Press publishers’ (new) rights Down Under

On 31 July, the ACCC published an exposure draft of the Bill aimed at forcing Google and Facebook to pay news businesses for the use of their news in services like Google Search, Google News and Facebook News Feed and Tab.

Some background

News media businesses claim that Google and Facebook make anywhere from $600 million to $1 billion a year from “using” the news the news media businesses publish.[1]

When Spain introduced a law to redress this “value gap”, Google responded by not including Spanish news in its services. Germany introduced a similar law, but publishers had to opt into the scheme, not out. Apparently, none did.

Last year, the EU introduced a press publisher’s right as part of its Digital Single Market (DSM) Directive.[2] When France implemented this (adopting the Spanish model), Google once again withdrew. The French Competition authority, however, has intervened.

Meanwhile, in Australia, the ACCC published the Final Report for its Digital Platforms Inquiry in July 2019.

Amongst other things, it concluded that Google and Facebook had become unavoidable trading parties for news media businesses wishing to reach audiences online. This created a significant imbalance in bargaining power.

In December 2019, the Treasurer directed the ACCC to facilitate negotations between the news businesses and Google and Facebook to develop a voluntary bargaining code to address this imbalance.

Those negotiations apparently not leading to the desired outcome, on April 2020, the Treasurer directed the ACCC to develop a mandatory bargaining code:

The Government has decided that the original timeframe set out in its response requires acceleration. The Australian media sector was already under significant pressure; that has now been exacerbated by a sharp decline in advertising revenue driven by coronavirus. At the same time, while discussions between the parties have been taking place, progress on a voluntary code has been limited according to recent advice provided by the ACCC following a request by the Government for an update. The ACCC considers it is unlikely that any voluntary agreement would be reached with respect to the key issue of payment for content.

The exposure draft bill and accompanying explanatory memorandum are the results of that process. I shall try only to describe what is being proposed.

What the bill will do[3]

The Bill will introduce a new Part IVB into the Competition and Consumer Act 2010.

Qualifying news business corporations may apply to the Australian Communications and Media Authority (ACMA) to register under the code: ss 52D and 52E.

Upon registration, designated digital platform corporations:

  1. must comply with minimum standards of conduct with respect to the registered news business’ “covered news content”;
  2. must participate in an arbitration to determine the remuneration payable to the registered news business for the use of its “covered news content”; and
  3. must not discriminate against the registered news business.

Designated digital platform corporations

The Bill will give the Treasurer power to designate by legislative instrument digital platform corporations and digital platform services that will be subject to the mandatory bargaining code: s 52C.

According to the explanatory memorandum, the designated digital platform corporations will be initially Google and Facebook, although other businesses may also be designated: [1.30]

The explanatory memorandum at [1.34] also “expects” that the services which will be designated are:

  • Facebook News Feed (including Facebook Groups and Facebook Pages);
  • Facebook News Tab (if and when released in Australia);
  • Instagram;
  • Google Discover;
  • Google News; and
  • Google Search.

News business corporations and news sources

A news business corporation may apply for registration of its news business(es) under the scheme if:

  1. the news corporation’s annual revenue exceeds $150,000 or exceeded $150,000 in three of the last five financial years: s 52G;[4]
  2. the news source(s) its seeks to register create and publish online content that is predominantly “core news content”: s 52H;
  3. the news source(s) operate predominantly in Australia for the dominant purpose of serving Australian audiences: s 52J; and
  4. the news source(s) adhere to professional quality standards: s 52K.

Once registered, the rights of the news business corporation extend to “covered news content”, not just its “core news content”.

Core news content and covered news content

The definition in s 52A of “core news content” is content that:

(a) is created by a journalist; and

(b) that records, investigates or explains issues that:

(i) are of public significance for Australians; or

(ii) are relevant in engaging Australians in public debate and in informing democratic decision-making; or

(iii) relate to community and local events.

The explanatory memorandum explains at [1.51] – [1.53] that “core” news content can relate directly to matters of public policy and decision making at any level of government such as political, court and crime reporting. The activities of private sector entities may also be included if of sufficient public importance.

