influence updates

How will courts respond to the AI apocalypse?

influence legal artificial intelligence
How will existing laws react to increasing use of AI?

Well, perhaps that’s a slightly exaggerated headline. However, as developments in automation advance rapidly, courts will need to address the consequences of the use of artificial intelligence, from copyright and patent law, to privacy, negligence, taxation and administrative law.

Currently, the legal position on automation is a mixed bag. Copyright is unlikely to protect the output of an automated system. Privacy laws are constantly adapting to deal with the immense flow of personal information from large-scale data analysis. Professional services firms, while needing to embrace the possibilities of automated analysis of large volumes of information, also need to be cautious about over-reliance on AI-generated data when providing professional advice.

Two recent Australian cases have provided us with some insight into how the courts may apply existing laws in situations involving automation and AI, in the areas of administrative law and patent law.

Pintarich v Deputy Commissioner of Taxation

Mr Pintarich failed to file tax returns for his income between 2010 and 2013. He received an automated letter in the name of the Deputy Commissioner of the ATO that said that if he paid a lump sum by a fixed date, he would not need to pay his general interest charge (GIC) liability – about $335,000.

Not unreasonably, Mr Pintarich relied on the letter and did not pay the GIC. He borrowed money from the bank and paid the lump sum by the due date.

Subsequently, the ATO notified him that there was an error and he would have to pay the GIC. Mr Pintarich argued that the letter was a binding decision by the Deputy Commissioner.

The ATO argued that the relevant officer had entered information into a program and the letter had been automatically generated. They had no specific explanation for how the wording about the GIC had been included in the letter.

The Court considered that for the letter to be considered a valid decision by the Deputy Commissioner, it required two elements:

1.         A mental process of reaching a conclusion; and

2.         An objective manifestation of that conclusion.

Given the automated nature of the letter, the majority ruled that there was no mental process involved in reaching the conclusion, and accordingly, the letter was not a valid decision. Unfortunately for Mr Pintarich, the GIC was held to be payable.

The possible consequences of requiring a mental element for an administrative decision are extensive: as automation technologies become more widespread in the public sector, and automated programs begin to replace human mental processes in complex decision making, to what extent will administrative decision makers be able to rely on their ‘subjective’ mental processes compared to their ‘objective’ output to reverse an automated decision? How will constituents know which correspondence to rely on?

Interestingly, having disagreed with the majority judgment, Justice Kerr highlighted the importance of the law needing to reflect the current technological landscape, saying:

“the expectation that a ‘decision’ will usually involve human mental processes of reaching a conclusion prior to an outcome being expressed by an overt act is being challenged by automated ‘intelligent’ decision making systems that rely on algorithms to process applications and make decisions.”

Rokt Pte Ltd v Commissioner of Patents

In 2013, tech-start up Rokt applied for a patent for a computer-implemented system and method for linking web users to online advertising. The method involved using an understanding of customer psychology, linking engagement information, data ranking algorithms and real-time data manipulation, to present ads to customers who were more likely to engage with them. The Commissioner of Patents determined that the invention was not patentable.

Computer-implemented inventions have often failed patentability tests. A patent must involve a method of manufacture, as well as other elements; an improvement in technology can be considered as a method of manufacture, but not simply the use of computing as a tool. So, using a computer to implement an existing method is not patentable. Overturning the Commissioner’s decision, the Federal Court considered that Rokt’s development integrated different pre-existing elements in a novel way to solve a technical problem, and so it qualified as an improvement in technology.

This decision reflects an understanding of how the changing effects of advancing technologies require the evolution of how we apply legal principles.

While the decision has provided some short-term clarity regarding patentability of computer-implemented inventions, it is now under appeal. By the time we have a decision, I may have been replaced by an article-writing robot …

If you have any questions about legal protection for your AI developments, or privacy requirements for large-scale data handling, contact us before it’s too late!

Author: Blake Motbey, Pararobot

Ready for whistleblower protection?

More than 2 years after the Treasury Laws Amendment (Enhancing Whistleblower Protections) Act 2019 was introduced, it’s finally set to come into effect on Monday 1 July 2019.

The Act will apply to disclosures made on or after the commencement date, but can also apply to conduct which occurred before commencement.

The Act has made significant amendments to the Corporations Act 2001 (Cth) and Taxation Administration Act 1953 (Cth). It increases the protections afforded to whistleblowers,  and requires companies to have greater accountability for whistleblowing obligations.

influence legal whistleblower
Are you ready for your new whistleblowing obligations?

