Australian Parliamentary Library Bills Digests Australian Parliamentary Library Bills Digests[Index] [Search] [Download] [Help]
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage History
Date Introduced: 20 November 1997
House: House of Representatives
Commencement: Upon Royal Assent unless otherwise stated in the Schedules.
Purpose
To amend the Copyright Act 1968 so as to allow the parallel importing of non-counterfeit copies of sound recordings.
Copyright protects the way in which ideas are expressed by controlling the reproduction, publishing, broadcasting or other performance of the work.(1) Therefore, the form of words chosen, the illustrations used, the layout or organisation of a combination of the two may be subject to copyright. Protection of copyright is free and automatic and there is no system of registration required under Australian copyright law. Proper copyright protection laws are beneficial to the economy as they protect the interests of creators and therefore encourage innovative activity. The existence of copyright allows creators to generate an income from their creativity by either receiving royalties or other payments for their work. Copyright similarly fosters investment in creative works by businesses.
Parallel imports are 'goods manufactured outside the jurisdiction by or under the authority of the owner of an industrial property right relating to these goods, but imported by someone other than an authorised importer or distributor'.(2) The prohibition of parallel importing results in a segregated market:
The effect of prohibiting parallel importation is to facilitate geographical division of the market [used in a loose sense to refer to the demand for and supply of particular copyright material] for the copyright material in question. The copyright in particular material can be partially assigned along geographical lines. The assignee is then assured that when selling the copyright material within the geographical area described in its assignment that it will not be competing with the same material from a different source.(3)
The Copyright Amendment Bill 1997 will remove a number of prohibitions in the Copyright Act 1968 regarding parallel imports. This Bill, the second copyright Bill for 1997, will remove the prohibitions on the parallel importation of records and compact discs.
A sound recording does not usually involve a single copyright, but rather several copyrights; most commonly it involves copyright in a musical work (music for a song, symphony) or works and/or copyright in a literary work (lyrics) or works, as well as copyright in the sound recording itself.'(4)
This Bill was referred by the Senate on the recommendation of the Selection of Bills Committee to the Senate Legal and Constitutional Committee on 2 December 1997 for inquiry and report by 23 March 1998. The Committee received around two hundred submissions, indicating that the topic is somewhat controversial. The majority report of the Committee recommended that:
The minority report of Senators Bolkus, McKiernan and Murphy and the dissenting report of Senator Stott Despoja did not support the Bill in its current form.
Prices of Sound Recordings
The 1990 Prices Surveillance Authority Inquiry Into The Prices of Sound Recordings found that the 'prices in Australia have consistently been much higher than overseas for many years.'(6) The report of the Prices Surveillance Authority found high prices to have been:
underpinned by three factors - demand is relatively price inelastic compared with other products; there is, an absence of domestic price competition and there is a restriction on import competition arising from the importation provisions of the Copyright Act 1968.
The Australian Consumers' Association noted, in its submission to the Inter Departmental Committee Inquiry Into CD Prices that Australian CDs were comparatively overpriced:
Despite sophisticated arguments to the contrary from vested interests in the music industry, in June 1996 average retail prices for music CDs in Australia were 43% higher in price than in the US and an average of 22.7% higher compared to retail prices in the UK, New Zealand and Singapore.
