April update – trade marks, consumer protection, SEO and Google AdWords – the Veda case

In late March the Federal Court handed down its decision in the Veda case, which provides an in-depth look at the issues that arise when trade marks are used in search engine optimisation, keywords for Google AdWords campaigns and sponsored links.

As in several previous cases, the outcome is again disappointing for trade mark owners while highlighting the different approach that needs to be taken for online branding.

Veda Advantage is a credit reporting agency, while Malouf Group Enterprises owns credit repair businesses, meaning Malouf’s clients use its services to try to correct or change credit reports maintained by Veda.

Veda complained about Malouf’s use of more than 80 keywords including the word “Veda” in Google AdWords campaigns, including “veda credit score”, “contact veda” and “veda phone number”.  When potential clients searched for these terms, they would find an organic Google search result for Veda, but also a sponsored link for Malouf’s credit repair businesses.  In some screen formats, only the Malouf result would be shown.

Veda claimed infringement of its VEDA trade marks, and false and misleading conduct in contravention of the Australian Consumer Law.

The court found that Malouf had not infringed the VEDA trade marks by using them as Google AdWords keywords, as the marks were not used as a sign to distinguish Malouf’s services from the services of others.  Malouf had instead used them to identify internet users who might have an interest in using its services.

The VEDA marks were also used in the title of sponsored links, such as “Clean Your Veda File” and “Fix My Veda History”. The court found that most of these titles were used to described the purpose of the services, and not as a badge of origin. Only one title, “The Veda Report Centre”, did appear to be used as a badge of origin.

On the consumer protection side, the court found that the Google AdWords keywords were not representations made to consumers; they were only used in Malouf’s commercial arrangement with Google. Even the use of “free” in the keywords was not capable of being a consumer protection breach, again because the keywords were not representations to consumers.

The sponsored link titles, visible to consumers, were held not to be misleading, other than “The Veda Report Centre”.

Accordingly, the court found that only the use of “The Veda Report Centre” as a sponsored link was either a trade mark infringement or a consumer law contravention.

The court discussed the fact that organic search engine results are generally taken to be more reliable than sponsored links, but of course SEO means that businesses can achieve enhanced organic results.

As SEO terms and keywords are invisible to consumers, this case highlights that businesses will need to consider managing their online branding strategy by covering all the bases that potential competitors may use.

March update – ACCC releases 2016 priorities

At the end of February the ACCC released its priorities for the 2016 year, including:

  • an increased focus on competition advocacy and market studies;
  • cartel conduct – the ACCC anticipates criminal prosecutions and civil proceedings this year;
  • Indigenous consumer protection;
  • express and extended consumer warranties;
  • competition and consumer issues in the health and medical sector;
  • misleading food health claims;
  • protection of small businesses from unfair terms in standard form contracts (see the November update for details of the extension of unfair contracts rules to small business).

Other recent ACCC developments include:

  • the Chrisco case, where Chrisco was fined $200,000 for false or misleading representations about customers’ ability to cancel layby plans, and also found unfair contract terms which permitted Chrisco to continue to deduct payments after the layby was fully paid; and
  • the establishment of an agriculture unit which will focus on anti-competitive practices and unfair trading practices in agricultural supply chains.  Market studies are planned in this area.

February update – use caution with agreements to agree and termination rights

In late January the Supreme Court of Victoria released its judgment in the case of North East Solution v Masters & Woolworths [2016] VSC 1.  The case raises some interesting issues on the topics of:

  • Agreements to agree
  • Good faith in termination of contracts.

The case involved a Letter of Offer and Agreement for Lease made in 2009/2010 for a site at Bendigo which was to be used for a Masters store.  North East Solution (NES) was to develop the Masters store at the site for Woolworths, then lease it to Masters for 12 years plus six 5 year option terms.

In 2010 Woolworths notified NES that it was terminating the agreements due to unresolvable differences about the landlord’s work costs and the contribution to be made by Masters.

NES argued that Woolworths did not act in good faith and that there was no genuine disagreement on these issues.  It argued that Woolworths terminated for other reasons, including the fact that construction costs would exceed an undisclosed budget, and a desire to purchase an alternative Bendigo site which it saw as likely to assist it in competing against Bunnings.

Woolworths on the other hand argued that this was an agreement to act reasonably and in good faith to agree on commercial terms including the landlord’s work costs and Masters contribution.  The fact that the parties did not agree on these items did not mean that there was any failure of good faith or unreasonable behaviour.

Both documents stated they were binding agreements.  The Agreement for Lease stated that the parties were to negotiate on the landlord’s work costs, and, if they could not agree, either party could terminate the agreement.  Woolworths submitted that this was effectively an unenforceable agreement to agree.

The court found that this was not an agreement to negotiate without any constraints. It was, instead, an agreement to act reasonably and in good faith in resolving any differences about the specific topic of the costs estimate.

