Screen Australia’s Playing for Keeps Report – the way forward for Australian computer gaming

Screen Australia, in the Playing for Keeps Report (November 2011) proposes two new options for computer games: and Interactive Entertainment (Games) Offset, which will provide indirect support for computer games through the taxation system, in a similar way to the existing tax offset for film and television production; and with Screen Australia also proposing that direct support for original online content through an Online Production Fund. These are important initiatives that I consider should be implemented.

Canada provides incentives to the entertainment software industry, which the Software Association of Canada’s May 2011 Report states as having provided 11% growth in the past 2 years for the games production industry with 17% projected growth in the next 2 years.  The Canadian provinces of Ontario, Quebec, and British Columbia provide refundable tax credits on labour ranging from 17.5% to 37.5% of expenses; with the Federal government providing R&D tax credits. The Canadian success, and the declining number of independent games production companies, has motivated the U.K. games industry organisation, TIGA in a January 2011 Report to lobby for tax credits for computer games that meet a test directed to the cultural content and connection to European culture, heritage or creativity and the employment of European personnel.

The international games industry in the last decade has seen the emergence of substantial companies with consolidation among the major publishers/distributors of triple-A games titles. In this space, the focus on the publishing of a smaller number of big budget ‘franchise’ titles has impacted on the level of fee-for-service work being available for Australian studios. The high value of the Australian dollar also results in the major publishers/distributors looking for studios in lower cost countries or where there are substantial tax credits on labour cost and other investment incentives.

Screen Australia’s proposal can be seen as a valuable strategy to build and sustain the existing independent development studios that operate in Australia. While very small ‘garage’ start-up’s do not face barriers of entry, there are hurdles to building and sustaining development and production teams. The independent studios need to compete for fee-for-service work while funding development work on original IP projects.

The Software Association of Canada attributes the key business conditions that contribute to the success of the Canadian games industry is the internet and communications structure followed by availability of qualified personnel. The Canadian experience is that the “shares of total resources dedicated to downloadable, handheld, and PC games have been holding relatively steady, traditional console share has been declining, and is expected to continue to drop in response to rapid growth in resources dedicated to social, mobile, casual, and MMO (massively multiplayer online) gaming.”

The improvement in recent years in the digital platforms and Apple’s iOS and the Android technology, in particular the emergence of tablet devices and new generation smart phones, provides opportunities for independent publishers to directly distribute their titles through these digital platforms. The success of the ‘Angry Birds’ title shows that small independent games companies can build run-away successes with inventive and addictive gameplay.

The Interactive Entertainment (Games) Offset, proposed by Screen Australia, in the Playing for Keeps Report (November 2011) proposes a 20 per cent tax credit on eligible expenditure with a minimum expenditure threshold of $200,000.  This will provide part of the budget for games for social, mobile and casual gaming platforms.

The big budget, big teams and long production time frames of triple-A console games will usually require publisher financing. The proposed 30 per cent tax credit on eligible expenditure with a minimum expenditure threshold of $500,000 will provide larger independent games companies with part of the budget to attract the interest of international publishers for triple-A console games.

Screen Australia’s proposal for direct support for original online content through an Online Production Fund will provide a source of funding for those Australian independent development studios that are active in MMO (massively multiplayer online) gaming.

Having worked on "Frontiers of Utopia”, the first interactive project financed by the Australian Film Commission in the mid 1990s; then on web based projects; and having worked at Activision in recent times, I have see at first hand the evolution of online business strategies and the dramatic innovations that have allowed the games industry to undergo exponential growth so that consumer spending on computer games has, for the past decade, exceeded that spent on the music and movies. 

The economics of the development and financing of game titles is similar to the animation production – labour intensive with a high proportion of the cost of game development budgets being spent on artists, animators, designers and programmers.  Project development is always a process of fitting the pieces of the financing jig-saw together. Screen Australia, in the Playing for Keeps Report (November 2011), when read in conduction with the Software Association of Canada’s May 2011 Report, shows a pathway to build and sustain independent game studios in Australia.

Film location releases – can a tenant give permission to film on a location?