In evidence to the Senate Legal and Constitutional Committee, Professor Allan Fels, Chair of the Australian Competition and Consumer Commission, estimated that the current gap between Australian CD prices and US prices after tax corrections was about $4.60 and that there were:
...two aspects of the present prices which have to be of concern. The first point is that, if there is a permanent fall in the value of the Aussie dollar, then eventually, as happens with all industries, the devaluation effect will get reflected in the prices. They will go up in this industry a bit more slowly than in others. Most industries quickly adjust to devaluations. This one adjusts more slowly. The second point is that it is quite clear at the present time that the industry has been restraining its prices because of fear of legislation. If there is no legislation, there will be a steep rise in CD prices.(7)
Professor Fels further gave evidence that:
...there has been massive pressure by ARIA and the multinational record companies to stop the reform because it is against their worldwide interests. They have done everything. They have poured huge amounts of money into this. They have hired consultants all over the place to try to destroy our report, but they have failed, not because our report is that good but because the facts are incontrovertible. There is the price difference and the fact that the removal of the restrictions would cause a fall in price to the benefit of the people.(8)
The Music Industry's Views
There has been considerable opposition to the Bill from members of the Australian Music Industry, both the artists and the record companies. For example, the Executive Director of the Australian Record Industry Association (ARIA) Mr Emmanuel Candi argued that the Bill was not committed to the economic principle claimed and that it had many downsides:
If the economic principle itself were being pursued in regard to copyright items, then this bill should properly have just covered the gamut of copyright items. If it is the economic principle that is at stake, copyright covers books, movies, CD-ROMs, computer programs, sound recordings and musical works.(9)
Mr Candi further argued that the fact that parallel importers would secure a 'free-ride' (in terms of advertising and promotion costs) on the larger and more established companies would disincline the latter to actively promote CDs in Australia.(10)
Mr Brett Cottle, Chief Executive of the Australasian Performing Rights Association, also noted his concerns that, among other things, if the Bill were to be enacted:
...there will be no less than three discrete regimes of treatment of importation under the Copyright Act: one for books, one for recorded music, and one for other forms of intellectual property, including software.(11)
Mr Cottle also criticised the Explanatory Memorandum for its:
...complete absence of any reference to imports from many Asian countries....As a result of this [proposed] legislation, if CDs are imported into this country from countries such as Taiwan, the Philippines, Thailand or, closer to home, Papua New Guinea, there will be no royalty paid to the composer anywhere.(12)
The Senate Legal and Constitutional Committee received a number of submissions to the effect that Australian recording artists would be significantly disadvantaged by the Bill. This was partly due to the fact that it was anticipated that record companies would have less incentive to invest in up and coming Australian recording artists. The Explanatory Memorandum acknowledges that the investment in artist development by the major companies may change but counterbalances it with the view that the royalty income of Australian recording artists may in fact increase.(13)
Arguments in Favour of the Bill
The removal of prohibitions on parallel importing will free up trade and result in cheaper CD prices for the Australian consumer;
There will be an increase in the availability of copyright material which should lead to an increase in the choices of compact discs available.(14)
The removal of prohibitions on parallel importing will end the geographic division of the market and will therefore end the extraction of 'unduly high profits from consumers' and 'inefficient practices'.(15)
The use to date of copyright law to prohibit parallel importing and give distributors exclusive rights in a regional market is not consistent with the intention of copyright law (ie to protect ideas). Copyright law has been acted as a de facto barrier to trade.
Arguments Against the Bill
Currently companies like ARIA invest millions of dollars looking for illegal copies and having them withdrawn from sale. Were the Bill to pass, there would be no incentive for this activity to continue and there is no substitute mechanism in place for identifying illegal copies and preventing their sale. For example, Customs do not have the resources to check the legality of imports. Therefore, it is possible that non-genuine products might become more widely available which leads to issues of quality control and consumer protection.
Dumping of stock in Australia could occur thereby depriving performers and songwriters of their royalties.
Professor Bewley argued that the changes proposed by the Bill could result in less artists touring Australia and in less money being available for the promotion of Australian recording and performing artists.
The Australian Copyright Council also opposed the Bill for various reasons, including the fact that:
...this bill clearly reduces copyright protection in Australia and this is completely inconsistent with other efforts by the Australian government to encourage higher standards of copyright protection in countries with little or no current copyright protection. It is sending the wrong message.(16)
International obligations
At the moment, 'no multi-lateral international treaty requires its members to prohibit parallel importing'.(17) Nevertheless, there are some provisions of the Bill which might potentially conflict with international obligations.
The Australian Copyright Council expressed the view that the Bill was inconsistent with Australia's obligations under international agreements:
[the bill in our view]...is inconsistent with the TRIPS agreement. Under the TRIPS agreement, members of the World Trade Organisation, including Australia, are required to empower customs officials to seize pirated copyright goods on notice by the copyright owner. The TRIPS agreement defines pirate copyright goods as goods made without the consent of the right holder in the country of production. In our view, recordings made under compulsory licence are not made with the consent of the copyright owner. They are made under compulsory licences.(18)
This assertion was supported by Mr Warwick Rothnie, a partner in Mallesons Stephen Jaques and an expert in copyright law, who stated that the Bill potentially places Australia in breach of TRIPS:
...TRIPs does not lay down any particular rules about parallel imports. That is clear from article 6 of the agreement. The problems that we see arise from later provisions in relation to enforcement, and that is article 41 and article 51 in particular.