Why are whistleblowers important?

Whistleblowers perform an integral role by disclosing misconduct such as mismanagement, fraud, corruption, or other wrongdoings, ensuring that companies and organisations are held accountable for their actions under the law, and that employees, customers, and shareholders are protected.

So, it is vital to guarantee strong protections for whistleblowers, especially confidentiality of identity and safety from retaliation.

What are the key changes under the legislation?

The key features of the new legislation include:

  • Widening the definition of ‘eligible whistleblowers’: The range of people who may now make disclosures and be eligible for protection has been extended to include officers, current and former employees, contractors and their relatives.
  • Widening the definition of ‘eligible recipients’ of disclosures: The range of people who may be recipients of disclosures now include senior managers, directors, and auditors.
  • Expanding the range of misconduct: The Act has expanded the types of disclosures that will be protected as ‘misconduct’ or ‘an improper state of affairs or circumstances’ (however, there is an exclusion for most disclosures of personal work-related grievances).
  • Allowing anonymous disclosures.
  • Increasing whistleblower protection: The Act provides stronger protection for whistleblowers,  by expanding the prohibition against victimisation or detriment, and eliminating the requirement of whistleblowers to act in good faith to be protected (however, reasonable grounds to suspect misconduct is required.)
  • Increasing penalties: There are significant civil and criminal penalties for individuals and companies for non-compliance and breach of the new legislation.
  • Implementing whistleblower policy requirement: The Act now requires some entities to implement a compliant whistleblower policy.

What is the whistleblower policy requirement?

Public companies, large proprietary companies, and registrable superannuation entities must now implement and maintain a compliant whistleblower policy.

The whistleblower policy must contain the following information:

  • the protections available to whistleblowers;
  • to whom disclosures are to be made, and how they can be made;
  • how the company will support and protect whistleblowers;
  • the process of investigation for into disclosures by the company;
  • how the company will ensure fair treatment of employees of the company who are mentioned in disclosures; and
  • how the policy is to be made available.

The Act has a 6 month transitional period for entities to implement the policy. Accordingly, the last date to ensure your policy is in place is 1 January 2020.

Penalties

There are substantial penalties (both civil and criminal) for the contravention of the new whistleblower protection laws under the Act.

Failure to implement a compliant whistleblower policy may attract a penalty of 60 penalty units (currently $12,600).

However, the most significant penalties arise from breach of confidentiality of the identity of a whistleblower, or victimising (or threatening to victimise) a whistleblower.

The civil penalties for these breaches are:

For an individual, the greater of:

  • 5,000 penalty units ($1.05 million); or
  • 3 times the benefit derived or detriment avoided.

For companies, the greater of:

  • 50,000 penalty units ($10.5m);
  • 3 times the benefit derived or detriment avoided; or
  • 10% of the body corporate’s annual turnover, up to 2.5 million penalty units (currently $210m).

The breaches may also attract criminal penalties for individuals, being:

Breach of confidentiality of identity of a whistleblower:

  • Under the Corporations Act: 6 months imprisonment or 30 penalty units ($6,300) or both;
  • Under the Taxation Administration Act: 6 months imprisonment or 60 penalty units ($12,600) or both.

Victimisation (or threatened victimisation of whistleblower):

  • Under the Corporations Act: 2 years imprisonment or 120 penalty units ($25,200) or both;
  • Under the Taxation Administration Act: 2 years imprisonment or 240 penalty units ($50,400) or both.

What now?

If your entity is covered, the first thing to do is to implement a compliant whistleblower policy.

As part of the policy, given the increased protections and widening of definitions under the new laws, we recommend that you incorporate training to ensure your personnel understand the new obligations under the Act. This is especially important for those people who will be ‘eligible recipients’ of disclosure under the expanded definition.

If you need any assistance in preparing a compliant whistleblower policy, or would like some further information and guidance on how these new whistleblower protection laws may affect your entity, please contact us.

Author: Blake Motbey, Paralegal.

Don’t let your defect warranties be defective

Do you provide services directly to customers? Or do you supply both goods and services together? And when you do, do you also offer a defect warranty for your services?

If you’ve answered yes to the above, here is one last question: are you aware of the recent changes to the mandatory wording requirements for defect warranties under the Australian Consumer Law?

Changes? What changes?

The Australian Consumer Law (ACL) currently requires that defect warranties for the supply of goods include mandatory wording.

However, from 9 June 2019, recent changes will now require mandatory wording for services as well as goods.  

