, ‘Is Intellectual Property Different, or are all Unhappy Monopolists Similar?’ [2003] UNSWLawJl 20; (2003) 26(1) UNSW Law Journal 289.


McVicar, Shaun, ‘Copyright – Collecting Societies, Blanket Licences and the Misuse of Market Power’ [1992] Arts and Entertainment Law Review, No 2 (October) 1-10 and No 3 (November) 1-8.


Richardson, Megan, “The High Court of Australia Revisits ‘Misuse of Market Power’” (2002) 24 EIPR 81.


Tucker, Philip, ‘Refusal to Licence Intellectual Property Rights and Misuse of Market Power – Where is the Line in the Sand?’ (1999) 10 AIPJ 78.



[1] I thank my Associate Jacqui Phillips and Jennifer Farrell for research assistance

[2] The Trade Practices Commission’s Background paper ‘Application of the Trade Practices Act to Intellectual Property’ (July 1991) remains a valuable source of background information.

[3] I acknowledge assistance I from Lahore, Copyright and Designs (Butterworths, 2 vols, loose-leaf service) esp at [30,000]–[30,050], and from Ricketson and Creswell, The Law of Intellectual Property: Copyright, Designs and Confidential Information (Lawbook Co, 2 vols, loose-leaf service), Ch 15.


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