Unpacking recent changes to Australia’s IP legislation

22 November 2018

Recent changes to Australia’s intellectual property legislation reflect some of the recommendations made by the Productivity Commission in 2016. This article explores how these changes will impact parallel importers and plant breeders, as well as addressing trade mark cluttering. We further examine why it’s now easier for parallel importers to sell legitimately marked goods without infringing Australian registered trade marks, and how a plant breeder can now obtain ‘essentially derived variety’ rights in a derivative variety that isn’t registered or under registration application. Other points of discussion are what may happen now that an application to remove a trade mark for non-use can be brought significantly earlier and, more broadly, why it’s important that IP professionals familiarise themselves with a range of other changes that affect IP Australia’s procedures and processes.

On 24 August 2018, the Intellectual Property Laws Amendment (Productivity Commission Response Part 1 and Other Measures) Act 2018 (Act) was passed. This Act implements some recommendations made by the Productivity Commission in 2016, following an extensive public inquiry into Australia’s IP system.

Here, we discuss the context and effects of a few key changes achieved by the Act.

The key take-aways are:

  • It’s now easier for parallel importers to sell legitimately marked goods without infringing Australian registered trade marks;
  • A plant breeder can now obtain ‘essentially derived variety’ rights in a derivative variety that isn’t registered or under registration application;
  • An application to remove a trade mark for non-use can now be brought three years after trade mark registration;
  • IP professionals should familiarise themselves with a range of other changes that affect IP Australia’s procedures and processes.
Implications for parallel importers

Parallel importation is when a third party buys and imports a genuine branded product (rather than counterfeit) from an authorised supplier outside of Australia, and sells it more cheaply to Australian consumers than the authorised Australian supplier.

This may constitute an infringement of trade mark rights held by an owner of the Australian trade mark, or an authorised Australian supplier or manufacturer.

Section 123 of the Trade Marks Act 1995 (Cth) provided a defence against trade mark infringement by the parallel importation of trade marked goods, if the registered owner or authorised user had applied the trade marks.

The Courts interpreted the provision narrowly, with the onus on the importer to show that the registered owner of the Australian trade mark consented to the application of those marks to the goods. This was difficult. Trade mark owners could fetter the defence by various corporate or contractual arrangements (such as assigning the registered mark to their local licensee, distributor or subsidiary). The Productivity Commission viewed this as ‘anticompetitive and welfare eroding’ and ‘a less efficient trade mark system’.

Under the new Act, a person does not infringe a trade mark if, at the time of using the trade mark, the person made reasonable inquiries and a reasonable person would have concluded that the trade mark was applied to the goods, by or with consent of a ‘relevant person’.

‘Relevant person’ is drafted broadly. It includes not just the owner or an authorised user, but persons with significant influence over the use of the trade mark by the owner or authorised user. The intention is to prevent the fettering of the parallel importer’s defence by tricky commercial arrangements.

What constitute ‘reasonable inquiries’ will depend on the facts. Receiving a certificate of authenticity from an overseas supplier who applied the trade mark lawfully outside of Australia is probably sufficient. However, if a supplier has a notorious reputation, sells goods at suspiciously low prices or through non-standard trade channels, a reasonable person would take further steps (perhaps contacting the trade mark owner directly).

This reflects the Australian Government’s policy position that parallel imports increase competition, benefit consumers and should be encouraged.

Changes to plant breeders’ rights: essentially derived variety

A plant breeder’s right (PBR) is the exclusive right to perform certain acts in relation to propagating material of the plant variety, including selling and propagating the registered plant variety.

Propagating material means ‘any part or product from which, whether alone or in combination with other parts or products of that plant, another plant with the same essential characteristics can be produced’.

To obtain protection, the plant variety must be new, distinct, uniform and stable.

PBRs entitle the owner to exclude others from dealing with their propagating material. However, a key exception to the PBR-holder’s exclusive rights is that propagating material from a protected plant variety can be used by another for the purpose of breeding other varieties (the ‘breeder’s exception’).

The exception acknowledges that existing varieties are the necessary starting point for breeding new and improved varieties.

Essentially derived varieties share essential characteristics of a registered plant variety, but are clearly ‘distinct’. The essential characteristics result from the genotype or combination of genotypes of the registered variety. The essentially derived variety does not exhibit any important (as distinct from cosmetic) features that differentiate it from that other variety.

The owner of an original variety may successfully apply to have a third party’s essentially derived variety classed as an ‘essentially derived variety’. That will provide the owner of the original variety with equal rights in the essentially derived variety. This means that neither party can exploit their rights in the essentially derived variety without authorisation from the other. A licence agreement to use the essentially derived varieties is sometimes the commercially sensible consequence. The intention was to reduce the incentive to free-ride on the efforts of initial breeders, without limiting innovation by the breeder’s exception.

