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Scam Alert: False Billing & Unsolicited Invoices

Janice Yew | July 18th, 2017

It’s approaching the end of the financial year and business is booming. You’ve settled all your accounts well before 30 June. You’ve even paid the invoice from IP Direct for the renewal of your business’ trade mark registration well before the due date!

Fast forward to 5 months later, and you receive a letter from us (or your trade mark attorney) notifying you that your trade mark will be due for renewal soon, and that if you do not pay the renewal fees within 6 months, your registration will lapse. Wait, what?

Invoice scams such as this cause huge losses for businesses around the world each year. In fact, it is the third most reported scam in 2017 according to the Australian Competition and Consumer Commission.

How does it work?

The scam involves an offer disguised as an outstanding invoice designed to get you to sign up for unwanted goods or services. In some circumstances, these goods and services are actually delivered (at an inflated price). Otherwise, you are left out of pocket, and may have to pay for those goods and services again down the track.

Often, such scams target the owners of trade marks, business names and domain names. As soon as you apply for a trade mark or patent, or register a domain or business name, your details become publicly available. Fraudsters then trawl these public registers for your details, and send you a targeted notice purporting to be legitimate renewal notices.

How do I avoid being scammed?

Before you pay an invoice or bill:

  • check the goods and services in the invoice were actually ordered and delivered;
  • make sure the invoice is from the provider you normally deal with;
  • check the ACCC, ASIC and IP Australia’s websites to see if this invoice appears on the list of scams that have already been notified to authorities;
  • contact the company or registrar directly using contact details you find independently (e.g. if the invoice purports to be from your internet provider, look online or in the phone book for their support line and give them a call there to verify the invoice);
  • don’t be pressured or intimidated into paying until you are sure it is legitimate; and
  • when in doubt, seek independent legal advice.

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The In-Depth Guide to IP Commercialisation

Tamsyn Vassallo | July 11th, 2017

Intellectual property (IP) is central to many of the businesses we work with. We invariably assist these businesses with the IP commercialisation process, helping them to generate tangible value from their IP assets.

This will typically take the form of a marketable product, service or process, comprising protected and registered IP.

But if we demystify the ‘IP commercialisation’ buzzword, what does the process actually involve, practically speaking?

The In Depth Guide to IP Commercialisation

The answer is ‘it depends’. The specific process will vary based on individual factors and decisions specific to your business, and there is no one-size-fits-all strategy.

For some, the preferred strategy to obtain value from their IP is to develop it and then sell (and so assign it and part with it). For them, the commercialisation journey ahead will be relatively short.

But if, like most of the businesses we work with, you have commenced or are considering the many other commercialisation pathways available, then a long journey lies ahead. This will include many forks in the road, when key business decisions will need to be made and revised as the business evolves.

The majority of our clients elect to commercialise both locally and internationally, so the following high-level summary of the pathways available is intended to apply equally to local or international markets.

The groundwork – before you commercialise

If taking the prudent approach, most businesses will progress (though not necessarily in this order) through the following preliminary steps before determining whether and how best to commercialise their ideas, brands, products or innovations.

Such groundwork is invaluable for informing your business strategy, but also to assist your business in ensuring that potential IP assets are securely protected and owned by your business before being disclosed and, as a result, compromised.

If confidentiality of your ideas is lost during discussions with third parties (such as prospective investors, manufacturers or distributors) then competitive advantage may be lost if the prospective partner develops their own competitive business, product, service or process. In the case of designs and patentable inventions and innovations, due to confidentiality requirements before filing for registration, these may no longer be capable of being registered in Australia and other jurisdictions. “First to file” requirements for trade marks and domain names can enable competitors to file for registration where the “true” owner starts commercialising without first obtaining their own registration. In almost all cases, lack of formal IP protection will undermine the value of a business, including to potential  acquirers, partners and investors.

Ideation, protection and monopolisation

  • Market research.
  • Assessment of whether ideas, brands, products and/or innovations can be protected (including competitor analysis and availability searches).
  • Develop and protect IP, including through registrations and contractual protections (for example: patents, trade marks, designs, copyright, confidential information).
  • Keeping ideas secret and/or confidential (giving consideration to novelty requirements for patents and designs and first to file requirements for trade marks and domain names).
  • Valuation of IP assets.

Business development

  • Business plans, assessing and determining local and international markets.
  • Capital raising and fund raising.
  • Determining and establishing preferred commercialisation pathways and sales channels in chosen markets.

Legal issues snapshot:

– Advice on IP rights and available protection
– Availability searches and competitor analysis
– Drafting and filing IP registrations (and advice on evidential record keeping)
– Corporate structuring for security of IP and other assets
– Business planning advice
– Non-disclosure agreements
– Identifying partnerships and capital raising opportunities
– IP valuations

The options – ways to leverage IP assets

There are many alternative ways in which to leverage your IP, some of which are outlined here. The key decision underpinning how to proceed will be whether to do so independently or in partnership (whether that be with investors, manufacturers, distributors or other partners).

Examples include commercialisation where:

The IP owner sells/assigns its IP to another business

The IP owner independently (perhaps through a ‘spin off’ or subsidiary for commercialisation purposes):
– sells its products or services locally; or
– establishes international businesses and sells internationally.

The IP owner through partnerships:
– licenses the IP;
– enters into a joint venture or partnership;
– exports internationally and sells through a distributor; or
– commercialises through other partnering arrangements.

The process – which approach is best for you?

Choosing from these types of options will depend on a number of initial, internal considerations and assessments:

  • What are your business’s financial resources now and in the future?
  • What are your business capabilities and what is your expertise? Are you capable of manufacturing? Are you capable of marketing and selling or distributing?
  • What are your business objectives and expectations?
  • What types of IP do you currently own or expect to create and protect?

To plan how to commercialise you will also need to consider key external factors:

  • What are your competitors selling and developing?
  • What is the market for your product or services?

To illustrate these issues, we provide non-exhaustive examples considerations that can be taken into account and steps followed in four scenarios:

  1. selling your IP;
  2. commercialisation by the original owner of the IP;
  3. licensing and franchising, and
  4. joint venture.

1. Selling IP

In this scenario, the business sells some or all of its IP assets to another business (either as a partial or overall business asset sale or transfer of ownership of the entity conducting the business). After the sale and assignment of the relevant IP is complete, the original owner no longer retains any interest in the IP and it is divested.

This option is suitable for businesses without the capabilities and resources to commercialise (or willingness or interest in doing so). It may also be the preferred approach if the business has no use for the IP being sold or needs an immediate injection of funds from the sale for other aspects of its business.

Important considerations in this scenario include the need to have registered IP rights prior to seeking purchasers, who will want to see that the asset being acquired is protected (and registered rights will attract a higher value). It will also be necessary to retain confidentiality of business and IP-specific information throughout the negotiations in the event that the deal falls through. The parties will also need to enter into a comprehensive sale agreement, with all necessary terms, to formalise the transaction, which properly identifies the relevant IP, as well as including terms dealing with payment, warranties, applicable laws, and any conditions to the sale.  Finally, from the purchaser’s perspective, it will be necessary to ensure that the  the relevant IP regulator in the relevant jurisdiction is notified about the new owner.

Legal issues snapshot:

– Securing relevant IP protection (advice on available protection, availability searches, drafting and filing IP registrations)
– IP valuation
– Non-disclosure agreements
– Identifying purchaser opportunities
– Preparation and negotiation of the sale agreement
– Management and completion of the transaction
– Effecting the assignment of IP

2. Commercialisation by original owner

This approach is suitable where your business is already well-established and has significant organisational and financial capabilities (including R&D, manufacturing, sales and marketing, etc). This may also be the preferred approach if you are risk-averse and do not want to disclose any of your business information, ideas and IP to any potential partners (who may become competitors). Alternatively, a business may be compelled to take this approach is it does not have any ability to establish or develop partnerships.

Important considerations in this scenario include keeping your ideas confidential, IP protection and enforcement (as your business IP may be core to your competitive advantage in this scenario).

Legal issues snapshot:

– Securing relevant IP protection (advice on available protection, availability searches, drafting and filing IP registrations)
– Corporate structuring for security of IP and other assets
– Business planning advice
– Agreements with customers (such as service agreements, terms and conditions of sale and privacy policies)

The In Depth Guide to IP Commercialisation

3. Licensing and franchising

In this scenario, the owner (licensor) grants permission to another party (licensee) to use and exploit the IP. In licensing arrangements, the IP owner retains the IP ownership. Often the IP licensing terms may comprise part of a broader and more complex arrangement, including the provision of services (such as manufacturing or distribution services) or with respect to a franchising arrangement.

This approach is suitable if you would like to:

  • make additional income from your IP or make money from IP you are not currently using (but do not want to sell the IP, but wish to retain ownership);
  • only manufacture your products (and do not have other operational resources available to sell and distribute);
  • only sell and distribute the products (and need another party to manufacture these);
  • outsource all of the business and IP commercialisation; or
  • break into other markets through the services or expertise (and existing capabilities) of another party, such as international markets.

Important considerations in this scenario include confidentiality of negotiations with licensees and the terms of the licence agreement (consider, in this respect, whether an exclusive or non-exclusive licence is best for you (in terms of your business plan, your IP; bargaining power; partner’s conditions). Also, you will need to ensure you address all the key terms in the licence agreement (including the term, IP identification, scope, licensed use and restrictions, payment, governing law) and ensure you register the licence if required in that jurisdiction.

Legal issues snapshot:

– Securing relevant IP protection (advice on available protection, availability searches, drafting and filing IP registrations)
– Business planning advice
– Non-disclosure agreements
– Identifying partnerships opportunities
– Preparation and negotiation of licence agreements

4. Joint ventures

In this scenario an alliance is formed between two or more independent entities to undertake a project by sharing the associated risks and rewards. There are IP issues relevant in all stages of this type of relationship. All parties bring to the table their own IP, created independently of each other, and the joint venture agreement will need to address each party’s own IP as well as the newly created project-related IP and each party’s respective ownership or rights of use of such IP (during the project and upon termination).

Legal issues snapshot:

– Securing relevant IP protection (advice on available protection, availability searches, drafting and filing IP registrations)
– Corporate structuring for security of IP and other assets
– Non-disclosure agreements
– Preparation and negotiation of joint venture agreements
– Advice on managing IP co-ownership issues

If you are considering taking the next step in your business, or with respect to obtaining the maximum value from your IP portfolio, we can provide strategic advice on commercialisation specific to your business capabilities and requirements.

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6 Costly Capital Raising Mistakes Businesses Make and How to Avoid Them

Sara-Jane Mok | July 5th, 2017

Entertaining as TenPlay’s Shark Tank might be, the reality TV series actually gives its viewers a glimpse into how sophisticated investors think and operate when it comes to capital raising. The “Sharks”, who play the role of investors on the show, are not benevolent charitable providers of funds – they simply want the most bang for their buck.

Some of the most common mistakes we see made by the entrepreneurs on Shark Tank (and in real life) are incorrectly valuing their financial projects, targeting the wrong investor audience and being unprepared with the information an investor might want to see when investigating the business.

On top of these, there are a number of legal regulatory requirements entrepreneurs need to be aware of.

The Corporations Act 2001 sets out strict disclosure requirements for offering equity to investors. There are a number of exemptions to this, such as small scale offerings, offers to sophisticated investors or offers with a minimum subscription of $500,000 among other exemptions.

Handpicked related article: Raising Capital for IP SMEs – Understanding the Disclosure Requirements

If you own a small to medium enterprise (SME) or start-up business that is exempt from the formal disclosure requirements under the Corporations Act 2001, the Australian Consumer Law will still apply to you. Anything that you tell investors about your business must be substantiated and not misleading. After all, they are investing in your business on the understanding that it has reasonable prospects of success.

Below we have outlined some of the key capital raising mistakes that all SME and start-up business owners should avoid:

1. Not having an Information Memorandum

Just because you do not need to comply with the formal disclosure requirements in the Corporations Act does not mean that you can forget about providing informative documents to investors.

You should have, at the very least, an informal disclosure document (although it should still look professional) such as an information memorandum. Most investors will want to be able to refer to information about the business and its prospects before they choose to invest.

Having the right documents that substantiate the information you have provided to investors can also help mitigate the risk of investors making a claim against your business for misleading or deceptive conduct if they make a loss on their investment.

2. Having overly optimistic financial forecasts

On the one hand, you’re really excited about your business and you want the investor to be interested because of the high potential future value of your business. But on the other hand, you don’t want to be misleading about the future prospects of your business and have the investor make a claim against you later for misleading and deceptive conduct.

You should ensure the figures in your financial forecast are based on reasonable and realistic estimates and that you strike the right balance in keeping your statements optimistic and accurate.

3. Grand sweeping statements about what your business can do

You want to impress investors with all the great things your business has achieved so far so you overstate how well your business has done.

By way of an example, your Information Memorandum declares that “We have patents in 125 different countries” but you have only filed a Patent Cooperation Treaty (PCT) application, which is still pending, and the patents are not actually registered yet.

Alternatively, your Information Memorandum claims that the use of the “Fish are Friends reprogramming machine”* for sharks can also be used on salmon-loving grizzly bears, when experiments and tests have not been conducted to substantiate this claim, and it is only a mere hypothetical possibility at this stage.

When making grand sweeping statements like these, you increase the risk of investors making a claim against your business for misleading or deceptive conduct when they find out the truth and realise they have made a loss on their investment. To avoid this situation arising, you should ensure that the statements that you do make about your business are accurate and can be supported by evidence.

4. Omitting relevant information

Before you can even start selling your goods or services to the market, there may be a number of regulatory barriers that the business needs to overcome, such as pharmaceutical or food safety standards.

If these regulatory barriers are likely to delay the commercialisation of your product or service, this is likely to be a disincentive for investors, so you might be inclined to leave that little important detail out of the Information Memorandum.

The problem is that silence or omission can also be considered to be misleading or deceptive conduct. Rather, you should be upfront, and articulate to investors what regulatory barriers there are that might affect the business.

5. Not offering shares in accordance with your company constitution

Expressions of interest from potential investors are pouring in and you are sending out share subscription forms to them before their interest wanes. But what about the majority founding shareholders who want to keep control of the company that they started? Have you reviewed your company constitution to see if there are any processes that need to be followed before you can issue new shares?

Quite often, a company constitution will require that new shares must be first offered to existing shareholders in their respective proportions, and only if they decline to take up the new shares can they be offered to third parties. These rules are known as pre-emptive rights, and they are designed to protect existing shareholders from having their stake holding diluted by the issue of new shares.

You should always read the fine print of your company constitution, and, if applicable, shareholder agreement. If you fail to follow the prescribed process, you run the risk of the new share issue being invalidated.

6. Not having a clear share purchase process

Have you thought about the types of shares you are offering to investors? Or the process to implement the share purchase? Or when the offer will close and when all the ASIC forms need to be submitted?

If you do not have a clear share purchase process in place, interested shareholders may not submit their forms in time or know where to send their forms to. Further, if there is no clear process in place, it could also affect the investor’s perception of your business and give them the impression that the business is disorganised and mismanaged.

From a logistical point of view, you should know when all the ASIC deadlines are. In your communications to investors, clearly state when the share offer closes, where they can send their forms to and the type of shares (and rights) they will be receiving.

Always get someone to review your Information Memorandum

Capital raising is not as simple or straightforward a process as one might think.

In fact, it is best if you get a second set of eyes to review your Information Memorandum to ensure that statements made in your documents are accurate and can be substantiated, that any prescribed share issue process in your company constitution and/or shareholder agreement has been complied with and that the share purchase process is clear and easy for investors to follow.

If you would like to speak to someone at mdp about your capital raising process please do not hesitate to contact us.

*please note that this is not a real invention and is being used only for hypothetical purposes. Patent searches have not been conducted to confirm the current state of the art for this type of technology.

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Dynamic Ads: Beware of the IP Risks

Alison Rees | June 20th, 2017

Your business is ticking along well. It’s been operating for a few years (or decades) now, and thanks to your Google AdWord campaign, there is a steady stream of customers.

You then receive a letter from a competitor. They are alleging that the keywords you have bid on and are using via your Google AdWords campaign are infringing their trade mark. They are threatening to take you to court.

Is this true? Do you need to stop or is this a ‘scare’ tactic? And what exactly is a Google AdWord?!

What are Google AdWords?

The Google AdWord service relates to keywords that people enter into the Google search bar, in an attempt to research their ailments so as to avoid going to the doctor (and for searching other things, or so I am told).

The search results at the very top of the page are paid advertisements of businesses who are using the Google AdWords service. The way it works is that businesses bid on keywords, so that their ads appear to relevant consumers. The subsequent results are ‘organic’ results. The organic results are websites ranked according to relevance, usefulness and popularity.

Google used to have a Google AdWords policy, whereby a business (or person) was not entitled to bid on a competitor’s trade mark. A little while ago, Google removed this policy. Just because Google no longer has this policy, however, does not mean that you are safe from the risk of a trade mark infringement claim when you use Google AdWords.

Will I be sued if I use my competitor’s names in a Google AdWords campaign?

It depends on how you are using your competitor’s trade mark.

You can only use a competitor’s trade mark if you do so in a way that does not indicate that your goods or services originate from or are connected to that trade mark. Whether this is the case depends on the circumstances. In particular, it depends on how visible or perceptible your use is to consumers.

A basic example (and not one based on real life*) would be a sports drink company who sells the drink “SportyQuench”, and bids on their competitor’s trade mark “PowerThirst” as a keyword.

If, in this example, a consumer entered “PowerThirst” into Google and an advertisement appeared with the headline “PowerThirst – the best sports drink” with a hyperlink to the SportyQuench homepage, it is likely that trade mark infringement would be established.

However, if an advertisement appeared with the headline, “SportyQuench: a great an alternative to the PowerThirst sports drink” with a hyperlink to SportyQuench’s homepage, SportyQuench would be better placed to argue that they are using the trade mark “PowerThirst” in a way that does not indicate a connection with that trade mark, or that “SportyQuench” originates from or is connected with the “PowerThirst” trade mark.

So…where do dynamic ads come into this?

Dynamic ads – a lack of control that can lead to a lot of liability

Dynamic ads are where Google AdWords uses a searcher’s search terms that were entered into the Google search engine to create more targeted advertising.

An algorithm automatically generates a heading for the advertisement, which includes the keywords that the customer has searched. The heading comprises of a phrase which is, according to the algorithm, most likely to result in the searcher clicking on the advertisement. The ad then includes a link to the landing page (your website).

Here is where things get risky, from a trade mark infringement perspective. The algorithm decides what the phrase will be, where the keyword will be inserted and which words will most likely lead to a ‘click’ on the advertisement.

You lose control of how the keyword is used in the title for your business’ advertisement. If the keyword is a competitor’s trade mark, there is a risk of trade mark infringement.

For example, SportyQuench used dynamic advertisements in relation to the trade mark “PowerThirst” which SportyQuench has bid on to use as a keyword.

The dynamic ad algorithm has calculated that the best possible chance that a consumer will click on the resulting advertisement hyperlink is if it says, “PowerThirst: the best way to keep sporting**!” When the ad is teamed with a hyperlink to SportyQuench’s site, there is a strong suggestion that SportyQuench is using “PowerThirst” as a trade mark, in relation to SportyQuench’s goods and/or services.

SportyQuench is then in very murky territory as far as trade mark infringement goes.

Our example is based on the case of Veda Advantage Limited v Malouf Group Enterprises Pty Limited [2016] FCA 255. It is a recent decision, and some commentators are of the view that even using trade marks in the way which the court said was permissible, is in fact still trade mark infringement. We are all waiting on the edge of our seats for a higher court to address this uncertainty. For the moment, Veda is the leading authority on the matter.

Does this really happen?

Yes. Unfortunately, we have seen recent cases of businesses being caught in this way. Typically their marketer suggests that they upgrade to dynamic ads. If the business already uses their competitor’s trade marks as keywords, then there is a much higher risk that resulting dynamic ad searches will create advertisements that can infringe a competitor’s trade mark.