So, if you provide services (or goods and services together) and offer consumers a defect warranty, you will need to update your documentation to comply with this change.

 

influence legal warranty
Time to review your warranty documents

What is a defect warranty?

Under the ACL, consumers are given a bundle of automatic rights in relation to the goods and services they purchase. These are known as consumer guarantees. These guarantees protect consumers if they are sold faulty products or services, giving them remedies against the supplier, including the right to repair, replacement, or refund.

Alongside these consumer guarantees, suppliers and manufacturers often offer defect warranties in respect of the quality and standard of their goods and/or services.

A defect warranty is a promise that, if a customer receives defective goods and/or services, the supplier will:

  • repair or replace the products;
  • resupply or fix a problem with the services; or
  • compensate the customer.

The ACCC provides the following example:

“A consumer purchases a motor vehicle that comes with a three year or 100,000km written warranty outlining what the manufacturer will do if there are certain problems with the vehicle. This is a warranty against defects and must comply with the requirements of the ACL.”

It’s important to note that a defect warranty need not be set out on a warranty card, or similar. It might be in any of your business documentation, such as your consumer contracts, terms & conditions, receipts, or even on product packaging.

What is the mandatory wording?

The reason for the inclusion of the mandatory wording is to ensure that consumers are informed of their rights under the ACL and are aware that the consumer guarantees cannot be excluded by the warranty.

The existing mandatory wording for defect warranties for goods is:

“Our goods come with guarantees that cannot be excluded under the Australian Consumer Law. You are entitled to a replacement or refund for a major failure and compensation for any other reasonably foreseeable loss or damage. You are also entitled to have the goods repaired or replaced if the goods fail to be of acceptable quality and the failure does not amount to a major failure.”

The new mandatory wording for services is as follows:

For the supply of services only:

“Our services come with guarantees that cannot be excluded under the Australian Consumer Law. For major failures with the service, you are entitled:

  • to cancel your service contract with us; and
  • to a refund for the unused portion, or to compensation for its reduced value

You are also entitled to be compensated for any other reasonably foreseeable loss or damage.

If the failure does not amount to a major failure, you are entitled to have problems with the service rectified in a reasonable time and, if this is not done, to cancel your contract and obtain a refund for the unused portion of the contract.”

For the supply of goods and services together:

“Our goods and services come with guarantees that cannot be excluded under the Australian Consumer Law. For major failures with the service, you are entitled:

  • to cancel your service contract with us; and
  • to a refund for the unused portion, or to compensation for its reduced value.

You are also entitled to choose a refund or replacement for major failures with goods. If a failure with the goods or a service does not amount to a major failure, you are entitled to have the failure rectified in a reasonable time. If this is not done you are entitled to a refund for the goods and to cancel the contract for the service and obtain a refund of any unused portion. You are also entitled to be compensated for any other reasonably foreseeable loss or damage from a failure in the goods or service.”

Are there any other warranty requirements?

The ACL also requires that your warranty documentation is in clear and plain language that is easy for consumers to read and understand. You must also provide a number of specific details into the warranty document, including:

  • the business contact details, such as the business name, address, phone number, and e-mail address;
  • information of how a consumer may make a claim under the warranty, and what the business must do to honour the warranty;
  • the remedies available for defects; and
  • the warranty period.

What should you do now?

With the 9 June 2019 deadline right upon us, we recommend you review and update your warranty documentation to ensure you have included all the relevant mandatory text.

If you have any concerns or questions about how these changes may affect you, or if you would like more information about compliance with the ACL, please contact us.

Author: Blake Motbey, Paralegal.

Time to review your IP arrangements

In February this year, the Federal Parliament passed the Treasury Laws Amendment (2018 Measures No. 5) Bill 2018 (Act), repealing the intellectual property exemptions under section 51(3) of the Competition & Consumer Act 2010 (Cth) (CCA).

The repeal is set to come into effect on 13 September 2019.

What’s section 51(3)?

Section 51(3) covered contractual terms in licences and assignments of patents, designs, copyright and EL rights, and specified agreements in relation to trade marks.

Do your IP contracts need review?
Do your IP contracts need review?

The section provided a limited exemption for IP rightsholders, to allow them to make arrangements that would otherwise be prohibited under the CCA. So, for example, a generally anti-competitive term, or a cartel provision, which met the requirements of section 51(3), would be permitted.

The background of the section was the perceived conflict between the monopoly rights of IP rightsholders, and the competition provisions under the CCA, meaning that IP rights needed this exemption.