Core news content is a subset of “covered news content” which, in addition to “core news content”, also includes:

content that is created by a journalist and is relevant in recording, investigating or explaining issues of interest to Australians.

According to the explanatory memorandum at [1.66] – [1.67] covered news content is intended to extend to:

sports and entertainment related news such as interviews with coaches and players, reporting about the entertainment industry and coverage of reality television.

(This is not intended to be an exhaustive description of what is included.) However, it does not include sports broadcasts or the results or scores of sports, “entertainment content such as drama or reality TV programming” or:

specialty or industry reporting, product reviews, talk-back radio discussions, content produced by academics and documentaries.

Professional quality standards

The Bill proposes two requirements for quality standards: s 52K. The news source:

  1. must be subject to the rules of the Australian Press Council, the Independent Media Council, the Code of Practice of the Commercial Television Industry or the Commercial Radio industry or the Subscription Broadcast industry, or rules substantially equivalent to these; and
  2. the news source must have editorial independence from the subjects covered.

The explanatory memorandum explains at [1.58] that the second requirement of editorial independence means the news source must not be controlled by a political advocacy group such as a political party, trade union or lobby group. It also means that the news source cannot be controlled by someone with a commercial interest in the coverage and gives the example of sports coverage owned or controlled by the sport’s governing body.

The minimum standards

Once a news business is registered, the digital platform corporation must comply with the minimum standards: s 52L.

These include, for each digital platform service:

  • listing and explaining what data is collected about users of the news business (s 52M);
  • explaining how the data about such users made available to the news business differs from the data the digital platform corporation collects about users of its service; and
  • explaining how the news business can access that additional data;
  • giving the news business notice of any changes to algorithms used by the digital platform service likely to have a significant effect on the ranking of the news content on the platform or specifically directed at the ranking of paywalled content: s 52N, 52O;
  • giving notice of other changes to policies or practices likely to have a significant effect on the display and presentation of the news business’ covered news content or advertising directly associated with that content: ss 52P and 52Q;
  • if requested, provide the news business with flexible content moderation tools so that the news business can remove or filter comments on the digital platform service about the news content: s 52S; and
  • develop a proposal, in consultation with all registered news businesses, to recognise original covered news content when ranking and displaying news content: s 52T; and
  • must discriminate between registered news businesses or registered news businesses and news business which are not registered: s 52W.

The arbitration scheme

In addition to the rights afforded it throught the minimum standards, a registered news business may also initiate a bargaining and arbitration process with the digital platform for the use of news content.

The registered news business (or its representative) inititates the bargaining process by giving notice “it wishes to bargain over one or more specified issues relating to its covered news content”: s 52Y.

While the publicly funded ABC and SBS may initiate bargaining, they cannot bargain about remuneration: s 52Y(6).

The parties must negotiate in good faith (s 52ZB) and can demand the provision of information and data relevant to the issues the subject of bargaining, a kind of discovery process: s 52ZC. This includes discovery about the benefits the digital platform derives from use of the news content.

Either party may refer the dispute to compulsory arbitration if:

  1. there has been at least one day of mediation; and
  2. the parties have not reached agreement within three months of bargaining starting: s 52FZ

Provided there has been at least a one day mediation, the parties can also agree to refer the dispute to compulsory arbitration after 10 days.

The arbitration itself is particularly interesting. It is “final offer” arbitration.

Although the news businesses can initiate bargaining over “issues”, the arbitral panel must make a determination about the remuneration payable by the digital platform corporation to the news business(es).

Ten days after the arbitration is established, both parties must submit their final offers about the amount of the remuneration. Once submitted, the parties cannot amend or withdraw their respective “final offers”. They may, however, submit a response to the other party’s final offer. The arbitral panel must accept one or other of the final offers: s 52ZO.

The only exception to this requirement is where the arbitral panel considers both final offers are “not in the public interest because they are highly likely to result in serious detriment to the provision of covered news content in Australia or Australian consumers.” In that case, the arbitral panel must adjust one or other of the final offers as required by the public interest.