We recommend that you conduct a review of what keywords you are using in your AdWords campaign. Check if they are trade marks of competitors. If they are, you should get advice as to whether your use of them does or does not constitute trade mark infringement. To err on the side of absolute caution, avoid bidding on competitor’s trade marks in your Google AdWord campaign.

*which is a good thing, given that the imaginary names are terrible. We stick to practising law and leave the marketing to others for good reason.

**slogans are also not our strong point.

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Exporting Overseas? Here are 5 Tips to Protect Your Brand before You Go

Jacqueline Plunkett | June 8th, 2017

One of the biggest mistakes businesses exporting overseas make is rushing into the process without first protecting their brand.Unfortunately, we see clients making this mistake all too often. Even large businesses (like Penfolds) can make this mistake.

Before you export or expand overseas, you should protect your brand by securing your core intellectual property (IP). Here are five ways you can do this:

1. Protect your IP at your export destinations

Intellectual property protections are largely territorial in nature. This means that any protection you have in Australia won’t generally extend to export destinations. You can severely limit your avenues of protection unless you have specifically covered yourself in your destination markets.

Fortunately, there are ways to remedy the situation if you have already exported without first protecting your brand. However, this will take time and money, and there’s a risk your foreign agents and distributors could lose interest whilst you sort yourself out.

Another important thing to note is that IP protection may be limited to the language you registered it in. For example, if you are exporting to China, your English trade mark won’t cover the Chinese character mark equivalent. This was the mistake that Penfolds made when they entered the Chinese market.

Covering off different languages indicates market entry sophistication, a sound understanding of the function of a trade mark, and puts your business in good standing for engaging with partners and future investors.

Exporting Overseas Here are 5 Tips to Protect Your Brand before You Go

2. Avoid disclosing anything to potential partners

Being successful enough in Australia to go for trade shows overseas and meet with potential partners is very exciting. However, you run the risk of intellectual property disclosure, especially during discussions with these potential partners.

If you don’t already have registered IP rights or a properly drafted and signed non-disclosure agreement (NDA), you should avoid disclosing anything. Even if you do have an NDA, there might be a lack of consideration in the choice of jurisdiction: Is it enforceable there? Do you need a translated copy? At the same time, you should be careful using foreign language translators for legal documents, as some provide suspect services.

Talking about the commercial outcomes is a good way to avoid inadvertent IP disclosure. Avoid how discussions, stick to why with potential partners. Do your due diligence, and speak at a high level. If you need to send messages over online platforms (like Chinese messaging app WeChat), match your behaviour online with your face-to-face discussions.

3. Structure yourself properly from the start

Check you have set up the appropriate business structure to suit your commercial goals, and that IP assets are owned by the rights entity (eg your holding company).

In Australia, unincorporated associations cannot register standard trade marks, but they can own collective trade marks. Many IP registers around the world publish details that enable anyone to see who owns the IP.

Because different businesses have different kinds of entity structures, it is important to get the intellectual property right before you file here and overseas. Deal with ownership changes, check the Personal Property Securities Register and assign rights early on, especially when large tax consequences can be triggered moving assets around later on. Investing in quality advice at the outset is generally a worthwhile cost in the long term.

Handpicked related article: Corporate Structuring: Are You Parking Your Bright Idea in the Right Spot?

Exporting Overseas Here are 5 Tips to Protect Your Brand before You Go

4. Check your products or services are legal to sell in the destination market

There is, of course, no point protecting intellectual property in foreign markets if your products or services can’t be legally sold there.

For example, while you may be able to file trade marks for your e-cigarette products, the official regulations on selling these products (which might touch on plain packaging legislation, poisons and therapeutic requirements, and a patchwork of local laws) could mean that the red tape is too high to allow commercial success, let alone justify filing a trade mark.

Again, it comes down to thinking about your business, what consumers want from it, what you can legally give them (and at what costs), and then tailoring your IP protection to get that outcome.

It also pays to keep abreast of any major regulatory changes that impact on IP, which IP professionals can generally help with as they “survey the horizon” regularly.

5. Get advice from an expert

Once you’ve met potential business contacts overseas and have a partner willing to take on your product, you should consider going to a trusted IP expert as soon as possible.

Without the right IP advice, Australian business can often find themselves in the position where they own the trade marks in English, but their overseas partner is using a foreign language equivalent without permission or, worse still, owns a trade mark registrations for the foreign mark.

In addition, IP experts can help with having a properly drafted distribution/agent contract.

Finally, there’s no doubt IP experts can help avoid the “technicalities” traps. To take one example, a client who sold parts of their successful business to a competitor in Australia and New Zealand, unfortunately, failed to get advice first on the complex requirements of international trade mark treaties. As a result, the client couldn’t utilise the cost-effective mechanisms under the international treaties, and was forced to incur the added expense of filing trade marks directly in each relevant individual country.


Protecting your brand for export can seem complicated. But it doesn’t have to be.

Our IP expert, Jacqueline Plunkett, has some insider tips on how you can securing your core intellectual property in order to protect your brand for export.

Join her on 22nd August 2017 for our Small Business Festival seminar, Exporting Overseas? Mind Your Intellectual Property – an exclusive event for all business owners looking to export or expand overseas.

Small Business Festival - mdp - Exporting Overseas

 

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Trust Me, You’re in Good Company: The Difference Between a Trust and a Company

Janice Yew | May 31st, 2017

Setting the right business structures is one of the most important decisions you will make for your business.

As commercial advisors, we often get asked what the difference between a trust and a company is. While a trust and a company have some similarities, they are ultimately different types of business structures with different purposes.

What are the types of business structures?

At its core, a business is any activity engaged in to make a profit. There are many ways to own and operate a business, such as:

Sole trader

  • Business is conducted in the name of the individual
  • No separate legal entity

Partnership

  • Two or more people go into business together
  • No separate legal entity

Company

  • A separate legal entity able to do business in its own right

Trust

  • A legally recognised relationship where one person holds the business assets for the benefit of another

Trust Me, You’re in Good Company: The Difference Between a Trust and a Company

Let’s delve deeper into the difference between a company and a trust:

What is a company?                                                       

A company is a separate legal entity that can hold assets in its own name. As a result, its shareholders do not own the company’s assets, nor are they liable for its debts. The most that a creditor of the company can recover is usually ‘capped’ at the maximum unpaid equity of the company (or in some cases, the maximum amount for which the company is insured).

A company is especially useful during the ‘start-up’ phase of a business as there is no obligation to distribute profits to shareholders at a particular time (as would be the case with a unit trust). The profits of the company from the first year of its operations may be reinvested into the company to grow the business.

Many start-ups also use a company as a means to manage risk and protect directors and shareholders from certain adverse consequences.

A company is attractive for external investors because it is regulated by the Corporations Act 2001 (Cth) (Corporations Act). Under the Corporations Act, the directors of a company can be held personally liable in some cases, including where they breach their duties to act in the best interests of the company.

Handpicked related article: Corporate Structuring: Are You Parking Your Bright Idea in the Right Spot?

What is a trust?

A trust is a relationship where one person, known as a trustee, holds the ‘legal’ title to certain assets on ‘trust’ for other persons, who hold the ‘beneficial’ title to those same assets. It is these beneficial owners who will ultimately be entitled to the assets and any income derived from the use of those assets. The trustee does not have any right to benefit from those assets (other than through a fee for services as a trustee).

There are several different types of trusts, but the two most common ones in business structures are discretionary trusts, which include family trusts, and unit trusts.

Discretionary trusts

As suggested by its name, the trustee of a discretionary trust has the discretion to determine how much is paid to each beneficiary under the trust. The beneficiaries of a discretionary trust do not have a fixed entitlement.

The many benefits to operating your business through a discretionary trust include:

  • ease of succession;
  • carrying forward of losses; and
  • tax optimisation and capital gains tax discounts.

Unit trusts

Unlike a discretionary trust, the interests of each beneficiary of a unit trust is proportional to the number of units they hold in the unit trust. Sounds familiar? That’s because it is similar to a company, where the entitlement of each shareholder is proportional to the number of shares they hold in the company.

The benefits of a unit trust include:

  • less regulation than a company;
  • tax optimisation and capital gains tax discounts; and
  • relatively easy to wind up.

There may be a myriad of benefits in a trust structure. However, trading trusts are a complex and expensive business structure.

Handpicked related article: A Short Legal Checklist for Innovating Startups

Why is this important?

The business structure you choose will have different consequences in terms of ownership, control, ongoing costs, personal exposure to liabilities, and sale of the business. Due to the complexities and cost to unwind and restructure a business down the road, it is crucial that you set it up right the first time around.

At the end of the day, the business structure you choose should:

  • be flexible to accommodate changing circumstances while minimising negative consequences;
  • provide adequate asset protection;
  • allow for business profits to be distributed efficiently; and
  • minimise costs, and optimise tax liabilities.

Does your business need help with setting up the most appropriate business structure? Contact us for a consultation.

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A Short Legal Checklist for Innovating Startups

Tamsyn Vassallo | May 24th, 2017

When working with startups, we frequently guide them through the following foundational issues to ensure they have the best launching pad for their future business growth from a legal and financial perspective:

The Short Legal Checklist that Every Innovating Startup Needs

1. Set up the best structure for your startup

This is one of the most integral decisions that you can make for your startup, which impacts:

  • Your level of personal liability for debts of the business
  • Tax liability
  • Degrees of asset protection
  • Succession planning and growth potential
  • Ownership, control and management of the business

Some of the structures that you can use for your startup include:

Sole trader

  • You are personally liable for the debts of the business
  • Requirement to report business income on your personal tax return

Partnership

  • Profits and losses are shared between two or more partners
  • Each partner is personally liable for the debts of the business

Company

  • A separate legal entity owned by shareholders and managed by directors
  • In most cases, the company is responsible for the liabilities of the business
  • Directors can be liable if they provide personal guarantees for company loans, or if they breach their statutory director’s duties
  • The company pays a flat corporate tax rate
  • Shareholders pay tax on dividends paid to them by the company

Trust

  • A structure where a trustee (either an individual or company/corporate trustee) carries out the business on behalf of the trust members
  • The trustee is responsible for the liabilities of the business

Your decision regarding structuring will govern how appealing your business is to potential investors, who generally favour businesses with corporate structures. Many of them also prefer to see more complex structuring, such as a separate holding entity that owns the valuable assets (including IP) of the corporate group. This is to protect the assets from creditors of the, now separate, trading entity.

Handpicked related article: Corporate Structuring: Are You Parking Your Bright Idea in the Right Spot?

2. Enable and manage investment

If you intend to obtain equity-based capital, you will need a well-drafted Shareholder Agreement for your business’s investors. A suitable Shareholder Agreement will also mitigate fallout from any in-fighting amongst startup founders. Many founders, unfortunately, experience difficult separations from their co-founders (either in the immediate or long-term after significant business expansion), which can be avoided with the right Shareholder Agreement at the outset with pre-determined terms that deal with such separations.

A good Shareholder Agreement will address critical decisions and processes around:

  • How the company and the business will be managed
  • Which decisions will be made by directors versus shareholders
  • How often directors and shareholders will meet
  • How dividends will be paid
  • How shares can be issued and sold
  • Selling the business
  • Resolving disputes
  • Legal documentation (eg deeds of accession) for incoming shareholders
  • Managing low performing shareholders and the conditional issuing of shares

Similarly, a specific Partnership Agreement with your co-partners may address:

  • The equity of each partner and conditions (or KPIs) tied to such ownership
  • Rights to partnership income proportions and salary entitlements

Handpicked related article: Shareholder Agreements – Why are They Needed and What Happens if They are Inconsistent with the Company’s Constitution?

The Short Legal Checklist that Every Innovating Startup Needs

3. Protect your core IP and confidential information

The protection of valuable business ideas from competitors and registration of core IP can be inadvertently compromised in preliminary negotiations with potential co-founders, investors and business partners (or employees and contractors), or through premature marketing and promotional efforts.

For some businesses, the core value may be launching as the first to market over competitors. In this case, the best protection may be duties of confidentiality within your network. Similarly, patent and design rights can only be secured with respect to innovations and designs that have not been made public.

In these types of scenarios, your startup will be reliant on well-prepared Non-Disclosure Agreements prior to all discussions with other parties, or upon applications for patent and design registration before your valuable ideas have been disclosed and your IP assets and business advantage compromised.

For all IP that you intend to monopolise and/or commercialise (whether that be licensing or selling), you will need to seek the maximum possible IP protections, including registrations. Depending on the nature of your idea, innovation, or service, you may need to rely on registered design, patents and trademarks (brands) to achieve this aim.

Without these rights, your startup may be vulnerable to competitors exploiting your ideas, taking over your market or, even, seeking to block you from using your own unregistered brand, design or innovation.

Handpicked related article: What You Need to Do to Secure Core IP Before You Export?

4. Other considerations

We would also encourage you to factor in other key considerations for your startup such as:

  • Employment and contractor agreements

If you intend to hire staff or contractors to bring valuable skills to your startup, you will need to be familiar with all your employer obligations, and will need to enter into agreements (including to ensure you protect your IP and information, as noted above).

  • General terms and conditions (for your service and/or your site or application)

This will be one of your core documents with your customers to ensure that you manage your business’s liability and risk, as well as clarify your key commercials, including fee and payment terms with all your customers (and so are able to enforce these).

  • Specific requirements for your industry

You may be required to hold specific licenses or permits in order to operate, or there may be specific requirements in your state regulating your proposed industry and/or business.

  • Privacy policy

If you collect any personal identifying information from your customers in the course of your business (such as their name and contact information), you must have a privacy policy in place that you can provide to individuals regarding the collection and management of such information (as well as well-planned internal processes and policies, in accordance with Australian privacy laws).

Does your startup need help with ticking all the boxes in this legal checklist? Contact us for a consultation.

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What You Need to Know about the Recent Changes to the Powers of Attorney Rules

Sara-Jane Mok | May 19th, 2017

On 1st May 2017, new changes to enduring powers of attorney (financial and guardianship) came into effect under the Powers of Attorney Amendment Act 2016 (Vic).

There are more changes in the pipeline for medical powers of attorney in 2018 when the Medical Treatment Planning and Decisions Act 2016 will commence.

What is an enduring power of attorney?

Everybody knows they should make a will so that their family knows what their wishes are once they pass on. However, not many people make an enduring power of attorney part of their estate planning process.

A power of attorney is a legal document that allows you to appoint a person to manage your affairs and make decisions on your behalf when you are unable to do so, such as falling ill or being overseas.

An ordinary power of attorney normally operates for a specific purpose or for a fixed period. For example, if you are going overseas for a month and wish to appoint a family member to manage your conveyance whilst you are away. An enduring power of attorney, on the other hand, continues to operate indefinitely until it is revoked, or until the person making the enduring power of attorney loses full legal capacity.

Here are the three types of enduring powers of attorney:

1. Guardianship

An enduring guardianship allows a person to appoint another person to make lifestyle decisions on their behalf if they lose capacity. This can include deciding where the person lives, their health care plan, what the visiting hours are, and more.

2. Financial

An enduring power of attorney (financial) allows a person to appoint another person to make financial, legal or property decisions on that person’s behalf. The enduring power of attorney (financial) can operate even if a person has capacity (and can be a useful document if you go overseas regularly and need someone to sign documents on your behalf).

3. Medical

An enduring medical power of attorney allows an individual to appoint another person (the ‘medical agent’) to make decisions about medical treatment on their behalf.

The enduring powers of guardianship and enduring powers of attorney (financial) were combined as one document under the banner of “enduring power of attorney” in 2015.

What You Need to Know about the Recent Changes to the Powers of Attorney Rules

What were the key changes to the enduring power of attorney that came to effect on 1 May 2017?

#1: Any earlier enduring power of attorney is automatically cancelled, unless specified otherwise.

Any earlier enduring power of attorney (financial or guardianship) is automatically cancelled by a new enduring power of attorney, unless the document specifies otherwise.

#2: You can appoint more than one alternative attorney as a back-up for any primary attorney that you appoint.

Before the changes took place, you could choose up to two people to be your joint attorneys and only nominate one alternative attorney. It was also possible to specify one person to be your guardianship attorney and another to be your financial attorney.

Now, you can appoint more than one alternative attorney. For example, a person is able to appoint their spouse as their primary attorney and their two adult children as back-ups.

How about the changes to the enduring medical power of attorney in 2018?

Currently, you can appoint one enduring medical power of attorney to make medical treatment decisions on your behalf and one alternative agent as back-up.

The key changes from 12 March 2018 will include:

#1: The ability to appoint more than one person to make medical treatment decisions on your behalf.

#2: The introduction of a legally binding Advanced Care Directive (Directive) for instructional and value based directives, such as treatments to consent to and refuse treatment, and preferences and values for future medical treatment.

#3: The Enduing Medical Power of Attorney must be witnessed by two persons, including one who is either a registered medical practitioner or a person authorised to take affidavits. Currently, one of the witnesses must be authorised to witness statutory declarations.

#4: Requiring the person you appoint as your medical agent to formally accept their appointment by confirming the obligations and the importance of the role. Currently, this is not a requirement for enduring medical powers of attorney.

#5: The introduction of a new support attorney whose role will be to assist with representing and communicating a person’s medical treatment decisions and to represent their decisions. However, the support person cannot make medical treatment decisions.

#6: The introduction of new protection mechanisms which make it a criminal offence for a person to “impersonate” an appointed medical treatment decision-maker or “induce” their appointment as a medical treatment decision maker.

Existing Enduring Powers of Attorney (Medical Treatment) that were signed before 12 March 2018 will remain valid despite the change, and updating to the 12 March 2018 changes is optional.

What should you do?

If you do not have a will or enduring power of attorney documents in place, you should have them prepared as soon as possible.

If you have an existing will and enduring power of attorney documents in place, now is a good time to revisit those documents in light of the recent changes to see if the documents still reflect your current wishes.

Remember that it is important to regularly review and update your will and enduring power of attorney documents. This is especially vital when important life events change your situation, such as getting married or having a child.

Need help with preparing or updating your estate planning documents? Get in touch with us.

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What You Need to Do to Secure Core IP Before You Export

Jacqueline Plunkett | May 11th, 2017

Due to Australia’s open attitude to free trade (when compared with the US and the UK more recently), Australian businesses that export can have a significant advantage over their locally based competitors. Austrade research indicates that, on average, Australian businesses that export are more profitable, have higher skilled jobs, adapt faster to technology and business techniques, and have better growth potential to survive long term. This is compared to their Australian non-exporting counterparts.

What is less well known is that the maximum gains from international trade and export are not derived from increasing the volume of exports. It is actually the quality of the exports that unlock the long-term economic growth. According to a study published in the International Journal of Development Issues, creating new products and strengthening IP protection has a positive impact on domestic export quality, particularly in high-technology industries.

What You Need to Do to Secure Core IP Before You Export

Australia’s mining boom, manufacturing and media industries are a testament to the fact that Australia’s future economic prosperity relies on our ability to innovate and adjust quickly to disruption. The innovation drive and our unique proximity to and relationships with the Asia-Pacific region present an obvious opportunity for Australian small-to-medium businesses. Whilst our competitors are focused internally, Australia can use this window to export our high quality and innovative products and services into international markets.

This article discusses some of the key IP issues that should be considered by any Australian business before they go offshore. Given the complexities of the different intellectual property regimes across the world, seeking proper advice, and having a robust IP portfolio that offers protection in your target markets, will be critical to your success.

Before You Rush Off to Export, Wait!

Unfortunately, the rush by Australian businesses to innovate and capture this opportunity can land many small-to-medium businesses in trouble when faced with the reality of the international marketplace. One of the major areas of concern is the number of businesses failing to secure their core “innovations” with appropriate IP and contractual protections in the export destination.

The following sobering lesson from a large well-resourced business highlights the real need to obtain advice on proper IP protection, in particular, trade mark registrations, both domestically and internationally. This preparation is an indispensable part of doing business internationally.