Obtaining a permission to film at a location is standard practice, but does the film company ever carry out due diligence as to whether the person signing the location release actually has legal authority to grant permission to use the property?

Cinema audiences enjoy spotting locations in locally made productions, but what will be their reaction when they see the interiors of a house they own – when they were not aware that the property was being used as a film location. It happens, as plenty of properties are occupied by tenants. A standard location release has the person warranting that they have legal authority to grant the production company access to the property.  However that warranty may not protect the production company from the irate property owner.

I have advised a production company when a property owner complained about the use of their house in a film.  The production managers obtained a signed location release from the person living in the house and paid the location fee to the ‘occupier’ who agreed to vacate the property so that the film company could shoot interior scenes. Months later, the property owner, while enjoying a night at the movies, recognises their house. Now with the tenant long gone – the property owner may claim that the production company was trespassing on their property or that the use of the interior of the house was an invasion of the right of privacy of the property owner.

The production company ends up with carry the cost of dealing with this claim. Locating and suing the departed tenant would be throwing money away. The production company is left with the choice of spending money of defending the claim or paying an inflated location fee to the property owner to settle the claim. There may be scope for the production company to argue the tenant had either the implied authority or ostensible (apparent) authority to grant permission to use the property; however the property owner may be able to produce a tenancy agreement which prohibited the tenant from sub-letting the property, which is the legal effect of a location agreement. 

Apart from the trespass claim the property owner could argue that use of the interior of the house was an invasion of the right of privacy of the property owner.  This may be a more speculative argument, but it is happening as this week The Hollywood Reporter (THR Esq. website) reports that a Malibu property owner (their ex-tenant having apparently signed the location release) is asserting an invasion of privacy, with a claim of general damages of at least US$25,000; with the owner also claiming punitive damages and an injunction. THR Esq. is clearly unsympathetic to the claim as the address of the property (19936 Pacific Coast Highway) is published, including a GoogleMap image.

An Australian  production company, when facing an invasion of privacy claim may argue that while a court may accept a claim for invasion of ‘personal’ privacy (privacy of personal information), but that the expansion of legal remedies for the protection of privacy does not extend to ‘locational’ privacy.  The High Court, in the Victoria Park Racing case of 1937,[1] appeared to reject an action for invasion of ‘locational’ privacy.  However the activities of paparazzi have resulted in an expansive understanding of privacy in the law of United Kingdom and Europe. Rights to privacy in Australia are undeveloped, but actions for invasion of ‘personal’ privacy are a growing tread. This trend is identified in the Australian Law Reform Commission report (ALRC Report 108) into the extent to which the Privacy Act 1988 (Cth) and related laws continue to provide an effective framework for the protection of privacy in Australia. 

The bottom line is that a film or television production companies are exposed to damages claims from property owners and the potential threat of injuctions to stop the cinema release or TV screenings – where a tenant gives permission to use a location.

---

[1] Victoria Park Racing and Recreation Grounds Co Ltd v Taylor (1937) 58 CLR 479

Lush House – cleaning up the doco scene

UPDATE 10 MAY 2012: The 2012/13 Budget Paper No 2 states "The Government will insert a definition of documentary, and related terms, into the legislation governing the producer offset. It will apply to films where principal photography commences on or after 1 July 2012." 


The change to the definition will impact on the following discussion of the Lush House litigation.


What qualifies as a ‘documentary’ program under the Producer Offset legislation is getting attention in the argument as to whether the television series Lush House is a ‘documentary’ series that qualifies for the 20% Producer Offset.[1]  That a documentary as ‘a creative treatment of actuality’ is a definition attributed to John Grierson, which has been applied by the Australian Communications and Media Authority (ACMA)  for the purposes of determining what is ‘Australian content’ under the Broadcasting Services Act 1992 (Cth).  On 24 June 2011 the Administrative Appeals Tribunal of Australia (AATA) delivered the Lush House decision on whether that television series, staring the domestic goddess Shannon Lush - Australia's cleaning and home hints guru - is a ‘documentary’ series that qualifies for the 20% Producer Offset under s. 376 of the Income Tax Assessment Act 1997 (Cth) (the ITAA).