The final offers must also be provided to the ACCC, which is authorised to provide its comments about the final offers to the arbitral panel before the panel hands down its decision: s 52ZS.

The “final offer” process has the considerable advantage that it avoids the expense and delay usually associated with rate setting proceedings for access to essential facilities or under the licensing schemes overseen by the Copyright Tribunal.

In deciding which final offer to accept, the arbitral panel must have regard to (s 52ZP):

  • the direct benefit (whether monetary or otherwise) of the registered news business’ covered news content to the digital platform service;
  • the indirect benefit (whether monetary or otherwise) of the registered news business’ covered news content to the digital platform service;
  • the cost to the registered news business of producing covered news content;
  • whether a particular remuneration amount would place an undue burden on the commercial interests of the digital platform service.

It is striking that the matters which must be taken into account do not include the benefits (direct or indirect) that the news business derives from being carried in the digital platform service.

Once the arbitral determination has been handed down, the parties must enter into a written agreement to ensure the digital platform corporation will pay the news business the remuneration determined in the arbitration: s 52ZT.

Sanctions

The ACCC may issue an infringement notice to a person who contravenes that person’s obligations under this scheme. The penalty for a corporation found to be in contravention is up to 600 penalty units: s 51ACF – i.e., up to $132,000.

In addition, s 76 of the Competition and Consumer Act 2010 will apply so that civil penalties may be imposed up to the greater of:

  • $10 million;
  • 3 times the total value of the benefits reasonably attributable to the non-compliance; or
  • 10% of the contravenor’s annual turnover in the previous 12 months.

EU’s DSM Directive

The EU’s press publisher’s right under the DSM Directive is an obvious inspiration for this new right for news businesses. There are a number of significant differences, in addition to the far greater detail elaborated into the Bill.

For example, unlike the DSM Directive, the Code to be imposed by the Bill is not tied to use of copyright or other (at this stage) recognised property right. Instead, the Bill creates a right to payment for some “intangible value”.

The DSM Directive expressly excludes from the obligation for payment:

  • hyperlinking; or
  • “the use of individual words or very short extracts of a press publication” – which seems a lot like the snippets returned in a Google Search for example.

At least since the Victoria Park Racing case, the High Court has declared that Australian law does not protect all intangible value, only those sources of value falling within recognised legal rights. Later, in the Blank Tapes case, the High Court struck down a “royalty” imposed on the sale of blank cassette tapes on the grounds it was not a payment for use of copyright and so was invalid as a tax or, possibly, an acquisition of property on other than just terms. It will be interesting to see whether the resort to an access regime – one in which the facility provider pays, not the user – changes the calculus.

Under the DSM Directive, the obligation to pay does not apply to articles or materials published before 6 June 2019.[5] Further, it applies to articles and materials only for two years following publication.[6]

Another difference is that art. 15.5 of the DSM Directive imposes an obligation to ensure that the authors of the press publication receive “an appropriate share” of the remuneration the press publisher receives from the digital platforms.

Google’s reaction has been swift. It has cancelled, or suspended, a licensing deal it had reached with a number of independent publishers. It has come out strongly against the scheme.[7] Now, when one initiates a search on Google or seeks to watch something on YouTube, one is met with the following banner:

Comments should be submitted to the ACCC by 28 August 2020

Exposure Draft Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Bill 2020


  1. For example, Mason and Kehoe, [‘Tech giants should pay media $600m: Costello’][600m]. Google disputes this and claims that the news media business gain much more value from its services than it receives.  ?
  2. Directive (EU) 2019/790 on copyright and related rights in the Digital Single Market and amending Directives 96/9/EC and 2001/29/EC, art. 15. For Communia’s outline and guidelines see here and here.  ?
  3. Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Bill 2020.  ?
  4. The $ may change as they are included in “curly” brackets.  ?
  5. It presumably being a coincidence that date was the 75th anniversary of the D-Day landings.  ?
  6. Strictly speaking, it is 2 calendar years commencing on 1 January following the year in which the article was published: art. 15.4.  ?
  7. For exmple, here and here. The ACCC has denounced Google’s position as misleading.  ?