What’s the background to the changes?

Section 51(3) has had a life under the microscope, with consistent review and advocation for its repeal for quite some time. It was reviewed in the Hilmer Report, as well as in a number of subsequent competition reviews.

More recently, the Productivity Commission’s Inquiry into Intellectual Property Arrangements, released in late 2016, considered the balance between access to ideas and products, and the encouragement of innovation and investment.

The report recommended the repeal of section 51(3) on the basis that IP rights did not have significant competition implications, and issues only arose where there were few substitutes or where IP rights aggregation could create market power.

The Commission considered that there would be increasing benefits to repeal, especially in the pharmaceutical and communications markets, as the level of licensing and cross-licensing rises in the future.

 Where does this issue arise?

There have been very few cases where section 51(3) has been considered – in fact the ACCC stated in its 2016 submission to the Productivity Commission that it was not aware of any cases where section 51(3) had been used successfully as a defence.

That said, it’s anecdotally clear that IP rightsholders have relied on knowing that section 51(3) was there, in structuring agreements, and there are several situations where regulators and courts have considered a tension between IP rights and competition regulation. These include:

  • Exclusive dealing – such as where rightsholders impose restrictions on distributors about their permitted suppliers or customers. For example, in Transfield v Arlo [(1979) 144 CLR 83 at 108, the Court considered whether Transfield was obliged to sell exclusively promote and sell Arlo’s steel pole. Wilson J was of the view that if a contract clause requiring a licensee to use its ‘best endeavours’ to sell a patented product meant that the licensee could not sell competing products, it would have been protected by section 51(3).
  • Geo-blocking – where rightsholders impose geographical restrictions on the basis of consumer nationality or location. The EU recently regulated geo-blocking with Regulation 2018/302. The European Commission subsequently found that clothing company, Guess, violated the regulation by restricting authorised retailers from selling cross-border to consumers within the EU single Market, allowing them to maintain artificially high retail prices.
  • Assignments-back – In the US, Pilkington Glass was found to have built up a dominant position in the glass manufacturing market by requiring licensees to assign back improvements to Pilkington’s processes. Consequently, the court prohibited Pilkington from imposing territorial and use limitations on their US licensees, allowing them instead to manufacture and sublicence anywhere in the world, free of charge, using the technology in the licences.

What will happen when the repeal comes into effect?

When the repeal takes effect this September it will operate retrospectively, meaning that existing contract terms will not be grandfathered.

We can anticipate that with this change, the ACCC will have an increased focus on IP-heavy arrangements and compliance activities to ensure businesses understand their new obligations under the CCA.

The ACCC has stated that they are in the process of writing guidelines to assist businesses in complying with the repeal, but while we wait for these, we can expect that agreements including the following aspects will be of interest:

  • Exclusive arrangements, territory restrictions, geo-blocking and assignments-back, as mentioned above;
  • Licences that impose quantity restrictions on the licensees, split licensees’ rights by reference to customers, or involve bid-rigging;
  • Bundling and third-line forcing, where the licensee has to accept other products from the licensor or a third party;
  • Patent pooling arrangements – these are agreements where companies with related patents cross-license them to each other and agree on the terms of licence agreements to parties outside the pool; and
  • Clauses that provide for a first mover advantage or “pay for delay”, where one party pays the other to agree not to commercialise a product or move into a market.

Now is the time to review

With the commencement date fast approaching there is still a window of time to ensure that your existing IP arrangements will comply with the repeal.

If you have any concerns or questions about the potential impact of the repeal on your IP licensing, assignment or distribution arrangements, please contact us.

Author: Blake Motbey, Paralegal.

What are you implying?

There are several ways for terms be implied into a commercial contract. Terms can be implied:

  • by law – such as the consumer protection provisions of the Australian Consumer Law or the implied duty of good faith; or
  • by fact, where a term is reasonable, equitable, obvious and necessary to give business efficacy to the contract.

The recent case of Rehau v AAP Industries provides a useful reminder that key terms can be implied into a contract, with significant effect.

The facts

influence legal contract
Terms that you may not have intended can be implied into your contract

AAP Industries, a manufacturer of plumbing products, and Rehau, a wholesale supplier, were in dispute over a supply agreement dated 1999.

AAP Industries had agreed to supply 9 specified plumbing products to Rehau at a fixed price. The initial term of the agreement was 12 months with automatic renewals.

In 2013, after trying to renegotiate prices, Rehau stopped ordering the products. AAP Industries claimed that this was a breach of the agreement.

