Changing landscape of intangibles in Australia

May 2022 | SPOTLIGHT | INTELLECTUAL PROPERTY

Financier Worldwide Magazine

May 2022 Issue

Recent legislative reforms and court decisions are reshaping the landscape of intangibles in Australia. Certain intellectual property (IP) and associated rights’ regimes are being simplified and streamlined to make them more attractive to creators (designs and short domains). Whereas others, such as trade marks and patents, are becoming more complex to properly manage and maintain. Below is an overview of the most salient recent developments in relation to intangibles and what this means for investors.

Designs

In March 2022, a set of legislative changes to make the design protection regime more palatable to creators came into force in Australia. These changes implement some of the recommendations made to the Australian government in 2015.

A design is the overall visual appearance of a product, such as shape, ornamentation, pattern and so on. Only new and distinctive designs qualify for protection and their owners have exclusive rights to commercially deal with products embodying such designs and prevent others from using similar designs.

Unlike in the European Union (EU), where an unregistered design right exists to protect products with a short market lifespan, such as fashion, in Australia all designs must be registered and certified to be protected, for a maximum period of 10 years. Since its inception in 2004, the current Australian design registration system has been overly complicated and largely at odds with market realities.

For example, a commercial launch or publication of a new product before applying to register a corresponding design destroyed the novelty of such design and rendered it unregistrable. This not only meant that creators were unable to test their products in the market before deciding whether to apply for design protection, but also overcomplicated the management of international design protection, where corresponding prior design applications were filed and published in overseas jurisdictions.

In addition to registration, a concurrent design publication system existed under which the applicants had an option to publish their design for defensive purposes, but this provided no enforceable rights. This option was rarely used, insofar as it provided no practical benefit to design owners.

As a result, the Australian design registration system has, to date, been rarely used, with design filings and registrations steadily decreasing over recent years as businesses opt for other forms of IP protection. In 2020, a total of 7165 applications for design rights were filed (a 4 percent annual decline) and 6332 registered (an 11 percent annual decline) in Australia, according to the Australian Intellectual Property Report 2021. A stagnant design protection pattern is further illustrated by the fact that, since 2011, less than 8000 design applications have been filed and registered in Australia each year. By comparison, in 2020, a total of 115,815 design applications were filed with the EU Intellectual Property Office, according to the ‘Consolidated Annual Activity Report 2020’.

Recent reforms seek to improve design protection and streamline the design registration process. For example, a 12-month grace period has been introduced. Public disclosures of designs by their creators during this period will no longer be considered when assessing the novelty and distinctiveness of a design for registration purposes. This will allow creators to test products in the market before deciding whether to seek design protection. The design publication system has been abolished. Further, defences of prior use and innocent infringement have been introduced to design infringement claims. The Australian government also accepted the recommendation that the maximum term of protection of designs be extended to 15 years, if Australia joins the Hague Agreement concerning international registration of industrial designs to which it is currently not a contracting party.

Considering these reforms, businesses, particularly those in the fashion industry, should re-evaluate their strategies and the types of IP regimes used to protect their intangibles.

Short domains

From 24 March 2022, persons or companies with an Australian presence can register domain names in the ‘.au’ direct namespace. These short domain names do not have additional descriptors, such as ‘com’, ‘net’ or ‘org’. Therefore, it is possible to register ‘yourbrand.au’ or ‘yourcompanyname.au’ domain names.

Until 20 September 2022, short domains that are exact matches of the existing Australian domain names, such as ‘.com.au’, ‘.net.au’ and ‘gov.au’, are available to their holders on a priority basis. This priority system is two-tiered – Category 1 applicants (holders of Australian domain names registered before 5 February 2018) will take priority over Category 2 applicants (holders of Australian domain names registered on or after 5 February 2018 and before 24 March 2022). The remaining short domains are available to eligible applicants on a ‘first come first served’ basis.

In order to be eligible to hold an Australian domain name, whether it is a traditional domain name or a short domain, applicants must satisfy the ‘Australian presence’ eligibility requirement. This requirement was introduced in April 2021 when the Australian domain name licensing rules were overhauled, and it can potentially make it more complex and costly for foreign corporations to hold Australian domain names directly in their name.

Companies registered under the Corporations Act 2001, Australian citizens and permanent residents automatically satisfy the Australian presence requirement. Meanwhile, foreign companies and persons can satisfy this requirement if their domain name is an exact match of the words within their registered or pending Australian trade mark. For example, a pending or registered Australian trade mark – ‘Best Ever Brand’ – would serve as a basis to register a short domain ‘besteverbrand.au’, but not ‘bestbrand.au’ or ‘bestever.au’.

There are another 15 categories of Australian presence available for applicants, such as the government, Commonwealth entities, ABN holders, charities, partnerships and trusts.

