influence updates

My business idea is being copied – what can I do?

You’ve put time and thought into a great idea, invested in R&D, brought your idea to market – and now you find a competitor marketing the same idea.  What can you do?

Influence Legal idea
How can you protect your idea?

The different aspects of intellectual property can help to an extent, but the issue of copying a concept can become complex.

Copyright protects the original material expression of an idea, rather than the idea itself. Unless your competitor copied your original artwork, wording or code, copyright won’t assist – for example, if you have had an idea for a scheduling program, and a competitor saw your idea and released a scheduling program which doesn’t use any of the original coding or graphical elements of your program, you won’t be able to make a copyright claim.

What about trade marks? Have you applied for trade mark protection of your product’s distinctive name? If the competitor used your name or a substantially similar name to promote similar products, you can make a claim based on your registered trade mark.

Patents protect inventions. They must be new to the market. If you think that your idea may be patentable, consult a patent attorney – but you must keep your idea confidential until the patent application is filed. If you have publicised it yourself, it may no longer be patentable. You can use confidentiality agreements where you need third parties to develop your invention. Also, take practical steps to protect confidentiality – limit distribution and keep information in secure files.

The law of passing off and consumer protection law can help where the competitor is making their offering look like it is, or is associated with, yours. For example, your competitor might be marketing compatible goods which have the look and feel of your brand, or suggesting that they are your authorised distributor or licensee.

If none of these will help in your specific situation, there are still practical steps you can take:

– make sure that you have all the relevant variations of your domain name so that there is no chance that an unscrupulous competitor can pick up similar names to direct traffic to their own website;

– make sure you have your domains set to auto-renew, or diarise renewal dates, so that you don’t accidentally drop your domain and have it picked up by your competitor;

– ensure that your website security is strong so that you reduce the risk of losing customers if your website is offline;

– make sure you are actively marketing on all relevant social media channels;

– if you are using a name or logo that is distinctive, apply for a trade mark, including in relevant overseas markets you plan to expand to;

– once you have your trade mark, ensure you diarise renewal dates;

– keep a record of your marketing activities, including promotions, press releases and media coverage, in case you need to demonstrate your reputation in the market in future years; and

– ensure that your concepts are kept confidential, including using effective confidentiality agreements, until they are ready for release.

If you have any questions about how to protect your ideas, contact us.

What’s this ipso facto whatsit?

Like us, you may at first have read straight past the headlines of recent articles about the “ipso facto” changes in the context of the safe harbour reforms. However, on further exploration it’s clear that it will be important for businesses and their commercial advisers to be aware of this upcoming legislative change.

The ipso facto changes and safe harbour changes, both relating to insolvency, are both included in the recent package of enterprise incentive reforms as part of the National Innovation and Science Agenda.

Safe harbour

Directors have long been subject to strict requirements preventing them from allowing a company to trade when insolvent, meaning that companies in financial distress had to promptly appoint an administrator or liquidator.

influence legal insolvency

The safe harbour reforms under the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 will protect directors from personal liability, but allow the company to continue to trade and incur debts, where the directors start developing a course or courses of action that are reasonably likely to lead to a better outcome for the company than immediate administration or liquidation. The company will need to meet employee entitlement, tax and other statutory requirements.

The goal of these reforms is, in part, to attract investment, and experienced directors, to new businesses in the start-up economy, and to allow businesses to trade out of early difficulties.

Rights triggered by insolvency (“ipso facto” rights)

As part of the package of enterprise incentive reforms, the new “ipso facto” regime will commence on 1 July 2018.

Ipso facto rights are rights under a contract that allow Party A to take action on the occurrence of a specified event; they can be distinguished from rights that arise on Party B’s breach.

In this context, we are talking about Party A’s rights to take action when Party B becomes insolvent. Common rights include:

  • terminating;
  • suspending or stepping in;
  • calling on a bank guarantee or other security;
  • setting-off; or
  • cancelling or changing credit terms.

