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Federal Court of Australia |
Last Updated: 26 October 1999
Australian Trade Commission v Disktravel [1999] FCA 1399
ADMINISTRATIVE LAW - Export Market Development Grants Act 1974 (Cth) - whether expenses fall within qualifying export development expenditure - primary and principal purpose of expenditure - how assessed - subjective and objective evidence - mis-statement by Tribunal in relation to purpose - conflating of objective and subjective evidence with objective and subjective purposes - substantive fact finding function undertaken by Tribunal - no underlying error of principle - no reviewable error - eligible industrial property rights - whether grant claimants owned eligible industrial property rights - consideration of rights contemplated by copyright in definition of eligible industrial property - whether claimed expenditure related to the disposal of eligible industrial property rights - copyright in software and ancillary works - distribution of CD ROM disks incorporating software - distribution to travel agents - reservation of intellectual property by licensor - no publication - no exercise of rights comprised in copyright - no eligible industrial property rights owned by claimants - no entitlement to grant.
WORDS AND PHRASES - "qualifying export development expenditure" - "primary and principal purpose" - "eligible industrial property rights" - "copyright".
Export Market Development Grants Act 1974 (Cth) ss 31, 11Z(8), 38, 12(2), 14(1), 11A(1), 3(1)
Copyright Act 1968 (Cth) ss 10, 29, 31, 13, 15
Nomad Films International Pty Ltd v Export Development Grants Board (1986) 11 FCR 67, discussed
Australian Trade Commission v F & F Asia Pty Ltd (1996) 69 FCR 252, referred to
Parker Pen (Aust) Pty Ltd v Export Development Grants Board (1983) 46 ALR 612, applied
Export Development Grants Board v Miller Pohang Coal Co Pty Ltd (1985) 61 ALR 125, cited
Collector of Customs v Pozzolanic Enterprises Pty Ltd [1993] FCA 456; (1993) 43 FCR 280, applied
Australian Trade Commission v Film Funding and Management Pty Ltd [1989] FCA 188; (1990) 24 FCR 595, cited
Autodesk Inc v Dyason (1992) 173 CLR 331, cited
Avel Pty Ltd v Multicoin Amusements Pty Ltd [1990] HCA 58; (1990) 171 CLR 88, applied
Australian Trade Commission v World Geoscience Corporation Ltd (Unrep, 20/8/97, Kiefel J), cited
Jolley v FCT (1989) 86 ALR 297, cited
Trade Practices Commission v Abbco Iceworks Pty Ltd [1994] FCA 1279; (1994) 52 FCR 96, cited
Kervan Trading Pty Ltd v Aktas (1987) 8 IPR 583, cited
Australian Trade Commission v Correia and Zaknich Holdings Pty Ltd (1992) 38 FCR 153, cited
AUSTRALIAN TRADE COMMISSION v DISKTRAVEL, JOHN GAETANO MARIO FIOCCO, DIVOT PTY LTD, HOLDEN BARLOW and CECK INVESTMENTS
W 19 of 1999
FRENCH, KIEFEL AND MANSFIELD JJ
22 OCTOBER 1999
PERTH
IN THE FEDERAL COURT OF AUSTRALIA |
|
WESTERN AUSTRALIA DISTRICT REGISTRY |
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
1. The appeal is allowed.
2. The decision of the Learned Primary Judge of 5 February 1999 be set aside and that of the Administrative Appeals Tribunal be set aside in so far as it relates to the respondents to this appeal.
3. The decision of the appellant notified on 25 October 1996 that each of the respondents to the appeal is "not eligible for a grant under the Export Market Development Grants Act 1974 (Cth) in respect of the claim year 1994-95" be affirmed.
4. The respondents to pay the appellant's costs of the appeal.
5. Liberty to the Respondent to apply by written submission within 14 days to vary the costs order.
6. The Appellant to file any reply to any such submission within 14 days of the Respondent's submission.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA |
|
WESTERN AUSTRALIA DISTRICT REGISTRY |
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
JUDGES: |
FRENCH, KIEFEL AND MANSFIELD JJ |
DATE: |
22 OCTOBER 1999 |
PLACE: |
PERTH |
FRENCH J:
Introduction
1 In this case various persons have applied for and been refused grants under the Export Market Development Grants Act 1974 (Cth). They say they were entitled to grants because they had incurred expenditure in order to create or seek opportunities for the disposition to persons outside Australia of eligible industrial property rights owned by them. The expenditure was connected with the acquisition and exercise of licences to market in other countries and in Australia CD Roms for use by travel agents containing detailed travel information provided by advertisers within those countries. The relevant industrial property rights were said to relate to copyright in the CD Rom software and associated publications and other ancillary intellectual property.