Article 41 requires members of TRIPs or the World Trade Organisation to provide effective enforcement procedures for intellectual copyrights, of which copyright is one, and article 51 requires members to prevent the importation of pirated copyright goods. 'Pirated copyright goods' for these purposes is defined in a footnote in the treaty, which is set out in our advice. In very broad terms, it means goods that have been made without the consent of the copyright owner and which, if made in Australia, would have been an infringement of copyright here.
The bill in its present terms rules out importation and sale in Australia of pirated copyright goods in probably three situations. The first situation is in those countries where there is no copyright law. The second situation is in those countries where the recordings can be made through mechanical licences. The third situation quite possibly, and I will say this is more qualified than in the first two situations, is situations where unauthorised compilation type records--the sort of 'best of' type recordings--are being made. These three types of goods are not legitimate copies in any sense. They are not made with the consent of any copyright owner and, quite clearly, fall within the definition of pirated copyright goods for the purposes of TRIPs.(19)
As noted above, the Senate Legal and Constitutional Committee recommended that this issue be further examined by the Attorney-General's Department.
Item 2 inserts a definition of 'non-infringing copy' into subsection 10(1) of the Copyright Act 1968 (the Principal Act).
This will basically include copies which do not breach copyright law in their country of manufacture and were made with the consent of the owner of the copyright. Pirated copies, which are made without the copyright owner's consent, are excluded by this definition of non-infringing copy.
Item 3 is one of the main changes proposed by the Bill and will insert section 44D into the Principal Act. Proposed section 44D will provide that copies which do not offend the definition of 'non-infringing copy' in item 2 will be allowed to be imported into Australia without breaching copyright. This will allow the parallel-importation of, for example, compact discs. There is no change to the permissibility of importing a compact disc for personal use.
Item 5 inserts proposed section 112D which provides that the importation into Australia of a non-infringing copy of a sound recording does not breach copyright in the sound recording. As with item 2 above, the non-infringing copy must not have infringed copyright in the country where it was made or if that country does not have copyright protection then the copy must have been made with the consent of the maker of the sound recording.
The owner of the copyright is defined as the person who held the copyright at the time of the publication of the sound recording.
Proposed section 130A reverses the onus of proof so that once a person claiming that their copyright has been infringed has proved that a copy of a sound recording has been imported and offered for sale or trade etc then the onus falls on the defendant to prove that the imported item is a non-infringing copy. This reverses what would otherwise be the expected onus of proof as, generally speaking, the claimant in any case must prove all elements of their case. Whereas in this instance, once the claimant has proved the things listed in section 37, 38 , 102 or 103 (whichever is applicable) then it is up to the defendant to prove that the sound recording was a genuine article (ie not a pirated copy) and was therefore within the definition of a 'non-infringing copy'. If the defendant is unable to prove this (even if the sound recording happened to be a non-infringing copy) the copyright owner's case is proved (item 6).
Item 8 stipulates that the amendments described in the Bill will only apply to sound recordings imported into Australia after the commencement of the Act.
Schedule 2 - Amendment of penalties
Proposed subsection 132(6A) makes it an offence to contravene the remainder of the subsection (which includes selling, hiring or otherwise trading with an item that infringes copyright when the person knew or ought reasonably to have known that it infringed copyright) and provides a penalty of up to 500 penalty units or up to 5 years imprisonment. One penalty unit is currently $110.00 under section 4AA of the Crimes Act 1914 (Cth). In relation to offences committed by a corporation, subsection 4B(3) of the Crimes Act 1914 allows a court to impose up to five times the specified penalty.
The introduction of this subsection, together with the repeal of existing subsections 133(1),(2) and (3) serves to substantially increase the penalties for offences under the Principal Act.
Item 3 inserts paragraphs 133A(1)(c) and (d) which will remove the distinction currently made in the Principal Act between a first offence and a subsequent offence. The pecuniary penalty is not substantially altered although imprisonment is now available as a sentencing option for a conviction of a first offence.
The provisions of the Bill have attracted a great deal of interest as demonstrated by the large number of submissions received by the Senate Legal and Constitutional Committee and views on the desirability of allowing parallel importing diverge widely.
Susan Downing
11 May 1998
Bills Digest Service
Information and Research Services
This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.
ISSN 1328-8091
© Commonwealth of Australia 1998
Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.
Published by the Department of the Parliamentary Library, 1998.