In the past these have been seen as sensible rights for Party A to have in case of Party B’s insolvency. For customers, they allow an orderly transition to a new supplier before the supplier stops performing altogether. On the other side, they allow suppliers to minimise their losses when a customer looks likely to collapse owing funds.

Under the enterprise incentive reforms, as Party A you will not be able to exercise ipso facto rights arising from your Party B’s:

  • voluntary administration;
  • receivership;
  • a scheme of arrangement; or
  • financial position, where it is subject to one of the reasons above.

The legislation includes anti-avoidance provisions which cover reasons that, in substance, are contrary to the new rules. Likely areas to be caught here are a breach of financial covenants, like debt to equity ratios or net tangible assets. In some circumstances Party B may be able to prevent you from exercising other rights, such as a termination for convenience right, that you have chosen to exercise solely because of Party B’s financial position.

You will still be able to exercise rights for an actual payment default or breach of obligations to perform.

Your rights are stayed during the period of the insolvency process, but cannot be reactivated in respect of the original issue once the stay period is over.

There are exceptions where your Party B is a foreign entity which becomes insolvent, or your contract is governed by overseas law. Some additional exceptions will also be prescribed by regulation – these are likely to be banking and financial markets contracts.

What should you do?

The reforms are not retrospective. If your contract is in place before 1 July 2018 and continues to run into the future, your contract will be grandfathered and you will still be entitled to exercise rights triggered by insolvency.

For contracts which are made after 1 July – including contracts which expire and are then renegotiated after 1 July – you will need to review your processes in 2 key areas:

  • avoid the risk of accidentally exercising these rights, if they have been included in the contract, without your Party B’s agreement. Although there are no legislative penalties, you will run the risk of breaching the contract yourself (potentially a repudiation entitling your Party B to make a claim against you) if you try to terminate for insolvency when you are not entitled to do so.
  • review your credit terms and how you will react to early warning signs of insolvency in the future. It may be too late to wait to act until there has been an actual contract breach, so suppliers may react to these changes by allowing shorter credit terms overall, and customers may need to place more focus on developing back up options for when a supplier collapses.

If termination and step-in rights for insolvency are important to your business, you should also consider:

  • taking steps to keep current contracts on foot, rather than allowing them to expire and then renegotiating, and
  • whether, under your contract, each new order is treated as a separate contract or as part of the original, grandfathered contract.

Thanks to Scott Mannix at Maddocks for an excellent recent presentation on this important issue.

 

 

Anti-bribery and corruption requirements for Australian businesses

Many Australian businesses who deal with customers based in the US and UK will be faced with contract clauses requiring compliance with the US Foreign Corrupt Practices Act (FCPA) or the UK Bribery Act.

Influence Legal cashThere is a lot of doubt and disagreement about the way that these laws apply to conduct outside the home jurisdiction and whether Australian businesses should accept these contract clauses.

Here are some key points to know if you are confronted with a clause like this.

Coverage

Anti-bribery and corruption (ABAC) laws focus on 2 key areas:

  • corruption of public officials; and
  • bribery in the private sector.

Australia

Australia has its own anti-bribery and corruption (ABAC) requirements.  Specific requirements include:

  • State and Territory legislation applying to bribery of public officials and private individuals;
  • Criminal Code (Commonwealth) offences for bribery of Commonwealth officials;
  • Criminal Code offences for bribery of foreign officials (with some application to overseas conduct); and
  • false accounting offences where a business falsely records bribes as legitimate expenses.

Australian laws also catch “grease” payments, also known as facilitation payments.  These are payments to public officials to speed up or smooth out an approval which would have happened anyway, and are distinguished from payments to change an outcome. Grease payments are only permitted if they meet certain criteria, including prompt, accurate records.

We are expecting further tightening of Australian ABAC requirements when the Crimes Legislation Amendment (Combatting Corporate Crime) Bill is implemented, most likely later this year.

US

The FCPA catches all US entities including their overseas subsidiaries; US subsidiaries of overseas entities; overseas entities which issue securities in the US; and overseas entities which take steps towards the corrupt conduct in the US.