Case Study: Treasury Wine Estates – Penfolds

China has overtaken the U.S. as a destination for Australian wine exports in recent years and naturally, businesses have had to respond to this demand. In a product as simple as wine, where packaging is fairly uniform and quality is not necessarily apparent before purchase, the brand is a key distinguishing asset. Yet Melbourne’s Treasury Wine Estates suffered significant losses when they entered the Chinese market without first registering their brand as a trade mark in Chinese characters. China is a “first-to-file” jurisdiction, meaning that, if a competitor files your trade mark before you do, you cannot contest their application merely because you used the trade mark in China first.

Treasury Wine Estates has been exporting Penfolds into China for over 25 years, with Chinese consumers referring to the Penfolds brand as Ben Fu for approximately 20 years. In 2009, a local wine distributor and notorious trademark squatter, Li Daozhi, registered the name Ben Fu almost 12 years after Penfolds’ launch. This same squatter had also successfully registered the Chinese name for French winemaker Castel, sued Castel for trade mark infringement, won $5.8mil in damages, and kept the name, forcing Castel to relaunch a new brand.

Penfolds_About_Bin_620_Coonawarra_Cabernet_Shiraz

Source: Penfolds Wine

A trade mark is a sign used, or intended to be used, to distinguish goods from one person, in course of trade, from those provided by any other person. Whether a trade mark distinguishes your goods or services from those of another, depends on how your trade mark is perceived by consumers. If a consumer recalls a positive experience from your product and associates that positive experience with your brand, they will be more likely to select your brand again.

Considering the purpose of a registered trade mark, being to protect the brand, it is hard to believe that a Western company selling beverages to Chinese consumers would fail to protect the asset that makes consumers associate the product with quality, namely the Ben Fu brand. Not to mention that food product quality laws require Chinese labels.

However, it is not just the failure to understand the human behaviour underpinning this core IP asset, nor the time and legal expense incurred to correct the situation. What makes this case noteworthy is that the lack of foresight and strategy in IP correlated with a broader approach in business for export.

Broader Business Impact

In 2012, Treasury Wine Estates commenced litigation against the squatter, arguing that Li did not have genuine use of the mark in wine or related activities. During the course of the legal battle to reclaim their unprotected famous brand, all Intercontinental Hotels in China withdrew their Penfolds Wines, amounting to 5000 cases annually or 5% of Treasury Wine Estates’ total shipments to China.

Intercontinental did this because they did not wish to become involved in potential litigation or be liable for damages to a squatter, despite Treasury Wines Estates winning the first round of the case. Even a company as large as Treasury Wine Estates with a brand like Penfolds could not maintain the confidence of distributors or retailers during litigation in China.

We note that while China has since improved its IP laws considerably, these changes will have little economic impact until the delays in practice catch up. In a business sense, this means there are still risks for small-to-medium businesses, particularly in some regions. To avoid the types of mistakes made by Treasury Wines in China, we have one practical tip for businesses seeking to take up export opportunities:

The Top Tip to Remember

Top Tip to Remember

Before entering new markets, review your core intellectual property assets and obtain tailored IP advice focused on your export destination.

If we learned anything from Penfolds, it is that the cost of winning IP legal battles overseas did not make business sense when compared to the low cost of filing the protection for Chinese character marks of their Western brand. These sorts of costs and battles can be avoided by proper planning and by securing IP protection in your export markets.

In watching the Budget, the message is clear that the Government is trying to stimulate Australian innovation, export and trade.

Australia’s economic future should also include business budgeting to secure quality IP and innovative assets before entering a market. This preparation is an essential investment to survive disruption and is not just about protecting yourself and being able to enforce your IP. It is about the commercial reality that your distributor and business partnerships may be irreparably damaged by a lack of business foresight, strategy and frankly, common sense.

Need advice on the IP regime in your export destination? Get in touch with us.

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May the Fourth be with You: What You Can Learn from Star Wars’ 40 Years of IP Protection

Daniel Wasenko | May 3rd, 2017

Happy Star Wars Day!

This year marks the 40th anniversary of the release of Star Wars: Episode IV – A New Hope, which first premiered in cinemas in 1977. In these four decades, George Lucas – creator of the Star Wars enterprise and founder of Lucasfilm – and Disney – who now owns Lucasfilm – have protected almost every element in the Star Wars universe.

What You Can Learn from Star Wars’ 40 Years of IP Protection

Through a combination of trade marks, patents, copyright, and designs, Lucasfilm has formed an arsenal of intellectual property (IP) rivalling in size to the Star Wars galaxy itself. With new Star Wars movies on the horizon, Lucasfilm’s IP portfolio is only set to grow.

If George Lucas – and now, Disney – hadn’t actively protected Star Wars-related IP all these years, the brand would have never been able to survive this long, much less grow this extensively.

Here’s a thing or two about IP protection that you can learn from Star Wars:

Always Register a Trade Mark

When you have a brand as iconic as Star Wars, you are going to attract a few shady characters who want a piece of your success. The only way you’re going to be able to protect your brand is by registering your IP.

With their library of unique creations, phrases and imagery, Lucasfilm and Disney have filed over 1,000 trade mark applications with the United States Patent and Trademark Office so far. This helps them to protect a substantial percentage of their IP portfolio, and they’re not afraid to enforce their rights.

Last year, Disney sued an American man who owned schools such as the Lightsaber Academy and New York Jedi for trade mark infringement and unfair competition.

A registered trade mark gives the registered proprietor the legal right to use, license or sell the mark within the country that the mark is registered in for the goods and services for which it is registered. Unfortunately, many businesses still think that they get adequate IP protection through the registration of their domain name or by incorporating their company under a particular name.

Trade mark registration is an imperative form of protection for businesses as it gives the owner of the mark a strong legal right against competitors if a dispute arises. A business may still be able to protect its distinctive brand or sign without having an accepted or pending trade mark but this is extremely risky.

When involved in a dispute, the reputation of the business in the marketplace needs to be assessed. This will determine the extent to which the business can enforce its rights under the Australian Consumer Law or the common law Tort of passing off. These actions are often complex, costly, and passing off requires the plaintiff to precisely prove the damage suffered as a result of the infringing trader’s conduct.

It is much safer to register a trade mark as it provides the protection you will need for your IP.

Remember to Renew Your Trade Mark Registration

A trade mark in Australia only has a registration life of 10 years. However, this can be extended by renewing your trade mark one year before the expiry date or within a goodwill period of six months after it lapses as long as you are still actively using the mark.

As such, the trade mark “STAR WARS” is still active today even though it was originally filed around the world in 1977. In essence, Lucasfilm can continue to use the mark “Star Wars” indefinitely, providing they continue to renew it every 10 years.

Know What You Can Trade Mark

There are several traditional forms of trade marks, which consist of the majority of trade marks registered today. These are:

  • Word marks – such as “STAR WARS”.
  • Graphic marks – consisting of an image.

Source: USPTO

  • Composite marks – consisting of an image and a word mark.

Return of the Jedi

Source: IP Australia (This trade mark has since lapsed)

 

However, trade marks are not restricted to these three types of marks. Parameters such as sounds, scents, colours, tastes and textures can also be registered. In fact, Lucasfilm has trade marks in the U.S. for graphic marks of many of its iconic characters, including C-3PO and R2-D2.

C3POR2D2

Source: USPTO, USPTO

Lucasfilm has even protected some its iconic Star Wars sounds. This includes the sound of a lightsaber being activated, which is described as “a crescendo beginning with a snapping sound followed by a hiss sound”, and Darth Vader’s laboured breathing, described as “the sound of rhythmic mechanical human breathing created by breathing through a scuba tank regulator”.

In order to trade mark a sound, you will need to provide the examiner with an accurate description of the sound. You should be able to describe the melody, the instruments used and the elements that make up the sound as well as represent the sounds in musical notation. The more detailed the description, the more likely it will be accepted.

In Conclusion…

Similar to how Luke Skywalker was the key in defeating the empire, having a registered trade mark is the key in resolving any potential IP dispute as it reduces the chance of being involved in lengthy legal duals. Whether you wish to protect a name, logo, slogan or even a sound, trade mark protection should be your first priority.

If you have any questions about protecting your IP or trade mark infringement, don’t hesitate to get in touch with us.

May the Fourth be with you.

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How to Avoid Employer’s Liability When a Hotel or Taxi Becomes an Employee’s Workplace

Alison Rees | April 27th, 2017

Let’s be clear: we are not talking about hoteliers or taxi drivers. Rather, a recent case held that for the purposes of a sexual harassment claim a taxi and a hotel near an employer’s offices were also part of their employee’s workplace. How can you avoid employer’s liability?

The complainant employee alleged that a contractor, who was contracted to work at her office workplace, sexually harassed her. The incidents occurred in a number of places, including a hotel and a taxi – both areas, geographically speaking, were totally separate from the offices of her workplace.  She sued the contractor, as well as her employer.

The Sex Discrimination Act (“the Act”) prohibits sexual harassment by employees, partners and contractors. For contractors, complainants must show sexual harassment occurred at a workplace.

How to Avoid Employer's Liability When a Hotel or Taxi Becomes an Employee’s Workplace

So when does a hotel or taxi become a workplace?

A workplace is defined under the Act as “a place at which a workplace participant works or otherwise carries out functions in connection with being a workplace participant”. Beyond that, however, and until this case, there was no case law dealing with this definition and the specific meaning of a “workplace”.

The contractor accused of sexual harassment argued that the acts in question didn’t occur at the workplace as a “workplace” is confined to the area exclusively occupied by the employer and did not include even common areas on the floor of the office building. As a taxi and the hotel were not the “workplace”, the Act should not apply.

However, the Court decided that a “workplace” is not confined to the place of work of the participants but extends to a place at which the participants work or otherwise carry out functions in connection with being a workplace participant.

Due to that, the taxi was a workplace because it was used in connection with the parties’ work. The hotel was also a workplace, because the parties moved there from the office, directly due to things which occurred at the office. There was a ‘link’ between the office and the hotel, which was work related.

As an employer, you need to be aware that if co-workers meet outside of the traditional workplace to carry out work related functions, your obligations regarding sexual harassment may extend to what happens in the other place.

How can you guard against these incidents occurring and avoid employer’s liability?

This decision puts employers in a difficult position: when an employee leaves the traditional workplace, employers do not necessarily have control regarding where they go next.

The best thing you can do as an employer to protect yourself from this sort of claim and avoid employer’s liability is to:

1. Make it clear, both through training and policies, that the requirement for staff to refrain from engaging in sexual harassment extends to anywhere that staff are undertaking work-based activities, work-related events and areas in the immediate vicinity of the formal workplace.

2. Be vigilant in investigating any complaints of sexual harassment, act quickly and foster a culture where employees feel safe to speak up against this type of behaviour.

One of the issues in the case mentioned here which led to the hotel being classified as part of the workplace was that the contractor had engaged in sexual harassment before the incident in the hotel. The catalyst for going to the hotel was so that the complainant could continue working in a safe place with other people around (she and the contractor had to work late into the evening and he had been harassing her in the unpopulated office).

Had the previous harassment been appropriately dealt with, including an investigation and appropriate action taken, there may not have been any reason to make this type of ruling.

As always, particular circumstances will require specific advice. If you have any concerns or feel that your policies and procedures in this area could be improved, don’t hesitate to get in touch with us.

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What is in a Name? The Difference between Business Names, Company Names and Trade Marks

Janice Yew | April 19th, 2017

First impressions are important. Try as we may to avoid judging a book by its cover, the reality is that it is second nature to do so.

When it comes to a business, be it big or small, there are a few things that factor into creating a good first impression with potential customers. Your brand name is one of them. Because of this, it is important that the name you choose aligns closely with the image or brand that you wish to present.

Once you have chosen a name, you must register that name as a business name and/or company name. We would also recommend you register it as a trade mark. In this article, we explore the differences between the three.

Difference Between Business Name, Company Name and Trade Mark

Company Names & Business Names

In Australia, you can only operate a business under a registered business name, a company name or your personal name. The main purpose of registering a business or company name is to enable the public to identify who they are dealing with. A company name is only required if you actually intend to operate through a company.

The Australian Securities and Investments Commission (ASIC) monitors and oversees the operations of companies and the registration of business names. While the ASIC rules prevent the registration of a name that is identical or nearly identical to an already registered business name or company name, they do not prevent similar names from being registered. For example, if “Joe’s Bakery” is already registered as a business name, you can still register “Joe’s Baked Goods”, but not “Joe’s Bakehouse”.

The registration of a business name or company name indicates to ASIC your intention to trade under that name. However, it is not an indication that you have any formal rights to use the name. In other words, registering a business or company name merely informs ASIC that, in the event that they need to identify a business, this is the name which you intend to be doing business under and by reference to.

If you register a company name and that is the name you intend to trade under, then you do not have to register a business name. However, you do have to use the full company name, for example “Joe’s Bakery Pty Ltd”. If you wish to trade under the name “Joe’s Bakery” then you will need to register a business name also.

Trade Marks

A trade mark typically consists of either a word or a logo that is said to operate as a ‘badge of origin’. That is, a trade mark is something which indicates to a consumer who is offering the goods or services.

One of the main rationales behind allowing people to ‘own’ trade marks in words and logos is that it is for the consumer’s benefit. Broadly speaking, it ensures that every time you go to a store and buy a drink with the words ‘Coca-Cola’ on it, for example, you know exactly what you are buying and who is responsible for its production. It also prevents other people from ‘hijacking’ the goodwill of one entity for its own benefit.

In Australia, there are two ways you can ’acquire’ a trade mark:

(a) By registration of the mark with IP Australia

You can register a name or logo as a trade mark with IP Australia. We generally recommend that you seek to obtain a trade mark registration because by owning a registered trade mark, you do not need to show that you have any reputation in the mark. Indeed, you can own a registered trade mark before you have even begun trading by reference to the trade mark.

(b) By a reputation established in the marketplace

You can also acquire what is known as a ‘common law’ (unregistered) trade mark. That is, you can register a trade mark by virtue of the fact that you have acquired a reputation associated with that name. You will be said to have acquired a common law trade mark when the public identifies a particular trade mark with you. This type of trade mark acquisition is less common and requires you to present substantial evidence of the use of your trade mark over a number of years.

What is in a Name? The Difference between Business Names, Company Names and Trade Marks

Company Names and Business Names versus Trade Marks

The important aspect to keep in mind is that registering a business, company or even a domain name does not give you ownership over that name. This means that you cannot stop other people from using the name.

The only way to stop others from using the same or similar name is by obtaining a registered trade mark in the name or acquiring a common law reputation, which allows you to register a trade mark in that name.

As a consequence, it is entirely possible for you to have a registered business, company or domain name and another person to have the ownership or proprietary rights of the same name by virtue of a trade mark or reputation. In this instance, the person with the proprietary rights will have the right to use that name and prevent you from doing the same.

What should I do before I decide on a name?

The important difference between proprietary rights (like a trade mark) and non-proprietary rights (like a company and business name) is that you can only take action against other persons to prevent them from using a name when you have proprietary rights in that name.

For this reason, it is imperative that you consider the availability of a name before you begin using it. Even if you innocently use a name that someone else owns, that person will be able to take action against you and, not only prevent you from using the name further but potentially receive damages from you.

Accordingly, some serious thought should be given to the availability and enforceability of a name from a legal perspective before you adopt a new brand name.

Need help on choosing or protecting your name? Get in touch with us.

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Employee Shares Schemes – On the Money

Victoria Konya | March 17th, 2017

Employee share schemes (ESS) are a useful tool to incentivise and retain high performing employees, and can positively impact the overall performance of your company.

Recent research suggests that ASX listed companies with high levels of employee ownership have had a dramatic increase in their share price over the past five and a half years, compared with other ASX listed companies.

The Employee Ownership Australia (EOA) Index tracks the share price of listed companies with high levels of employee ownership. According to a media release published on 14 February 2017, the share price of EOA Index companies increased, on average, by 40 percent over the past five and a half years, compared with just 23 per cent for the ASX 200 overall.

To be included in the EOA index, a company must have had an employee ownership scheme open to its entire workforce, with at least 30 percent of employees participating. Within the ASX 200, 52 companies met this criteria.

How do Employee Share Schemes Work?

Employee share schemes provide opportunities to high performing employees to acquire equity in your company, by:

  • acquiring shares in your company at a discounted price; and/or
  • acquiring shares in the company at some point in the future (through an option to buy shares).

Employee share schemes benefit both employee and employer.

For the employer, it ensures high performing employees are motivated and have an opportunity to play a more active role in the management of the business, as they can feel a direct connection between business decisions and the bottom line and have “skin in the game”.

For employees, they can benefit from special tax treatment on their investment and can reap financial rewards if the company is doing well.

Thanks to tax changes introduced on 1 July 2015, employees can benefit from concessional tax treatments on their investment, including the right to own up to 10% of the company or control up to 10% of the voting rights in the company before they lose concessional tax treatment.

Also, startups can now benefit from new concessions introduced on 1 July 2015 including:

  • if employees acquire shares at a discount, they will not be taxed on the discounted amount;
  • any gain or loss on disposal of rights or shares will be assessed under the CGT regime. When working out if the 50% CGT discount applies, the period of ownership of a share acquired on exercise of a right is taken to have started when the right was acquired.

How to Access the Startup Concessions?

According to the Australian Taxation Office, the following criteria must be met to qualify for the startup concessions:

Startup company

  • the company must not be listed on any stock exchange
  • all companies in the corporate group must have been incorporated for less than 10 years
  • aggregated annual turnover of the group must not exceed $50 million

Employer

  • the employer must be an Australian resident company

Scheme

  • employees must hold ESS interests for at least 3 years

ESS interests

  • a share must be provided at a discount no greater than 15% of market value
  • an option must have an exercise price (or strike price) that is greater than or equal to the market value of an ordinary share in the issuing company.

Market value for startups can be determined according to approved market valuations methods.

What Rules Should Apply to an ESS?

If you are considering an employee share scheme, some key issues that you should consider are:

  • Will the employee have ordinary shares which grant them the right to vote at general meetings of shareholders, or will they have special class shares with rights to dividends only?
  • Will employees have the right to sell their shares before they are fully paid for?
  • Must employees sell back their shares when they leave the company, and if so, at what price?
  • Must the employees achieve certain key performance targets in order to hold on to their shares?
  • What sort of finance arrangement will be offered to the employee? (ie, Vendor finance, salary sacrifice, dividends)
  • How long will the employee have to pay off the purchase price of their shares?
  • Will the employee be entitled to dividends or will dividends be re-invested into the company?
  • Does the company have an up-to-date shareholder agreement, and will employees be required to sign up to the shareholder agreement when they acquire shares?

The rules of the employee share scheme should be carefully documented through an employee share scheme plan and shareholder agreement. If you need advice on employee share schemes, get in touch with us:

Victoria Konya Victoria Konya
Senior Associate
BA. LL.B
+61 3 9620 9660
info@mdplaw.com.au
  Alison Rees
Lawyer
BA LLB
+61 3 9620 9660
info@mdplaw.com.au

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How Will the New Crowd-Sourced Funding Laws Affect Startups?

Tamsyn Vassallo | March 3rd, 2017

Amidst heated parliamentary debate and opposition, if the government’s crowd-sourced equity funding (CSEF) legislation is enacted this year, as expected, it remains unclear whether it will herald in any meaningful changes for small innovative businesses.

We examine these amendments, the controversies surrounding these and the likely ramifications for startups raising capital in Australia.

Background: The Long Journey Thus Far

A long four-year journey towards the now-expected enactment of the proposed Corporations Amendment (Crowd-Sourced Funding) Bill 2016 (Bill) has involved the following twists and turns:

  • In 2013, the then-Labor government tasked the Corporations and Markets Advisory Committee to investigate CSEF. The Committee then reported to the Abbott government in May 2014.
  • In December 2015, the Turnbull government brought forward legislation, which was widely criticised and was rejected by the Opposition for being too complex and cumbersome for most startups. Revisions then led to the current Bill.
  • The Bill passed the lower house in late 2016. However, Labor withdrew its support and referred the Bill to a Senate inquiry, determining that it was ‘self-defeating’ and failing in its underlying objective of democratising fundraising for small businesses.
  • A Senate committee recently recommended that the Bill be passed. Greens Treasury spokesperson Peter Whish-Wilson has stated that the party would support the Bill.
  • It is now expected that the Bill will pass through Senate in the next sitting in March.