2 The respondents' applications for Export Market Development Grants were refused by the Australian Trade Commission but allowed on appeal to Nicholson J. The Commission now appeals against the decision of Nicholson J.
Factual History
3 Travel Vision International Pty Ltd ("TVI") is a company incorporated in Western Australia. Bruce Gallash is its chief executive officer and managing director. Peter Snow is another director. In the early 1990's Mr Gallash developed computer software to assist in the marketing of real estate and other products sold through the Sunday newspaper's Readers' Mart. In 1992/93 he considered possible applications of his software concept to a global travel business. Micro Base Business Systems was retained by TVI in June 1993 to develop a more sophisticated software program to enable storage and distribution of information between travel agents.
4 The software was developed for application in a travel and tourism advertising system using CD technology. The availability of the internet was then more limited than at the present time. The aim was to use CDs to create a comprehensive database of travel and tourism information. The "Travel Vision System", as the proposed database was called, involved the production of two types of CDs for each country participating in the network. One was an Outbound Packages disk containing information and images relevant to outbound packages promoted by travel wholesalers. There were to be pages of specific brochures complementing the existing brochure system and covering countries other than the participating country and destinations sought by travellers from within the participating country. The disk would be distributed to travel retailers within the participating country only. It would direct potential travellers to travel retailers using the Travel Vision System to make bookings. It was also proposed that there would be a Product Disk containing general information on the participating country for the benefit of local and international tourists and featuring domestic packages offered by inbound tourism operators and wholesalers, as well as a wide range of accommodation and other tourist facilities, events and options. The Product Disk would be distributed to all participating travel agents worldwide.
5 It was common ground that at all times TVI owned the intellectual property rights in and associated with the Travel Vision System.
6 According to Mr Gallash's evidence before the Tribunal, in order for the system to work it was necessary to obtain licensees or sub-licensees in the participating countries. They would build the local database needed for each country and in turn obtain revenue from advertising on the system. The way Mr Gallash put it was thus:
"In simple terms, we were in the business of electronic publishing and distribution, using third party experience and expertise to provide the necessary information for participating countries."
7 In May 1994, TVI produced an Information Memorandum for intending licensees, offering licences to use and commercially exploit the Travel Vision System in overseas and Australian territories and associated with those licences, management and marketing agreements with Plutora Pty Ltd ("Plutora"). The general shape of the financing, management and marketing arrangements was a familiar one. In par 5.2 of the Memorandum, under the heading "INCOME' it was said:
"1. Initial sub-licence fees and ongoing royalties obtained form sub-licensees of overseas territories will be considered as Australian source assessable income.2. Export Market Development Grants will constitute Australian source assessable income."
It was also said in the memorandum that:
"Much of the expenditure incurred in attempts to obtain overseas sub-licensees may be recoverable through a claim under the Australian Government's Export Market Development Grants Act."
A diagram setting out the proposed arrangement for licensee participation in the travel vision marketing program was included in the Memorandum and is attached to these reasons.
8 The standard form of international licence for the Travel Vision System had TVI, as licensor, granting to the licensee:
"...a licence to use and commercially exploit the Intellectual Property and the Product in the manner set out in this Agreement within the Territory and for the Term." (cl 2)
The Intellectual Property was defined in the agreement as:
"...all the copyrights, design rights, trade mark rights and any other proprietary rights of every kind comprised by or incorporated in the Product and the Name and the Disks." (cl 1.1)
The term "Product" was defined as:
"the software called Travel Vision Software whether stored on Disk or any other form of storage whether electronic or not and including all written data relating to the software and instruction manuals for its use or application, being software designed to store and display colour pictures, searchable data, descriptive text and video images and sound recordings relating to services and facilities and areas of interest to travellers including an overview of a region and its natural attractions, hotel accommodation, restaurants, eating establishments and entertainment venues, a calendar of events, convention facilities, tours, transport, retail shopping and travel packages;" (cl 1.1)
"Name" was defined as:
"..."Travel Vision", "Travel Vision Software", "Travel Vision System" and any other spelling or presentation of such words and also such words in any other language;" (cl 1.1)
The term "Disk" was also defined:
"...a CD-ROM disk on which the Product is stored;" (cl 1.1)
9 Each of the respondents to the present appeal entered into one or more Licence Agreements (at different times) with TVI in respect of an overseas territory designated in the agreement for a period of one year on payment of an initial fee. The fee was paid in each case. Each of them also entered into a Marketing Agreement with Plutora, in its capacity as trustee for the M & M Trust. Under the Marketing Agreement Plutora, as agent for the licensee, was to seek and appoint sub-licensees in the territory covered by the Agreement. A marketing fee for the first year of operation of the Agreement was paid in each case.