The court then went on to find that Woolworths had acted with its own purposes in mind. By taking the other factors into account, Woolworths failed to act reasonably and in good faith to resolve the issues as required by the contract, and so the termination was not justified.

Woolworths has been ordered to pay NES an amount reflecting its lost opportunity cost, less a discount for the risks involved, including the risk that NES would not obtain funding or development approval.

The case highlights the need for caution where parties want to enter a non-binding MOU, or to include a non-binding term in an otherwise binding contract.  Businesses should draft any agreement to agree carefully, and consider (especially for long term contracts) whether they will need to include a termination for convenience clause.

January update – submissions due on telecommunications security bill

The second exposure draft of the Telecommunications and Other Legislation Amendment Bill is currently open for comment.

The Bill will increase the existing regulatory requirements for telecoms carriers and carriage service providers (C/CSPs) in relation to national security risks. Significant obligations include:

  • C/CSPs to do their best to protect their networks and facilities from unauthorised access and interference.
  • carriers and some CSPs to notify security agencies of planned changes to networks and services that could adversely affect this security obligation (such as outsourcing or offshoring arrangements affecting sensitive parts of a network).  C/CSPs will also have the option to submit an annual plan.
  • C/CSPs to provide information on request by the Attorney-General’s Department to enable compliance monitoring.

In addition:

  • the Attorney-General will have power to issue C/CSPs with directions to manage security risks.
  • the civil enforcement provisions of the Telecommunications Act will be expanded to cover non-compliance with these obligations and directions.

The Bill has been amended from the first exposure draft which was released mid last year, with a number of changes following input from industry members concerned that the obligations and powers were too broad. Industry members also expressed concern that the directions power was not subject either to administrative review or to consideration of the impact on the C/CSPs. The changes include:

  • the scope of the security obligation has been narrowed.
  • the threshold for exercise of the power to issue directions has been increased (including requiring an adverse security assessment from ASIO) and reserved to the Attorney-General rather than the Secretary of the Attorney-General’s Department.
  • the Attorney-General will be required to consult with the affected C/CSP and the Minister for Communications, and take into account the impact of a direction on the C/CSP, its customers and the market.
  • directions will also be subject to administrative review.

Submissions on the second exposure draft and the associated administrative guidelines are due on Monday 18 January 2016.

December update – Harper review – no outcome yet on IP/competition overlap

Late last month the Federal Government released its response to the Harper Review on competition law issues in Australia.

One area of the review was the current laws applying to the overlap of IP and competition law.

IP laws give exclusive rights to the IP owner and this exclusivity has always created a tension with competition law.  Section 51(3) of the Competition & Consumer Act exempts conditions of IP assignments and licences from the application of some of the competition provisions of the CCA.

This has meant that IP owners have had more freedom, as long as they are not misusing market power or engaging in resale price maintenance, to impose and enter exclusive arrangements about their IP.  The ACCC’s position in recent years has consistently been that IP owners should not have this exemption and there have been several reviews of the issue.

The main area of concern is where IP owners refuse to licence their IP to third parties.  This is seen as analogous to access to essential facilities, and the view is that IP owners should be required to grant access to their IP where, for example, a competitor requires it to compete in a downstream market.  Another concern arises when competitors use a licence agreement to engage in market-sharing.

The contrary view is that IP owners should have some freedoms from competition law due to the public benefit in promoting innovation.  If competitors are permitted access to IP, this may reduce the IP owner’s return on investment and divert budgets away from research and development.  Significant IP licensors, such as companies which appoint distributors with exclusive territories, take a keen interest in this topic.

The Harper Review recommended that section 51(3) should be repealed.

In contrast to the majority of Harper Review recommendations, which the Government has accepted, the Government has noted this recommendation and announced that it will be waiting for the outcome of the  Productivity Commission’s review in this area.  The Productivity Commission released its issues paper on 7 October 2015 and will report in August 2016.

One option under consideration is to replace section 51(3) with safe harbour protections like those in Europe, the US, Canada and New Zealand.  In the EU, for example, anti-competitive IP arrangements can be permitted where the benefits are seen to outweigh the detriments, and the European Commission has issued block exemptions for licences of patents, know-how, designs and software copyright.

Companies which have built their business models on IP licensing and distribution arrangements should watch this space next year.

November update – unfair contracts rules extended to small business

The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 has now passed both houses of Parliament and is waiting for royal assent.

The Bill extends existing unfair contracts rules, which already applied to contracts with consumers, to contracts with small businesses. Small businesses are defined as businesses with 20 employees or fewer.

Small businesses which enter lower value contracts (currently <$300,000 for a contract of up to 12 months, or <$1 million for a contract of over 12 months) relating to goods, services, financial products or land, will be protected by the unfair contracts rules. These rules apply to standard form contracts. If a provision in a standard form contract breaks the rules, that provision will be unenforceable.

The unfair contract rules prohibit contract provisions which:

  • unfairly advantage one party to the contract over the other party;
  • aren’t reasonably necessary to protect the advantaged party’s legitimate interests; and
  • would cause financial or other detriment to the disadvantaged party.