It covers corrupt gifts and payments to foreign public officials – defined very broadly – for the purpose of obtaining or retaining business.

Foreign public officials would include, for example, a doctor in a state hospital, or a government official who also acts in a private capacity where the corrupt conduct occurs.

There is no materiality threshold so small gifts are caught – the test is the purpose of the payment or gift.

Controversially, the FCPA does not apply to grease payments, on the basis that they do not change the outcome. These may still be prohibited under the local laws where the conduct takes place.

UK

The Bribery Act covers the bribery of any person to obtain or retain business or a business advantage. Unlike the FCPA it applies to private sector as well as public sector conduct.

The Bribery Act covers both making and taking bribes, and a foreign public official is defined more narrowly than in the FCPA.

It applies to overseas conduct of UK firms and their subsidaries and emphasises a compliance culture with strict liability corporate offences (that is, there is no requirement to prove the company meant to commit the offence).

There is no exception for grease payments, but the Ministry of Justice has released guidance suggesting that prosecutors will exercise discretion where the company:

  • has a clear policy;
  • has issued guidance to staff;
  • is monitoring compliance;
  • is recording gifts;
  • is taking proper action to inform local governments; and
  • is taking practical steps to curtail grease payments.

Where does this leave Australian suppliers?

Both US and UK companies (and their Australian subsidiaries) are obliged to do supplier due diligence to avoid liability for ABAC issues. For the FCPA, for example, this is understood to include doing business with reputable third parties who are acting in compliance with the FCPA, and this leads to contractual requirements for compliance in Australian supply contracts.

Many Australian companies are naturally reluctant to agree, in a contract, to be caught by overseas legislation that would not otherwise apply to them. It is important to recognise, though, that the customer may have very limited discretion on these issues, meaning that these clauses can be a negotiation roadblock.

Possible compromises to offer include:

  • compliance with your own ABAC policies;
  • compliance with the Criminal Code and applicable State and Territory legislation;
  • compliance with detailed obligations stated in the contract which equate to, but don’t refer to, the overseas legislation; or
  • an obligation to assist the customer with its own compliance.

If, as will often be the case, the customer insists on an express reference to the overseas legislation, then you’ll need to review the detail against your existing legal obligations and your own ethics policies.

If you would like advice on a specific ABAC clause, contact us.

 

Highlights of 2017 and areas to watch in 2018

Influence Legal ParliamentHere is a round-up of some key developments in 2017:

  • The Competition and Consumer Amendment (Misuse of Market Power) Act 2017 came into effect, implementing Harper reforms in the area of misuse of market power, adding an effects test as well as the purpose test.
  • The Telecommunications Sector Security Reforms were enacted and are now in a 12 month implementation period. These reforms impose obligations on carriers and carriage service providers to take steps to ensure the security of networks and notify breaches, and provide powers to the Attorney-General to issue directions relating to security risks.
  • Business gained useful guidance on the issue of unfair contract terms in small business contracts with a case in the waste management area which provided a detailed review of some common, and some less common, standard terms.
  • Consultations closed in December on a draft bill to implement aspects of the Government’s response to the Productivity Commission’s review of Australia’s IP arrangements.
  • A controversy in relation to the Olive Cotton Award highlighted issues around copyright, commissions and collaboration.
  • The Full Federal Court dismissed Vodafone’s application for judicial review in relation to the ACCC’s decision not to declare a domestic mobile roaming service. If a domestic mobile roaming service had been declared, this would have allowed carriers to access Telstra’s regional networks in areas not covered by their own networks.