10 The respondents entered into separate agreements with TVI under which they acquired licences for a year to use and commercially exploit the Travel Vision System within designated parts of Australia for payment of a further initial fee. Each of them also entered into Management and Limited Recourse Loan Agreements with Plutora. Under the Management Agreements, Plutora, as their manager and agent in relation to its Australian territory, was to enter into advertising agreements and collect advertising fees. By the Limited Recourse Loan Agreement, Plutora agreed to lend each of the respondents money to enable them to pay operating expenses within the Australian licensed territories. Both TVI and Plutora had common directors and operated from the same business address, which was Snow's address.
11 The content of the right "to use and commercially exploit the Intellectual Property and the Product" was not at large. It was defined by what the licensee was obliged and entitled to do under the terms of the licence. The licensee was required to procure advertising material for inclusion in the disk and to send it in an appropriate format to TVI (cls 4.1, 4.2, 4.3). When enough material had been received the licensor, TVI, was to incorporate it into a disk (cl 4.4) and send the disk to the licensee immediately after production (cl 6.1). The licensee was in turn required to ensure the prompt distribution of the disks received from the licensor to participating travel agents immediately after receipt (cl 6.3). The licensee was also to use his best endeavours to procure travel agencies within its territory to enter into Travel Agency Licences to use the Product (cl 8.1).
12 Sub-licensing was authorised under the agreements with the prior written approval of the licensor. A sub-licence could be granted to a person within the Territory of the licensee "to enable that person to assist the Licensee to fulfil its obligations hereunder" (cl 7.1). Transfer and assignment otherwise was prohibited, save that there could be a transfer or dealing with the whole but not a part of the rights and property conferred by the agreement with the prior written approval of the licensor and subject to conditions relating to a first right of refusal on the part of the licensor, and as to the solvency, character and reputation of the transferee or assignee (cl 11).
13 There was a covenant by the licensee in each case to not contest or impugn the licensor's ownership of the Intellectual Property (cl 14.1(1)). There was an acknowledgment that the rights granted to the licensee under the agreement would "in no way affect the exclusive ownership by the Licensor of the Intellectual Property" (cl 14.1(2)). There was a further acknowledgment that other than in the Territory the licensor had the sole right, authority and absolute discretion to grant any licences, privileges or endorsements in respect of the Intellectual Property (cl 14.1(3)). In relation to the use or display of any part of the Intellectual Property the licensee would, if required by the licensor in any specific instance, indicate clearly that the licensor was the owner of the Intellectual Property (cl 14.1(4)(a)).
14 The records show that only one sub-licence was ever granted and that was a licence dated 15 June 1995 from Disktravel to Travel Vision (Ireland) Limited. The standard form of International Sub-Licence Agreement provided to the sub-licensee "a licence to use and to commercially exploit the Intellectual Property and the Product in the manner set out in the Agreement within the Territory and for the term". The obligations of the sub-licensee to the licensee reflected those of the licensee to the licensor.
15 Claims were made by the respondents for grants under the Export Market Development Grants Act. CECK Investments made a claim for a grant in respect of 1993/94, a first half claim for 1994/95 and a claim for 1994/95. Disktravel made a first half claim for 1994/95 and a claim for 1994/95. Fiocco, Divot and Holden Barlow made claims for 1994/95. All the claims were lodged through Mr B. Quartermaine of a firm called Exportise.
16 By way of example the Disktravel claim for 1994/95 asserted total marketing expenditure of $53,688. The amount claimed as eligible expenditure came to $53,251. The main items promoted were described as:
"CD-ROM technology based information systems for the Travel/Tourism industry. (Property Rights)"
The heads of expenditure claimed comprised:
"Fares - $ 5,570Overseas visits Allowance - 600
Literature/Advertising - 498
Communications - 649
Agents/Consultants - Australia - 41,828
Other - 4,106
Total 53,251"
Schedules showing details of the expenditure under each of these heads were attached. Each claim also attached an export development plan in common form. This set out the nature of the licensing, management and marketing arrangements already referred to.
17 The claims for grants were all refused by a determination of 1 April 1996. An administrative review within the Australian Trade Commission resulted in the first instance determination being affirmed on 18 October 1996.
18 Applications for review by the Administrative Appeals Tribunal were lodged by the respondents. The Commission in statements provided to the Administrative Appeals Tribunal under s 37 of the Administrative Appeals Tribunal Act 1975 summarised its reasons for affirming the first instance determinations refusing the claims thus:
"(i) there were no eligible industrial property rights in existence in a commercially exploitable form at the time the claimed expenditure was incurred;(ii) the primary source of income would be advertising and hence the primary and principal purpose of the claimed expenditure in the terms of Division 4 of the Act was in the promotion of advertising (which is not an eligible service under the Act) rather than the promotion of the sale of industrial property rights;
(iii) that expenditure claimed in respect of payments to M&M were payments to a prescribed associate and were ineligible under s 11C(1)(b) of the Act;
(iv) s 38 of the Act would otherwise apply to the application."