Businesses may have to reassess whether they satisfy the Australian presence requirement, including in relation to currently held Australian domain names, and consider if they need to apply for additional trade marks to shore up their position.

Trade marks

Recent legislative reforms and court decisions are making it more challenging for companies to properly structure their trade mark portfolios and ensure the ongoing validity of their trade marks.

Intangibles portfolio structuring is often, at least partially, dictated by tax considerations, such as to minimise potential capital gains tax or stamp duty implications, and may result in a situation where non-trading HoldCos own trade marks (instead of or concurrently with OpCos). However, tax optimisation considerations do not take precedence over the mandatory provisions of substantive statutes governing IP rights and can adversely affect the validity of intangibles.

For example, in light of the Federal Court of Australia decisions in Pham Global Pty Ltd v. Insight Clinical Imaging Pty Ltd and PDP Capital Pty Ltd v. Grasshopper Ventures Pty Ltd, applicants should ensure that they are the true owner of the mark in question prior to lodging an application for registration, insofar as subsequent assignments of such an application to the true owner will not cure ownership defects and may potentially invalidate the mark.

Ownership of a trade mark may arise in two ways, either by its authorship and prior use or by the combination of authorship, the filing of the application for registration and an intention to use the mark.

Further issues may arise in trade mark licensing contexts. If no actual control is exercised by the owner of a registered trade mark over an exclusive licensee or the two do not have a unity of purpose, such as the same directors, this may render such a mark vulnerable to a non-use removal challenge by third parties, as per Trident Seafoods Corporation v. Trident Foods Pty Ltd.

A relatively recent amendment to the Trade Marks Act 1995 that does not appear to have received sufficient publicity is that all trade marks filed in Australia after 24 February 2019 are subject to reduced non-use removal periods (three instead of five years). Trade mark owners, therefore, now have a shorter time frame to commence use of their registered trade marks before they become vulnerable to a challenge. First marks subject to the reduced three-year non-use removal challenge window will become vulnerable in October 2022.

These developments in the trade marks area mean that a sharper focus is required in relation to trade mark portfolio structuring and their ongoing use and maintenance.

Patents

Patent dispute settlements, most particularly pharmaceutical patent disputes, will come into focus in Australia this year, after the originator and generic parties to ongoing Federal Court pharmaceutical patent litigation took the unusual step of seeking authorisation from the competition regulator to enter into a settlement & licence agreement. Authorisation was sought with respect to the statutory prohibition on the making or giving effect to a contract that may include a cartel provision.

Regulatory focus on the competition aspects of patent settlements will be familiar to pharmaceutical businesses that operate in the northern hemisphere, and it was only a matter of time before the Australian Competition & Consumer Commission (ACCC) was given the opportunity to weigh in.

In this case, the proposed settlement would involve a licence to two generic pharmaceutical companies to supply certain on-patent drugs in Australia before the expiry of certain patents. Parties sought authorisation on the basis that the settlement and licence would give rise to public benefits in the form of earlier and increased competition between generic and originator products, cost savings to the Australian government, both through legislative reductions in the price paid by government that apply when a first generic product is listed on the Pharmaceutical Benefits Scheme, and then subsequent competitive price reductions, greater supply security and litigation cost savings. The ACCC, in its recent draft decision rejecting the parties’ application, has set the stage for future investigations into patent settlements in Australia.

The High Court of Australia has also recently considered patent dispute settlements in the long-running Lundbeck and Sandoz saga concerning escitalopram. The key takeaway from this decision is that, in Australia and absent a specific clause to the contrary, a licence to exploit a pharmaceutical patent may not extend beyond the original 20-year term to include any patent term extension granted with respect to the patent. The case has been remitted back to the original judge to recalculate damages. Sandoz may be liable for patent infringement for the period from the expiration of the licensed patent to the end of the patent term extension despite holding a licence to exploit the patent for a period commencing two weeks prior to the original expiration of the licensed patent.

Originator and generic businesses in the pharmaceutical sector should take heed and seek specific and comprehensive IP and competition law advice before settling patent disputes, whether legal proceedings have been commenced. Parties should consider whether or not it is appropriate to minimise uncertainty by expressly addressing whether the licence extends to the patent during any extended term, and how to appropriately address the ACCC’s stated concerns in relation to patent dispute settlements.

Mindaugas Skavronskas and Daniel Posker are special counsels and Frances Drummond is a partner at Norton Rose Fulbright Australia. Mr Skavronskas can be contacted on +61 2 9330 8176 or by email: mindaugas.skavronskas@nortonrosefulbright.com. Mr Posker can be contacted on +61 438 607 125 or by email: daniel.posker@nortonrosefulbright.com. Ms Drummond can be contacted on +61 4 0406 5512 or by email: frances.drummond@nortonrosefulbright.com.

Mindaugas Skavronskas, Daniel Posker and Frances Drummond

Norton Rose Fulbright Australia