Areas to watch this year:

  • With mandatory data breach notification coming into force later this month, and the EU General Data Protection Regulation taking effect in May, 2018 is the year of privacy compliance for Australian businesses.  Check out more details here and ensure that your privacy compliance systems are up to date.
  • Also in Europe, the Trade Secrets Directive, which harmonises trade secrets protection, will be implemented by member states by the middle of the year.
  • In the FOI area, submissions to the OAIC on the Freedom of information regulatory action policy close this Friday.
  • The ACCC has foreshadowed its 2018 priorities, including criminal cartel enforcement and deterrence. In an interview in the AFR, Chairman Rod Sims suggested that there would be 3 to 4 cartel actions in 2018, including the possibility of penalties for executives. This follows the ACCC’s successful actions in financial services and in the shipping industry, with a further shipping case to be heard in July.
  • Other ACCC priorities mentioned in the interview include bank interest rate decisions, and media sector mergers.
  • On the IP front, submissions on the Copyright Amendment (Service Providers) Bill, which would extend safe harbour provisions to educational and cultural institutions, libraries, archives and organisations assisting people with disabilities, close on 30 January.

Mandatory data breach notification toolkit

influence legal securityAll businesses that are currently subject to the Privacy Act will have new mandatory data breach notification obligations from 22 February 2018.

With new obligations under the European Union General Data Protection Regulation (EU GDPR) also applying to many Australian businesses, now is the time to finalise your updated privacy procedures.

Step 1 – understand your obligations. You will need to have an understanding of the new mandatory data breach notification requirements and, if you handle EU customer information, of the GDPR requirements.

Step 2 – audit your existing systems. Do you have clear, simple plans for changing passwords, limiting access, editing or removing online information and notifying the right people internally? Assess the likely security risks in your organisation and consider possible weak points.

Step 3 – audit your suppliers. You will need to review vendor contracts, specifically for IT vendors, to check whether you have appropriate privacy requirements in place for your suppliers.  Have you identified suppliers you can call on to help you identify, cap and respond to breaches?

Step 4 – update your plan.  Many organisations will already have data breach response plans in place. Check whether these are up to date – current people, contact details and systems need to be added. Plans will need to be updated to reflect Australian mandatory reporting obligations and GDPR requirements.  In particular, for GDPR requirements, you need to note the 72 hour timeframe for notification. Ensure that your privacy policy is up to date – we see a lot of privacy policies that were drafted before the changes of the last few years and haven’t been updated.

Step 5 – test your plan. Run through possible scenarios to ensure that you have the right procedures and systems in place.

You should ensure that your procedures are ready during the next month.

We can help you with a privacy toolkit including details of the new requirements, updated policies, procedures and reviews to ensure that you are ready for February. If you would like to discuss our privacy toolkit, contact us.

When is a contract term unfair?

Since the new unfair contracts rules protecting small businesses came into effect almost a year ago, businesses have been working to adjust their contract terms.

influence legal contracts unfairWe now have new guidance on unfair contract terms from a recent consent decision in the waste management industry.

The ACCC took action against a large waste management company, JJ Richards, and obtained consent orders in the Federal Court. This action was part of a broader ACCC initiative to review small business contracts.

The Federal Court declared that as many as 8 terms in the company’s standard form contracts for small business were unfair. The problem areas were:

  • an auto-renewal clause, meaning that small business customers would have their contracts rolled over unless they cancelled within 30 days before the end of the term;
  • exclusivity;
  • unilateral price increases;
  • a term excluding the company’s liability where its performance was prevented or hindered in any way;
  • the company could charge for services that were not provided even when this was outside the customer’s control;
  • the company could suspend for non-payment, but continue to charge the customer;
  • an unlimited indemnity;
  • customers could not terminate if they had outstanding payments and the company could continue charging equipment rental after termination.

You can see from this list that some of these terms are obviously excessive, while others, like the auto-renewal clause, are very common in business customer contracts, so it’s important to get the specifics right.

The Court noted that each of the terms was unfair but they also interacted in a way that increased the overall imbalance between the parties.

So, in reviewing your contract terms, it’s important to look at the overall effect as well as taking the details of each clause separately, to judge whether the terms are compliant with the unfair contract rules.

We can expect further guidance from another upcoming ACCC action in the office services area.

If you would like assistance to review your standard contracts, contact us.

Here is our earlier article specifically for franchisors on updating contracts for the new rules.

The GDPR is coming – does it affect you?