19 On 16 January 1998, the Administrative Appeals Tribunal made a determination setting aside the decision of the Commission in respect of the five respondents and TVI. The determination made by the Tribunal, as corrected on 2 February 1998, excluded certain expenditure claimed by TVI, Disktravel and CECK Investments. Subject to those exclusions the matter was remitted to the Commission and the respondents to reach agreement on the quantum of the amounts of their qualifying export development expenditures. The parties were granted liberty to apply should they not be able to reach agreement on the quantum issue.
20 The Commission appealed from the decision of the Administrative Appeals Tribunal and the appeal was heard by Nicholson J, who gave judgment on 5 February 1999 dismissing the appeal and ordering the Commission to pay the respondents' costs of the application. The matter was remitted to the Administrative Appeals Tribunal for consideration of outstanding issues.
Statutory Framework
21 The Export Market Development Grants Act 1974 is described in its long title as "[a]n Act relating to Grants for the purpose of providing Incentives for the Development of Export Markets". It was enacted to replace a tax rebate based export incentive arrangement with a grants-based scheme. From the outset the Act provided that grants would be payable to claimants on eligible export market development expenditure in respect of any goods, service, property rights or know how substantially of Australian origin (Parl Deb H of R 28/11/74 p 4258). It was significantly revised by the Export Market Development Grants Amendment Act (No 2) 1990 following the 1988 report of the Committee for Review of Export Market Development Assistance. The changes were designed to benefit small or medium sized firms endeavouring to develop and expand export markets but lacking the "critical mass" to be truly competitive (Parl Deb H of R 8/11/90 p 3646-3647).
22 The administration of grants for which the Act provides is vested in the Australian Trade Commission. Claims for grants are made to the Commission (s 13) which is required to "consider every claim duly made and determine whether the claimant is entitled to a grant, and if so, the amount of the grant" (s 12(1)). Where the Commission determines that a claimant is entitled to a grant it is required to pay to the claimant a grant equal to the amount so determined (s 12(2)).
23 The conditions of eligibility for a grant are set out in s 14. To qualify for eligibility the claimant must have incurred "eligible expenditure" in the claim period (s 14(1)(a)) in an amount of $30,000 or more (s 14(1)(b)) or, where a claimant so elects in writing, $30,000 or more in the claim period and the year immediately preceding the grant year (s 14(1)(c)). There are disqualifications from eligibility in s 14 and s 14A which are not relevant for present purposes. For the purposes of this case, the relevant definition of "eligible expenditure" appears in s 11A(1):
" Expenditure is eligible expenditure of a person (other than an approved trading house, approved joint venture or approved consortium):
(a) only if it is incurred by the person; and
(b) only to the extent to which it is claimable expenditure (see Division 2); and
(c) only if it is qualifying export development expenditure for the particular person (see Division 4)."
24 The category of claimable expenditure applicable to this case is that dealt with in s 11C. Expenditure is "claimable expenditure" if it is incurred by way of expenses of, contribution towards expenses of, or payments made to, an agent for the purpose of carrying out market research or the obtaining of market information or the advertising or other means of securing publicity or soliciting business. Expenditure is not claimable if paid to a person ordinarily employed in Australia by the claimant or an associated company or a prescribed associate of the claimant. Also excluded are payments to claimant company directors, directors of associated companies and other classes of company and persons not relevant for present purposes. By virtue of s 11C, expenditure is claimable expenditure only to the extent to which it relates to one or more of a number of categories of goods and services. One of those categories is "eligible industrial property rights" ( s 11C(2)(e)).
25 Division 4 of Part 1A sets out the criteria for qualifying export development expenditure in various cases. Section 11Z applies to persons other than an approved body, approved trading house, approved joint venture or approved consortium. It is the section relevant to this case. Subsection 11Z(8) provides:
"11Z(8) Expenditure is qualifying export development expenditure of a person to whom this section applies if:(a) in the Commission's opinion, it is incurred primarily and principally for the purpose of:
(i) creating or seeking opportunities for; or
(ii) creating or increasing demand for;
the disposal, by that person, to persons resident outside Australia for use and enjoyment outside Australia of:
(iii) eligible industrial property rights owned by that person; or
(iv) eligible know-how owned by that person".