AAP Industries argued that although the agreement didn’t state so expressly, it contained an implied exclusivity clause, requiring Rehau to purchase the products only from AAP Industries.

The decision

Both the primary judge and the Court of Appeal agreed with AAP Industries.

The court’s view was that even though there was no exclusivity clause, the agreement, when construed as a whole, required Rehau to purchase the products exclusively from AAP Industries.

The main provisions that were considered included:

  • AAP Industries had to reserve production capacity to meet Rehau’s requirements and to plan raw material to meet Rehau’s deadlines.
  • AAP Industries had to maintain 2 months’ buffer stock free of charge.
  • Any failure by AAP Industries to meet a delivery deadline would constitute default of performance, entitling Rehau to withdraw from the Contract.
  • The agreement renewed automatically unless a party gave 3 months’ notice.

The court said that these terms meant it was equitable and reasonable to find that exclusivity was implied. The court also said that the agreement didn’t make sense without exclusivity as otherwise AAP Industries would have to hold buffer stock and reserve capacity with no corresponding obligation on Rehau to buy.

Sackville AJA noted the case of Colonial Ammunition Co v Reid, which stated that where a written agreement contains express terms relating to a party, the court should only find an implied obligation for the same party in the clearest case. In this case, the court considered that the proper construction of the contract was sufficiently clear to warrant the implication of exclusivity.

“Shall”

This case also highlights the importance of plain language drafting. Issues about interpreting “shall” vs “will” have a lengthy history.

In this case, the provision that stated “Rehau shall purchase the [plumbing products] from AAP” was interpreted as an obligation on Rehau to purchase the products at the fixed price. A non-legal reader could easily think this was a statement of intention, not obligation.

This finding was made even though the fixed price was not actually set out in the document.

Takeaways

The key takeaways from this case are:

  • You can exclude implied terms and warranties (to the extent permitted by law) in a general clause, but it works even better to add clear statements on important issues – for example, that the agreement is non-exclusive.
  • If you use plain language drafting, your business is more likely to understand its obligations and be able to head off potential disputes.

If you would like us to review your standard contracts with these takeaways in mind, contact us.

ACCC announces 2019 enforcement priorities

influence legal canberraEarlier this week, the ACCC announced its enforcement priorities for 2019.

As well as the enduring priorities of:

  • cartel conduct;
  • anti-competitive conduct;
  • product safety;
  • conduct affected vulnerable and disadvantaged consumers; and
  • conduct affecting Indigenous consumers,

this year’s focus areas include:

  • consumer guarantees on high value electrical products and whitegoods;
  • anti-competitive conduct and competition issues in the
    financial services sector, including foreign exchange services where fees “seem to remain stubbornly high“;
  • opaque pricing of essential services, including telecoms and energy;
  • protection for small business, including under franchising and unfair contract requirements; and
  • customer loyalty schemes.

A new focus is on emerging issues in advertising and subscriptions on social medial platforms, especially for younger consumers.

In announcing the 2o19 priorities, Chair Rod Sims stated that the ACCC expects 3 significant cartel investigations to be referred to the Commonwealth DPP. The ACCC will also be occupied with the Consumer Data Right, where pilots and generic data sharing are expected to be in place in July, with consumer data to be shared by February next year.

Highlights of 2018 and areas to watch in 2019

2018 came and went in a flash. France celebrated glory in the FIFA World Cup in Russia; Banksy sold his ‘Girl With Balloon’ painting for $1.86 million before the artwork shredded itself seconds after the gavel dropped; and the online world was captivated by the World Record Egg. And as we say goodbye to summer and settle into the working year, why not take the chance to reminisce on some of the more important developments of 2018, and look forward to those that 2019 has in store?