However, prior to the amendments, non-PBR-registered varieties (i.e. non-registered derived varieties) could not be declared an ‘essentially derived variety’. That allowed derivative breeders to copy protected varieties, not register the derived variety, and so not attract the essentially derived variety provisions. The original variety owner couldn’t obtain an interest in the derived variety. This meant the derivate breeder was free to exploit the resulting material simply by not seeking to register its derived variety. Breeders of outcrossing species, such as pasture and forage crops that are easy to copy, were particularly exposed. Part 2 of the Act closes that loop hole by allowing varieties that aren’t just nominated for PBR protection to be declared essentially derived varieties.

However, new patented gene editing technologies (such as CRISPR-Cas9 gene editing) are making it easier to change varieties just enough to avoid classification as an essentially derived variety. The new technology also allows modifications which permit patent protection, rather than PBR. That is a disincentive to original breeders and favours those who can afford or access the new technologies. This issue is compounded by a perceived willingness by IP Australia to favour the rights of derived breeders in preference to the original breeder.

The Act also: (a) allows third parties to sue a PBR owner for receiving an unjustified threat of infringement; (b) permits a PBR owner additional damages if infringement is blatant or flagrant; and (c) allows exclusive licensees of PBRs to sue for infringement.

Applications for removal of trade marks

Trade mark protection reduces consumer search costs. A firm can readily convey information, by reputation, about the quality or utility of its product or services using a trade mark. Firms are encouraged to maintain or improve the quality of their products or services to preserve the value of their marks.

However, a trade mark registration system does reduce the available set of signals competitors can use. This can promote market dominance by incumbent firms to the detriment of new entrants and market competition generally. The issue is compounded when the trade mark register contains a large number of unused or ‘overly broad’ marks (trade mark cluttering).

Trade mark cluttering is caused by, among other things, firms not exercising rights over part or all of their registration. Unused marks don’t reduce consumer search costs and only make it more difficult for new entrants. IP Australia conservatively estimates 8,000 registered marks are held by firms that no longer trade.

To combat trade mark cluttering, it should be easier and quicker to remove unused marks.

Prior to the Act, a non-use application trade could not be brought until at least five years after the filing date of the trade mark application. The Act reduces this period to three years from the date the trade mark becomes registered.

However, other contributors to trade mark cluttering will also need to be addressed. Importantly, the means of addressing cluttering are likely to be less effective on large international firms, who have the resources to adapt.

To reduce trade mark cluttering and improve market competition, a strategy to mitigate anti-competitive behaviour should be targeted at those larger firms.

The Productivity Commission recommended that information about trade mark use should be collected and made available to the public by IP Australia. This would make it easier for individuals to assess the prospects and bring applications to remove trade marks for non-use. This would help regardless of the size of the trade mark owner. This recommendation has not been adopted by the Government.

Other interesting amendments

Prior to the Act, if patent holders wanted their patent extended, they were required to lodge a return with the Department of Health setting out details of Commonwealth funds spent on research and development (R&D) and the total amount spent on R&D. The Act removes any requirement to lodge those returns. There are now more efficient means of obtaining information about funding.

There were also several other changes effected by the Act, including:

  • Relaxed requirements on IP Australia to give certain notices in writing, so it can use more efficient and appropriate means of communication and administration;
  • The Commissioner of Patents and Registrars (trade mark, designs and plant breeders’ rights) can now determine the preferred means for filing (including filing evidence) and fee payment;
  • The Commissioner and Registrars are authorised to use computer programs to make decisions, and are given significant flexibility about which decisions may be computerised. Additional appeal rights are granted and existing appeal rights are preserved;
  • Patent applications and specifications must now comply with formality requirements outlined in an instrument made by the Commissioner (rather than just statutory regulations). The Commissioner is given discretion to update the formality requirements so they are in line with changing technologies and international obligations. For example, drawings in patent specifications must be black and white, rather than colour. However, if proposed amendments to the Patent Cooperation Treaty(PCT) Rules are passed to allow colour drawings to be filed in international applications, then the Commissioner of Patents can prescribe relevant formalities accordingly; and
  • Graphics and photographs included in a PCT application, in addition to drawings, are now treated as a complete speciation. However, a claim or claims must not rely on those graphics and photographs unless absolutely necessary to define the invention.

Several other changes, including some other recommendations by the Productivity Commission, are proposed and set out in the draft Intellectual Property Laws Amendment Bill (Productivity Commission Response Part 2 and Other Measures) Bill 2018.