26 Expenditure which would otherwise be classed as qualifying export development expenditure pursuant to the provisions of Division 4 may be ignored in certain situations referred to in s 11ZE. So where qualifying export development expenditure incurred by a person who is the claimant has been or is to be paid or reimbursed to the claimant by another person or a Government of the Commonwealth, a State or a Territory, then it is to be ignored. If the expenditure is incurred in respect of a qualifying export development activity for which the claimant has been or is to be paid by another person or government, then similarly it is to be ignored. Section 11ZE(3) deals with the cases in which qualifying export development expenditure is taken to be reimbursed. It covers a case in which the Commission is satisfied that under an agreement or arrangement between the claimant and another person consideration received or receivable by the claimant for the disposal of any eligible industrial property rights was or is more than it would have been if that expenditure had not been incurred and the purpose or effect of the agreement or arrangement would be to allow the claimant to claim a grant in respect of expenditure for which the claimant would be compensated by the increased consideration.
27 The term "eligible industrial property rights" is defined in s 3(1) as follows:
""eligible industrial property rights" means rights in relation to inventions or trade marks, or copyright in relation to works, designs and other things, being:(a) inventions, works, designs or things that, in the opinion of the Commission, have, to a substantial extent, resulted from research or work performed in Australia; or
(b) trade marks that, in the opinion of the Commission, were first used in Australia or have increased in significance or value by reason of their use in Australia;"
The term "eligible know-how" is defined as:
""eligible know-how" means know-how that, in the opinion of the Commission, has to a substantial extent resulted from research or other work performed in Australia;"
The concept of know-how itself is also defined:
""know-how" means knowledge or information in relation to industrial or other operations, and includes drawings, models or other material things, or services, supplied for the purpose of enabling or facilitating the use or enjoyment of such knowledge or information, of rights in relation to inventions or trade marks or of copyright in relation to works, designs or other things."
In s 38 of the Act, provision is made for the Commission to reduce a claim where it is of opinion that steps had been taken to rearrange a business activity or business activities in order to increase a grant.
The Tribunal's Decision
28 The Tribunal described the core issue before it as whether there existed, at the time at which the expenditure was incurred, the alleged industrial property right and know-how. If the industrial property rights and know-how existed, then five further issues would arise:
1. Was the expenditure claimable expenditure in terms of the Act?
2. Was the claimable expenditure (if any) qualifying export development expenditure in terms of the Act?
3. Were there any reimbursement agreements or arrangements between any of the applicants and TVI or Plutora?
4. Were any of the parties to the marketing agreements within the relationship of "associated companies" or "prescribed associates"?
5. Do the provisions of s 38 of the Act operate to eliminate or reduce the claims?
29 The Tribunal did not hear evidence in relation to the amount of the claims, but as noted above, the parties were granted liberty to apply as to quantum following the conclusion of the proceedings before the Tribunal. The facts referred to in the factual history set out above, for the most part, reflected facts which were agreed or not in dispute before the Tribunal. In addition to those matters, the Tribunal made findings in relation to the existence of eligible industrial property rights and eligible know-how for the claimed year in the following terms:
(a) By some time in mid 1994 TVI, through the agencies of Microbase, had developed copyright, or at least had an exclusive licence in a unique software system (employing the then state of the art Windows based fractal imaging technique) which had undergone trials to prove that it functioned to specifications and which, for promotional purposes, had been set up as a demonstration version encompassing limited text and graphic images.
(b) The system, using a Microsoft Access off-the-shelf program together with a customised data entry program, enabled the entering of an amount of text and images limited only by the capacity of the disks.
(c) The procedure for entering text and images onto the disk was relatively simple if the data was reduced to electronic form.
(d) Images could be scanned automatically to provide an effective way of entering them on to the disk.
(e) The system, as demonstrated, was known to require an improvement to facilitate a more efficient and cost effective method of upgrading data (referred to as "a sophisticated data entry program"). It was known before September 1994 that to be commercially acceptable the system would need to incorporate the sophisticated data entry program.
(f) A reasonable estimate, by Microbase, of the time and cost required to modify the system to incorporate the sophisticated data entry program was up to eight weeks and $40,000 to $60,000.
(g) A decision was taken by TVI in September 1994 not to proceed with Microbase but to engage another software provider, Isagoge, to write the sophisticated data entry program but this had not yet been done due to an intervening decision not to proceed until negotiations with certain travel industry electronic reservation providers were satisfactorily completed. That had not happened at the time of the Tribunal's decision.
(h) TVI possessed unique knowledge about the system which, through its retained consultant, Mr Ole Martinson (who operated through his company, Fransen Pty Ltd), it used to train ten consultants in preparation for their overseas trips.
(i) TVI, through Plutora, commencing about July 1994 and continuing through early 1995, set about a planned and organised effort to promote the system for the purpose of licensing persons overseas. This involved incurring expenditure on a customised training program for potential consultants, overseas trips by consultants and directors, attending trade fairs, meetings, holding demonstrations and distributing literature relevant to the system.