Primary Objectives: The Target

The new laws were intended to enable startups to raise money from a broader category of investors through CSEF by removing current barriers to such investments (and so address the ‘capital gap’ that can prevent startups or other early stage enterprises from launching innovative businesses).

Current barriers include, for private companies, limitations on the small scale personal offers exemption that make CSEF impossible to any significant degree and, for public companies, the compliance and formal disclosure requirements.

The Controversies: Missing the Mark

It’s been dubbed a ‘dodo’ by the Opposition and following Labor’s withdrawal of its support, the Bill has continued to be criticised.

The overriding concern is that the proposed changes to CSEF, instead of making such funding more accessible to Australia’s innovative early-stage businesses, has limited access for these businesses by restricting the application of the new laws to unlisted public companies.

This has been criticised as being restrictive and making the laws inapplicable to the vast majority of startups, which are almost entirely privately-held small businesses (that cannot afford to convert to a public company or may not wish to operate as such).

A further criticism is that the changes also provide inadequate protection for retail investors (in shortening the cooling-off periods following investment that were initially proposed).

By contrast, the Bill’s supporters claim that the new laws are the end-result of extensive industry consultation, successfully recognise the value of CSEF, and enable businesses to obtain the capital they need to turn ideas into commercial realities.

The Current Capital Raising Landscape: Private versus Public Companies

A proprietary (or private) company can only raise equity finance by offering its shares to:

  1. existing shareholders;
  2. employees; or
  3. certain classes of investor (such as sophisticated investors or through small-scale personal offers made to no more than 20 investors in any 12 month period and raising no more than $2 million).

In other words, private companies cannot issue a prospectus and sell shares to the general public (‘the crowd’ or ‘retail investors’). The vast majority of startups, therefore, due to being established as private companies, are unable to fundraise through CSEF.

By contrast, a public company (usually a company with 50 or more non-employee shareholders) can raise equity funding (by issuing new shares) from all of the above types of investors and the general public (providing that it complies with the obligation to issue a disclosure document to these investors).

For this reason, many expected that the new CSEF laws would herald in some form of carve-outs to legal requirements for small privately-held businesses where they needed to source equity from the public.

Instead, in order for a company to avail itself of CSEF, the new laws require that the company be established as, or convert to, a public company. Unfortunately, this process can be both a complex and expensive process, making it prohibitive for many startups (and thereby excluding these from obtaining any benefit from the new laws).

The Practicalities: How Will this Affect the Average Startup?

Under the proposed new laws, unlisted public companies with an annual turnover or gross assets of up to $25 million will be able to:

  1. offer equity in return for capital from ‘retail investors’; and
  2. raise up to $5 million annually using CSEF.

Investors will be able to put up to $10,000 into an unlimited number of campaigns.

A two-day ‘cooling off’ period will follow all campaigns to protect retail investors (given such investors are less experienced than ‘sophisticated investors’).

Practically, because only public companies are eligible, only a minority of entities will satisfy this criteria and be able to raise finance with the benefit of these new rules.

The Future of Crowdfunding

It remains to be seen whether the changes will be capable of achieving the underlying raison d’etre of helping small businesses achieve their goals and increasing productivity, innovation and job opportunities in Australia.

The news laws are expected to be reviewed in two years, at which point the effects of the amendments ‘on the ground’ for small businesses will undoubtedly inform considerations (and reveal which of the disparate views on these has proven correct with time).

Need advice on capital raising, investment opportunities or corporate structuring when the new crowd-funding laws come into effect this year? Get in touch with us:

Victoria Konya Victoria Konya
Senior Associate
BA. LL.B
+61 3 9620 9660
info@mdplaw.com.au
 Tamsyn Hutchinson Tamsyn Hutchinson
Lawyer
BA L.L.M (JD)
+61 3 9620 9660
info@mdplaw.com.au

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New Mandatory Data Breach Notification Laws: 3 Things to Do Now

Sara-Jane Mok | February 23rd, 2017

The new mandatory data breach notification laws will require organisations to report any ‘eligible data breaches’ to the Australian Privacy and Information Commissioner (the Commissioner) and notify affected customers as soon as possible. (more…)

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How to Choose an Enforceable Brand So You Don’t Risk Losing It

Jacqueline Plunkett | February 21st, 2017

Registering a trade mark doesn’t guarantee strong rights to a brand. Don’t blindly adopt one; choose an enforceable brand to avoid losing it to anyone else.
(more…)

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Are Aussies Really Lagging in Innovation as Report Suggests?

Jacqueline Plunkett | February 16th, 2017

A recent report released by Innovation and Science Australia (ISA) found that Australians scored poorly in key areas of innovation compared to other countries. At best, Australians are only incrementally innovative and fail to transfer, apply and commercialise the knowledge they have. (more…)

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Apple v. Samsung – The Smartphone Patent Litigation War Continues

Gavin Doherty | December 16th, 2016

In recent mdp newsletters, we have considered US patent litigation matters and the implications of these for many of our clients that have secured, or are considering, Australian and international patent and design registrations.

The most recent battles in the ongoing Apple v. Samsung smartphone wars are a prime example of how the hierarchy works in the US legal system and how patent damage claims are not always easy to apply.

Background

In 2011, Apple sued Samsung for infringement of some of Apple’s design patents. Design patents are analogous to registered designs in Australia, in that the protection offered by a US design patent relates to the pattern/ornamentation of a 2D design or the shape/configuration of a 3D design.  In this regard, Apple’s US design patents covered visual aspects of the screen and casing of the Apple smartphone.

An example of the coverage of Apple’s US design patent D593087 is shown below, with those features (shown as dashed lines) not to be considered as part of the monopoly.

 phone

Initial decision

A federal court found that Samsung infringed Apple’s design patents and ordered Samsung to pay Apple $399 million in damages.  This amount was based on Samsung’s entire profits for those Samsung phones that were found to infringe Apple’s design patents.

Damages for infringement of US design patents are determined under Statute §289, whereby damages are calculated to be the total profit from an ‘article of manufacture’ to which the patented design has been applied.

Samsung appealed this initial decision to the Federal Circuit on the basis that damages should have been based on profits of only the infringing components of the phone, not the entire phone.  The Federal Circuit upheld the decision and rejected Samsung’s argument on the basis that the components could not be purchased separately from the phones and, as such, could not be considered articles of manufacture in accordance with the Statute requirements.

Further appeal

Samsung then further appealed this decision to the Supreme Court, which rejected the awarded damages in a unanimous decision. The Supreme Court ruled that an ‘article of manufacture’ encompasses both a product sold to a consumer and ‘a component of that product’. As such, juries need not award damages based on the profits of an entire product if the item consists of many parts.

That being said, the Supreme Court didn’t decide how damages should be calculated for this case, but merely sent the matter back to the Federal Circuit for further trial.

Impact of the decision

Whilst $399 million in damages may seem like a drop in the ocean to such a large company as Samsung (let’s face it, an injunction preventing Samsung from selling their phones would have been a bigger hit to their bottom line), this case is worth noting merely from the fact that it shows the strength a design patent (or design registration) can have.

For clients who have a product with unique visual features, consideration should always be given to protecting those features by registering the design, as often it is the visual aspect of a design rather than its functional purpose that give the product its appeal.

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New Unfair Contract Term Provisions to Protect Small Businesses – do they apply to you?

Sara-Jane Mok | December 16th, 2016

The unfair contract terms provisions of the national Australian Consumer Law (ACL), which traditionally protect consumers in relation to terms of standard form contracts, have recently been extended to also protect small businesses.

The ACL is the national law covering fair trading and consumer protection. From 12 November 2016, the unfair contract terms (UCT) provisions of the ACL were extended to smaller businesses, whereby certain contractual terms that are deemed to be unfair on that business can be rendered invalid and therefore unenforceable. If you are contracting with an individual or a small business, you should consider if any of your standard-form contracts need updating.

When do contracts fall under the extended UCT provisions?

The extended UCT provisions apply to ‘standard-form contracts’ entered into or renewed on or after 12 November 2016. If a contract was entered into before 12 November 2016, the extended UCT provisions will only apply to terms in the contract that have been changed or edited after 12 November 2016.

What is a standard form contract?

A standard form contract is not defined in the ACL. However, a standard form contract is typically a contract that has been prepared by one party to the contract before any discussion relating to the transaction occurred between the parties (such as a business’s standard terms and conditions).

An indicator that the UCT provisions may be applicable is when the other party to the contract, being an individual or small business, has little or no opportunity to negotiate the terms (i.e. the party that prepared the standard form contract has all or most of the bargaining power relating to the transaction).

The types of contracts covered include contracts that are:

  • for the supply of goods or services or the sale or grant of an interest in land;
  • at least one of the parties is a small business that employs less than 20 people, including casual staff employed on a regular and systematic basis (or an individual consumer);
  • the upfront price payable under the contract does not exceed $300,000, or $1,000,000 if the contract is for more than 12 months.

When is a term unfair?

A term is unfair when:

  • the term would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
  • the term is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
  • the term would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

Examples of terms that may be considered unfair include terms that enable one party (but not another) to:

  • avoid or limit their obligations under the contract;
  • terminate the contract; or
  • vary the terms of the contract; or

that penalize one party (but not another) for breaching or terminating the contract.

Certain contracts or terms are excluded from the UCT provisions and include:

  • constitutions of companies, managed investment schemes or other kinds of bodies;
  • shipping contracts;
  • contracts of insurance;
  • a term that defines the main subject matter of the contract;
  • a term that is sets the upfront price payable under the contract; or
  • a term that is required, or expressly permitted, by a law of the Commonwealth, a State or a Territory.

If a term is found to be unfair

If a term in a standard form contract covered by the UCT provisions is found by the courts or tribunals to be ‘unfair’, the term will be void and not binding upon the parties. However, the rest of the contract will continue to bind the parties to the extent it is capable of operating without the unfair term.

How can mdp help?

If your business uses standard-form contracts or if you are a small business or individual bound by or have been offered standard-form contracts and think that this applies to you, mdp Law can assist with:

  • advice regarding the UCT provisions as it applies to your business;
  • preparing standard-form contracts in compliance with the UCT laws;
  • reviewing and revising your existing contracts to address any unfair terms; or
  • assisting you with communications and negotiations with your business suppliers and customers in relation to the UCT provisions.

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Raising Capital for IP SMEs – Understanding the Disclosure Requirements

Victoria Konya | October 10th, 2016

In Australia, the disclosure requirements for a small company will usually be less demanding than those for a large complex business, thus providing good opportunities for innovative small and medium sized enterprises (SMEs) to transform their ideas into a viable business.

The Corporations Act 2001 (the Act) sets out the types of offers that do not need disclosure. Most of these exemptions relate to circumstances where those who receive the offer are considered to be in a position to take care of themselves, and therefore do not require the degree of mandatory disclosure required for an IPO.

What are the disclosure exemptions?

By way of summary, the exemptions to the requirement for disclosure documents include:

  • small scale offerings aka 20/12/2 rule (i.e. companies that do not raise more than $2 million in any rolling 12 month period from no more than 20 investors);
  • offers to sophisticated investors (e.g., investors who invest at least $500,000, who have net assets of at least $2.5 million, or who have gross income of at least $250,000 per year for the last 2 financial years);
  • offers to professional investors (includes financial services licensees, entities that control assets of at least $10 million, and listed entities)
  • offers to existing shareholders under a dividend reinvestment plan or share purchase plan;
  • some rights issues/entitlement issues made to existing shareholders in listed companies;
  • offers to employees under some employee share plans;
  • some offers of listed foreign securities as part of the consideration for a takeover bid; and
  • some offers of listed foreign securities, to existing shareholders, under a rights issue.

Why informal disclosure is still necessary

Even when disclosure exemptions apply, sophisticated and professional investors can still be very discerning when deciding the venture in which to invest. Thus, SMEs still need to be able to satisfy prospective investors that they have a convincing business plan, a robust IP portfolio, an impressive and experienced Board, and clearly articulated prospects.

One way of achieving this is through an informal disclosure documentation, such as an Information Memorandum (IM). An IM should tell the story of the company, demonstrate an impressive IP portfolio, include financial forecasts which can be substantiated by sound research, and the business’ success stories. It ensures that investors are fully informed and confident in the business.

The preparation of an IM, when carried out with the assistance of legal practitioners, does not need to be an expensive or onerous exercise (unlike formal disclosure), and has many benefits. These include:

  • keeping investors informed and confident;
  • minimising risks of allegations being made against the company for misleading and deceptive conduct by investors who make a loss on their shares;
  • demonstrating to investors that the business has a robust IP portfolio, has taken considered measures to protect the business IP and has considered whether it is infringing on another party’s IP; and
  • demonstrating to investors that the business has already considered who its competitors are, and what measures it has taken to deal with its competitors.

A guide to preparing informal disclosure documents

As is the case with a prospectus document, an IM should clearly set out the rights and liabilities that come with being an investor, as well as the assets and liabilities, financial position and performance targets, profits and losses and prospects of the business. That is, the IM should generally provide information that a prospective investor might reasonably be expected to know about the business before they invest.

Often, an informal disclosure document will include information that is prospective (e.g. forward-looking statements, future orders and financial forecasts). Such representations should be made with caution, and should take into account the variable nature of events that may influence future performance (e.g. as cash flow, regulatory environment, and market volatility).

Things to look out for, in particular, will be:

  • overly optimistic and unrealistic financial forecasts which are based on hypothetical events and cannot be supported by reliable data or evidence;
  • references to speculative or contingent future events or situations as definite;
  • incorrect statements and representations about the IP portfolio (e.g. claims that the business owns a registered patent when in fact it has only applied for one);
  • failure to identify any third party rights in the IP (e.g. claims that the IP is owned by the business when it is in fact licensed);
  • references to product orders being secured when the business has only received expressions of interest;
  • exaggerations about the management team’s profile, experience and capabilities; and
  • failure to clearly articulate risks in the investment, including any regulatory barriers that might hinder or delay the commercialisation of the product or invention.

How can mdp help?

The team at mdp have extensive experience in preparing and reviewing IMs for legal accuracy, including any potentially misleading statements and inclusion of qualifiers and disclaimers in respect of forward-looking statements and forecasts.

Please do not hesitate to contact our office if you are seeking to raise capital in the near future, and you require assistance with your disclosure requirements.

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Patent Infringement in the Courts – Australia versus USA

Gavin Doherty | October 10th, 2016

As we continue to focus on patent related issues coming out of the USA, it is worth noting the differences between the manner in which patent infringement decisions are handled in both Australia and the USA.

Australia

In Australia, most patent infringement actions begin in the Federal Court. At the hearing stage, a single Judge will be assigned the task of determining:

  1. the scope of the monopoly claimed under the patent; and
  2. whether this has been infringed.

If either side considers the Judge has made an error in the final judgement, they are able to appeal the decision to a Full Bench of the Federal Court. At that point, three or more Judges will review the original judgement and determine whether the appeal should be dismissed or upheld. If a party then wishes to appeal the Full Bench of the Federal Courts decision, they can seek leave to appeal to the High Court of Australia. The decision made by the High Court of Australia is generally the final word on the matter.

USA

As the US Constitution has established a patent system to protect inventors, it is the US Federal Court System that oversees patent infringement cases.

The US Federal courts include:

  • 94 District Courts;
  • 12 Courts of Appeal; and
  • 1 Supreme Court.

Most patent infringement cases are initially brought to one of the District Courts. Under the US Constitution, a party may demand a trial by a jury of 6-12 members and can also specify which issues may be addressed by them. This is unique as Australian patent cases never involve a jury.

In essence, the role of the jury is to resolve questions of fact whilst the Federal Judge will resolve the questions of law. However, it is possible that the Court may order a trial by jury of all issues. Similar to Australia, either party may then appeal the decision of the District Court to the Court of Appeal, and subsequently seek leave from the Supreme Court to appeal the decision of the Court of Appeal.

Whilst Australia and the US have a similar hierarchical Court structure, litigation costs can vary considerably in each country due to differences in the law and procedures. Further, due to the relatively small pool of Federal Court judges in Australia, decisions in Australia are relatively consistent. In contrast, with the potential of a trial by jury and the sheer volume of Federal Judges appointed in the US, inconsistencies in the application of law and procedure can result in conflicting decisions between different courts.

Over the next few newsletters, we will consider some of the latest US patent decisions and how the outcomes for these may have been different if it had been heard in an Australian Court. By appreciating how patent infringement actions are litigated in both countries, you can better appreciate how other factors can play a significant role in litigation.

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Commercial and Retail Leasing – When is a Premises a Retail Premises?

Alison Rees | October 10th, 2016

If you lease a premises to conduct your business, you should consider whether the Retail Leases Act (Vic) 2003 (the Act) applies to your lease. This is particularly important as parties cannot agree to exclude the operation of the Act, and in some cases, your lease may be silent on the issue or not reflect the true state of affairs.

Benefits of a retail lease

There are numerous benefits to tenants if the Act applies:

  • The Landlord cannot recover certain outgoings from the tenant, such as capital costs and land tax.
  • Before the landlord can recover any outgoings from the tenant, it must provide to the tenant a written and itemized estimate of the outgoings the tenant is liable to pay (this must be contained in the prescribed disclosure statement).
  • In certain circumstances, the tenant may withhold the payment of rent until the day the Landlord provides the tenant with a Disclosure Statement.
  • A lease that is under 5 years in duration will automatically have a term of 5 years, unless the landlord follows particular procedures set out in the Act.
  • The Act voids requirements for a tenant to indemnify the landlord in certain circumstances.

The Act imposes a number of obligations on Landlords, with negative consequences if some are not adhered to. For example:

  • Failure to provide a copy of the proposed lease at the commencement of lease negotiations and at least 7 days before a new retail premises lease is entered into, or the relevant information brochure, will each attract a fine (which could be over $7,000). Failure to do these things also gives the tenant a right to terminate the lease by notice in writing within a particular timeframe.
  • The landlord must provide the correct disclosure statement within a certain timeframe (this differs depending on the circumstance).
  • Essential safety measures must be maintained at the cost of the Landlord. If a tenant has been maintaining these at their cost, they can seek to recover that cost from you.
  • A penalty of $7,773 is payable where a landlord requires a tenant to pay key money.
  • The Landlord must maintain to a certain standard (which will differ in each circumstance) the structure of the premises, the fixtures of the premises, the plant and equipment of the premises, such as an a conditioning system, cooling tower and the like, and the appliances, fitting and fixtures which the landlord has provided under the lease relating to services such as gas, electricity and water, for example power boards, water pipes and hot water system.

Does the Act apply to my lease?

The Act defines retail premises as ‘premises…that under the terms of the lease relating to the premises are used or are to be used, wholly or predominantly for the sale or hire of goods by retail or the retail provision of services.’

The answer is simple where the tenant sells goods – it will be mostly the case, that the Act will apply. Parties can get caught out however, if the tenant is in a business which supplies services. Cases decided in the past few years have the effect that many leases where tenants provide services may be caught by the Act.

The relevant question to ask is whether the service the tenant provided from the premises was to the ultimate consumer, for fee or reward. Of the types of businesses caught under this test, there has been:

  • a patent attorney business;
  • legal professionals
  • medical professionals; and
  • a business that used the premises as conference rooms which were supplied to conference service providers – who in turn ran conferences from those rooms.

Even though some of these tenants rarely saw a member of the public, their activities still meant that the premises was deemed to be a ‘retail premises’. For instance, the patent attorney tenant ran its business mainly by phone. Additionally, the ‘ultimate consumer’ does not have to be a member of the public; businesses that provide services to another business as an input to an end service or product will also be a retail premise.

That said, exclusions in the Act narrow this very broad definition, as do certain Ministerial Determinations. For instance:

  • Premises where there is retail provision of services, which are on a level higher than the first three levels of a building (i.e. the ground floor, and levels one and two), are in most cases excluded from the definition of ‘retail premises’.
  • The premises of publicly listed bodies corporate and their subsidiaries will be, in many circumstances, deemed not to be retail premises.