The AATA started with a statement that “the characteristics of a documentary program is the presentation of factual events; with the object of recording or “documenting” those factual events; with the purpose of the recording being to “inform or educate”. A documentary program is understood to be a “creative treatment” of factual events, with that creativity being evident in the commentary or editing of the factual material.”[2]

The AATA then provided a definition that describes a documentary as being “a creative recording of facts for the purpose of informing or educating” which is “not frivolous”.[3] 

What is a frivolous program?

The AATA go on to describe a spectrum from programs that inform or educate (the serious end of the scale) to those that do not inform or educate (the ‘frivolous’ end of this imaginary spectrum); [4] however the approach of the AATA fails to provide a bright line test to the boundary between the two.  The importance of the boundary is a ‘documentary’ qualifies for Producer Offset funding, but something that is not a ‘documentary’ is ineligible.

If the determination of ineligibility is something that is a ‘frivolous’ program - how do you know when you are looking at one?  For example, is a program like ‘Bush Mechanics’ (2001, Warlipri Media Association/AFC) excluded because it “marked by unbecoming levity” (as the Merriam Webster dictionary would define frivolous), in the humour apparent in the solutions presented to dealing with a flat tyre on the notorious Tanami Track. 

The AATA consider that documentary must be a ‘serious’ approach to informing and educating, however the AATA accept that a documentary may use humour, but not so as to compromise the serious purpose of informing or educating. ‘Bush Mechanics’ would therefore appear to be an eligible documentary. But this example suggests that ‘frivolous’ has no real meaning as a criterion to determine what is an eligible documentary program. What the AATA propose seems ambiguous or obscure in the false dichotomy it creates between informing and educating and contrasting that with the absence of any serious purpose or value, using the concept of something being frivolous. The AATA test of a program that is ‘frivolous’ as being outside what is understood to a documentary program is ultimately a circular definition.

Category based analysis versus a statement of criteria or indicia

The decision of the ATTA provides a statement of criteria or indicia of a documentary program – rather than a category based analysis - to determine whether factual programming should qualifying for the 20% Producer Offset under s. 376 ITAA; however Screen Australia have subsequently announced that it has filed an appeal in the Federal Court of Australia.

The AATA stated that it is error in reasoning to adopt an approach of attempting to place a program in a category; such as considering whether the material is a ‘how to program, a ‘makeover program, or a ‘renovation program’ (or some other category of programming, such as those listed in the definition) and from that conclusion determine whether the material is a documentary. [5] [21]  I suspect the appeal of Screen Australian will give attention to that proposition as being an error of reasoning.

UPDATE 7 MARCH 2012: The decision of the Full Federal Court was that there was no error in the approach taken by the AATA to interpreted what is meant by a “documentary”; the judges of Full Federal Court took the view it was unnecessary to express their views of the meaning of the word “documentary”.

Screen Australia had previously refused to certify the Lush House television series as qualifying for the 20% Producer Offset. Screen Australia made the decision that the television series Lush House was ineligible because the series fell into the excluded category of ‘infotainment’ in the definition applied in Screen Australia’s Guidelines,  ‘Producer Offset for Screen Production inAustralia: Guidelines’:

“Documentary program means a program that is a creative treatment of actuality other than a news, current affairs, sports coverage, magazine, infotainment or light entertainment program.”[6]

The AATA identified a problem with this definition is the uncertainty as to what material is ‘infotainment’.  The AATA was of the opinion that the distinction between ‘documentary’ and ‘infotainment’ drawn in the definition might have been intended to emphasise the fact that documentaries will be at the informative or serious end of the scale.[7] That is, there is a possible spectrum of programming, with a dividing line between ‘documentary’ programming (that is eligible for Producer Offset certification) and programming that is not eligible for Producer Offset certification, such as “[i]f the program had had no, or very little, informative content”. [8]

Docu-drama

The AATA considered what is the impact of the events recorded being contrived, in that some of the activities recorded are directed by the makers of the program. The AATA identify the existence of contrivance of events in the program as not necessarily preventing a program from being a documentary unless “they are so extensive as to destroy the ability to describe the activity being filmed as genuine activity.  The households in Lush House were not acting.  Their lives really did involve the activities filmed, even if they were suggested by the film’s producers.” [9]  Again the AATA describe a spectrum of programming from those that contain some elements of contrivance in how the events in reality television develop during the program to the introduction of a completely artificial situation.[10]