The relevant program was written by Microbase. The specifications for the writing of the system had stated that "TV(A) will be sold to TVI on an exclusive royalty free distribution agreement". There was no other evidence of ownership of the copyright in the system. The Tribunal found that while at law the relevant copyright might reside in Microbase, for all intents and purposes it had granted TVI an exclusive licence to it. It relied upon the decision of the Full Court in Nomad Films International Pty Ltd v Export Development Grants Board (1986) 11 FCR 67 to conclude that at the time of the overseas visits by consultants and by Messrs. Gallash and Snow, the respondents, through their respective interests in the licences granted by TVI, and TVI in its own right through the exclusive licence which it had from Microbase, had relevant ownership in the eligible industrial property rights. The Tribunal said:
"In the opinion of the Tribunal the licences granted by TVI to the other applicants establish the relevant ownership of industrial property rights, namely rights under copyright in the Travel Vision System. It was those rights, to the eligible industrial property, which the licensees sought to sub-licence through the agency of Plutora and which, by reason of the licence agreements with TVI, were enabled to do."
30 The Tribunal held that the "know-how" associated with the Travel Vision System, was "intricately linked" to the eligible industrial property rights. Unless one knew how to operate the system it was useless. All the relevant knowledge resided initially with Microbase which either sold it to TVI or assigned it by way of an exclusive licence. The knowledge was, for this reason, owned by TVI. The Tribunal referred to Australian Trade Commission v F & F Asia Pty Ltd (1996) 69 FCR 252.
31 The Tribunal went on to conclude that the respondents, other than TVI, were carrying on business in the claim year through their agent, Plutora, a resident of Australia. Considering the various activities in respect of which expenditure was claimed, the Tribunal addressed the question whether those activities fell within those described in s 11Z gave rise to claimable expenditure. It concluded that they did. The question then addressed was whether the claimable expenditure was "qualifying export development expenditure" pursuant to s 11Z(8). Having found that the applicant had relevant ownership of eligible industrial property rights but not eligible know-now, which resided with TVI, the Tribunal posed, as the question it had to determine, whether the respondents had the requisite purpose under s 11Z(8). As the Tribunal put it - what was the primary and principal reason for the investors to enter into the arrangement? It held that the objective purpose of the respondents in incurring their expenditure to Plutora was to provide Plutora with sufficient funds to acquit its obligations to them under their agreements with it. That was to promote the disposal of the licences by way of granting sub-licences. That is what the expenditure was intended to achieve. The outlay in each case was motivated by an expectation that in achieving the objective purpose it would generate income in the form of royalties. More remotely, there was the hope that in due course sufficient income would be generated to repay the limited recourse loans and provide a return on the original investment. As a result of entering into the agreements with Plutora, there was a reasonable expectation on the basis of the information provided by Snow and, in Mr Fiocco's case, on the basis of advice from his accountant, that they would receive income tax relief and an export market development grant.
32 The Tribunal found on the evidence that the arrangement entered into between TVI and the respondents, and Plutora and the respondents, at the time was sufficiently commercially plausible to be considered objectively as a reasonable investment, the risk of which had been considerably reduced by the prospect of income tax and export grant financial benefits. Section 11ZE was also considered in its application to the expenditures and supported the exclusion of certain of the claimed qualifying export development expenditure incurred by an applicant before the Tribunal, not a respondent in the present case, Coral Acorn Pty Ltd, and also in relation to Disktravel and CECK Investments.
The Reasoning of the Judge at First Instance
33 The issues before Nicholson J related to the purposes of the respondents in incurring their expenditure, the ownership and disposal of eligible industrial property rights and the application of s 38 of the Act. The Commission submitted that the Tribunal had correctly identified the subjective purpose of the respondents as "obtaining financial gains, through exploitation of the income tax and export market developments grants laws". It was argued, however, that the Tribunal had confused the commercial plausibility of the investment with the purpose of each of the respondents and asked itself the wrong question, namely, whether that plausibility had the result that their subjective purposes were "dominant". It was submitted to his Honour that the only conclusion open to the Tribunal was that the primary and principal purpose of each of the respondents was their subjective purpose as found by it which did not meet the requisite statutory purpose under s 11Z(8). His Honour observed that the Tribunal had adopted the correct approach in law by reference to the observations of Lockhart J in Parker Pen (Aust) Pty Ltd v Export Development Grants Board (1983) 46 ALR 612. The purpose could be gleaned either from subjective or objective elements but more usually from both. Accordingly, it was open to the Tribunal to consider which purpose was dominant in all the circumstances. There was no requirement either in relation to subs 11Z(8) or generally that intention could not be ascertained by reference only to objective facts. There was evidence in the case of each respondent upon which the Tribunal was entitled to reach the conclusion it did. There was no error of law in the Tribunal simply making a wrong finding of fact when there was evidence from which that finding could reasonably be made. On this basis the grounds of appeal relating to purpose could not succeed.