Staying arbitration: Kraft, Bega, Warner Bros and Mad Max

In the face of misleading and deceptive conduct litigation in Australia, O’Callaghan J has granted injunctions restraining Kraft from pursuing its arbitration claims in New York against Bega’s sale and promotion of Bega Peanut Butter in what Kraft alleges is misleading or deceptive get-up.

Kraft had been selling peanut butter in Australia under the Kraft brand for over 50 years. It had about 65% of the peanut butter market in Australia valued at over Australian $110 million per year.

In 2012, however, Kraft restructured its operations globally into a grocery business and a snack food business. The snack food business was operated by Mondelez.

Mondelez was given a licence to use the Kraft brand on, amongst other things, peanut butter which included the right to use the get-up Kraft had been using. The licence was due to expire at the end of December 2017.

Before the licence expired, Mondelez sold its Australian and NZ business to Bega. Bega began marketing its peanut butter in the get-up shown below:

 

Kraft peanut butter

Bega peanut butter

 

 

 

 

 

 

 

 

Kraft’s licence to Mondelez included a dispute resolution clause that all disputes arising under, or in relation to, the licence should go through the familiar three-tiered resolution process of consultation, mediation and, if not resolved, binding arbitration in New York:

Step Process: Any controversy or claim arising out of or relating to this Agreement, or the breach thereof (a “Dispute”), shall be resolved: (a) first, by negotiation and then by mediation as provided in Section 7.2; and (b) then, if negotiation and mediation fail, by binding arbitration as provided in Section 7.3. Each party agrees on behalf of itself and each member of its prospective Group that the procedures set forth in this Article VII shall be the exclusive means for resolution of any Dispute. The initiation of mediation or arbitration hereunder will toll the applicable statute of limitations for the duration of any such proceedings.

Kraft sought to initiate the dispute resolution process with Bega. Amongst other things, Kraft contends in the arbitration that Bega’s use of the Bega Trade Dress is in breach of the licence from Kraft to use the Kraft Peanut Butter Trade Dress. Kraft goes on to allege:

  1. Bega’s use of virtually identical trade dress on its peanut butter is likely to cause and is causing confusion, mistake or deception as to Kraft’s sponsorship and/or endorsement of Bega’s peanut butter product.

Considering that Bega was not complying with the process, Kraft launched proceedings in the Federal Court for the Southern District of New York to compel Bega to mediation. Bega, while reserving the right to claim it was not subject to the arbitration agreement, told the New York court it would participate in the mediation process.

In parallel with these developments, however, Kraft also commenced proceedings in Australia against Bega alleging that the promotion of the Bega peanut butter in the Bega get-up in Australia contravened the prohibitions on misleading or deceptive conduct in the Australian Consumer Law. According to Kraft, Bega’s advertisements and use of the Bega get-up misrepresented that Kraft peanut butter is now Bega peanut butter or is being replaced by Bega peanut butter and the Kraft brand has changed to Bega.

In the Australian proceedings, Bega cross-claimed and also sought injunctions ordering Kraft not to prosecute the arbitration proceedings. After careful consideration of the principles for ordering a party not to engage in arbitration, O’Callaghan J has granted that anti-arbitration injunction.

O’Callaghan J considered that the question of the ownership of the packaging and get-up was the central issue raised in both Kraft’s notice of arbitration and the proceeding under s 18 of the Australian Consumer Law.

If the question in the arbitration proceeding had simply been that the licence had expired and Bega had no right to use the get-up, there may not have been an overlap. As noted above, however, Kraft’s notice of arbitration went much further with allegations of false representations.

Kraft argued that its claims under s 18 of the ACL do not arise under or in relation to the contract, but are independent statutory causes of action. O’Callaghan J pointed out at [91] that whether the statutory cause of action was independent of, or in relation to, the contract depended on whether there was a nexus or connection between the contract and the contraventions which gave rise to the misleading or deceptive conduct claim.