Influence Legal developmentsLooking back on 2018

  • New obligations were enforced under the European Union General Data Protection Regulation (the GDPR). While the GDPR is an EU regulation, the obligations have a wide reach, applying to all Australian businesses who have an establishment in the EU, offer goods & services to the EU, or monitor the behaviour of individuals in the EU.
  • As part of the government’s safe harbour and insolvency reforms, we saw the introduction of the ipso facto insolvency reforms by way of the Treasury Laws Amendment (2017 Enterprise Incentives No.2) Act 2017. The reforms apply to contracts entered into on or after 1 July 2018, affecting the ability of contracting parties to exercise termination, enforcement or other rights that are triggered by a company restructuring or insolvency.
  • The European Parliament voted in favour of introducing the controversial EU Copyright Directive, a legislation designed to better meet the needs of copyright protection in the internet age. The proposed directive caused significant global debate around the detrimental effects of Articles 11 (the Link Tax) and 13 (the Meme Ban), headlined as the ‘death of the Internet’.
  • The ACCC highlighted its hard stance against franchises attempting to contract out of their obligations under the Franchising Code of Conduct and the Competition and Consumer Act. The ACCC’s case against Husqvarna Australia highlighted the importance of all companies that appoint dealers, distributors, licensees or similar, to confirm whether their contracts are in fact franchise agreements.
  • A Victorian Supreme Court cast some doubt over the enforceability of contractual provisions that attempt to limit the period in which parties can claim for misleading or deceptive conduct. This arose in the case of Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd [2018] VSC 246, where the court considered the enforceability of a contractual provision requiring claims (including for misleading or deceptive conduct) to be made within 7 days.Justice Riordan, deciding in contradiction to a number of NSW decisions, ruled in favour of the “no exclusion principle”, stating that allowing the enforceability of such time limitations on claims would be against the public policy underpinning the provisions of the Australian Consumer Law (ACL).

Some areas to watch in 2019

  • Discussions over the EU Copyright Directive continue, with negotiators for the European Parliament aiming to finalise the directive shortly. However, negotiations have broken down, with the three-way discussion between Council, Parliament and member states  derailed over the exact wording over Article 11 and Article 13. Consequently, the “trialogue” discussion that was set to take place on  23 January was cancelled. With upcoming EU elections in May, there likelihood of any closure on this matter in the near future is low, with a final vote likely to take place under the next parliament.
  • The Telecommunications and Other Legislation Amendment (Assistance and Access) Act 2018, commonly referred to as the AA Bill, was passed in December of last year. The Bill’s aim is to compel various companies, especially those in communications industries, to assist Australian security and law enforcement agencies by allowing access to encrypted communications they believe may contain plans for illegal or terrorist activity. The implications of the Bill will be an interesting area to watch throughout the year, with a number of people, especially those within the tech and start-up communities expressing their concerns.
  • On 10 December 2018, the ACCC released its Digital Platforms Inquiry Preliminary Report. The ACCC’s report is founded on questioning the role and accountability of the global digital platforms (such as Facebook and Google) in the supply of advertising, news and journalism in Australia. The final report addressing these issues will be due on 3 June of this year.
  • There has been some debate globally and in Australia regarding the “hipster antitrust” laws, questioning the standards of competition law. The current foundation of competition law in Australia is focused on consumer welfare. However, concerns have been raised that this standard is too narrow and does not allow for prosecution of some types of conduct that some commentators believe competition law should cover.While this debate is likely to continue throughout the year, ACCC Chairman Rod Sims has reinforced Australia’s consumer welfare position, expressing their opposition to the introduction of broader interest considerations of public policy into competition law enforcement.

Author: Blake Motbey, Paralegal.

If it quacks like a franchisor …

McDonald’s, Subway, KFC – all well-known global giants in both fast-food and franchise systems.

These companies, among many others around the world (not just within the fast food industries), are easily recognisable to us as franchisors.

However, franchise systems come in many shapes and sizes, and there are some franchises that are not quite as well-known and obvious as the ones above. Companies may even try to distance themselves from the F word, and associated franchise regulation, by telling everyone (or at least the parties contracting with them) that they are expressly not franchisors.

This situation can be seen in the recent ACCC action against the Australian subsidiary of Swedish power-tool powerhouse, Husqvarna Australia.

Husqvarna and the ACCC

Earlier this year, the ACCC took action against Husqvarna.

The ACCC was concerned that the company was in breach of the Franchising Code of Conduct (Code) and the Competition and Consumer Act (Act). Husqvarna had told its dealers that their “dealership agreements” were not franchising agreements and, consequently, they were not entitled to protections for franchisees under the Code.

The ACCC also argued that the company was likely to have contravened the Act as a result of making misleading representations and that the dealer agreements contained unfair contract terms.

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… and swims like a franchisor …

In the result, Husqvarna admitted that categorising its agreements in the way it had, ‘probably’ did in fact mislead the dealers. To resolve the issue, Husqvarna also agreed to rewrite its agreements to ensure they complied with the Code and the Act. Also, the company agreed to enter an undertaking with the ACCC that it will not enforce any unfair contractual terms in the existing agreements.