Eligibility for the 20% Producer Offset under s. 376 ITAA

The federal budget of May 2011 provided for a lower eligibility threshold for television productions. The Explanatory Memorandum for the necessary changes to the ITAA states that “A company eligible for the producer offset for a documentary must meet minimum expenditure thresholds of $500,000 and $250,000 per hour.”[11]

The appeal to the Federal Court should clarify how ‘documentary’ should be defined so as to determine who programs qualify for taxpayer funding under s. 376 ITAA  and what is excluded from eligibility.  Of course if Screen Australia does not win the appeal. The federal government can always legislated to redefine eligibility  for ‘documentary’ programming if the treasury department wants to control the level of taxpayer funding that is approved by the Producer Offset Unit (POU) of Screen Australia.

UPDATE 7 MARCH 2012: The decision of the Full Federal Court was that there was no error in the approach taken by the AATA to interpreted what is meant by a “documentary”; the judges of Full Federal Court took the view it was unnecessary to express their views of the meaning of the word “documentary”.

Producer Equity Program

Screen Australia’s ‘Producer EquityProgram’ provides a direct payment of funds to producers of ‘eligible low-budget Australian documentaries’ equal to 20 per cent of the approved budget. Eligibility is tied the ACMA guidelines that were pulled apart by the AATA in the Lush House decision.  However Screen Australia may well be able to maintain the integrity of the Producer Equity Program, as these funds for low-budget docos would appear to be part of the budget allocation to Screen Australia; that is, the funds are not part of producer offset funding under s. 376 ITAA - the effect of the AATA Lush House decision only relates to how ‘documentary’ should be defined in relation to producer offset funding under s. 376 ITAA .

---

[1] EME Productions No. 1 Pty Ltd and Screen Australia [2011] AATA 439 (24 June 2011)

[2] EME Productions No. 1, [13].

[3] EME Productions No. 1, [15].

[4] EME Productions No. 1, [14-15 & 24].

[5] EME Productions No. 1, [21].

[6] EME Productions No. 1, [27].

[7] EME Productions No. 1, [34].

[8] EME Productions No. 1, [35].

[9] EME Productions No. 1, [19].

[10] EME Productions No. 1, [26].

[11] Explanatory Memorandum [9.31 & 9.48]

Significant Australian Content assessment by Screen Australia

What is an Aussie film, in terms of financing production, is determined by whether the film has “significant Australian content”. The ‘producer offset’ provide film and television production incentives for Australian producers are a key element in pulling together financing for film and television productions. Qualifying productions are eligible for 40% producer offset payments from the Australian Tax Office (ATO) in respect of feature films that are to be released in cinemas; with 20% producer offset payments in respect to other qualifying productions. There have been films that have been refused producer offset status because they have been assessed as not having sufficient Australian content, such as George Miller's ‘Justice League Mortal’ project in 2008; more recently the Beyond Productions ‘Taboo’ documentary series was refused producer offset status.

Some projects will be at the edge of the envelope as to whether the film “has a significant Australian content” as required under requirement under s 376-65(2) of the Income Tax Assessment Act 1997 (Cth) (the ITAA). This requirement was reviewed by the Administrative Appeals Tribunal of Australia (ATTA) in proceedings between Beyond Productions Pty Ltd and Screen Australia. In that matter Screen Australia had determined that series 4 & 5 of a factual series titled ‘Taboo’, that Beyond produced for the National Geographic Channel, did not have significant Australian content; and that series 4 & 5 of ‘Taboo’ was not “a new creative concept” (s 376-65(5)) ITAA.

As Beyond came into the production of ‘Taboo’ at series 4 & 5, the production of the ‘Taboo’ series was outside what may be the usual project development path of Australian producers.  Therefore rather than discussing the specific arguments put before the ATTA as to why the ‘Taboo’ series should have been accepted as having “significant Australian content”, a more generic discussion on that requirement follows.