While there are other exceptions, these two are the most common ones that would result in the exclusion of premises from the definition of ‘retail premises’ in circumstances where the tenant provides services.

We suggest that if you are a landlord or tenant and are concerned as to whether the Act applies to your lease, get in contact with us and we can assist you in this regard. If the Act does apply, we can also provide you with more information as to your rights and/or obligations imposed by the Act.

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Attracting New Angel Investors to your Innovative Startup

Sara-Jane Mok | October 10th, 2016

As part of the Government’s National Innovation and Science Agenda (NISA), the Government is driving new initiatives to support innovation in the Australian economy and has passed new tax legislation to ‘incentivise’ angel investment.

How do the incentives work?

If you are in the early stages of establishing your business and looking to attract new investors to invest in your startup, you may qualify as an ‘Australian Early Stage Innovation Company’ (ESIC).

From 1 July 2016, a qualifying investor may be entitled to:

  • A non-refundable tax offset equal to 20% of the value paid for newly issued equity interests (qualifying shares) in an ESIC capped at $200,000;
  • Modified Capital Gains Tax (CGT) treatment, being:
    • capital gains on qualifying shares continuously held in an ESIC for at least 12 months and less than 10 years may be disregarded;
    • capital losses on shares continuously held less than 10 years must be disregarded; and
    • the modified CGT treatment is not limited to the maximum tax offset cap of $200,000.

These incentives are only available on issue of new shares in the company where the company qualifies as an ESIC at the point of time the new shares are issued.

Who is a qualifying investor?

A qualifying investor includes both sophisticated investors and retail investors. However, where the investor is not a sophisticated investor (i.e. a retail investor), investment in any ESIC must be capped at $50,000 during an income year to qualify for the tax incentives. This limit does not apply for sophisticated investors, who meet certain criteria under the Corporations Act 2001 and do not have to be provided with a disclosure document, such as a prospectus or product disclosure statement, when being offered shares in a company.

Investors can be either Australian residents or non-residents, such as individuals, companies or members of a trust or partnership. However, an investor will not qualify for any of the investor incentives if:

  • shares are purchased under an Employee Share Scheme;
  • the investor and the ESIC are affiliates of each other;
  • the investor holds more than 30% of the equity in the ESIC or its connected entities; or
  • the investor is a widely-held company or a subsidiary of a widely-held company.

What is a qualifying ESIC?

For a company to qualify as an ESIC, it must meet the early stage and innovation tests (either as a 100-point test or principles-based test).

In summary, these take into account considerations such as:

a) location and timing of your company’s incorporation;

b) income and expenditure of your business;

c) whether your business has:

  • incurred Research & Development expenditure;
  • received an Accelerating Commercialisation Grant;
  • participated in accelerator programs;
  • received third party investment previously;
  • rights (including equitable rights) to a registered patent, innovation patent, design or plant breeder’s rights;
  • research agreements in place with research institutes or research service providers;
  • developed one or more new or significantly improved innovations for commercialisation;
  • high growth potential;
  • potential to successfully scale up the business;
  • potential to address a broader than local market; and
  • potential to have competitive advantages.

How can mdp assist?

The team at mdp have extensive experience in assisting clients in every stage of their business, and helping companies commercialise their innovations.

We can assist with general advice regarding how your business can fall within the ESIC criteria (or be eligible as a qualifying investor) as well as improving your eligibility for the incentives (such as through intellectual property licensing agreements). We also assist with capital raising, effective tax planning and protecting innovations and intellectual property assets, including patent protection.

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Change of Trade Mark Official Fees

mdp Admin | October 7th, 2016

IP Australia recently conducted a review of its official fees in an attempt to streamline and simplify the trade mark application process.

From 10 October 2016, the trade mark official fees will be changing, the two major changes are:

  1. Increased application fees

These fees have increased to $330 per mark, per class (from $200 per mark, per class).

  1. No registration fees

If a trade mark is accepted for registration, there will be no registration fee payable (previously, these fees were $300 per mark, per class).

Please note these changes will only affect trade marks applied for after 11 October 2016.

Full details of the changes can be seen on IP Australia’s website.

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Wilful Infringement and Enhanced Damages in Patent Infringement Cases

Gavin Doherty | July 27th, 2016

In the first of a series of patent-themed articles, mdp Patents Director Gavin Doherty explores a recent case of wilful infringement in the US and the importance of seeking advice before commencing commercial activities both at home and abroad.

How do you stop a big company from blatantly copying me after I disclose my invention to them, even if I have a patent? They know I wouldn’t have the money to defend it!

This is perhaps the most common question posed by inventors during an initial consultation.  On the one hand, it demonstrates a good level understanding of the costs associated with enforcing a patent against an infringer, costs which can be significant and which can vary from country to country.   On the other hand, it shows a lack of understanding of the remedies available to address such a wilful act of infringement. This is particularly so in the USA where enhanced damages may be awarded in instances where wilful infringement is found, which can make even the biggest companies wary about taking on a small competitor.

Last month this very issue was played out before the US District Court of Florida in the case, Arctic Cat Inc. v Bombardier Recreational Products Inc., and BRP U.S. Inc.

For those readers who view the beach as a place of relaxation more than recreation, Bombardier Recreational Products Inc. (BRP) are the manufacturers and distributors of Sea-Doo personal watercrafts (PWC).  PWCs operate by way of a moveable nozzle connected to a jet pump to propel the vessel, rather than a conventional propeller. However, one problem with PWCs is that if the power to the jet pump is removed by releasing the throttle, the PWC loses its ability to be steered.   So if you are a novice and you are travelling towards a hazard in the water, the natural instinct is to take your hand off the throttle and steer away from the hazard. The problem is that by releasing the throttle, you lose the ability to steer.  It is not surprising then that in a 1998 study by the US National Transport Safety Board it was found that ’in PWC fatalities, more persons die from blunt force trauma than from drowning’.

To address this, Arctic Cat Inc. (AC) developed an off-throttle assisted steering technology whereby riders were provided with a temporary ’steerable thrust’ in conditions where the rider turns the steering mechanism of the PWC whilst the throttle is in an idle position.  This technology was protected by AC through a number of patents and a prototype was demonstrated to the PWC industry, including BRP representatives in 1999 and 2000.

In 2009, BRP released its ’Off-Throttle Assisted Steering’ technology that employed magnets on the steering column of the Sea-Doo. This meant that, when turning the steering column with the throttle in an off position, a switch was activated to increase engine speed for a temporary period to provide the rider with steerable thrust.  This was promoted by BRP as a ’key safety innovation’.

Early last month, a jury found that the BRP technology employed on a number of Sea-Doo PWCs sold from 2009 infringed a number of claims of AC’s US Patents and awarded AC just over US$15 million in damages.  The jury concluded that not only did BRP infringe, they infringed ’with reckless disregard of whether such claim was infringed or was invalid or unenforceable’.  The jury followed a two-part test that found that the infringer acted despite an objectively high likelihood of infringement and also that the risk of infringement was either known or so obvious that it should have been known.  Accordingly, the Federal Judge tripled the damages awarded to US$46.7 million under the wilful damages provisions of 35 U.S.C. 284.

Uncannily, on the date that this judgement was handed down, the US Supreme Court decided to remove the aforementioned two-part test, and replace it with a simpler test for assessing wilful infringement, which could be applied more liberally.

In any event, BRP were well aware of AC’s technology and should have at least sought formal advice over the validity of the patents and whether their proposed technology was an infringement. Their failure to do this left them exposed the company to considerably higher damages.

Take Home Points

Under Australian law, there is no equivalent provision for trebling damages due to wilful infringement.  The fact that an infringer is aware of a patent and potential infringement will have a considerable impact on the time period from which damages or accounting profits can be assessed.

For clients seeking to expand their practices into the US, this case raises two important points:

  1. the importance of patent protection in the US, and the deterrent that a potential infringement action can provide, especially with treble damages payable if such an action is found as wilful; and
  2. the importance of obtaining advice with respect to any alleged infringement, as well as conducting infringement and clearance searches in the USA before undertaking commercial activities.

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Securing Effective IP Protection in China

Alana Long | May 17th, 2016

mdp Senior Associate Alana Long discusses the increasing relevancy and effectiveness of brand protection in this previously vexed jurisdiction.

IP protection in China has traditionally been viewed by many Australian businesses with scepticism.  With a notorious reputation for IP infringement and squatting, many businesses have questioned the value of obtaining IP registrations in China.  However, in response to the Chinese Government’s efforts to improve China’s IP system in 2014, IP registrations in China have become increasingly valuable and, in our view, are non-negotiable for businesses planning to exploit IP assets in the region.

mdp assists brand owners to register their trade marks in China (as well as other Chinese speaking regions such as Taiwan and Hong Kong). This includes both English and Chinese versions of their trade marks. Given many Chinese consumers don’t speak English, the Chinese version of a trade mark is often as, if not more important than the English version.

The Chinese trade mark office is a true trade mark powerhouse. By the end of 2013, China had recorded a total of 13.24 million trade mark applications and 8.65 million registrations, making it the trade mark office to process the largest number of trade mark applications in the world. With respect to trade marks, the numbers speak for themselves – both Chinese and foreign companies see the value in registering brands in China.

As part of the 2014 IP reforms, amendments to the Chinese trade mark law included better protections for well-known marks and a stricter approach to bad faith filings. In response to a trade mark squatting case, mdp filed an opposition to a Chinese version of our client’s English trade mark at the end of 2014. Our client already had English trade mark registrations and several Chinese trade mark registrations for the mark in question, however, it did not have a Chinese registration for the specific class of goods for which the squatter sought protection. The client’s existing registrations were insufficient to block the squatter’s application and our client had no choice but to oppose the application. We were thrilled to receive the news approximately 12 months later that the client’s opposition was successful on the basis that:

  • the squatter’s application was filed in bad faith; and
  • our client’s mark was well known in China and, therefore, the squatter’s use and registration of the mark was likely to be confused with our client’s.

It is encouraging to see that the 2014 reforms are delivering positive outcomes for legitimate brand owners. Whilst the above example demonstrates improved opposition grounds, the preferred approach for any brand owner is to obtain trade mark registrations at the outset. Having comprehensive trade mark registrations in place will permit you to block competitors/squatters and is far more cost effective than opposing third parties who seek to register your brand (be it the English or Chinese version). Given China’s first-to-file trade mark system, obtaining trade mark registrations is the best insurance policy to defeat squatters and copycats.

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Release of the Productivity Commission’s Draft Report on Australia’s IP System

Sarah Gilkes | May 17th, 2016

On 29 April 2016, the Productivity Commission released its draft report summarising the results of its inquiry into Australia’s intellectual property arrangements. mdp Director Sarah Gilkes summarises the key issues and recommendations in the report.

The purpose of the inquiry was to review all aspects of Australia’s intellectual property system (including copyright, trade mark, patent and design laws), and to recommend any changes that the Commission felt were necessary to ensure that the interests of both innovators and consumers were appropriately balanced. The Commission was also asked to take into account Australia’s obligations under various international agreements regulating intellectual property, including the recently signed Trans-Pacific Partnership Agreement.

Balancing the interests of innovators and those wishing to access innovation is an ongoing challenge for intellectual property legislators.

On the one hand, innovators need to be incentivised to share their innovations so that society can access and benefit from those innovations. In some cases, the act of innovation itself also needs to be incentivised, especially where the cost involved in research and development (R&D) is prohibitive (such as in the pharmaceutical and biomedical industries), and the R&D activities are only undertaken on the understanding that there will ultimately be a prospect of profit. As an incentive both to sharing innovation, and to the act of innovation itself, the monopolies offered under intellectual property laws (in particular, under the Patents Act 1990), and the resulting ability to commercialise those monopoly rights, are a powerful inducement. Intellectual property rights are also an important tool for inventors in attracting investment from private investors or venture capital firms, particularly in the early stages of commercialisation when those inventors are not yet to demonstrate a track record of customer engagement or financial return.

On the other hand, by granting a monopoly to an innovator, intellectual property laws necessarily limit the ability of consumers to access the innovation. Perhaps of more concern, they also limit the ability of other innovators to build upon the original innovation. An invention disclosed in a patent, for example, will often result in the patent owner being the only party who is able to develop more advanced versions of the invention. This means that any other inventors working in the same industry who may have ideas as to how to improve upon the original invention are often prevented from making those improvements, resulting in a decrease in market competition and (arguably) a detrimental impact on society through the stifling of further innovation.

In considering these competing interests, the Productivity Commission has made a number of preliminary recommendations, some of which would result in significant changes to Australia’s current intellectual property laws. The recommendations include:

  • abolishing innovation patents (the eight-year patents, which were introduced in 2001 and replaced the former six-year petty patent);
  • limiting the circumstances in which software patents will be granted;
  • introducing a ‘fair use’ exception to copyright infringement (which would see Australia take an approach to copyright infringement which is closer to the one used in the USA); and
  • improving the dispute resolution mechanisms for intellectual property, with the aim of making it easier (and less costly) for SMEs to enforce their intellectual property rights.

It appears from the preliminary recommendations that the Productivity Commission’s focus is on shifting the current intellectual property system so that it expands the rights of those accessing IP, and places greater limitations on those seeking to obtain IP monopolies. Submissions on the draft report are due on 3 June 2016, and the final report is expected to be released in August 2016.

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The Paper-Light Revolution

Dianne McDonald | May 17th, 2016

mdp’s Practice Manager Dianne McDonald discusses how paper-light may benefit and transform the legal profession.

It is a well-known fact that lawyers are stereotypically conservative. If you have ever been into the back office of a law firm, two things stand out: the constant hum of the printer and the mountain of files in each office. Yet these are only the ‘current’ files; for every file in the office there are considerably more in off-site storage facilities (some for as many as 50 years, in order to meet minimum requirements).

mdp decided to re-evaluate these inefficiencies and adopt an innovative approach to our paper policies, which turned out to be more groundbreaking than we realised. To date, very few Melbourne law firms are paper-light and we have been approached by a number of firms for guidance on how to transform to this alternative.

Originally, mdp had a dual system of both paper and electronic files for 11 years. Staff would keep both as a ‘security blanket’, with no one being entirely sure if either system was complete.

We then decided 20 months ago to take the leap and stop using physical files and commit to saving everything electronically. At this time, we had just updated our software, which provided an easier method for saving emails, a better document storage system and a more versatile precedent system. This presented the perfect opportunity to introduce paper-light.

Of course, we are not entirely paperless. We still store original documents such as wills, contracts and court documents. Also, staff occasionally print documents for reading and consideration purposes. However, documents, except for original documents, are shredded when no longer required, leaving our bookshelves and filing cabinets mostly empty.

At the time we made the change, I was pleasantly surprised by how positively all our staff responded. We started the process immediately, cross-checking current and new files and ensuring that everything was saved digitally. At first, everyone still felt the need to hit the print button but now lawyers can go days without printing anything, the admin staff are utilising their time on more productive work (rather than the constant filing) and we no longer have to hunt around the office for a file as everything is saved electronically. We now have a de-cluttered office and a more efficient workplace.

Our tips for anyone considering paper-light include:

  1. You need at least one person with a passion to devise a plan and drive it as old habits are hard to change, especially in the early days of the transition.
  2. Take the time to present your case to your staff and consider all their queries as often they will raise something you had not thought of. It takes a team effort, with everyone on board, or otherwise it will not work.
  3. Make a date and do it. You cannot take a half hearted approach by doing it in parts.
  4. Make sure your IT is up-to-scratch. If you’re going to go online, make sure you have good back-ups and security in place.
  5. Be patient. Some people will continue to print emails or documents to read and that is okay, so long as they are saving it and know it will eventually be shredded. As time goes by they will print less and less.

Still not convinced? Here are a few extra paper-light benefits:

  1. Improved efficiency and productivity. For example, three people can work on the one document from three different locations (given it is stored digitally).
  2. Help the community! We have given away over 1000 binders to schools and organisations, with still more to go.
  3. Better utilisation of admin staff. We have freed up at least one to two days per week of admin time in filing which, considering we are a small law firm, is significant.
  4. Costs saving! We are saving costs on paper, other stationery, electricity, printer servicing and toners.
  5. De-clutter and gain space. We no longer require so many book shelves and filing cabinets, freeing up office space.
  6. More cost savings! We have not sent a file to offsite storage in 18 months. We will eventually be able to destroy all documents in storage as the files that need to be kept more than 7 years are in the process of being scanned and saved electronically.
  7. Improved job satisfaction for admin staff as filing was their number-one, most-dreaded and thankless task.
  8. Our trust auditor spends less time in the office as I email reports to him.

And finally, litigation law firms say it’s not possible for them, but already the system is heading to an electronic world. As of 1 August 2016, it will be mandatory to e-file all civil court documents for the Victorian County Court and there are a number of e-trials now in progress across the country, with 14 in Queensland courts.

You too can get ahead of the game, if you start now!

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Corporate Structuring: Are You Parking Your Bright Idea in the Right Spot?

Michael McDonald | January 11th, 2016

Most entrepreneurs are acutely aware that innovation and creativity are vital in today’s market. However, many are unaware of the importance of identifying the right structure to manage and commercialise their intellectual property (IP) assets. This is despite IP assets being widely recognised as the most valuable asset for businesses.

The first step in the process is to ensure that you have an appropriate corporate structure set-up, taking into account your business, goals, risk profile and assets generally. A large part of this is ensuring your IP assets are held in the right entity. Further, due to the potential tax implications of transferring assets between entities, it is important to get it right the first time.

Mdp Director Michael McDonald and Trainee Janice Yew look at some of the key reasons to carefully consider the corporate structure of your business.

Risk Minimisation

Great ideas often flow from existing businesses. This does not mean that those great ideas should be owned by those same existing businesses. One advantage of a robust corporate structure is the ability to minimise risk.

For example, imagine that you’ve developed a portfolio of valid and registrable patents and trade marks in relation to your business. Your business operates under Trading Pty Ltd but the assets (including IP assets) are owned by Holding Pty Ltd. Holding Pty Ltd then licences the IP to Trading Pty Ltd for a fee.

Trading Pty Ltd is now free to engage in commercialisation activities. In the event that Trading Pty Ltd is sued, your assets will be protected and insulated from any creditors as it is held by a separate legal entity, Holding Pty Ltd.

Tax Planning

Effective tax planning can help to reduce a company’s effective tax rate, thus enhance shareholder value significantly. For example, one strategy is to shift ownership of IP assets to a more favourable entity or tax jurisdiction.

To illustrate, a common vehicle for tax planning is the discretionary trust. IP assets are held in the trust, from which the income from those assets can be distributed to the beneficiaries of the trust each year, at the discretion of the trustee, depending on the tax rates of each beneficiary.

Investment Ready

When an investor is looking to make an investment, they are generally looking for a business with an “investment ready” structure. That is, a business that has established a structure capable of accepting an offer of investment will be much more attractive to investors. There are rules in the Corporations Act 2001 (Cth) that regulate capital raising by companies.

Further, investors are more likely to invest in a ‘fresh’ company that does not have a long history of other business ventures (whether successful or not) and stakeholders. Raising capital through a company that has previous businesses is unattractive due to the possibility of the investment funds being exposed to claims from previous creditors and stakeholders.

Finally, businesses inherently grow, adapt and mature over time, so don’t forget to review your corporate structure from time to time to ensure continued relevance and suitability.

The team at mdp have extensive experience in assisting clients in every stage of their business, both locally and internationally.

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The Latest Australian Innovation System Report 2015

Gavin Doherty | January 11th, 2016

The Australian Innovation System Report 2015 (Report) compares Australia’s performance in a number of key innovation areas against other OECD countries and unearths critical issues for consideration if Australia is to embrace the ‘ideas boom’ and foster a culture that supports and grows entrepreneurship and innovation in Australia. mdp Director and Patent and Trade Mark Attorney Gavin Doherty reviews the key findings, which include:

  • Australia has a relatively high (but declining) proportion of young businesses.
  • Startups contribute significantly to the economy.
  • The greatest barrier to innovation for startups and young SMEs is access to additional funds.
  • Fear of failure does not breed a culture of innovative entrepreneurship.