Define: “Franchise Agreement”

An agreement will be covered by the Code when:

  1. A party, having substantial control over a business, grants another party the right to carry on that business;
  2. The business is associated with a specific brand name or trade mark; and
  3. The other party is required or agrees to pay for the right to use the brand and operate the business.

If an agreement satisfies all of the above, it will be considered a franchise agreement and will therefore be covered by the Code.

Importantly, a franchisor cannot simply attempt to waive or exclude the mandatory obligation to comply with the Code and the relevant protections for franchisees.

The Husqvarna case provides an important lesson for all companies that appoint dealers, distributors, licensees or similar, highlighting the importance of carefully assessing your agreements to ensure whether they may be considered a franchise agreement.

As Mick Keogh, the ACCC Deputy Chair, put it: “if it looks and smells and appears to be a franchise agreement, it’s considered to be one, irrespective of what the franchisor says.”

Are you a franchisor or franchisee?

If you are a business concerned that your agreements may be considered a franchise agreement, or if you are considering becoming a franchisee and would like to know your protections under the Code, please contact us.

Author: Blake Motbey, Paralegal

EU Copyright Directive – what’s all the fuss about?

Earlier last month the European Parliament voted in favour of the EU Copyright Directive (known more formally as ‘Directive on Copyright in the Digital Single Market’), proposed legislation designed to better meet the needs of copyright protection in the Internet age.

The directive is an attempt at amending the imbalances between the large digital corporations and the content creators who use these platforms to share their work. The aim is to implement a more rigorous process for protecting works against copyright infringement, while also providing a more efficient way to distribute earnings to rightsholders and reduce the ‘value gap’ between creatives and the big players in the tech world.

With piracy and the misuse of copyright being one of the ubiquitous consequences of the digital era, updating copyright protection laws would be something to get behind and celebrate, right?

Well…

While those in the creative industries, such as publishers, music labels, and individual creatives have thrown their support behind the Directive, many others, especially those in Silicon Valley, are rallying in strong opposition of the proposed laws; extreme opposers even heralding the “death of the Internet” as we know it.

Two specific articles of the directive find themselves at the heart of the polarising debate, namely, Articles 11 and 13.

Article 11

Article 11, aptly nicknamed ‘the Link Tax’, is designed to allow publishers of news content to request online platforms and news aggregators to obtain licences before they are able to share any of their publications. The obvious players finding themselves in the cross-hairs of this article are the larger platforms such as Google and Facebook. However, while individual and non-commercial use has been exempted from the law, there is concern the article will have broader implications, especially on smaller websites who wish to publish snippets and links to articles and who may be unable to afford the required fees.

Will this be the end of the Internet as we know it?

Article 13

Article 13, dubbed the “upload filter”, is the more controversial of the two.

The article is aimed at holding platforms that host user-generated content (such as YouTube) liable for any misuse of copyright that may result from any material uploaded by their users. Essentially, it means these platforms can be sued directly by rightsholders for infringement.

While the current method of policing the misuse of copyright is by responding to complaints by rightsholders, and removing any infringing content accordingly, the directive will require these platforms to take “effective and proportionate” measures to prevent unauthorised works from being uploaded.

“But YouTube has over 300 hours’ worth of video content uploaded every hour. How could they possibly find and stop all the infringing content from being uploaded?” you ask. It is exactly this practicality of complying with Article 13 that has proved one of the more contentious points of the debate.

It is argued that the only possible way to implement this process of prevention is by using automatic filtering technology capable of scanning through every single piece of content and stopping any content it recognises as copyrighted material in its tracks. Easy enough, right?

While it might not be a significant burden for the giants of the tech world, like Google, YouTube, and Facebook, who have the finances to develop and implement such technologies, its effect on smaller platforms appears to be more problematic; with some contending it will hinder the growth of digital platforms in the EU which will be unable to cope with the article’s requirements.

Just as concerning is just how efficient such filtering technology can be. It has been queried how the technology will be able to recognise and distinguish copyright infringement from other authorised or legal uses of copyright, such as parody or satire. This worry has given the article another common nickname: the “Meme Ban.”

For those not familiar, memes are often created by using still images (commonly taken from copyrighted works such as photographs, films, or television shows) and layering text over the top for comedic effect or expression of an idea. While they are most often created without the author’s consent for use of an image, they are still currently considered legal under EU law. Accordingly, there are serious concerns that if the filtering technology required by Article 13 is unable to distinguish legal use from infringement, content such as memes will mistakenly be flagged as infringement.