Section 376-70 (1) sets out the factors to which regard must be had in determining whether a film has a significant Australian content:

(a)  the subject matter of the film;

(b)  the place where the film was made;

(c)  the nationalities and places of residence of the persons who took part in the making of the film;

(d)  the details of the production expenditure incurred in respect of the film;

(e)  any other matters that the film authority considers to be relevant.

The subject matter of the film

·         The ATTA gave general support to the approach taken in Screen Australia’s guidelines where they interpret the ‘subject matter of the film’ as requiring Screen Australia to consider the ‘look and feel of the film’ and determine whether the film is sufficiently Australian or has a significant creative connection with Australia.[1]  This approach was consistent with an earlier decision of McVeigh v Willara Pty Ltd – the ‘Captain Invincible’ case – in which the Full Federal Court stated that:

“ "the subject matter of the film" are ordinary English words. They have no technical connotation and entitle, indeed require, … regard to such matters as the setting of the film, whether it purports to tell a story about Australians, whether there is some quality about the film that marks it out as an Australian film. This does not mean that only a film such as Jedda or Gallipoli may be said to have a significant Australian content.”[2]

·         Even if the subject matter is international rather than set in Australia or involving identifiable Australian characters, the “subject matter” of a film can still be said to have “significant Australian content”, as described by the ATTA, if there is a “discernible Australian point of view or sensibility that the ordinary viewer would recognise as Australian”. The ‘Captain Invincible’ case referred to where “the subject matter of the film is universal but that it reflects a cultural background peculiar to Australia” which may “warrant a decision that the film has a significant Australian content, notwithstanding that its subject matter has no particularly Australian quality.” [3]

The relative importance of the factors in subparagraphs (a) to (e)

·         As to the relative importance of the factors in subparagraphs (a) to (e), the ATTA identified from the Captain Invincible’ case the necessary approach of reviewing each element “individually and cumulatively, is to determine whether they demonstrate significant Australian content.”[4]  The ATTA rejected an argument that subparagraphs (b) to (d) can also be considered in relation to subparagraph (a) subject matter; that is, strong Australian elements relevant to subparagraphs (b) to (d) do not add weight to the ‘subject matter’ elements relevant to subparagraph (a).

·         The review of each factor cannot be described as an exercise in attributing value (either positive or negative) when assessing each factors (such as in a points based assessment).  That is, undue emphasis should not be given to non-Australian elements.[5]  The ATTA identified the correct approach as following from “the focus of s 376-70(1), which is whether a film has a significant Australian content” and that the decision maker “must be satisfied, having had regard to the matters specified in paragraphs (a) to (e), “whether there are aspects of the film which give it a content which is significantly Australian”.[6]

The Beyond decision discounts the significance of applications for producer offset status referring to other projects as have been granted producer offset status, as the ATTA stated that “s 376-70 requires that each application must be individually assessed with reference to the specified criteria.  The outcome of other applications is not, therefore, a relevant matter in making this determination.”[7]  The consequence of this approach is that the focus is on the elements of the project and the extent to which those elements advance the argument that the project has “significant Australian content”.

In separate proceedings before the ATTA involving an Essential Media project, the ATTA took the view that considering how other projects have been assessed by Screen Australia cannot influence the central question in that matter (which is still to be determined by the ATTA) whether the Essential Media project was a ‘documentary’ that is eligible for producer offset status or whether the project is ineligible because fall into the excluded category of ‘infotainment’.[8] [UPDATE: see Lush House - cleaning up the doco scene]

A ‘new creative concept’ (s. 376-70 ITAA)

The ATTA decision in the Beyond matter provides guidance as to what is meant by the words ‘a new creative concept’. The view of the ATTA is that this phrase implies “more than mere difference and ….more than a different treatment of the subject matter, even if the treatment of a subject is an important matter.  The words suggest an idea or design for the film in question that involves some originality in how the subject matter is addressed.”[9]

Early focus on the question whether a film has “significant Australian content”

The eligibility of a proposed feature film or television production for producer offset production finance needs to be considered at the time the underlying rights are acquired and co-production contracts are put in place so that these arrangements provide strong arguments to support the application to the producer offset and co-production division of Screen Australia for the necessary producer offset certificate. 