With the Federal Government’s recent release of their Innovation Statement, much attention is currently being focussed on how the Government intends to fund Australia’s ideas boom and encourage innovation. The Innovation Statement represents a welcome change from previous government announcements seeking to remove many of the incentives for Australia’s startups and entrepreneurs.

However, in order to determine the necessary changes for the future, it is important to review what has succeeded and failed in the past. It is timely, then, that on 26 November 2015 the Department of Industry, Innovation and Science released the Report, which provides that necessary in-depth analysis of the innovation culture in Australia over recent years.

The Report

The Report is the sixth in a series of yearly reports that review and analyse the innovation system in Australia. The 2015 report focuses specifically on innovation through the eyes of entrepreneurship, and analyses how startups and new businesses are affected by support for innovation and how these businesses contribute to the Australian economy.

The report reveals important issues that require consideration if Australia is to embrace its ideas boom.  Some of these issues include:

Australia has a relatively high (but declining) proportion of young businesses

Large businesses represent around 0.3% of all Australian firms, but account for around 40% of the country’s employment. These figures are similar in the USA, Canada, UK and France.

When compared to the OECD countries, Australia has the second highest (behind Brazil) proportion of small businesses that are either startups or young (up to five years old), for the period 2001-2011.  However, the startup rates for new businesses have been declining since 2004-2006 as shown in the graph below:

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Startups contribute significantly to the economy

It is well established that startups can disrupt competitive markets but it has also been found that startups and business entrepreneurship can nurture economic growth.  The Report supports this and shows that startups are more likely to report increases in employment, sales, profitability, productivity and product range and product innovation.  Over the period 2006 – 2011, 1.04 million full-time equivalent (FTE) jobs were added to the Australian economy through startups and young businesses.  During the Global Financial Crisis (GFC) year of 2009, it was the mature businesses aged over 5 years that shed most of the net jobs and startups actually made a net positive contribution to employment during this period.

The greatest barrier to innovation for startups and young SMEs is access to additional funds

While Australian entrepreneurs rely upon a variety of funding sources to support their new business ventures, most do not seek external finance as their major source of funding.  Rather, most young SMEs draw upon their savings, credit cards and other personal credit facilities to fund their activities.  One source indicated that 19% of Australian startups are funded by family and friends, and a further 15% by public grants.  More importantly, it was reported that half of Australian startups receive $100,000 or less in total funding.

Whilst it is well understood that national innovation systems throughout the world rely upon the availability of venture capital (VC), Australian VC investment has not bounced back to levels reached before the GFC.  This is in contrast to many other countries, especially the USA and Israel.  In 2014, VC investment was at 40% of its 2007 levels.  It was also reported that much of this investment is narrowly focussed on information technology and the life science sectors and, instead of being available to startup enterprises, it is being channelled into follow-on investments in existing companies.  Compared with other OECD countries, Australia has the lowest proportion of VC invested in high risk, early stage venture capital.

Fear of failure does not breed a culture of innovative entrepreneurship

Though Australia’s entrepreneurial rates are among the highest amongst OECD countries, much work is still required to build a culture that nurtures and supports entrepreneurship.  In this regard, it was found that Australia ranks at around, or slightly below, the OECD average on many measurements.  For example, one study showed that 53.4% of Australians aged 18-64 years considered ‘entrepreneurship’ to be a good career choice when asked such a question.  This was significantly below the USA (64.7%), UK (60.3%) and the Netherlands (79.1%).

In addition to this, 39.2% of Australians aged 18-64 years were fearful of business failure, as compared to the average for the OECD countries (37.8%).  Such a fear of failure was significantly higher than the rate in the USA (29.7%).

A culture of innovation is fostered from the early years in a child’s education and should provide an incentive for people to take risks, preventing widespread fear of the consequences of failure.

Conclusions

It is clear from the issues raised, that the Report lays the groundwork for the federal government’s recent Innovation Statement. Clearly, entrepreneurship remains alive and well in Australia, and as reported recently by the World Bank, Australia is still considered a favourable country in which to do business and to start a business.  Further, the benefits to the economy through fostering a culture that supports entrepreneurship and innovation are well established.  However, more needs to be done to free up access to funding and for making early stage investments more attractive to the investment community.

Clearly, the government’s proposed changes to the bankruptcy laws as well as introducing ICT programs into schools will go some way to addressing the cultural issues identified in the Report.  Similarly, the introduction of the tax offset model should assist in making investments in startups more attractive.

However, as with all statements and good intentions, it is the manner in which they are implemented and what concessions are necessary for them to become policy that dictate their effectiveness.  Clearly, based on the Report, there is scope for improvement for the Australian innovation system and it is heartening that the Federal Government have taken positive steps to address the issues raised in the Report.

As an IP firm directly involved in the innovation sector, mdp know the hard work and energy required to develop a new product or business.  We share the successes and failures with our clients and support any initiatives that can foster and promote the entrepreneurial spirit that we see amongst our clients on a regular basis.

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Significant Changes to Anti-Piracy Laws 

Tamsyn Vassallo | September 16th, 2015

The precedent-setting Dallas Buyers Club case and the passing of a new anti-piracy Act are set to enable content owners to pursue internet users for copyright infringement, to cause overseas file-sharing sites to be blocked, and to compel internet service providers (ISPs) to assist. mdp lawyer Tamsyn Hutchinson summarises these significant changes to the anti-piracy landscape.

The seeming unenforceability of copyright in online content and has begun to seem like the inexorable consequence of the internet. In response to high-speed and readily modifiable online file-sharing technologies, content owners have been battling to ascribe liability for infringement to the different players involved. Attempts by content owners to force ISPs to disclose the identities of their subscribers, to sue internet users and to expand authorisation laws to intermediaries (such as ISPs) have become public relations fiascos and have largely failed.

But recent ‘wins’ for content owners may begin to stem the widespread dissemination of copyrighted material online.

THE DALLAS BUYERS CLUB COPYRIGHT INFRINGEMENT CASE

In April, the Federal Court has ruled in favour of a ‘preliminary discovery’ application by Voltage Pictures LLC, the film studio behind the Dallas Buyers Club movie. Justice Perram ordered that several ISPs provide the studio with the identities of customers it alleged had shared the movie online.

The ruling means that 4,726 Australian internet account holders are likely to receive letters from Dallas Buyers Club LLC threatening legal action if the recipients do not enter into settlement negotiations with the studio.

However, Justice Perram ordered that these letters must first be seen by him to ensure that the film studio is not engaging in unlawful ‘speculative invoicing’ (i.e. making unreasonable, unsubstantiated demands). After reviewing and rejecting several versions of the proposed letters, his Honour refused to order the release of the downloader’s names and addresses unless Voltage Pictures LLC dramatically revised its claims in such letters and provided a $600,000 bank bond to the court (in order to compel Voltage to comply with any undertakings it provides to the court).

Implications:

The Dallas Buyers Club case is groundbreaking. Content owners who were previously unable to compel ISPs to provide subscriber information because of due process, privacy and other considerations, will now be able to obtain the information they need to take a litigious approach to enforcing copyright. This is a strong warning to internet users that they are no longer anonymous online and immune from liability.

NEW PIRACY WEBSITE-BLOCKING LAWS

In a bid to prevent Australians from accessing overseas peer-to-peer file sharing sites (such as Torrentz and the Pirate Bay), the government has introduced the Copyright Amendment (Online Infringement) Act 2015 (the Act).

The Act, which came into effect several months ago, enables content owners to apply for an injunction requiring an ISP to ‘take reasonable steps’ to disable access to an online location (which may include blocking the location entirely), where the primary purpose of the online location is to infringe copyright or facilitate copyright infringement.

The primary purpose test is intended to prevent the inadvertent blocking of websites that may have a legitimate purpose. In determining whether to grant an injunction, courts may give consideration to a list of factors, including the flagrancy of the copyright infringement (or the facilitation of the infringement) and whether the owner/operator of the online location/website demonstrates a disregard for copyright, generally.

Implications:

The Act enables content owners to start applying to the Federal Court for anti-piracy injunctions, which means certain overseas sites will become inaccessible. Australian ISPs will need to be familiar with the new laws and their rights and obligations under the Act.

Groups opposed to the new laws have argued that methods for side stepping domain name filtering are likely to mean anti-piracy injunctions will fail to curb illegal file. Blocking a domain name will not prevent the website creators from changing their domains and internet users from changing their domain name system lookup server or using a virtual private network (VPN) to access the filtered location. These groups have raised concerns that, despite being futile, the injunction will filter the internet and there is a risk that the laws may later be extended to other categories of content.

It is unclear whether VPNs will be captured by the new laws. VPNs provide gateways for protected communications, and so can be used for a range of necessary purposes as well as for copyright infringement. While the Act’s Explanatory Memorandum states that ‘The test is also not intended to capture Virtual Private Networks (VPNs) that are promoted and used for legitimate purposes’, there is also no specific protection for these VPNs. As such, there is a risk that lawful VPNs may fall within the ambit of the laws.

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Are Royalties Payable after a Patent has Expired?

Michael McDonald | September 1st, 2015

mdp special counsel Sarah Verstak compares the differing legal positions on this issue in Australia and the United States. The differences highlight why caution should be exercised when entering into patent licence agreements in different regions.

The Supreme Court of Victoria in ARB Corporation v Robert & Ors  recently found that royalties were payable beyond the life of a patent. Interestingly, the Australian position takes a much more commercial approach, compared to courts in the U.S, in relation to conducting businesses that are underpinned by patents.

By contrast, a U.S. court’s decision in Kimble v. Marvel Enterprises Inc in fact disadvantaged a licensor who had a patent in place.  The court held that, if a patent owner has an agreement that exceeds the term of the patent, the agreement will be unenforceable unless a discounted royalty rate applies after the expiration of the patent.

THE AUSTRALIAN POSITION

Background

Mr Roberts developed a differential locking system, which was the subject of patent applications in Australia, Europe, Japan and the U.S. (the Technology).

In 1987, Mr and Mrs Roberts and their company Altair Aviation Pty Ltd (the Vendors) entered into a sale agreement under which the rights to the Technology were sold to ARB Corporation Ltd (ARB).

The sale price was paid by way of an up-front payment and royalty payments were calculated by reference to the sale of products made by ARB (the Royalty Payments). In the Sale Agreement, the definition of the products referred to the four pending patent applications.

The patents did eventually proceed to grant.  However, the Sale Agreement did not specify an end date for the payment of royalties.

Consequently, after the patents had expired, ARB asked the Supreme Court of Victoria to consider the preliminary question of whether royalties were still payable under the Sale Agreement.

The contentions of the parties

ARB argued that under the Sale Agreement, its obligation was to pay royalties only for the duration of the life of the patents.  ARB submitted that the royalty obligations were intended to be limited to the term of the patents because otherwise, royalties would be payable forever.

The Vendors argued it was intended that the Royalty Payments would be payable:

  • for as long as ARB continued to manufacture dirrential locks using the Technology; and
  • the obligation to pay royalties was not confined to or limited by a length of time that related to the patent applications proceeding to grant and thereafter remaining registered.

The Supreme Court of Victoria’s findings

Justice Vickery found in favour of the Vendors that there was still an obligation on ARB to pay royalties even after the expiration of the patents.

His Honour noted that at the time of entering into the Sales Agreement, ‘it was entirely possible that none of the patents which were the subject of the patent applications would be granted’, and according to ARB’s construction, no royalties would be payable to the Vendors whatsoever.  His Honour did not consider that was the contractual intention of the parties.

To the contrary, it was found that the obligation to pay royalties was not contingent upon the grant of the patents.

Justice Vickery also noted that the royalties were directly linked to the volume of sales of the product made by ARB, and if at any time, it became unprofitable for ARB to continue to manufacture the products, it had the option to cease manufacture and sales.

It was found that the construction of the contract put forward by the Vendors produced a businesslike result that was consistent with the commercial context and purpose of the Sale Agreement.

THE POSITION IN THE UNITED STATES

In the case of Kimble v. Marvel Enterprises Inc, the 9th Circuit Court held that, where an agreement extended beyond the life of a patent, because the agreement contained inseparable patent and non-patent rights, it was unenforceable beyond the expiration date of the underlying patent unless there was a discounted rate or a clear indication that the royalty is in no way subject to patent leverage.

Background

In 1990, Kimble invented a Spiderman toy (called the Web Blaster) that was protected by a patent that expired in 2010.  Kimble issued proceedings against Marvel for patent infringement and breach of contract and the parties resolved the dispute by entering into a settlement agreement in 2001 whereby Marvel agreed to pay a royalty on products sold without an expiration date.  The agreement stated the royalty was for:

  • product sales that would otherwise infringe the patent; and
  • sales of Marvel’s Web Blaster product, without differentiating the product from the patent.

After further disputes between the parties regarding payment of royalties, Kimble again sued Marvel for breach of contract, and Marvel counter-claimed that it was not required to make payments after the patent expired.

The District Court initially found the settlement agreement was a ‘hybrid’ for the patent rights and the rights to the toy because there was no distinction between the royalties for the two categories and found in favour of Marvel.  Kimble appealed.

The 9th Circuit Court’s findings

The 9th Circuit Court upheld the District Court’s decision, and found that a patent licence that requires a licensee to make royalty payments beyond the expiration date of the underlying patent is unenforceable as an improper attempt to extend the patent monopoly.

The Court held that a ‘license for inseparable patent and non-patent rights involving royalty payments that extends beyond a patent term is unenforceable for the post-expiration period unless the agreement provides a discount for the non-patent rights from the patent-protected rate.  This is because – in the absence of a discount or other clear indication that the license was in no way subject to patent leverage – we presume that the post-expiration royalty payments are for the then-current patent use, which is an improper extension of the patent monopoly under Brulotte (Brulotte is a U.S. case from 1964).

Implications for licence agreements in the United States

Be careful when entering into licence agreements in the United States because, where an agreement extends royalty rates beyond the term of the patent and the agreement does not include a discounted rate after expiration, there must be some other clear indication that the royalty was in no way subject to patent leverage in order for it to be enforceable.

Other implications

You should have your licence agreement reviewed by lawyers in the country in which it will operate, because your entitlement to pay or receive royalties beyond the expiry of the relevant patents will depend on the way in which this issue is determined in each jurisdiction.

In particular, when the patent is nearing expiry, this would be a good opportunity to negotiate the terms of any potential renewal of the patent licence, particularly in jurisdictions such as the United States where royalties are not likely to be payable after the expiry of the patent, unless a discounted royalty rate is applied.

Which is the better legal position?

The Australian position is much more commercial in nature than that reflected in the Kimble case.

The view espoused by the U.S. court in fact disadvantages a licensor who has a patent in place.  This is because parties can enter into agreements to licence technology which is not the subject of a patent and still require royalties to be paid for as long as the parties agree.  Such an agreement could well exceed the duration of the term of a patent.   However, in the U.S., if a patent owner has an agreement which exceeds the term of the patent, the agreement will be unenforceable unless a discounted royalty rate applies after the expiration of the patent.

In the writer’s opinion, the Australian position is much more in line with the nature of commercial transactions, particularly in the technology space.

If you would like any further information or have any queries relating to the content of this article, please contact mdp Law on 03 9620 9660 or via  info@mdplaw.com.au

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No Go for Descriptive Trade Marks

Michael McDonald | October 21st, 2015

A recent Federal Court case demonstrates the fundamental importance of choosing brands and marketing strategies that differentiate your business from your competitors.  In this case, Chemist Warehouse issued trade mark enforcement proceedings against its competitor, Direct Chemist Outlet, and not only lost the case, but will also lose its trade mark registration because it lacked the requisite distinctiveness under the Trade Marks Act (Cth).

This case also illustrates the potentially significant financial impact that descriptive trade mark registrations can have. In addition to its registered trade mark being invalidated, Chemist warehouse was ordered by the Court to pay the other party’s legal expenses as well as having to bear its own legal fees.  Therefore, descriptive brands are not the way to go.

The claims

In the case of Verrocchi v Direct Chemist Warehouse, the applicants, trading as ‘Chemist Warehouse’ issued proceedings against Direct Chemist Outlet (DCO) for the following:

  1. Misleading or deceptive conduct under the Australian Consumer Law and passing off in relation to the ‘get-up’ used by DCO. Chemist Warehouse alleged that DCO had copied the visual appearance of its stores which depict yellow as a prominent feature along with other primary colours red and blue; and
  2. Infringement of its registered trade mark ‘Is this Australia’s Cheapest Chemist?’.

The Federal Court’s findings

Misleading or deceptive conduct and passing off

Justice Middleton found that there was no sufficiently common identity in the design and layout of the Chemist Warehouse stores to give rise to a distinctive store get-up associated with Chemist Warehouse. This was because the stores did not have a uniform external appearance.  His Honour also found nothing distinctive about Chemist Warehouse’s catalogues and website. The only distinctive and consistently used branding element in the store exterior get-up was the Chemist Warehouse logo.

Further, his Honour found that DCO had sufficiently distinguished the trade indicia of its stores, so that the logo, colours and physical appearance of their stores, catalogues and website would not be likely to mislead or deceive the relevant consumers.

Consequently, Chemist Warehouse failed in its claims for misleading or deceptive conduct and passing off.

Trade mark infringement

Chemist Warehouse alleged that DCO’s use of the slogan ‘Who is Australia’s Cheapest Chemist?’ infringed Chemist Warehouse’s registered trade mark ‘Is this Australia’s Cheapest Chemist?’ (the Trade Mark).

However, interestingly, Justice Middleton held that the Trade Mark was not valid because it did not meet the distinctiveness requirements under s.41 of the Trade Marks Act (the Act). This was because a trade mark must be perceived as ‘a reliable badge of origin on its own’ and in his Honour’s view the slogan was merely descriptive. Even if the Trade Mark had been found to be valid, Justice Middleton did not consider that DCO had used the slogan ‘as a trade mark’ and accordingly there would have been no infringement in any event.

So why would you want to use a brand that is descriptive of your goods or services?

As trade mark lawyers, we are commonly told by clients that they want to establish a business with a brand that is very descriptive of their business offering. This is usually because they want customers to immediately understand what their business provides.

However, from a legal perspective, adopting a descriptive brand is in fact very risky, for the following reasons:

  1. In order to register a trade mark, your mark:
    • must not be substantially identical or deceptively similar to any earlier filed trade marks; and;
    • must be ‘distinctive’ of the goods or services that you provide (rather than descriptive).

    If a trade mark is descriptive of the goods or services, the Trade Marks Examiner is unlikely to allow the trade mark to proceed to registration because it would be unfair to allow one person to have a monopoly right over a word or phrase that other traders may wish to genuinely use in the ordinary course of trade.  Whether a trade mark is ‘descriptive’ would also depend on the nature of the goods or services in question.  For instance, ‘apple’ would be descriptive of apples or apple trees, whereas ‘apple’ is not descriptive of computer products.

    In some circumstances it may be possible to register a descriptive mark if you can submit sufficient evidence to the Trade Mark Examiner to demonstrate that the mark has ‘acquired distinctiveness’ through extensive use over time.

  2. It is a defence to trade mark infringement if a person uses a mark in good faith to indicate the kind, quality, quantity, intended purpose, value, geographical origin, or some other characteristic, of goods or services under s.122(b)(i) of the Act.This means that even if you are able to eventually register a trade mark by demonstrating that the brand has acquired distinctiveness through extensive use, you will not be able to enforce your trade mark registration against a third party if they are using their mark in a descriptive way and can rely on s.122(b)(i).An example of this is the case of Pepsico Australia Pty Ltd & Anor v The Kettle Chip Company Pty Ltd [1996] FCA 1236 where it was held that the term ‘kettle cooked chips’ was used descriptively and did not infringe the Kettle Chip trade mark. This is because the use of the word ‘kettle’ referred to the way in which the chips were cooked.
  3. As demonstrated in the Chemist Warehouse case, you can lose your trade mark registration if the Court finds that your trade mark is not sufficiently distinctive as required under the Act.Moreover, if you issue proceedings against another party and are unsuccessful as a result of your trade mark being invalidated, the Court will ordinarily order you to pay the other party’s legal costs of running the proceeding to trial (as well as having to bear your own legal costs).