So, while memes may not be technically banned as the nickname suggests, they may likely still be flagged and killed off amongst the other infringing uploaded content.

What happens next?

The proposed legislation still faces one more round of voting in January 2019 before it will receive final approval. Many believe that, after the successful vote last month, it is very unlikely the legislation will be defeated in the new year.

What remains to be seen is in fact, however, is just much of a disruptive impact the directive will have on the Internet both in the EU and around the world.

Author: Blake Motbey, Paralegal.

 

Can I protect my business when an employee leaves?

When running a business, you will inherently find yourself in competition with other businesses and companies in your industry or market area.

However, it is not uncommon to find your best employee has decided to move on to work for a competitor; nor is it rare for an employee to resign with ambitions to start their own business in direct competition to you.

So, what can you do when a valuable employee suddenly becomes the competition?

Restraint of trade clauses

To protect themselves in the event of an employee’s exit, many Australian businesses regularly include restraint of trade clauses in their employment agreements.

Employers may use these clauses to try to prevent former employees, as well as contractors or suppliers, from:

  • Competing against the former employer;
  • Soliciting clients; or
  • Poaching other employees.

Restraints are often also used to protect the employer’s or customer’s confidential information, in conjunction with standalone confidentiality clauses.

 

A reasonable restraint of trade clause can help protect your business

Validity of restraint clauses

Restraint clauses are legally presumed to be void, as it is considered contrary to public policy to unreasonably prevent a person from lawfully obtaining gainful employment.

However, there are some circumstances in which the court may override this presumption and find a restraint clause to be valid and enforceable. The key principle is reasonableness.

Reasonableness

A restraint clause will be considered ‘reasonable’ when it restricts no more than is reasonably necessary to protect the employer’s legitimate commercial interests.

An employer does not have a legitimate interest in merely protecting themselves against competition as such. Instead, the employer must demonstrate special circumstances that justify the need for the restraint.

These circumstances may include:

  • The scope of the employment;
  • The nature of the employer’s business;
  • An employee’s connection to clients;
  • Access to confidential informational or trade secrets; and
  • Whether the employee received any compensation or remuneration for the restraint.

Employers will also often specify both a restraint period and a geographical area for which the clause applies. However, the court will consider whether the duration and reach of the restraint goes beyond what is adequate in protecting the employer’s interest.

In Pearson v HRX Holdings, the Federal Court found that a lengthy restraint against HRX co-founder, Mr Pearson, was reasonable.

HRX, an HR company, sought to enforce a restraint on Mr Pearson preventing him from working within the HR industry for 2 years.

The court held the restraint was reasonable because:

  • Pearson was vital in building and retaining the company’s client base, and was considered the ‘human face’ of the company;
  • He had access to all the company’s confidential information;
  • The two-year period reflected the average client contract length and gave the company reasonable opportunity to renew these without competition from Mr. Pearson; and
  • The clause was negotiated and specifically tailored to Mr. Pearson, and in exchange for the restraint, Mr. Pearson would receive his salary for the restraint period as well as an 8% shareholding.

By comparison, in Just Group v Peck, the restraint clause was determined to be unreasonable.

Just Group attempted to enforce a restraint preventing Ms Peck, former CFO, from working with their competitor, Cotton On.

The clause attempted to restrain Ms Peck for 2 years from carrying on “any activity, the same or similar to” her role with Just Group in Australia and New Zealand. The clause also referred to a list of 50 brands Ms Peck would be prevented from working with.

The court determined that this restrained went beyond what was required to protect Just Group’s legitimate business interests, considering that:

  • “Any activity” undertaken by Ms Peck as CFO was likely to be similar in any CFO role or similar position;
  • The clause was too broad and prevented Ms Peck from working with any other fashion brand or retailer, including non-competitors; and
  • The list of 50 brands included a majority that were not in competition with Just Group.

Just Group had given enough evidence proving Cotton On was a competitor, and if the clause had been more specific towards the brand, the restraint may have been enforceable. However, the court held the annexure was to be read as a whole and could not be re-written later in attempt to restrain Ms Peck from working with a specific competitor.

These cases highlight the importance of restraint clauses being drafted to be specific to an organisation’s precise business interests.

Summary

If you are an employer or customer wanting to include restraint of trade clauses in your agreements, it is important to remember that the reasonableness of a restraint of trade clause is determined by the specific nature and circumstances of your business and the individual employee or contractor.

If you would like more information on restraint of trade and confidentiality clauses to protect your business, contact us.

Author: Blake Motbey, Paralegal.