UPDATE

On 7 September 2011 Screen Australia announced that following a confidential agreement, Beyond Productions had discontinued its appeal in relation to the AATA decision with respect to the television series ‘Taboo’.

---

[1] Beyond Productions Pty Ltd and Screen Australia [2011] AATA 39 (31 January 2011) [18] & [28].

[2] McVeigh v Willara Pty Ltd [1984] FCA 379 (the Captain Invincible case); (1984) 6 FCR 587 at 597.

[3] The Captain Invincible case (1984) 6 FCR 587 at 597.

[4] Beyond Productions Pty Ltd and Screen Australia [2011] AATA 39 [29].

[5] Beyond Productions Pty Ltd and Screen Australia [2011] AATA 39 [27].

[6] Beyond Productions Pty Ltd and Screen Australia [2011] AATA 39 [66]. Referring to the Captain Invincible case at 596.

[7] Beyond Productions Pty Ltd and Screen Australia [2011] AATA 39 [60].

[8] EME Productions No 1 Pty Ltd and Screen Australia [2010] AATA 839 (28 October 2010) 

[9] Beyond Productions Pty Ltd and Screen Australia [2011] AATA 39 [71].

No I wouldn’t steal a CD, DVD or a Facebook photo – But can you ‘receive’ a digital photo as ‘tainted property’?

The arrest and ‘un-arrest’ of Ben Grubb, IT reporter with the Sydney Morning Herald, woke up the recent AusCert conference after the SMH published a story, illustrated with photos extracted from a Facebook page.

The person who extracted the photos from Facebook is at risk of being charged with a cybercrime. Peter Black, senior lecturer at Q.U.T., when interviewed by the Sydney Morning Herald, appropriately commented that security researcher who obtained the Facebook photos, potentially breached section 477 of the Commonwealth Cybercrime Act 2001,  if there was an 'unauthorised access' to the computer server on which the Facebook photos were located.

As to why Ben Grubb was arrested then ‘un-arrested’, Queensland police fraud squad head Brian Hay appeared on shaky ground when he was reported as equating receiving an unauthorised photograph from someone's Facebook account with receiving a stolen TV. Underlying this curiously arresting analogy is a question that has never been answered by Australian courts – can a digital work (such as a Facebook photo) be the subject of a theft charge? That is, can Facebook photos be stolen?

The English Court of Appeal once said that “that copyright is probably not a subject of theft”.[1]  The court did not have to give a more definite answer as the offence being considered in Lloyd’s case was a conspiracy to steal the master tape of a film in order to use it to create copies.  The important element in Lloyd’s case was that the master tape is a physical object, quite capable of being purloined by the copyright pirates that intended to use the master tape to create further copies of the film. 

If the copyright in a digital photo is not capable of being the subject of theft proceedings – the question for the Queensland police is how can Facebook photos be the subject of a charge of “receiv[ing] tainted property” under s. 433 Criminal Code 1899 (Qld)? If the digital photos cannot be stolen in the first place it cannot be ‘received’ by Ben Grubb.   It all depends on whether the digital photos are ‘property’.  The Queensland police have something to run with as the definition of ‘property’ in the Queensland Criminal Code includes “any other property real or personal, legal or equitable, including things in action and other intangible property”.

The Theft Act of the United Kingdom had a similar definition of property, however in the case of Oxford v Moss[2] the U.K. Court of Criminal Appeal rejecting that confidential information in an exam paper was capable of being stolen.   The Australian courts do not have to follow those English decisions. We will see if the Sydney Morning Herald want to have these questions answered. While Ben Grubb was ‘un-arrested’ the Queensland police retained his iPad to copy the hard drive – plenty of grounds there to challenge the arrest of Ben Grubb and the taking of Ben Grubb’s property by the Queensland police.

---

[1] Lloyd & Anor, R. v [1985] QB 829; [1985] EWCA Crim 1.

[2] [1978] Cr App R 183. See also Grant v Procurator Fiscal [1988] RPC 41; 1987 SCCR 402 an attempt to sell a list of customers was not a crime known to Scots law.