34 In connection with the ownership and disposal of eligible industrial property rights, his Honour held that the Tribunal had not misunderstood the reasoning of the Court in Nomad. He agreed with the submissions made by the respondents that the provisions of the Licensing Agreements in cl 14.1 and cl 14.2 did not affect the rights to publish within the territory. The affect of cl 2 was to permit the licensee in each case to sell to the public within the territory for the term of the licence and that, by implication, was the exclusive right of each of the respondents in its territory. TVI remained the copyright owner outside the territory to which the licence related. Clauses 14.1(2) and (4)(a) made clear that the licence was not an assignment of copyright. The Tribunal's conclusion that the licences granted "established the relevant ownership... of ... rights under copyright" was right under a correct reading of the Licence Agreements.
35 His Honour then considered the application of s 38 which required the Tribunal to consider whether there were acts, the effect of which, was to "distribute or transfer expenditure or income" or to "transfer or rearrange a business activity or business activities between persons affected by the doing of the act". The respondents contended that the licensing and marketing agreements did not have such effect. His Honour held that the effect of the agreements before the Tribunal was not to distribute or transfer expenditure or income. Whether the licensing and marketing agreements had the effect of rearranging a business activity, the result was not to create an entitlement to a grant but to create a position where expenditure could be incurred. The statutory test had not been misapplied. Once the application of the hypothesis of non-occurrence had yielded a nil or next to nil result, it followed in the particular circumstances that the precondition (of distribution or transfer of expenditure or income) to the Commission treating income or expenditure as reallocated, did not exist. There was no evidence that the relevant consideration said to have been overlooked by the Tribunal was, in fact, before it. There was no submission to indicate that the Tribunal had been invited to consider whether, if multiple agreements had not been entered into, the respondents might have invested in TVI. His Honour allowed the respondents' notice of contention. The appeal was dismissed.
The Grounds of Appeal
36 There were eleven grounds of appeal and an additional ground (6A) which the appellant sought leave to add at the hearing of the appeal. The Court heard argument on that ground but reserved on the question whether the amendment should be allowed.
37 The grounds of appeal can be grouped to reflect the following issues:
1. What is the correct approach to determining the primary and principal purpose of claimed qualifying export development expenditure (grounds 2, 3 and 4)?
2. Were there eligible industrial property rights owned by the respondents (ground 5) and did the claimed expenditure relate to their disposal (grounds 6 and 6A)?
3. Did s 38 of the EMDG Act apply in this case (grounds 7 to 12)?
The Primary and Principal Purpose of the Expenditure
38 The Tribunal's conclusions relevant to the identification of the purpose of the expenditure were as follows:
1. The respondents, through the agency of Plutora, sought to dispose of the eligible industrial property right to persons resident outside Australia for reward in the course of carrying on business in Australia (par 124).
2. The discerning reader with no personal knowledge of the relevant Income Tax law or the Export Market Development Grants law may draw the inference (from the Information Memorandum) that while the income tax deductions are reasonably certain, there is a considerable degree of uncertainty about the efficacy of a future export market development grant which depends upon a number of factors, many of which are beyond the control of the licensee (pars 128-129).
3. The objective purpose of the respondents in incurring the expenditure to Plutora was to provide Plutora with sufficient funds to acquit its obligations to the respondents pursuant to the agreements. That is, to promote the disposal of the licences by way of granting sub-licences (par 135).
4. Each respondent was motivated by an expectation that in achieving its objective purpose it would generate income in the form of royalties and, more remotely, there was the hope that sufficient income would be generated to repay the limited recourse loans and provide a return on the original investments. Each also had a reasonable expectation that it would receive income tax relief and an export market development grant (par 135).
5. Subjectively, the prospect of income tax deductions and an export market development grant induced the respondents to enter into the arrangement (par 136).
6. The arrangement was sufficiently commercially plausible to be considered objectively as a reasonable investment, the risk of which has been considerably reduced by the prospect of income tax and export grant financial benefits.
39 It was submitted for the appellant that the Tribunal's approach to determining purpose was "...that if a payment is made pursuant to the terms of an agreement, then "the objective purpose" of the payment is the discharge of the payee's obligations pursuant to the agreement and any subjective purpose will only be dominant if the agreement lacks commercial realism". In this it was said the Tribunal erred. The objective/subjective distinction was not determinative of the issue of characterisation of purpose as "primary and principal". Having identified two purposes of the respondents in incurring expenditure on the Plutora agreements, the question the Tribunal had to answer was which of them was the primary and principal purpose. It was an error in law, so it was argued, for the Tribunal to approach the dominance of subjective purpose on the basis that it could be made out only if the arrangement offered by TVI lacked commercial realism. Moreover, the Tribunal's identification of the so-called subjective purpose of the respondents was based only upon the evidence of Fiocco, none of the other respondents having given evidence. His Honour was said to have erred in law in failing to find that the Tribunal had erred in taking this approach.