So what is the moral of the story?

Be very careful about the brand that you adopt. Make sure that you select a name that is sufficiently distinctive so that you do not have to encounter the difficulties described above.

Also ensure that you select a name that is different from other brands to ensure that you do not expose yourself to an action by another trader for:

  1. infringement of their registered marks; or
  2. misleading or deceptive conduct or passing off.

Why would you want your brand to be similar to those of your competitors? If you have a good business, you should set yourself apart by adopting a unique brand position; be different!

However, if you do want to include descriptive wording or a descriptive tag line in your branding, you should ensure that there are some other ‘distinctive’ parts of your branding. In this way you should be able to obtain a registration for a composite trade mark (which would include wording and a graphic image).

Further, if you are in the business of licensing or franchising you should ensure that that the appearance of all shop fronts is as similar as possible to increase your chances of being able to take action against third parties for misleading or deceptive conduct or passing off. The lack of uniformity in appearance of its shop fronts was one of the reasons that Chemist Warehouse was unsuccessful in its claims.

It is also important to ensure that any franchise or licence agreements provide sufficient quality control mechanisms to ensure consistent usage of the branding.

About mdp

We provide the following services:

  • conducting trade mark searches and providing advice regarding adopting new brands;
  • expanding the scope of protection of existing brands;
  • registering all forms of IP in Australia and overseas;
  • providing commercial and structuring advice;
  • preparing licence and franchise agreements;
  • expanding businesses internationally;
  • IP enforcement; and
  • commercial litigation.

If you have any queries, please feel free to contact Sarah Verstak on 03 9620 9660 or sverstak@mdplaw.com.au.

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What is the Value of a Descriptive Trade Mark?

Michael McDonald | October 8th, 2015

A recent Federal Court case demonstrates the fundamental importance of choosing brands and marketing strategies that differentiate your business from your competitors. In this case, Chemist Warehouse issued trade mark enforcement proceedings against its competitor, Direct Chemist Outlet, and not only lost the case, but will also lose its trade mark registration because it lacked the requisite distinctiveness under the Trade Marks Act (Cth). This confirms that descriptive brands are not the way to go.

This also highlights the difficulty of quantifying and attributing value to trade marks on balance sheets. If a trade mark is highly descriptive, the mark could be of very little value because it will be difficult to enforce against a third party, or worse, it could be of no value at all if the Court finds that the registration should be cancelled.

Moreover, if a business has highly descriptive trade marks, this is likely to have a detrimental effect on the sale price of the business. The strength of trade marks and other forms of intellectual property (IP) is a key factor that must be taken into account when conducting due diligence for a potential acquisition of a business or specific IP assets.

The claims

In the case of Verrocchi v Direct Chemist Warehouse, the applicants, trading as ‘Chemist Warehouse’ issued proceedings against Direct Chemist Outlet (DCO) for the following:

  • Misleading or deceptive conduct under the Australian Consumer Law and passing off in relation to the ‘get-up’ used by DCO. Chemist Warehouse alleged that DCO had copied the visual appearance of its stores which depict yellow as a prominent feature along with other primary colours red and blue; and
  • Infringement of its registered trade mark ‘Is this Australia’s Cheapest Chemist?

This article focuses on the trade mark infringement issue.

The Federal Court’s findings

Chemist Warehouse alleged that DCO’s use of the slogan ‘Who is Australia’s Cheapest Chemist?’ infringed Chemist Warehouse’s registered trade mark ‘Is this Australia’s Cheapest Chemist?’ (the Trade Mark).

However, interestingly, Justice Middleton held that the Trade Mark was not valid because it did not meet the distinctiveness requirements under s.41 of the Trade Marks Act (the Act). This was because a trade mark must be perceived as ‘a reliable badge of origin on its own’ and in his Honour’s view the slogan was merely descriptive. Even if the Trade Mark had been found to be valid, Justice Middleton did not consider that DCO had used the slogan ‘as a trade mark’ and accordingly there would have been no infringement in any event.

So why would you want to use a brand that is descriptive of your goods or services?

As lawyers, we are commonly told by clients that they want to establish a business with a brand that is very descriptive of their business offering. This is usually because they want customers to immediately understand what their business provides.

However, from a legal perspective, adopting a descriptive brand is in fact very risky, for the following reasons:

  1. In order to register a trade mark, your mark:a) must not be substantially identical or deceptively similar to any earlier filed trade marks; and;
    b) must be ‘distinctive’ of the goods or services that you provide (rather than descriptive).If a trade mark is descriptive of the goods or services, the Trade Marks Examiner is unlikely to allow the trade mark to proceed to registration because it would be unfair to allow one person to have a monopoly right over a word or phrase that other traders may wish to genuinely use in the ordinary course of trade. Whether a trade mark is ‘descriptive’ would also depend on the nature of the goods or services in question. For instance, ‘apple’ would be descriptive of apples or apple trees, whereas ‘apple’ is not descriptive of computer products.In some circumstances it may be possible to register a descriptive mark if you can submit sufficient evidence to the Trade Mark Examiner to demonstrate that the mark has ‘acquired distinctiveness’ through extensive use over time.
  2. It is a defence to trade mark infringement if a person uses a mark in good faith to indicate the kind, quality, quantity, intended purpose, value, geographical origin, or some other characteristic, of goods or services under s.122(b)(i) of the Act.This means that even if you are able to eventually register a trade mark by demonstrating that the brand has acquired distinctiveness through extensive use, you will not be able to enforce your trade mark registration against a third party if they are using their mark in a descriptive way and can rely on the defence in s.122(b)(i).An example of this is the case of Pepsico Australia Pty Ltd & Anor v The Kettle Chip Company Pty Ltd where it was held that the term ‘kettle cooked chips’ was used descriptively and did not infringe the Kettle Chip trade mark. This is because the use of the word ‘kettle’ referred to the way in which the chips were cooked.
  3. As demonstrated in the Chemist Warehouse case, you can lose your trade mark registration if the Court finds that your trade mark is not sufficiently distinctive as required under the Act.

So what is the moral of the story?

Your clients should be very careful about the brands that they adopt. They should select a name that is sufficiently distinctive so that they do not have to encounter the difficulties described above.

Clients should also ensure that they select a name that is different from other brands to ensure that they do not expose themselves to an action by another trader for:

  1. infringement of their registered marks; or
  2. misleading or deceptive conduct or passing off.

Why would your clients want their brand to be similar to those of their competitors? If they have a good business, they should set themselves apart by adopting a unique brand position.

And what about accountants?

The Chemist Warehouse case shows the importance of properly considering the integrity of a trade mark, and thus, what value should be properly reflected on the balance sheet.

The Chemist Warehouse case shows the importance of properly considering the integrity of a trade mark, and thus, what value should be properly reflected on the balance sheet.

In valuing trade marks, accountants should not just consider whether a trade mark is registered, but rather, whether the trade mark is robust enough that it can withstand a challenge as to validity. The strength of the trade mark (and indeed other forms of IP) will have a significant impact upon the sale price of the business or the IP assets of the business.

About Sarah Verstak

Sarah has 13 years’ experience in intellectual property (IP), litigation and commercial law. She has significant experience in protecting, structuring and enforcing clients’ IP rights and assisting clients to expand their brand protection internationally.

Sarah is also a member of the Institute of Public Accountant’s Disciplinary Tribunal.

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Social Media and the Workplace

Victoria Konya | October 21st, 2015

mdp lawyer Victoria Konya discusses the dangers and possible impact of using social media in the workplace.

A recent case involving an interior designer who lost his job after using his LinkedIn profile to promote his out-of-hours design business highlights the consequences of being irresponsible when using social media, particularly when such use conflicts with an employee’s duties to their employer.

Upon hearing about the LinkedIn email in which Braford Pedley expressed his intentions to develop his sideline business into “a full-time design practice”, Mr Pedley’s employer, Canberra-based architectural firm Peck Von Hartel, dismissed him.

Mr Pedley argued unfair dismissal in the Fair Work Commission (FWC); however the Commission upheld the employer’s decision.

To safeguard themselves against such issues, employers should ensure that they implement appropriate social media policies and non-compete provisions in their employment contracts to prevent their employees from soliciting clients and/or customers.

In another recent FWC case, an employee used their Facebook page as a forum for posting damaging comments about their employer’s payroll department. The employer subsequently found out and sacked the employee.  Again, the employee claimed unfair dismissal in the FWC, but failed. The FWC held that, even in the absence of appropriate social media policies, it was not appropriate for an employee to draft threats against other employees on their Facebook page. It was no defence to the employee that the comments were posted outside of work hours.

The FWC maintained that the employee’s conduct amounted to serious misconduct and could be interpreted as a repudiation of the employment contract and therefore the employer was justified in treating the employment contract as terminated and had the right to dismiss the employee.

These cases clearly demonstrate that the line between an employee’s private life and work is becoming increasingly blurred by social media and the law of employment is being forced to respond accordingly.

mdp has helped a number of our clients implement appropriate employment contracts and employer policies which regulate the use of social media and implement rules around client contact.

Should you need any assistance or would like further information in relation to the issues highlighted in the above article, please contact us on 03 9620 9660 or via info@mdplaw.com.au.

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Are You Expanding Your Business into China?

Michael McDonald | July 21st, 2014

If so you should consider registering your brand as a trade mark in Chinese characters.

Did you know that even if you have your trade mark registered in China in English characters,  it will not protect another party from registering your brand as a trade mark in Chinese characters?  Well, unfortunately this is the case because although the trade marks translate as the same words/meaning, the Chinese trade marks office treats them as entirely different trade marks.

This is primarily because China is a ‘first to file’ jurisdiction, where the emphasis is on who files the trade mark first rather than who has the greater legitimate right to the brand (eg. through development of a reputation in the course of trade).

We are finding that increasingly, trade mark pirates in China are taking advantage of this loophole to file applications in Chinese characters that mirror well known brand names.

This leaves the legitimate trade mark owner in the position where they are forced to engage in a formal ‘opposition’ procedure through the Chinese trade marks office in order to prevent the pirated trade mark from proceeding to registration.  The opposition procedure requires material to be submitted to the Chinese trade marks office to validate the rights of the legitimate owner.  It is therefore more costly to fund an opposition action than to file a trade mark application in Chinese characters.

Further, if you do not have a trade mark registration in Chinese characters, even if you successfully oppose an application by a trade mark pirate, there is every chance that further pirate applications may be made by other traders.

It is therefore much more cost effective to have a trade mark registration in Chinese characters than to have to constantly fight off trade mark pirates.

If you are interested in registering your trade mark in Chinese characters, please let us know and we would be happy to assist you.

About Sarah Verstak

Sarah has 13 years’ experience in intellectual property (IP), litigation and commercial law.  She has significant experience in protecting, structuring and enforcing clients’ IP rights and assisting clients to expand their brand protection internationally.

About mdp

We provide the following services:

  • conducting trade mark searches and providing advice regarding adopting new brands;
  • expanding the scope of protection of existing brands;
  • registering all forms of IP in Australia and overseas;
  • providing commercial and structuring advice;
  • preparing licence and franchise agreements;
  • expanding businesses internationally;
  • IP enforcement; and
  • commercial litigation.

If you have any queries, please feel free to contact Sarah Verstak on 03 9620 9660 or sverstak@mdplaw.com.au.

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Changes to the Intellectual Property Laws Amendment (Raising the Bar) Act 2012

Janice Yew | October 21st, 2015

The Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Cth) and its Regulations come into effect today (15 April 2013) and introduce a range of changes to Australia’s intellectual property framework, including the Patents Act 1990, Trade Marks Act 1995, Designs Act 2003, Copyright Act 1968 and Plant Breeder’s Rights Act 1994.

One important change is the altered process and time limits for trade mark oppositions.

Under the new laws, a party wishing to oppose a trade mark must file a Notice of Opposition with the Trade Marks Office within a shorter time limit of two months from when the trade mark application is advertised for acceptance. They must then, up to one month later, file a Notice of Intention and a Statement of Grounds and Particulars.

The applicant must file a Notice of Intention to Defend, or their application may lapse. The purpose of these changes is to consolidate and encourage best practice in relation to the trade mark oppositions’ process, and to facilitate the resolution of trade mark disputes more quickly.

This is just one example of many changes under the Raising the Bar Act. The Trade Marks Office has prepared a guide to the reforms, which is available here.

If you have any questions or would like to discuss how the changes may affect you, please contact us.

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Are You Expanding Your Brand Internationally?

Michael McDonald | July 21st, 2014

If so, you may be eligible for an Export Market Development Grant (EMDG) from Austrade for registration of your intellectual property (IP) overseas.

This means that you may be entitled to be reimbursed 50% of your international IP costs of up to $50,000 per EMDG application, plus other significant promotional expenses.

What is an EMDG?

The EMDG scheme is an Australian Government financial assistance program which encourages small to medium sized Australian businesses to develop export markets.  If eligible, you may be reimbursed up to 50% of eligible export promotion expenses above $5,000 provided that your total expenses are a minimum of $15,000.

Is my business eligible for an EMDG?

To be eligible your business must:

  • have income of not more than $50 million in the grant year;
  • have incurred at least $15,000 of eligible export expenses, although first-time applicants can combine two years worth of expenses;
  • be the principal for the export business (rather than an agent); and
  • have promoted your product for export.

Some organisations that may not ordinarily meet the above criteria, may still qualify for Special Approval status such as Approved Bodies and Joint Ventures.

Are my products eligible for an EMDG?

An eligible product must be one of the following:

  1. Goods made in Australia;
  2. Goods made outside Australia where Australia will derive a significant net benefit from sales overseas;
  3. All services unless otherwise deemed ineligible in the EMDG regulations;
  4. Tourism services;
  5. Conferences or events held in Australia; or
  6. Intellectual property rights that mainly resulted from work undertaken in Australia.

What can I claim under an EMDG?

For a first grant, you may claim expenditure on specific export promotional activities undertaken during the two financial years beforethe application period.  For subsequent grants, you may only claim expenditure incurred in one financial year before the application period.

The eligible promotional activities are as follows:

  1. Costs paid to overseas representatives to market or promote your product up to a maximum of $200,000;
  2. Costs paid to a marketing consultant up to a maximum of $50,000;
  3. Expenses for marketing visits up to $300 per day;
  4. Communication expenses to promote your product;
  5. Costs of providing free samples for export;
  6. Costs of participating intrade fairs, seminars and in-store promotions;
  7. Costs of production of promotional literature and advertising materials;
  8. The costs of bringing potential overseas buyers to Australia for an approved export promotion purpose up to a maximum of $45,000 per EMDG application;
  9. Costs of registration and/or insurance ofeligible intellectual propertyup to a maximum of $50,000 per EMDG application.

How many times can I claim an EMDG?

Eligible applicants may obtain up to eight grants.  You may only obtain one grant per financial year. The grants do not need to be applied for in consecutive years.

Can I claim costs of Madrid Protocol or Patent Convention Treaty (PCT) Applications under an EMDG?

In short – yes.

The Madrid Protocol is an international treaty which allows Australian lawyers to file international trade mark applications through IP Australia (the government body which administers intellectual property).  The costs are in effect paid to Australian lawyers for undertaking international trade mark work.  Because the trade marks are international registrations, the costs incurred in making Madrid Protocol applications are covered by an EMDG.

PCT applications operate in a similar way to Madrid Protocol applications, except that they relate to patents instead of trade marks. Again, because the patents are international registrations, the costs incurred in making PCT applications are covered by an EMDG.

I have two entities – a trading entity which derives income from export and a passive entity which holds my IP. Does this structure preclude me from claiming an EMDG?

No, you still may be eligible to claim an EMDG.

You cannot claim expenses that were incurred by a related entity.  However, there is no requirement that the entity which claims the EMDG must hold the IP.

This means that a trading entity can claim an EMDG provided that the trading entity:

  • incurs the relevant expenses; and
  • is granted exclusive marketing rights to the IP by the passive entity which holds the IP.

It is therefore crucial to ensure that your licence agreement between your passive entity and trading entity is carefully drafted to ensure that you will still qualify for an EMDG.

Which expenses are ineligible for EMDG’s?

Some expenses which are ineligible are those that relate to business with New Zealand, North Korea and Iran.

Other ineligible expenses are outlined on Austrade’s website  http://www.austrade.gov.au/Export/Export-Grants/What-is-EMDG/What-can-you-claim

Is there any further information about EMDG’s?

We are planning to hold an upcoming information session about EMDG’s.  We will provide further information about this in the next few weeks.

For further information regarding EMDG’s please go to http://www.austrade.gov.au/Export/Export-Grants/What-is-EMDG

What next?

Please feel free to contact mdp if you have any queries regarding the following:

  • setting up corporate structures in anticipation of international expansion;
  • registering IP internationally; or
  • commercialisation of and/or international expansion of your brand or IP through licensing.

About Sarah Verstak

Sarah has 13 years’ experience in intellectual property (IP), litigation and commercial law.  She has significant experience in protecting, structuring and enforcing clients’ IP rights and assisting clients to expand their brand protection internationally.

About mdp

We provide the following services:

If you have any queries, please feel free to contact Sarah Verstak on 03 9620 9660 or sverstak@mdplaw.com.au.

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Shareholder Agreements – Why are They Needed and What Happens if They are Inconsistent with the Company’s Constitution?

Victoria Konya | October 21st, 2015

mdp senior associate Victoria Konya examines some of the key considerations that business partners should consider at the early stages of their partnership.

When a company is incorporated, it is governed by the Corporations Act 2001 (Cth) (the Act) and the terms of its constitution. However, there are a number of items that the Act and the constitution will not address, which makes a shareholder agreement necessary.

Often, people enter business partnerships without turning their minds to crucial questions about their future, such as ‘who will buy my shares when I leave and at what price?’

Unfortunately, for many businesses, these questions will arise when it is too late, and the parties must be dragged into costly legal proceedings in order to determine these.

The purpose of shareholder agreements

A shareholder agreement is a contract between the shareholders of a company. It includes mechanisms to deal with a range of events that might occur over the life of the business.

A well-drafted shareholder agreement will also put in place strong corporate governance, including the requirement for regular board meetings and majority decisions.

There are a number of benefits to a shareholder agreement, including:

  • putting in place mechanisms to deal with the unexpected (such as the resignation or death of a shareholder or director);
  • forcing the parties to enter an agreement whilst they are on good terms and enabling proper dispute resolution procedures to be established at the outset, to avoid costs down the track;
  • helping business partners turn their minds to their commercial and personal objectives (otherwise, they may be too busy with the day-to-day business challenges to consider these);
  • determining the types of decisions that must be unanimous between shareholders (such as a sale of the business or a change of control);
  • creating a procedure for removing directors (i.e. because of poor performance or bankruptcy);
  • restraining shareholders from competing with the company when they leave; and
  • establishing exit strategies if one shareholder wants to sell their shares (i.e. pre-emptive rights to other shareholders).

Shareholder agreements versus company constitutions

The main differences between these establishing documents include the following:

Constitution Shareholder Agreement
Governed by the Act. Governed by the laws of contract and the constitution.
Can be amended if 75% or more of shareholders vote in favour of the amendment. Can generally only be amended by agreement between all the parties.

(A shareholder agreement would, therefore, be a preferable option for minority shareholders wishing to protect their rights).

Confirms the terms and conditions relating to corporate governance, generally. A much more specialised document that is tailored to the parties’ specific business and personal objectives.

(For example, the constitution might include pre-emptive rights; however, it will not specify how the departing shareholder’s shares are to be valued or what insurance needs to be in place to cover death or incapacity).

Typical provisions

A shareholder agreement will typically formalise the following critical considerations

Members

Who are the shareholders? What are their shareholdings? Will shareholders have pre-emptive rights on any future issue of shares by the company?

Directors

Who are the directors?  How many directors must be on the board at any given time? How are directors appointed and removed?