Big tobacco and trademarks – “I’m going to fight for you John Player” – not

The Plain Tobacco Packaging Bill 2011 is on the agenda of the Australian Federal Parliament - the fight back from the big tobacco companies has begun with a series of Freedom of Information Act (FOI) applications which directed to the release of what big tobacco hope, as discussed by tobacco.org, are embarrassing statements and reports of the Department of Health, along the lines that not many people are expected to give up smoking as a result of the Plain Tobacco Packaging legislation that is currently before the Australian Federal Parliament.  That may very well be conclusions in reports that are released by the Department of Health, but I say – so what! 

If the current generation of smokers will not quit as a result of the current ad campaign with the man coughing blood – then no public policy directed to reducing tobacco smoking will have an effect.  But then policies like the Plain Tobacco Packaging legislation are directed to the younger generations, so as to destroy the glamour associated with cigarette branding with generic packaging across all brands of cigarettes. 

The importance of banding tobacco products was brought home to me in the 1990’s when I noticed that all my friends that were smokers purchased cigarettes that used purple in their branding. The ad campaign in the 1990’s used very sophisticated ads, in which the logo was removed, leaving the colour purple to sell the product - 98% of consumers surveyed associated the ads with the brand of cigarettes.[1]

This blog is not about the public health policy related to tobacco, which is covered by the Croaky website; the focus of this blog is controversy over the extent to which the Plain Tobacco Packaging Bill 2011 may limit the exercise of intellectual property rights in trademarks and designs if that is enacted.

The Bill requires cigarettes to be sold in ‘plain packaging’. Therefore to advance the public health policy of discouraging cigarette use the Bill prevents the tobacco companies from using trade marks and other branding on cigarette packaging. Conservative commentators responded to the previous plain packaging legislative proposal by asserting that as well as having the consequence that Australia will be in breach of obligations under international trade and IP treaties regarding the recognition of trademarks, the legislation would be unconstitutional in respect to the “acquisition of property on just terms” protection in s. 51(xxxi) of the Australian Constitution.  Wilson (2010)[2] argued that the enactment of Plain Tobacco Packaging legislation would expose the Commonwealth government to compensation claims from the tobacco companies.[3]

The short answer to the I.P. treaty point is the bill does not interfere with the registration of trade marks by tobacco companies, (that is, the ‘recognition’ of those marks under Australian law; and that while the bill prohibits a specific use of the marks on packaging for tobacco products, with the trade mark owners retaining the bundle of property rights including ability to use the trade marks in ways that are not prohibited by legislation; those uses of their trade marks may have no value to tobacco companies – but they are selling cancer sticks, so big tobacco is undeserving of sympathy.

A key part of big tobacco’s strategy is directed to the argument that the Plain Tobacco Packaging legislation breaches constitutional protections of property in the trade marks. The protection provided by s. 51(xxxi) can be argued not to be an absolute protection, as it acts as a protection of property interests and not as a protection of the general commercial and economic value of that property.[4]  An example of that difference can be seen in the treatment of legislation that limited the ability of owners of artworks of national significance to export those works without a permit. 

In the David Waterhouse case,[5] the Full Federal Court (which included Gummow J, now a member of the High Court of Australia) stated that “[m]erely to extinguish or diminish a proprietary right vested in a person does not necessarily result in the acquisition of that proprietary right by the Commonwealth or another.  There must be something in addition of a proprietary nature that has been acquired.”[6] The refusal to grant an export permit under the Protection of Movable Cultural Heritage Act 1986 (Cth) was argued in the David Waterhouse case to constitute an acquisition for the purposes of s. 51 (xxxi). The Full Federal Court rejected the claim and held that that limits on exporting the artwork did not result in any direct or indirect taking of any form of property interest in the artwork.[7]  What can be taken from this decision is that legislation that limits the exercise of property rights (including intellectual property rights) can be argued to breach the “acquisition of property on just terms” protection in s. 51 (xxxi) of the Australian Constitution.