In this case, there was such a connection as whether or not Bega’s conduct was misleading turned on the operation of the licence agreement. At [95], his Honour pointed out the alleged misrepresentations could only be false or misleading by virtue of the operation and effect of the terms of the licence agreement. Accordingly at [96]:

Kraft’s pleaded case in this proceeding is one in which it seeks to agitate a dispute which is properly to be characterised as being “in relation to” the master agreement. For that reason, in my view, Kraft should have invoked the dispute resolution provisions of the master agreement with respect to the claims made in this proceeding. It was not, as it contended, bound to bring the proceeding in this court.

Having found that the court proceeding and the arbitration addressed the same or at least overlapping subject matter, his Honour went on to find that it was appropriate to grant an injunction against pursuing the arbitration while the consumer law proceeding was on foot.

First, O’Callaghan J rejected any argument that it was necessary to show, in cases where parties had set up an arbitration process, an exceptional case or that the power to grant an injunction should be viewed through a “different prism”.

Secondly, his Honour acknowledged the tension between courts’ desire to hold parties to their bargains (i.e. respect the arbitration clause) and “deep and strong antipathy” to situations which could give rise to inconsistent verdicts.

Here, Kraft was the author of its own predicament. It could have (and should have) included its misleading and deceptive conduct claims in its arbitration notice, but instead had chosen to bring separate and additional proceedings in Australia. At [109]:

Kraft ought to have included the claims made in this proceeding under the Australian Consumer Law in its notice of arbitration because those claims, contrary to Kraft’s submission, do fall within the ambit of the arbitration clause in the master agreement. Instead, Kraft chose to initiate this proceeding, and then to prosecute it, including by filing a statement of claim and a reply to Bega’s defence, participating in procedural directions, seeking discovery, filing a notice to produce, consenting to the filing by Bega of a counterclaim (in which the issue of ownership of the trade dress issue is squarely raised) and then filing a defence to that counterclaim. As Bega submitted, Kraft is the party responsible for the bringing of both proceedings. It alone is the author of the possibility or probability of duplicated litigation and inconsistent findings. Each of those considerations also weighs significantly in favour of restraining the arbitration, at least until this proceeding is determined.

O’Callaghan J then went on to consider whether there were any equitable considerations that weighed against granting an injunction.

Finally, O’Callaghan J rejected Kraft’s argument that, instead of seeking an injunction against the arbitration proceedings, Bega should have applied under s 7(2) of the International Arbitration Act 1974 (Cth) for orders to stay the Australian proceeding. At [166]:

I reject that submission. First, Bega had no obligation to seek a stay under s 7 of the International Arbitration Act 1974 (Cth) or otherwise. Secondly, if the stay application was bound to have succeeded on those grounds, one would have thought it rather suggests that Kraft should not have brought the proceeding in this court in the first place.

After a subsequent hearing, O’Callaghan J rejected Kraft’s contention that the injunction against progressing the arbitration proceeding should only apply so long as Kraft’s application in the Australian proceeding was on foot. Kraft argued that Bega’s cross-claim was “a matter for Bega” and should not bear on the injunction. As his Honour noted, Kraft openly admitted the point here was that it may well discontinue its claim in Australia.

O’Callaghan J pointed out that the assessment of inconsistency was not made just on Kraft’s claim, but the pleadings as a whole. At [69], O’Callaghan J explained:

In assessing whether, and if so, to what extent, the issues in the two proceedings overlap, the scope of the relevant issues necessarily includes all the issues raised by the parties, including by Bega in its defence and counterclaim, and by Kraft in its statement of claim, reply and defence to counterclaim. That is so because when a foreign party brings a proceeding in an Australian court, it submits not only to its jurisdiction in respect of its own action, but also in respect of any cross-claim that a respondent brings: ….

Bega’s cross-claim and Kraft’s defence to it raised essentially the same central question as raised in Kraft’s claim and the arbitration proceeding: the ownership and rights to use the get-up in dispute.

