12th Annual Intellectual Property Society of Australia and New Zealand Inc Conference
Hyatt Hotel, Auckland
29 August 1998
REPEAL OF PARALLEL IMPORTATION RESTRICTIONS:
A STEP FORWARD FOR COPYRIGHT IN
AUSTRALIA AND NEW ZEALAND
Professor Allan Fels
Chairman
Much of sections 4, 5 and 6 is drawn from Allan Fels and Jill Walker
“The Market for Books and the Importation Provisions of the Copyright Act
1968”, Melbourne University Law Review, vol.17, No.4, December 1990, pp.566-581.
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1. Introduction
This paper consists of a brief discussion of the policy issues concerning parallel import restrictions. Section 2 briefly outlines the recent changes in the law in Australia and New Zealand. Section 3 gives more details of the Australian changes. Sections 4 to 7 discuss policy issues. The paper does not discuss finer legal details. Some of the policy discussion relates to books in particular.
2. Recent changes to the law
Australia and New Zealand have both recently made significant changes to the laws regarding the importation of copyright material.
Australia has repealed the restrictions on the parallel importing of sound recordings. These took effect on 30 July. It has also amended the Copyright Act to prevent copyright in labels and packages being used to control parallel importing of products with such labels and packaging: this will take effect immediately for sound recordings, and from February 2000 for other products.
New Zealand has made even more extensive changes. It has effectively made amendments to allow the parallel importation of all copyrighted goods.
3. Some details of the Australian changes
The remainder of this section of the paper sets out the Australian changes in more detail.
Two Australian Acts passed in July this year bring competitive influences to bear on the importation of copyright material and promise benefits as a result. The Copyright Amendment Act (No 1) also included amendments to prevent copyright in packaging and labelling being used to control the importation and distribution of goods which themselves have nothing to do with copyright. This form of copyright protection has been used as a tool to restrict imports of non copyright goods by parties other than the appointed Australian distributor, and therefore competitors, for which the packaging and labelling is an ‘accessory’.
The 1988 report of the Copyright Law Review Committee (CLRC) dealt with this matter.[1] The CLRC found that importation into and distribution in Australia of a variety of goods could be controlled and exclusively licensed by overseas manufacturers by relying on ownership of copyright in the labelling and packaging of the goods. In the case of Bailey v Boccacio (1986)[2], the defendant imported for sale in Australia bottles of Bailey’s Irish Cream Liqueur at a lower cost than through the Australian distributor appointed by the manufacturer. The NSW Supreme Court held that the importation infringed the copyright in the artistic work held by the manufacturer and assigned in Australia to the distributor, namely, the picture on the bottle label.
In essence the amendments allow the importation of goods with copyright packaging or labelling without the permission of the copyright owner, if the owner of the copyright had agreed to the use of the copyright material with the goods. The amendments will not, however, affect the operation of the law governing trade marks, insofar as the packaging or labelling includes a trade mark.[3] The Olympic symbol is explicitly excluded from these amendments. The definition of “accessories” to goods also excludes a manual sold with computer software for use in connection with that software.[4]
Copyright subsists separately in a sound recording and the packaging and labelling which it is sold with. The Act will now prevent copyright holders from preventing the parallel importation of sound recordings by relying on restrictions in the Copyright Act related to packaging and labelling. Record companies or other rights’ holders cannot use the copyright which exists in packing, booklets or artwork which accompany CDs to prevent parallel importation. “Non infringing accessory” is defined by an amendment to the Act to include a label, packaging or a container. The new section 44D(4) provides that it is not an infringement to import a non-infringing accessory to accompany a copy of a sound recording, while s.44D(5) states that s.38 of the Act (which provides for infringement by commercially dealing with imported copies) does not apply to a non-infringing accessory that includes a copy of a work and the importation of which did not infringe copyright.
The new definition of a “non-infringing accessory” operates only in respect of particular countries which provide minimum standards of copyright protection. To be non-infringing, the new definition requires that the accessory be made in a country that is a party to the Berne Convention for the Protection of Literary and Artistic Works or a country that is a member of the World Trade Organisation and has a law that is consistent with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) in certain respects.[5]
As some industry representatives argued that the removal of import restrictions on goods with copyright packaging and labelling would impose some hardship on firms which had entered into commitments in good faith, the new arrangements do not commence until February 2000.
The Copyright Amendment Act (No 2) gave effect to the decision of the Government, announced in October 1997, to allow importation of legitimate copies of sound recordings without the licence of the copyright owners, and to reform the copyright piracy penalty provisions by making them uniform for all categories of copyright materials and increasing the maximum penalties. This effectively implements recommendations in the report by the Prices Surveillance Authority in 1990.[6]
Schedule 1 amends provisions in Parts III and IV of the Act to allow importation into Australia of copies of published sound recordings without the licence of the makers of the recordings and the composers of the works recorded, if the copies were made without infringing copyright in the country of manufacture. Where there is no copyright protection of sound recordings in the country of manufacture, the copies can be imported without the Australian copyright owner’s consent only if their manufacture was undertaken or approved by the maker or other copyright owner of the sound recording in the country where the original recording was made. The amendments also allow trading and other commercial dealing with copies that have been imported in accordance with the provisions just referred to. [7]
The definition of a “non-infringing copy of a sound recording” is limited to copies made in countries that provide copyright protection to the works recorded in a manner consistent with the relevant obligations in the international treaties dealing with copyright to which Australia is a party.