Businesses will need to think about whether to review their standard contracts to remove potentially unfair terms, as well as conducting due diligence on the other party to check whether or not it’s a small business, just as they currently should do for consumer contracts.

October update – Issues with expert determinations

Contracts often refer disputes to expert determination in an attempt to ensure speedy and cost effective alternative dispute resolution. The contract clause will usually say that the expert’s decision is final and binding.

A recent case has shown some issues with expert determination clauses, with a determination that a party can challenge the expert’s decision even when it is said to be final and binding.

In this case, the expert had to determine whether production in a vineyard had been reduced by more than 50%. The expert calculated the reduction in one way; the court at first instance calculated it another way. The NSW Court of Appeal found that it should be calculated in a third way and that the expert had misinterpreted the contract to arrive at the method of calculation. The Court said that interpretation of the contract wasn’t within the scope of the expert’s brief, and so the decision could be challenged.

The case has some lessons in terms of defining the scope of an expert’s task and being prepared for the fact that alternative dispute resolution provisions, even if they say they cannot be challenged, will not always take away the court’s jurisdiction.

September update – Report recommends changes to treatment of Bitcoin

The Senate Economic References Committee has published its report on digital currency, and has recommended that transactions using digital currency, such as Bitcoin, should be treated as national or foreign currency transactions for the purposes of GST.

Last year the Australian Tax Office had determined that Bitcoin was a commodity, so its purchase would attract GST, as well as GST applying to the purchase of goods or services using the digital currency.

The effect of the Senate Committee’s recommendations would be that Bitcoin purchases would no longer be subject to double taxation as a barter, and that digital currency transactions would be subject to AML-CTF regulation.

Currently, more than 100,000 Bitcoin transactions are made daily.

August update – Government consulting on crowd-sourced equity funding

The Federal Government is consulting with business on reducing compliance costs and making capital raising more flexible for small proprietary companies. This process will include consultation on whether small props should be allowed to access the Government’s proposed crowd-sourced equity funding framework for public companies, as well as reviewing share register requirements and document execution rules. Submissions are due on 31 August 2015.

July update – take care with emails – you might create an accidental contract

A recent Queensland case (Stellard v North Queensland Fuel) highlighted the risk of creating a contract without necessarily meaning to.

The parties had been negotiating for the sale of a service station. They exchanged detailed emails including an offer price, a draft contract and agreement that the terms of the sale contract would be generally on the terms of the draft.

The deal fell over and it turned out that the vendor had been negotiating with another party throughout.

Even though both parties had included “subject to contract” wording in their emails, the court found that there was an enforceable contract for the sale of the service station. The court said that the subjective intention of the vendor wasn’t the key – instead the court looked at what an objective reasonable person would have understood from the emails. The “subject to contract” wording just meant that the parties would document a formal agreement later in the process.

Parties often rely on “subject to contract” wording to protect them in case of a change of mind – this case highlights that that won’t necessarily work if an objective reasonable person would think that the parties intended to form a contract straight away.

June update – pirate websites

The Copyright Amendment (Online Infringement) Act 2015 has received royal assent.

Copyright owners can now ask the Federal Court for an order requiring an ISP to block overseas websites with the “primary purpose” of piracy. The effect of the order would be that the ISP would have to disable access to the website for Australian Internet users. The court will have to consider the interests of the copyright owner, ISP and website operators before making the order.

The High Court of England and Wales has recently used similar powers to order the five largest ISPs in the UK to block access to several overseas websites which hosted pirated e-books.

May update – metadata is personal information

The Commonwealth Privacy Commissioner has released a determination considering whether metadata is personal information under the Privacy Act 1988.

The Commissioner found that metadata held by Telstra was personal information, and that Telstra was obliged to provide access to that metadata to the relevant individual.

Further update – in December 2015 the Administrative Appeals Tribunal overturned the determination, finding that ” it may, but not always, be possible to identify a particular Telstra customer by reference to the mobile network data and other data it maintains. That fact does not necessarily lead to the conclusion that the mobile network data is personal information. Whether it is personal information depends upon its characterisation as being about an individual for that is what the definition of ‘personal information’ requires.”  The decision also confirmed the view that an IP address is not information about an individual.

April update – check your contracts for exclusion of indirect and consequential loss

The Australian case law around consequential loss has seen quite a few developments recently.  A recent case in Queensland has highlighted the importance of an effective, and detailed, indirect and consequential loss exclusion.  In the Vision Eye case, an ophthalmologist was found to have wrongfully terminated a service agreement covering two eye clinics, which had to close as a result. The service agreement did not exclude loss of opportunity or loss of profit.

The court awarded damages to cover lost profits from the closure of the two clinics, and additional loss of opportunity because the clinics would otherwise have been able to provide new services resulting from a development in macular degeneration treatment. The result? The ophthalmologist was required to pay over $10 million in damages.

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