Australian businesses of any size need to be aware of the new European Union General Data Protection Regulation, which will be implemented on 25 May 2018.

influence legal data protectionSmall Australian businesses, with a turnover below $3 million, are used to being exempt from the Australian Privacy Act (unless they fall into specific categories). Many do not have privacy policies or procedures in place.

The GDPR does not exempt small businesses.

Which Australian businesses will be affected?

The GDPR will apply to all Australian businesses which:

  • have an establishment in the EU,
  • offer goods and services in the EU, or
  • monitor the behaviour of individuals in the EU.

The OAIC has provided some guidance, with examples of these criteria:

  • an Australian business with an office in the EU,
  • an Australian business with a website that targets EU customers,
  • an Australian business whose website mentions customers or users in the EU, or
  • an Australian business that tracks individuals in the EU online, and uses data processing techniques to profile them.

Examples of targeting EU customers include enabling the ordering of goods or services in a European language, or enabling payment in euros.

The European language factor appears broad, but the GDPR makes it clear that where a website uses a language that is generally used in the business’ home country, this will not necessarily mean that the GDPR will apply. Australian businesses offering services in community languages should be conscious of this issue, and, if necessary, make it clear that that their presence is only local.

The issue of “mentioning” customers or users in the EU arises from Recital 23 of the GDPR, which states that where a website mentions customers or users who are in the EU, this may make it apparent that a business envisages offering goods or services to EU data subjects.

What are the requirements?

Key new aspects of the GDPR are stricter accountability measures, including audits, privacy impact assessments, activity records, policy reviews, and the appointment of a data protection officer for large-scale data handling operations.

The GDPR and the Australian Privacy Act share many requirements, including the need:

  • to implement a “privacy by design” approach to compliance
  • to be able to demonstrate compliance with privacy obligations, and
  • to adopt transparent information handling practices.

There are also some significant differences.  These include data portability and a right of erasure which go considerably further than Privacy Act requirements.

What should Australian businesses do?

According to an ISACA survey of executives, as at 9 months before implementation, fewer than a third of those surveyed were satisfied with their organisation’s progress to prepare for GDPR; more disconcertingly, 35% were not aware of their organisation’s progress.

To put your business in better shape to meet this new regulatory framework, you should be acting now in the following areas.

If your business is currently below the Privacy Act threshold, but will be directly affected by the GDPR, you will need to kick start your compliance program.

To adapt a current privacy program to the GDPR, you will need to focus on the following areas:

  • compliance: classify personal data; conduct risk assessments; implement privacy protection practices for all business areas; identify an employee with responsibility for data protection, and, if your organisation handles significant amounts of data, appoint a data protection officer; implement compliance audits; and document all processes.
  • data handling: be aware that individuals under 16 cannot consent to the collection of their data; implement systems to delete data if it is no longer used for its initial purpose; delete data if the individual revokes consent.
  • transparency: put in place processes to provide individuals with full and clear information about the treatment of their personal data; review end user licence terms and customer terms; be prepared to notify regulators (within 72 hours) and affected individuals if a data breach occurs.

Even if your business is not directly affected, the ability of your EU business partners, distributors and corporate group members to provide you with information from their own operations will be affected, so you may need to adjust existing business practices to address this issue.

You should also consider whether your business relies on business data that is sourced from affected organisations.  Industry sources expect the GDPR, once implemented, will significantly affect the flow of business data which is currently processed and used for analysis by Australian businesses.

If you need help to develop privacy policies and processes, or to adapt your existing procedures to meet GDPR requirements, contact us.

Copyright, commissions, collaboration and the Olive Cotton Award controversy

influence legal copyright commissionsThe recent controversy about the winning entry for the 2017 Olive Cotton Award is interesting in terms of the requirements of this photography portraiture prize, but also a helpful illustration of how copyright ownership can become complicated in the areas of commissions and collaboration.

Justine Varga entered a fascinating work, “Maternal Line”, which had been inspired by the sight of her grandmother seated at the kitchen table testing pens by scribbling.

She asked her grandmother to scribble directly onto a piece of film, and then handprinted the result in the darkroom. The result is a moving artwork described by the judges as “a very complex photographic portrait”.