Schedule 1 also amends Part V of the Act dealing with remedies for copyright infringement. A new section is inserted to provide that, in proceedings for infringement consisting of unlicensed importation of unauthorised, ie. pirate, copies of sound recordings and commercial dealings with such copies, once the plaintiff has established that the copy was imported without the consent of the relevant copyright owner, the defendant will then have the onus of establishing that the copies are legitimate and not pirate copies. This is an important safeguard to ensure that those who source stock from overseas will need to be satisfied that it is legitimate or risk legal action against them by the copyright owner.
The amendments to increase the maximum penalties in the Act and respond to concerns of a possible increase of copyright piracy. Although maximum pecuniary penalties in the Act were increased through an amendment of s.4AA of the Crimes Act 1914 in April 1997, the amendments to the Act are a demonstration of commitment to strong protection against copyright piracy and to deterring imports of pirate copies of sound recordings.
The amendments increase the maximum penalties by 10 percent. The threat of substantial fines and possible imprisonment is expected to act as a strong deterrent to pirates and those who infringe the rights of those who create and invest in musical and other artistic works. Increased fines will now apply to both sound recordings and to films.
Penalties have been substantially increased:
· Individuals, who previously faced fines as low as $500, will now be liable for fines of $60,500 and/or five years imprisonment;
· A company, which previously faced fines as low as $2,500, will now be liable for fines of $302,500 for offences in relation to copyright material, including the importation of sound recordings.
All penalty provisions have been amended to provide for a maximum global penalty, replacing the complex multi-tiered penalties regime for first and subsequent convictions and for infringement regarding different copyright material.
Courts will now have the discretion to determine the most appropriate penalty having regard to all the relevant factors in the case and as such will bring the penalties provisions of the Copyright Act into line with Commonwealth criminal law policy.
The increase in the level of fines reflects the Government’s concern that copyright infringement will be properly punished.
Copyright owners will continue to be able to enlist the aid of Customs in seizing infringing goods through lodging appropriate notices of objection to importation of pirated or counterfeit sound recordings but they will not, as they can at present, be able to object to third party importation of sound recordings per se.
The Australian Labor Party has said it will seek to repeal the new laws about CDs if it is elected.
4. Copyright: moral and economic issues[8]
Copyright has long been characterised by two alternative rationales; moral rights versus economic rights. The two positions are most sharply distinguished in the approach and legislation of continental countries such as France, Switzerland and Germany which historically have emphasised the moral rights of authors and the approach of the United States which has concentrated exclusively on economic rights. Although the moral rights of authors, their just rewards and their contribution to society are often invoked as the reasons behind copyright legislation in Australia, its origins in British legislation clearly lie in the protection of the publishing industry.[9] In this section of the paper we shall mainly use books as an example of the policy issues, although the analysis applies to other products such as CDs, and computer software.
Copyright legislation creates a property right in the product of intellectual labour by providing its owner with a series of rights over the use of that work. From a moral perspective this is viewed as the authors’ right to do as they wish with the product of their labour and to control its use by others. These rights may be counter-balanced from a moral perspective by obligations. For example, protection from importation may involve a responsibility to make the work available to the public in that country. Resolving the moral question of where to draw the legal lines on rights and obligations, however, is a very difficult one; authors proclaim their ‘absolute and inalienable’ right to control the use of their intellectual product, while consumers proclaim their right to access the latest developments in cultural and scientific thought. Similar issues of rights and obligations occur with other forms of property rights, eg. the rights of land owners to use their land as they wish versus their obligation not to visually or chemically pollute their neighbours and the rights of patent owners to the exclusive use of their invention versus the right of society to benefit from that invention.
One of the most useful contributions of the economic approach to the study of law is that it provides a framework which helps to enable the resolution of conflict in moral rights and obligations. Thus, the economic analysis of copyright cuts across the moral dilemmas above and examines the costs and benefits of copyright of various degrees and forms of copyright protection.[10] This is a specific application of the economic theory of property rights. The optimal nature and extent of any particular property right will be that which in a utilitarian sense maximises the economic welfare of society as a whole. While a legal approach to property rights based on moral issues might suggest an identical balance of rights and obligations for all types of property, this does not follow from an economic approach. Thus the optimal balance of rights for land owners differs from those for patent owners of copyright owners. To some extent these differences are reflected in Australian legislation. However, all forms of copyright work (books, records, films and videos, computer software etc.) currently enjoy very similar property rights, which may not be economically optimal.
A free competitive market tends to equate the cost of producing a good with the price an individual consumer is prepared to pay, which also tends to maximise the utility derived from society’s resources. Intellectual products are, however, an example of what economists term ‘market failure’, where a free competitive market does not product this optimal allocation of resources.
Every additional consumer who copies a book or CDs adds to his or her utility and that of society without there being any additional cost to society. However, if everyone was allowed to copy freely, maximising society’s utility from existing books, there would most probably be very few books ever produced, since authors and publishers would have no financial incentive to invest. Two alternative solutions to these problems suggest themselves.
The first solution is for the state to fund directly the production of literary and artistic works and for consumers to pay only the marginal costs of physical reproduction (the cost of copying). This has largely been the solution adopted by Eastern Bloc countries in the past. The obvious problems here are how to determine the optimal level and pattern of public funding. The state may not be very responsive to either individual or community preferences for one particular product such as books; furthermore it may deliberately distort those preferences.
The second solution, adopted by Western countries, is copyright legislation. This addresses the free-rider problem by granting the copyright owner the exclusive right to control the reproduction of their product, it prevents copying; all demand for the product results in financial reward to the copyright owner. However, this solution does little to address the public good problem or problems associated with cultural externalities and merit goods, and will therefore tend to overly limit access to literature and scientific texts. This problem is addressed in part by public subsidies to the arts and the funding of public libraries for which authors are compensated through public lending rights legislation.