Funding

How is the company funded? For example, will this occur by way of shareholder loans, issue of partly paid shares or provision of guarantees and/or security by shareholders? How will additional funding be raised to ensure the company has sufficient funds to operate and expand?

Share Capital

Will any new shares be issued in proportion to the amount of the existing shares to which a party is currently entitled? If new shares are not taken up, can the directors allot shares as they see fit? Are there any prohibitions on shareholders against encumbering their shares?

Board Meetings

How often must board meetings take place? What is the quorum (minimum attendance) for board meetings? What is the voting process? Should certain decisions be made unanimously?

Shareholder Meetings

How will voting be carried out? For example, will each shareholder have one vote per share, and will decisions be voted on by way of show of hands or by poll? The agreement will also list the decisions that require the unanimous vote of shareholders, such as the sale of the business, an increase or decrease in the authorised or issued share capital of the company, and the winding up of the company.

Voluntary Exit and Transfer of Shares

What rights does a shareholder have to transfer shares (whether to third parties or existing shareholders)? Will existing shareholders have pre-emptive rights to buy the shares being sold, and how will those shares be valued (i.e. through an independent or pre-agreed valuation mechanism)?

The shareholder agreement will also include drag-along and tag-along rights. Drag-along rights refer to a situation where a majority of shareholders receive an offer from a third party to buy all of the company. Under the drag-along rights, those shareholders can require the minority shareholders to sell at the same price.

Tag-along rights operate where a shareholder receives an offer from a third party to buy some of their shares. The remaining shareholders can opt in and require the third party to buy their shares also at the same price.

Involuntary Exit

What is the mechanism in place for the transfer of shares of a deceased or permanently disabled shareholder? What insurance policies must be in place to cover the unexpected and to enable remaining shareholders to purchase the departing shareholders’ shares?

Dispute Resolution

What are the dispute resolution procedures? Will parties be required to negotiate before proceeding to mediation? Who will mediate any dispute? How long will the parties have to mediate before any dispute can proceed to court?

Restraints

The agreement will seek to prevent shareholders from competing with the business during the term of the agreement and after termination. It will also specify the geographical area to which the restraint applies.

What if there is an inconsistency between the constitution and the shareholder agreement?

Typically, shareholder agreements will contain a clause stating that, in the event of any inconsistency, the shareholder agreement prevails (inconsistency clause).

A recent case has demonstrated that this inconsistency clause may not always have its desired effect.

In Cody v Live Board Holdings Limited  [2014] NSWSC 78, the directors sought to cause the company to issue particular shares, which had the effect of varying the rights of a particular class of shares.

The company’s constitution provided that directors had the power to issue or allot securities with such preferred, deferred or other special rights as the directors determined. However, if the share issue directly or indirectly varied the rights of a class of shares, at least 75% of shareholders of that class needed to approve.

The directors did not obtain the vote of at least 75% of shareholders because they sought to rely on the shareholder agreement, which provided that certain powers of the company were reserved for decisions by shareholders and these reserved powers (to be approved by 51% or more of shareholders) included the issue of shares or other securities of the company or the grant of rights over any shares or other securities in the company.

The court held that the inconsistent clauses were not actually inconsistent because they had different purposes. It was held that the purpose of the constitutional provision was to protect the interests of holders of a class of shares being varied, whilst the purpose of the shareholders agreement was to grant shareholders the power to issue shares.

As these purposes were aligned, the judge found there was no conflict between the two provisions, and therefore both requirements had to be complied with. So effectively, the directors should have obtained 75% of the shareholder votes.

Take-home points

The key messages from this case are:

  • Do not assume that the shareholder agreement will always prevail over a similar clause in the constitution.
  • Review the inconsistency clauses in the constitution and shareholder agreement to ensure they expressly provide that an inconsistency will be considered to exist where two conflicting clauses deal with the same subject matter.
  • Consider amending the constitution so that the clauses in the constitution are the same as the corresponding clauses in the shareholders agreement.
  • When issuing preference shares that vary the rights of existing shareholders, pay attention to the protections afforded to shareholders in the constitution and the Act, which may require a special resolution to vary existing class rights.

If you are considering entering into a shareholder agreement or would like further information, please contact mdp on 03 9620 9660 or via info@mdplaw.com.au.

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Avoid Waiving Client Legal Privilege

Janice Yew | October 21st, 2015

Don’t Waive Goodbye to your Client Legal Privilege Did you know that if you inadvertently disclose your legal advice to a third party, you may be waiving your right to claim client legal privilege over that information? This can prove detrimental in the context of legal proceedings. During litigation, parties to a legal dispute are generally required to provide (or ‘discover’).

Don’t Waive Goodbye to your Client Legal Privilege

Did you know that if you inadvertently disclose your legal advice to a third party, you may be waiving your right to claim client legal privilege over that information? This can prove detrimental in the context of legal proceedings.

During litigation, parties to a legal dispute are generally required to provide (or ‘discover’) certain documents relevant to the dispute to their opponent in a process known as ‘discovery’.

This process is intended to facilitate a speedier and cheaper resolution to the dispute by clarifying the facts and permitting each side to better assess the strengths and weaknesses of each party’s case, promoting an out-of-court settlement.

During this process however, legal advice provided by a lawyer to a client is generally protected by what is known as client legal privilege (or legal professional privilege). This means that documents for the purpose of obtaining or providing legal advice, or for the purpose of existing or reasonably contemplated judicial proceedings, are exempted from the discovery process and need not be provided to the other side. This rule encourages clients to be frank with their lawyers and disclose all relevant information so that they can get better legal advice and the dispute can be resolved more efficiently and appropriately. It also reduces the potential for trade competitors to obtain potentially sensitive details about a business that may be disclosed to lawyers in the course of obtaining legal advice.

Nevertheless, there is an exception to this exception. A client can be considered to have waived their client legal privilege if they disclose legal advice they have received to any third party, whether intentionally or inadvertently. Even if the full document containing the advice is not disclosed, simply explaining the conclusions or the “gist” of the advice to somebody can be enough to waive the privilege and can lead to the document being included in the discovery process, in which case the opposing party will be able to obtain the document in question.

This has important consequences for anybody obtaining legal advice. Even if you are not currently involved in a dispute that may go to court, you should ensure that any legal advice you receive is kept confidential. If you send, show or explain documents containing legal advice to any third party, even a friendly one, or if you even communicate the “gist” of legal advice you have received in documents, you may later be required to send those documents to opponents in any future disputes that arise. This could lead to your opponents obtaining sensitive information about your business and create further problems at an inconvenient time.

If you wish to take action based on any legal advice you have received and are unsure of whether you will be waiving your client legal privilege in doing so, or if you have any queries about dispute resolution or litigation processes, please seek our assistance on 03 9620 9660.

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Significant Changes to Anti-Piracy Laws

Janice Yew | October 21st, 2015

The precedent-setting Dallas Buyers Club case and the passing of a new anti-piracy Act are set to enable content owners to pursue internet users for copyright infringement, to cause overseas file-sharing sites to be blocked, and to compel internet service providers (ISPs) to assist. mdp lawyer Tamsyn Hutchinson summarises these significant changes to the anti-piracy landscape.

The seeming unenforceability of copyright in online content and has begun to seem like the inexorable consequence of the internet. In response to high-speed and readily modifiable online file-sharing technologies, content owners have been battling to ascribe liability for infringement to the different players involved. Attempts by content owners to force ISPs to disclose the identities of their subscribers, to sue internet users and to expand authorisation laws to intermediaries (such as ISPs) have become public relations fiascos and have largely failed.

But recent ‘wins’ for content owners may begin to stem the widespread dissemination of copyrighted material online.

THE DALLAS BUYERS CLUB  COPYRIGHT INFRINGEMENT CASE

In April, the Federal Court has ruled in favour of a ‘preliminary discovery’ application by Voltage Pictures LLC, the film studio behind the Dallas Buyers Club movie. Justice Perram ordered that several ISPs provide the studio with the identities of customers it alleged had shared the movie online.

The ruling means that 4,726 Australian internet account holders are likely to receive letters from Dallas Buyers Club LLC threatening legal action if the recipients do not enter into settlement negotiations with the studio.

However, Justice Perram ordered that these letters must first be seen by him to ensure that the film studio is not engaging in unlawful ‘speculative invoicing’ (i.e. making unreasonable, unsubstantiated demands). After reviewing and rejecting several versions of the proposed letters, his Honour refused to order the release of the downloader’s names and addresses unless Voltage Pictures LLC dramatically revised its claims in such letters and provided a $600,000 bank bond to the court (in order to compel Voltage to comply with any undertakings it provides to the court).

Implications:

The Dallas Buyers Club case is ground-breaking.

Content owners who were previously unable to compel ISPs to provide subscriber information because of due process, privacy and other considerations, will now be able to obtain the information they need to take a litigious approach to enforcing copyright. This is a strong warning to internet users that they are no longer anonymous online and immune from liability.

NEW PIRACY WEBSITE-BLOCKING LAWS

In a bid to prevent Australians from accessing overseas peer-to-peer file sharing sites (such as Torrentz and the Pirate Bay), the government has introduced the Copyright Amendment (Online Infringement) Act 2015 (the Act).

The Act, which came into effect several months ago, enables content owners to apply for an injunction requiring an ISP to ‘take reasonable steps’ to disable access to an online location (which may include blocking the location entirely), where the primary purpose of the online location is to infringe copyright or facilitate copyright infringement.

The primary purpose test is intended to prevent the inadvertent blocking of websites that may have a legitimate purpose. In determining whether to grant an injunction, courts may give consideration to a list of factors, including the flagrancy of the copyright infringement (or the facilitation of the infringement) and whether the owner/operator of the online location/website demonstrates a disregard for copyright, generally.

Implications:

The Act enables content owners to start applying to the Federal Court for anti-piracy injunctions, which means certain overseas sites will become inaccessible. Australian ISPs will need to be familiar with the new laws and their rights and obligations under the Act.

Groups opposed to the new laws have argued that methods for side stepping domain name filtering are likely to mean anti-piracy injunctions will fail to curb illegal file sharing. Blocking a domain name will not prevent the website creators from changing their domains and internet users from changing their domain name system lookup server or using a virtual private network (VPN) to access the filtered location. These groups have raised concerns that, despite being futile, the injunction will filter the internet and there is a risk that the laws may later be extended to other categories of content.

It is unclear whether VPNs will be captured by the new laws. VPNs provide gateways for protected communications, and so can be used for a range of necessary purposes as well as for copyright infringement. While the Act’s Explanatory Memorandum states that ‘The test is also not intended to capture VPNs that are promoted and used for legitimate purposes’, there is also no specific protection for these VPNs. As such, there is a risk that lawful VPNs may fall within the ambit of the laws.

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Is Your Patent Licence Exclusive?

Michael McDonald | October 21st, 2015

If you are a so-called ‘exclusive licensee’, you probably think you have the ability to enforce your rights against a patent infringer.  But the recent case of Bristol-Myers Squibb Company v Apotex Pty Ltd [2015] FCAFC 2, indicates that you might be wrong.

The case explores which rights need to be granted to a licensee in order for them to have sufficient exclusivity for the purpose of enforcing rights against patent infringers.

Facts of the case

Otsuka Pharmaceutical owns a patent which relates to an improved form of aripiprazole which is an antipsychotic drug.  Bristol-Myers Squibb (BMS) sells aripiprazole in Australia under licence from Otsuka.

In 2009, Apotex, a generic pharmaceutical company, began offering for sale generic-branded pharmaceutical products containing aripiprazole.  Then BMS commenced patent infringement proceedings against Apotex. However, Apotex argued that BMS had no standing to sue for infringement because it was not an ‘exclusive licensee’ as defined in section 120 of the Patents Act.

BMS claimed it was an exclusive licensee, pursuant to an agreement between BMS and Otsuka, which permitted BMS to engage in ‘advertising, marketing, promotion, sale and distribution’ of aripiprazole products.

In October 2013, the Federal Court held that BMS was not the exclusive licensee of the patent under the terms of the licence.   The Federal Court found that a licence is exclusive when all persons, including the patent owner, are excluded from exploiting the relevant patent.  However, in this case, Otsuka reserved for itself the exclusive worldwide right to manufacture, or have manufactured, aripiprazole in its various forms.

BMS then appealed to the Full Federal Court and judgment was handed down on 23 January 2015.

The Court’s decision on appeal

The Full Federal Court dismissed BMS’s appeal and agreed with the primary judge’s findings that an exclusive licence cannot be one that reserves to the patent owner, or any third person, any residual right with respect to exploitation of the invention, and therefore there can only be one exclusive licensee.

As a consequence, BMS was not an ‘exclusive licensee’ under the Patents Act and was therefore not entitled to sue Apotex for infringement of the patent.

What are the implications?

This decision highlights the importance of parties understanding the nature of the rights that are being granted under a patent licence.

  • If a patent owner wants a licensee to be able to issue patent infringement proceedings under s.120 of the Patents Act, an exclusive licence must be granted and the patent owner must forego any of its rights to exploit the patent in Australia.
  • If a licensee wants to have enforcement rights under s.120, they will need to ensure that the patent owner has not retained any exploitative rights in relation to the patent.  If a licensee is non-exclusive, they will need to rely on the cooperation of the patent owner to enforce the patent rights with respect to infringements.
  • Existing licence agreements may need to be varied in light of the decision handed down in the BMS case.  Consider this scenario:
    • The patent owner enters into a distribution agreement with a distributor.
    • The distribution agreement provides that the distributor has the sole right to issue enforcement proceedings against any third parties who infringe the patent.
    • However, under the BMS decision, the granting of a right to distribute alone, will not constitute an exclusive licence for patent enforcement purposes.
    • This means that the distributor cannot issue enforcement proceedings under s.120 because it is not an exclusive licensee and the patent owner cannot issue enforcement proceedings because it has contractually granted this sole right to the distributor.  Consequently, neither the patent owner, nor the distributor can issue enforcement proceedings.

This highlights the need to carefully audit and review existing contractual agreements which relate to patents to ensure that the parties’ rights are appropriately reflected and that appropriate enforcement action can be taken.

A significant part of our practice at mdp is protecting, licensing and commercialising various technologies and forms of intellectual property.

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Overseas Trade Mark Applications

Janice Yew | October 21st, 2015

mdp assists a number of clients with international trade marks strategies. We work with clients to determine the scope of protection required, and then provide advice on which is the most efficient method to obtain that trade mark protection.

Overseas trade mark protection is important in two ways:

  1. firstly, it gives enforcement and protection rights over trade marks; and
  2. secondly, it ensures that a trade mark owners continue to have freedom to operate (including freedom to use their own trade marks) without the use and registration of the trade mark being blocked by a subsequent third party trade mark application in a foreign jurisdiction.

In most cases, the Madrid Protocol will provide a cost-effective means to obtain international trade mark protection. The Madrid Protocol is a system which enables applications to be filed in Australia for trade mark protection in certain overseas jurisdictions (including the European Community and United States).

In countries where the Madrid protocol is not the best option, we work with our international network of trade mark agents.

Our intellectual property team will work with you to determine the best trade mark strategy for your business.

To arrange a consultation, contact mdp on 03 9620 9660.

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Privacy Law Reform

Janice Yew | October 21st, 2015

In less than 12 months significant changes to Australia’s privacy laws will come into force. Alana Long, a Trade Mark and Intellectual Property lawyer at mdp, reviews these reforms to help clients prepare for March 2014, when the changes come into effect.

The new laws will bring about changes in three main areas:

  • The introduction of a unified set of Australian Privacy Principles (APPs);
  • the introduction of comprehensive credit reporting; and
  • enhanced powers for the Commissioner.

The introduction of the APPs and the enhanced powers of the Commissioner are of particular importance to our clients.

The APPs will be introduced to replace the current National Privacy Principles for those private sector organisations covered by the Privacy Act 1988 (Cth) (“the Act”) and the Information Privacy Principles for Australian government agencies. There are a number of important changes with the introduction of the APPs, including in the areas of direct marketing, overseas disclosure of personal information and the handling of unsolicited information.

Importantly, under Australian Privacy Principle 8 “Cross-border disclosure of personal information” both government agencies and private organisations will remain accountable for the handling of personal information that is transferred overseas unless a series of criteria are met. This is particularly important if you use any cloud computing services, as many of the services providing these services are located overseas.

The seriousness with which privacy is treated in Australia is reflected in the Commissioner’s new powers to conduct Performance Assessments of private sector organisations to determine whether they are handling personal information in accordance with the new APPs and other rules and codes. The Commissioner will be able to conduct these assessments at any time – an added incentive for organisations to ensure they are handling personal information in accordance with the Act.

There are a number of steps you can take now to prepare for the changes to the Act, including the review of:

  • Privacy policies and collection notices;
  • systems, practices, procedures and staff training;
  • outsourcing arrangements, particularly if these involve the disclosure of personal information outside Australia (e.g. cloud computing arrangements); and
  • direct marketing practices, including the availability of ‘opt out’ mechanisms.

Please contact us on 03 9620 9660 if you have any questions or require further information.

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Duties of an Estate Executor

Janice Yew | October 21st, 2015

Are you an executor of a will? Are you aware of your rights and responsibilities and how to fulfil them? Are you aware of the consequences of breaching your obligations?

A personal representative of an estate gives effect to the deceased’s final wishes as set out in the will. In doing so, the executor is required to act in the best interests of the estate, and may need to seek financial and/or legal advice to fulfil this duty. Whilst it is the executor’s duty to defend the will, the beneficiaries of the will also have an interest in it and may intervene in certain situations.

For example, beneficiaries may wish to seek legal advice or separate representation if and when:

  • there is a conflict of interest involving the executor;
  • the executor is not defending or protecting the will;
  • the executor is taking a personal benefit not stipulated by the will; or
  • the executor has prematurely distributed the deceased’s estate.

In the 2005 Western Australian case of Wendt v Orr it was emphasised that where an executor has acted in a manner that would constitute a breach of trust, that executor will not hold protection against the estate for the costs incurred as a result of any litigation. This means that estate executors can be held personally liable for their actions if those actions constitute a breach of trust.

If you are involved in the distribution of an estate, whether as an executor or as a beneficiary, it is important to understand your rights and responsibilities. mdp has a wealth of experience in handling complex estate matters and can assist you with any queries or concerns you may have. To arrange an initial consultation, contact mdp on 03 9620 9660.

This article is intended to be a guide only, and should not be regarded as legal advice.

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Changes to Google’s AdWord Policy for Trade Marks

Janice Yew | October 21st, 2015

mdp lawyer Sam Parker explains the changes introduced by Google earlier this year regarding its AdWord policy and how this could effect trade mark owners.

In February this year, the High Court handed down its decision in Google v ACCC [2013] HCA 1. The case concerned the liability of Google for the content of third party advertisements which it displayed as part of its search results. The Court ultimately found that Google is not responsible for the content of those advertisements.

On 23 April 2013 Google introduced significant changes to its AdWord policy which may have some impact for owners of trade marks in Australia.

Changes

A key part of Google’s advertising business is the auction of keywords that trigger certain advertisements. Businesses regularly bid for the right to use certain words which, when entered into Google as part of a search query, trigger the text advertisements displayed as part of the search results.

Prior to April 2013, the owner of a trade mark in Australia could prevent another company from using its trade mark as a keyword. Following the change of policy in April, businesses are now free to use their competitor’s trade marks to trigger their own advertisements.

Implications

It is important to note that while companies can now use competitors’ trade marks to trigger the display of their own advertisements, the owner of the trade mark is entitled to prevent its use in the actual text of the advertisement.

Similarly, the owner of a trade mark will still have recourse against an advertiser (but not Google) under the Australian Consumer Law – for example, if a consumer is likely to be misled or deceived into thinking that the advertisement is associated with the owner of the trade mark.  In this regard however, we note the comments of the High Court in Google v ACCC that consumers generally understand the distinction between the genuine search results and the sponsored advertisements.

If you would like any further information or have any queries relating to the content of this article, please contact mdp on 03 9620 9660 or via info@mdplaw.com.au.

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