A more conventional outcome is illustrated by Warner Bros Feature Productions Pty Ltd v Kennedy Miller Mitchell Films Pty Ltd, in which the NSW Court of Appeal ordered a stay of the court proceedings in favour of arbitration.

In Warner, George Miller and Doug Mitchell are in dispute with the Warner group over payments for their roles in producing and directing Mad Max: Fury Road. The Court of Appeal dealt with a construction fight whether the arbitration clause formed part of the contract or not. Finding it did, on Warner’s application the Court ordered a stay of the NSW proceedings.

In this case, unlike Kraft v Bega, the party seeking to enforce the arbitration clause, Warner, had not brought the potentially inconsistent proceedings – Miller and Mitchell did.

Kraft Foods Group Brands LLC v Bega Cheese Limited [2018] FCA 549

Kraft Foods Group Brands LLC v Bega Cheese Limited (No 2) [2018] FCA 615

An arbitration clause means arbitrate

The Irelands were Subway franchisees.

Their franchise agreement with Subway included an arbitration clause:

10. DISPUTE RESOLUTION. The parties want to settle all issues quickly, amicably, and in the most cost effective fashion. To accomplish these goals, the parties agree to the following provisions that will apply to resolve any dispute or claim arising out of or relating to this Agreement, or any other Franchise Agreement the parties have with each other (a ‘Dispute’):

c. The parties will arbitrate the Dispute if the mediation clause in Subparagraph 10.a. is not enforceable, or the parties do not settle the Dispute under the informal discussion and mediation procedures above, or the Dispute is one which this Agreement provides will be submitted directly to arbitration, except as provided in this Agreement. The arbitration will be held in accordance with the United Nations Commission on International Trade Regulations and Law (UNCITRAL) Arbitration Rules administered by an arbitration association, such as the American Arbitration Association or the Institute of Arbitrators or Mediators Australia, at a hearing to be held in Queensland. The arbitration will be conducted in English and decided by a single arbitrator unless the law of Australia requires three (3) arbitrators. Any court having jurisdiction may enter judgment on the arbitrator’s award. Except as provided in this Agreement, a party must commence and pursue informal discussions, mediation, and arbitration to resolve Disputes before commencing legal action.

The Irelands, however, commenced proceedings against Subway in the Victorian Civil and Administrative Tribunal (VCAT) alleging breaches of the franchise agreement, negligence and misleading or deceptive conduct.

Subway applied to VCAT to have the proceeding referred to arbitration pursuant to clause 10. VCAT refused. The Supreme Court dismissed Subway’s appeal. The Court of Appeal, Maxwell P and Beach JA, Kyrou J dissenting, have allowed Subway’s further appeal and sent the matter to arbitration.

Section 8 of the Commercial Arbitration Act 2011 (Vic) provides:

8            Arbitration agreement and substantive claim before court (cf Model Law Art 8)

(1)  A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

As the heading indicates, this provision is part of a national scheme to implement the UNCITRAL Model Law on commercial arbitration.

The “problem” was that reference to “court”. While it was not a defined term in the Act, there are any number of court rulings declaring in no uncertain terms that VCAT is not a court – it is an administrative tribunal.

Maxwell P and Beach JA standing back and looking at the big (international) picture, however, held that for the purposes of the Act – a law designed to promote commercial arbitration as a dispute resolution mechanism – VCAT qualifies as a “court”. Maxwell P and Beach JA took somewhat different routes to reach that conclusion but it is perhaps best encapsulated in Maxwell P’s observation:

The clear policy of the Act (and of the model law which it enacts) is that, when parties have agreed to have disputes between them determined by private arbitration, neither party is at liberty to litigate the matter in dispute through the adjudicative mechanisms of the State. For this statutory purpose, in this statutory context, the Tribunal is indistinguishable from those other adjudicative bodies of the State which bear the title ‘court’.

