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PC News - August 2017

Reforming Australia's intellectual property arrangements

A Productivity Commission inquiry found that Australia’s intellectual property arrangements fall short in many ways.

Australia provides protection for intellectual property (IP) through a range of statutory measures including patents, copyright, trademarks, and rights over performances, designs, plant varieties and circuit layouts.

Over recent years there have been increases in the scope and duration of IP protection. At the same time, the global economy and technology have changed. In order to examine whether Australia has the right balance between incentives for innovation and investment and the interests of individuals and businesses accessing the ideas, the Productivity Commission was asked to undertake an inquiry into Australia’s IP arrangements and recommend changes that would improve the overall wellbeing of Australian society.

The Commission’s approach

The Commission identified four guiding principles that the IP system should embody:

  • Effectiveness: the system should be effective in encouraging additional ideas and in providing incentives that ensure knowledge is disseminated through the economy and community.
  • Efficiency: the system should provide incentives for IP to be created at the lowest cost to society.
  • Adaptability: the system should adapt to changes in economic conditions, technology, markets and costs of innovating.
  • Accountability: the policies and institutions that govern the system, and the way that changes are made to them, need to be evidence-based, transparent, and reflect community values.

IP arrangements should ensure that creators and inventors are rewarded for their efforts, but in doing so the arrangements must:

  • foster creative endeavour and investment in IP that would not otherwise occur
  • only provide the incentive needed to induce that additional investment or endeavour
  • resist impeding follow-on innovation, competition and access to goods and services.

    Copyright – assessing the evidence

    Copyright protects the material expression of literary, dramatic, artistic and musical works, as well as books, photographs, sound recordings, films and broadcasts. Under the Copyright Act, creators are granted the exclusive right to reproduce or adapt their work in material form, as well as to publish, perform, and communicate their work to the public. The Commission found that copyright protection in Australia suffers from a number of shortcomings.

    A single product can embody many IP rights – the smartphone is an example

    • Today’s smartphones are protected by over 1000 patents, including for their semiconductors, cameras, screens, batteries and calendars.

      Copyright protects the artwork and software code within smartphones.

      Design rights protect the aesthetics, and the placement of cameras, buttons and screens.

      Circuit layout rights protect the electrical integrated circuits.

      Brands, logos and other distinctive marks such as ‘iPhone’ are protected by trade marks.

    Copyright is overly broad, to the detriment of intermediate users and consumers

    Copyright protection in Australia applies automatically to all creative works. Unlike other IP rights, copyright does not require formal registration. The lack of a screening mechanism means that copyright protects a wide array of material that may not need protection, or would be produced in the absence of such protection. It applies equally to commercial and non-commercial works, works with very low levels of creative input, works that are no longer being supplied to the market, and works where ownership can no longer be identified.

    Rights have expanded over time, despite little evidence of benefits

    Copyright has its genesis in protecting the publication and distribution of books. But as new technologies have developed to produce and transmit creative works, new rights were extended to copyright holders. Progressively, copyright has expanded to cover a wider range of activities – some only loosely considered ‘creative’. New exclusive rights have also been granted to rights holders, including controls over importation of goods, moral and performers’ rights, and rights to control communication of a work to the public.

    The term of protection is overly long, reducing access to valuable works

    Copyright protects literary, musical, dramatic and artistic works for the duration of the creator’s life plus 70 years, sound recordings and films for 70 years, television and sound broadcasts for 50 years, and published editions for 25 years. For example, a new work produced in 2016 by a 35 year old author who lives until 85 years of age will be protected until 2136.

    The Commission found that copyright protection lasts far longer than is needed. Few creators are motivated by the expectation of financial returns long after death. And evidence suggests that the vast majority of works do not make commercial returns from copyright beyond their first couple of years on the market.

    The Commission did not recommend changes to the length of copyright term – doing so would require amendments to international agreements such as the Berne Convention, TRIPS and AUSFTA. But even within the limits of these agreements, the Commission found scope to do more.

    The scope and term of copyright protection in Australia has expanded over time, often with no transparent evidence-based analysis, and is now skewed too far in favour of copyright holders. Innovative firms, universities and schools, and consumers bear the costs.

    A fairer system of user rights

    Under the Copyright Act, certain uses of copyrighted material are allowed without the authorisation of rights holders. This includes an exception for ‘fair dealing’ for research or study, criticism or review, parody or satire, reporting the news, judicial proceedings and professional advice. Exceptions also allow for temporary reproductions to be made in the course of communicating a work, and for recording a television show on a video tape for private viewing, or copying music to an mp3 player.

    The Commission found that Australia’s fair dealing exceptions are too narrow and prescriptive, do not reflect the way people consume and use content in today’s digital age, and do not readily accommodate new legitimate uses of copyright material.

    Participants in the Commission’s inquiry argued that Australian businesses and consumers forego extensive opportunities because of the current inflexible exceptions. And large costs are imposed on the education sector – for example, Australian schools pay millions of dollars each year to use materials that are currently freely available online.

    Easier user access to legitimate content

    The Commission examined several issues that affect the use and licensing of copyright material, including geoblocking and restrictions on the parallel importation of books.

    Geoblocking is the practice of restricting a consumer’s access to websites and digital goods and services within their ‘home market’. The Commission found that the use of geoblocking technology is widely imposed on Australian consumers who are frequently offered a lower level of digital service (such as a more limited music or TV streaming catalogue) at a higher price than in overseas markets.