In 2008 the High Court in Telstra v Commonwealth,[8] warned against use of descriptive and rhetorical arguments over what are property rights.  The David Waterhouse case would indicate that it is possible to attenuate the value of intellectual property, such as by prohibiting the use of a registered trade mark, without being an acquisition of a property right by the Commonwealth.[9] 

The Consultation Paper to the Plain Tobacco Packaging Bill 2011 notes the possible arguments under by s. 51(xxxi) of the Constitution; with clause 11(1) of the Exposure Draft genuflecting to the protection of property rights provided by s. 51(xxxi), by stating that the “Act does not apply to the extent (if any) that its operation would result in an acquisition of property from a person otherwise than on just terms.” There is an additional statement in s. 11 (2) that is directed to the use of trade marks in accordance with regulations (if there is a constitution problem with the Act). Also s.  15 (again for what appears to be an apparent abundance of caution) protects the trade marks against applications for non-use of a trade mark; with s. 16 being directed to preserving rights under the Designs Act 2003 in respect of cigarette packaging.

The message that can be taken from big tobaccos’ current P.R. campaign is a High Court challenge is inevitable.  It appears the parliamentary drafting is designed to avoid the sudden death of the legislation - if there is an adverse ruling on the s. 51(xxxi) claim - the plain packaging regime will linger on in the form of some, yet to be drafted, regulations. That abundance of caution may not be needed as it is my view that the government can successfully defend a s. 51(xxxi) challenge to the Plain Tobacco Packaging legislation.

It is curious also that s. 12 also acknowledges the “Act does not apply to the extent (if any) that it would infringe any constitutional doctrine of implied freedom of political communication.” I can see the day when every cigarette package will contain the trade marked logo with a plea below that the laws must change to protect these valuable property rights ¡

On that day a rendition of “The Laws Must Change”  & “I'm Gonna Fight For You J.B.” by John Mayall & the Bluesbreakers  will be the theme music for the television ad campaign  - with the line “I’m going to fight for you J.B.” changed to be “I’m going to fight for you John Player” ¡

---

[1] Underhill, Paco (2010). Buyology: Truth and Lies About Why We Buy. Broadway Business. pp. 85

[2] T. Wilson, 'Governing in ignorance: Australian governments legislating, without understanding, intellectual property,' (26 April 2010)  Institute of Public Affairs (occasional paper)  <http://www.ipa.org.au/publications/1795/governing-in-ignorance:-australian-governments-legislating,-without-understanding,-intellectual-property>.

[3] Ibid. In the range of $378m to $3,027m per year.

[4] Federal Council of the British Medical Association in Australia v The Commonwealth (1949) 79 CLR 1; [1949] HCA 38. Dixon J at 270-271. See also M. Heller, 'The boundaries of private property' (1999) 108(5) Yale L. J. 1163-1223.  Heller considers US cases on ‘taking’ by the government without just compensation.  Heller notes that the U.S. Supreme Court has held that “the denial of one traditional property right does not always amount to a taking. At least where an owner possesses a full 'bundle' of property rights, the destruction of one 'strand' of the bundle is not a taking, because the aggregate must be viewed in its entirety”: Andrus v Allard, 444 US 51 (1979). 65-66.

[5] David Waterhouse v Minister for the Arts and Territories (1993) 119 ALR 89; 43 FCR 175 (FCAFC).

[6] Ibid. [36] per Black CJ & Gummow J.

[7] Australian Tape Manufacturers Association Ltd v The Commonwealth (1993) 176 CLR 480; [1993] HCA 10. (Blank Tapes case) per Mason CJ, Brennan, Deane & Gaudron JJ at 58; Dawson & Toohey JJ at 79 (McHugh J agreeing at 80).

[8] 234 CLR 210; 82 ALJR 521; 243 ALR 1; [2008] HCA 7.

[9] David Waterhouse case, ibid. [36] per Black CJ & Gummow J., who comment that the word “property’ in s. 51 (xxxi) is to be construed liberally, however, they adopted the observation in the Blank Tapes case that “it must be possible to identify an acquisition of something of a proprietary nature”.” Australian Tape Manufacturers Association Ltd v The Commonwealth (1993) 176 CLR 480; [1993] HCA 10. (Blank Tapes case) per Dawson & Toohey JJ at 79 (McHugh J agreeing at 80).