I don’t know if other States or Territories operate under regimes similar to VCAT in, er, parallel to the court system but, as Croft J noted at first instance, Parliament set up VCAT to provide a speedy and inexpensive, low cost, accessible, efficient means of dispute resolution and, apparently, it handles the vast bulk of legal disputes here. But not disputes between franchisors and franchisees (where there is an arbitration clause).

Subway Systems Australia Pty Ltd v Ireland [2014] VSCA 142

You can arbitrate disputes under an IP licence agreement

Hamerschlag J, in the New South Wales Supreme Court, has ruled that disputes between a licensor and licensee under a technology licence agreement fall within the arbitration clause in the agreement and, consequently, the arbitrator’s determination that he has jurisdication is valid and binding on the parties.

The disputes between the parties related to (1) the application of the “improvements” clause and (2) whether licence fees would be payable if the licensee embarked on different strategies in the future. Hamerschlag J rejected the licensor’s, Lardken’s, argument that neither of the matters were disputes within the scope of the arbitration clause, cl. 19(b):

(b) All disputes arising in connection with this Licence, which are not adjusted by Licensing Agreement between the parties concerned, shall be finally settled by arbitration. The arbitration shall be held before a single arbitrator appointed by the parties or in the absence of agreement by the Chair of the Law Society of New South Wales, and conducted in accordance with and under the Commercial Arbitration Act 1984 of New South Wales. Judgment upon the award rendered may be entered in any court having jurisdiction, or application may be made to such court for a judicial acceptance of the award, or an order of enforcement as the case may be.

The improvements clause

Lardken licensed Lloyd to use Lardken’s technology relating to methods of collecting energy, converting it to heat, transferring the heat energy to a storage medium based on graphite and extracting and releasing the heat energy into useable form.

The licence agreement had one of those “Improvements” clauses, cl. 5.4(a), by which Lloyd agreed to transfer ownership of any improvements in the technology it developed to Lardken and would receive a non-exclusive licence back.

A third party, Ausra, applied for patents in the USA and Australia. Lloyd had notified Lardken about these applications, but had settled a dispute with Ausra on terms that Ausra assigned its rights in the patent applications to Lloyd. Lardken claimed that “Ausra’s” patent applications had been developed from confidential information about Lardken’s technology which, it was alleged, Ausra accessed at Lloyd’s facility. Lardken also claimed it was entitled to ownership of patent applications filed by one of Lloyd’s subsidiaries, Solfast.

Lloyd denied that any of this technology were improvements within the meaning of the licence agreement and, when Lardken refused to agree, referred the matter to arbitration.

Lardken argued that these disputes were not capable of determination by the arbitrator as a matter of public policy as only the Commissioner of Patents had authority under the Patents Act to grant patents or, subject to appeal to the Court, determine who was an entitled person under s 15 and s 32 and s 36.

Hammerschlag J held that the issue between the parties was a dispute about whether the Ausra or the Solfast technology fell within the terms of cl. 5.4(a). That was a dispute falling within the scope of the arbitration clause. The arbitrator’s decision would not, and could not, affect the Commissioner’s determination whether to grant the patent applications or not. The Commissioner’s powers under ss 15, 32 and 36, to determine entitlement, were not exclusive: questions of assignment for example were regularly determined in other fora. All the arbitrator’s decision would do would be to decide rights and obligations as between Lardken and Lloyd.

The liability to pay licence fees

Lloyd also sought the arbitrator’s ruling that it would not have to pay additional licence fees if:

  1. it itself constructed something using Lardken’s technology; or
  2. it sub-licensed one of its subsidiaries to construct something using Lardken’s technology.

Lardken argued the dispute about Lloyd’s potential liability to pay royalties in the future was not a ‘dispute’ capable of arbitration. There was, as yet, no “live issue” between the parties, it was really an attempt to seek an advisory opinion about a hypothetical eventuality.

Hammerschlag J also found that this was a dispute covered by the arbitration clause.