    ‘Parallel imports’ are goods protected by IP rights and produced with the permission of the rights holder overseas, but imported into Australia without permission of the domestic rights holder. While there are no restrictions on parallel importation of sound recordings, computer software and goods embodying electronic literary or music items, Australia retains parallel import restrictions (PIRs) on books.

    Prohibiting parallel imports enables IP rights holders to engage in geographic-price discrimination – charging different prices for the same good in different countries, or varying the quality of goods supplied in different countries.

    While the Commission recognises the significant cultural and educational value of books, it does not view PIRs as the most effective way to generate these benefits. Provision of direct support to local authors – as is already provided by Australian, state and territory governments, to the amount of around $40 million each year – is a more effective policy approach.

    Does copyright provide a just reward for creators?

    • Some participants in the Commission’s inquiry argued that the copyright system was aimed at providing creators with a ‘just reward’ or a ‘living income’.

      Evidence suggests much of the returns from copyright material are earned by intermediaries, rather than creators. The stereotype of the ‘struggling artist’ has some degree of truth to it, and many involved in creative endeavours work multiple jobs and receive financial support from their families.

      However, the distribution of revenues along the value chain reflects the risks borne in bringing works to market. Creators commonly licence their copyrights to a publisher and according to some, creators have little choice but to accept the terms presented by a publisher. As one participant noted:

      Individuals are powerless to resist the egregious terms offered by publishers … We have little ability to negotiate … The publisher has all the power.

      Others argued that a ‘just rewards’ framework overly relies on emotion to obscure the realities of commercial arrangements. Another participant noted:

      Relatively few of copyright’s rewards find their way to … creators ... such a huge proportion of the benefits of increased protection captured by other cogs in the cultural production chain that authors are sometimes viewed as a mere ‘stalking horse’ masking the economic interests of others.

      While others pointed out that the role of intermediaries has always been central to copyright.

      Beyond the absence of data, the biggest problem in discussions of copyright policy is the failure to recognise the centrality of distributors to copyright policy design. Most copyright policy discussion is founded on the myth that copyright is designed to meet the needs of authors. Yet the history of copyright policy shows clearly that copyright was an exchange of censorship services for monopoly privileges for publishers.

      Source: Productivity Commission 2016, Intellectual Property Arrangements , Box 4.3

    Patents – getting the fundamentals right

    Patents can advance knowledge by encouraging socially valuable innovation that would not have otherwise occurred. But if poorly calibrated, they can impose net costs on the community. Patent protection inhibits competitors from freely using an inventor’s technology, but over-protection can stifle competition, leading to reduced innovation and excessive prices. Moreover, by blocking subsequent innovators, patent protection can perversely inhibit the advancement of knowledge through ‘follow-on’ innovation.

    Despite recent reforms, Australia’s patent system remains tipped in favour of rights holders and against the interests of the broader community. The Commission found that Australia’s patent system grants exclusivity too readily, allowing a proliferation of low quality patents, frustrating follow-on innovators and stymieing competition.

    As in other areas of IP, reform options are restricted by Australia’s international obligations. However, within these constraints, the Commission identified a package of reforms that would go some way to striking a better balance. To raise patent quality, the degree of invention required to receive a patent should be increased, the failed innovation patent should be abolished, and patent fees should be better structured. Costly extensions of terms for pharmaceutical patents should be reconfigured.

    Improving the broader IP landscape

    The Commission’s report also made recommendations on a number of issues concerning the broader IP landscape, including some current exemptions of IP arrangements from competition law, IP rights and publicly-funded research, institutional arrangements shaping Australia’s IP system, international cooperation in IP, and compliance and enforcement of IP rights.

    Summary of the Commission’s proposed IP reforms

    • Copyright

      Replace Australia’s existing fair dealing exceptions in the Copyright Act with a broad and open-ended fair use exception.

      Repeal parallel import restrictions for books.

      Strengthen the Copyright Act to make clear circumventing geoblocking technology is not a copyright infringement.

      ACCC review to ensure best practice in governance, reporting and transparency arrangements for collecting societies.

    • Patents

      Raise the inventive step for patent eligibility, add an objects clause to the Patents Act, improve patent filing processes, restructure patent fees and abolish the innovation patent system.

      Reform extensions of term for pharmaceutical patents.

      Improve monitoring of settlements between originator and generic drug companies.

    • Other IP rights

      Trade marks

      Expedite the removal of unused marks, and make it harder to register misleading marks.

      Link the business name and trade mark registers, and allow the importation of legitimately marked goods.

      Plant breeders’ rights

      Enable IP Australia to make essentially derived variety declarations in respect of any new plant variety.

    • Enforcement and governance

      Enhance the role of the Federal Circuit Court by introducing a dedicated IP list with caps on claimable costs and damages.

      Expand the safe harbour scheme to cover all online service providers.

      Implement an open access policy for publicly-funded research.

      Identify overarching objectives and a common framework for IP policy development, and establish an interdepartmental policy group and other formal working arrangements between agencies.

      Develop best practice guidance for developing IP provisions in international treaties.

      Work with like-minded countries through multilateral forums to achieve more balanced IP settings and to reduce transaction costs.

    Intellectual Property Arrangements

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