There has been plenty of discussion about whether the result of Varga’s process was a portrait or a photograph.

However it also prompts discussion of some frequently misunderstood areas of copyright, as this article, quoting North Sullivan, former president of the Australian Commercial and Media Photographers association, and Professor Kimberlee Weatherall of the University of Sydney law school, highlights. Sullivan and Weatherall have both queried whether the copyright in the artwork is owned by Varga or her grandmother.

Collaboration

The general rule in relation to collaboration, where parties jointly create a copyright work, is that the authors own the copyright jointly.

In order to qualify as a joint author, a person must have contributed more than ideas or suggestions, because copyright applies to the expression in material form, not to the idea.

Dictation, though, is different from suggestion. The scribe who takes down dictation is not the copyright owner. This has the corollary that where one person has seen a copyright work and dictates it, copyright can be infringed even though the scribe has never seen the copyright work.

The question raised in this situation is whether Varga’s process involved a collaboration with her grandmother, or whether her grandmother was the sole author.

Importantly, joint authors cannot deal with their copyright without the consent of the other authors. Where two parties to a commercial transaction are jointly contributing to a copyright work, it’s worthwhile considering whether to agree that each party can commercialise the work without the other party’s permission, or whether they want to act jointly throughout the life of the copyright.

Commissions

The laws relating to copyright in commissions differ between jurisdictions, and it’s important to understand the Australian rules for local situations.

When you commission a copyright work – as, in this situation, Varga may have done by asking her grandmother to scribble on the film – you do not automatically own the copyright.

There are some exceptions.

Photos commissioned for private or domestic purposes, such as wedding photos or a family portrait, under a paid arrangement, are an exception to this general rule. However, it’s open to the photographer to retain copyright by agreement, so the person commissioning the photograph needs to check the photographer’s terms and conditions.

The situation is also different for copyright works commissioned by the Crown, or created in the course of employment.

In other situations – whether it’s marketing material, website content, a logo, or photographs for your business – you need a written assignment agreement from the author if you want to own the copyright. You should also consider appropriate treatment of moral rights.

There are also compromise options. If your key requirement is to be able to use the commissioned work freely, a broad licence from the author may be adequate for your situation.

If you would like us to review your terms and conditions in relation to copyright ownership and licensing, contact us.

 

Know your customers’ rights

In a previous post we looked at the issue of written terms and conditions so dense that it was practically impossible for consumers to understand them.

This issue was highlighted last month when Purple WiFi revealed that it had hidden community service requirements for free WiFi users inside its clickwrap terms.  Only one person claimed the prize that was also concealed in the terms, while 22,000 agreed to clean toilets, hug stray animals and paint snail shells “to brighten up their existence”.

Lululemon website screenshot
Screenshot – Lululemon website

What about when terms and conditions don’t actually match your customers’ rights at law?

The recent Lululemon issue provides a great example. Lululemon has agreed to pay $32,400 in penalties after the ACCC issued infringement notices relating to misleading representations about consumer rights.

The Australian Consumer Law provides guarantees for faulty consumer goods and services.

Lululemon listed sale items on its website under the heading “We Made Too Much” with the statement “We made a little extra – don’t be shy, help yourself. It’s yours for keeps so no returns and no exchanges”.

Lululemon’s return policy also said “Final sale items like underwear, water bottles + We Made Too Much gear are yours for keeps”.

In addition, staff were alleged to have stated that there was no refund right for faulty products.

The ACCC alleged that these statements were representations that customers were not entitled to a refund or replacement for faulty goods, which is not the case under the Australian Consumer Law.  The consumer guarantee rights provide for refunds in the case of a major failure of goods or services.  This applies equally to full price and sale price products.

Importantly, these guarantees cannot be excluded in consumer transactions, and it’s a contravention of consumer law to attempt to exclude them in your terms and conditions.  However, they can be limited.  Check your terms and conditions to see if they include an up to date statement of your customers’ rights under the Australian Consumer Law as well as any permissible limitations.

If you would like us to review your terms and conditions, contact us.