When Lloyd had written to Lardken stating its interpretation of the licence agreement, Lardken had responded disagreeing. Thus, at [101]:

There is thus clear disagreement between the parties on matters arising in connection with the Licensing Agreement. Each has claimed that the Licensing Agreement operates in a way which the other disputes; see Halki Shipping Corporation v Sopex Oils Ltd [1998] 1 WLR 726 at 757. See also the incisive discussion as to what constitutes a dispute in Tjong Very Sumito v Antig Investments at 747 and following, and Sutton et al, Russell on Arbitration , 23rd ed (2007) at [5-003].

Further, that fact that there was an element of futurity about the liability to pay did not render it purely abstract or hypothetical. Hammerschlag J accepted that purely hypothetical matters may not qualify as ‘disputes’, At [104]:

Although both of these disputes involve an element of futurity they are not purely abstract or hypothetical in the sense which makes them incapable of being the subject of determination. They concern whether certain prospective conduct will result in liability to pay fees under the Licensing Agreement (or put another way whether in the event of that conduct occurring the failure to pay would be a breach of contract). It was not suggested that the prospect that that conduct would occur was fanciful.

In reaching this conclusion, his Honour noted that declarations could be granted by the Court in similar situations:

98. In The Commonwealth v Sterling Nicholas Duty Free [1972] HCA 19; (1972) 126 CLR 297 at 305 Barwick CJ said:

The jurisdiction to make a declaratory order without consequential relief is a large and most useful jurisdiction. In my opinion, the present was an apt case for its exercise. The respondent undoubtedly desired and intended to do as he asked the Court to declare he lawfully could do. The matter, in my opinion, was in no sense hypothetical, but in any case not hypothetical in a sense relevant to the exercise of this jurisdiction. Of its nature, the jurisdiction includes the power to declare that conduct which has not yet taken place will not be in breach of a contract or a law. Indeed, it is that capacity which contributes enormously to the utility of the jurisdiction.

Hammerschlag J did note, however, it was a matter for the arbitrator’s discretion whether or not to make a determination on the issue.

The judgment doesn’t say how much it would cost to build one of these plant, but one might well think it makes sense for a party to be able to find out in advance what, if any, licence fee would be payable before it had committed to, or incurred, the expense of building the plant.

Larkden Pty Limited -v- Lloyd Energy Systems Pty Limited [2011] NSWSC 268

Lid dip: Steve White

Urgent interlocutory and declaratory relief

Many IP agreements contain a clause referring disputes about the subject matter to mediation and/or arbitration instead of reliance on court action. There is often, however, an exception permitting court action in the case of “urgent interlocutory and declaratory relief”.

So, when one party to the agreement rushes off to Court to enforce some position instead of arbitration, the court case often becomes as much about whether the Court has jurisdiction or the action should be stayed while the parties go off to mediation and/or arbitration. Correspondingly, before you rush off to Court, it is important to know whether the expense will be wasted because you should have gone to mediation/arbitration.

In a case concerning a dispute about the terms of a charter party (and not IP), the Victorian Court of Appeal has ruled that the word “urgent” in such a clause applies to both “interlocutory relief” and “declaratory relief” distributively. That is, a party cannot apply to the courts for a declaration, the declaration must “urgent”.

The Court endorsed the view of Lord Woolf LCJ that “interim declarations” can be granted, and continued:

[24] Even if it were accepted that an interlocutory or interim declaration is not available in Australia, this would not, in our opinion, exclude the possibility of a declaration of rights in the course of interlocutory proceedings where the declaration finally determines an aspect of matters in dispute and does not operate only as a declaration for the interim.9 In our opinion a declaration of this type could sensibly be described as “urgent”.

[25] In the context of an arbitration agreement this is likely to be the type of urgent declaratory relief contemplated, as the authorities indicate difficulty in enforcing awards that do not finally determine a matter in dispute, even though the award may only be a partial award with respect to the totality of matters in dispute.10

Apparently, whether or not the matter is urgent is to be determined objectively and the party seeking relief must have formed a reasonable opinion that the relief (ie., the declaration) was necessary for the protection of its rights.

AED Oil Limited & Anor v Puffin FPSO Limited [2010] VSCA 37