40 It is important in considering these grounds of appeal to draw a distinction between the principles of law applied by the Tribunal and its fact finding functions.
41 The approach taken by this Court in the past has been that the purpose in question "must be someone's purpose" - per Lockhart J in Parker Pen (at 621). In ascertaining that purpose the fact finder may take into account statements which claimants make about their purposes and objective facts. As his Honour said:
"A person may say what his purpose is, but the objective facts may cast doubt upon the credibility or reliability of his statement. It is for the Tribunal of fact to consider all the circumstances and conclude whether the requisite purpose has been established. Objective facts are usually more reliable than mere protestations of purpose, intent or state of mind, which, although suceptible of testing in cross-examination, are intrinsically inpenetrable and inscrutable."
This passage was approved by the Full Court in Export Development Grants Board v Miller Pohang Coal Co Pty Ltd (1985) 61 ALR 125 at 132.
42 The language of the Tribunal's reasoning based upon "objective purpose" and "subjective purpose" is at odds with the approach enunciated by this Court. The respondents in their submission accepted that purpose is determined by reference to all surrounding facts and circumstances. They contend, however, that the appellant's argument is really just an attack upon the merits of the Tribunal's conclusions about purpose.
43 The resolution of this issue depends upon whether the language of the Tribunal discloses an error in principle or just loose phrasing which can be disregarded in light of the way it actually considered the evidence before it. It is to be remembered that the Court in reviewing the decision of the Administrative Appeals Tribunal is not to be concerned about mere unhappy phrasing nor to scrutinise its reasons finely and minutely with an eye keenly attuned to error - Collector of Customs v Pozzolanic Enterprises Pty Ltd [1993] FCA 456; (1993) 43 FCR 280 at 287.
44 The Tribunal identified two purposes which it designated the objective purpose and the subjective purpose respectively. The "objective purpose" so called was the purpose of the expenditure which could be inferred from the agreement with Plutora. It was to promote the disposal of the licences by way of granting sub-licences. There was another purpose of obtaining financial gains through exploitation of the income tax and export market development grant laws. If the agreements lacked commercial realism, then the so called subjective purpose would be dominant. Despite the infelicity of expression that was just a somewhat elliptical way of saying that if the agreements lacked commercial realism then it could be inferred that the purpose which, on the face of it, they served did not exist. Alternatively, if it did exist, such a purpose was subordinate to the purpose of exploiting the income tax and grants regime. Qualifying export development expenditure will generally involve a purpose of securing a grant under the Act. The grants are an incentive to such expenditure. The question is whether that purpose is ancillary to the primary and principal purpose required by s 11Z(8). In this case what the Tribunal has done in substance is to answer that question in the affirmative. It looked to the agreements with Plutora, the Information Memorandum and such oral evidence as there was. It concluded that the arrangements between Plutora and the respondents were commercially plausible. It made that assessment as a step towards its finding that the purpose suggested by the agreements themselves was the primary and principal purpose of the expenditure. In doing that it has carried out its essential fact finding function. Despite the looseness of phrasing, that fact finding function has not been informed by any error of law.
45 The appellant also argued that the finding as to purpose was not reasonably open. It referred to various aspects of the evidence and material before the Tribunal to support that contention. The matters to which reference was made were said to demonstrate that:
"...the structure of the arrangements entered into between TVI, Plutora and the Respondents was designed to attract capital that would not otherwise be available to enable TVI to market the Travel Vision system globally. Without the income tax advantage, and possibly also the grant advantages under the Act, offered by the structure of the arrangements adopted by TVI, the Respondents would not have invested in the Travel Vision scheme. In each case, the largest proportion of the amount invested by each Respondent was the amount of fees payable pursuant to the marketing agreements with Plutora. The only conclusion or inference reasonably open is that the primary and principal purpose of making such payments to Plutora was in order to obtain financial gains through the exploitation of the income tax and EMDG Act laws as set out in TVI's Information Memorandum and the advices of Price Waterhouse and Exportise (WA) Pty Ltd."
46 Substantial as these considerations are, they do no more than demonstrate that the Tribunal may have made an error in fact. They do not exclude the contrary hypothesis. It is consistent with the objective of the Act that the possibility of a grant will be an incentive to expenditure. Similarly, legitimate income tax deductions are an incentive to expenditure. The Tribunal gave consideration to the Information Memorandum in assessing the purpose of the expenditure. It took the view that the Memorandum indicated "a considerable degree of uncertainty" about the availability of a grant which would depend upon "a number of factors beyond the control of the licensee". There was a "reasonable expectation of income tax relief". The appellant may complain and perhaps rightly about the weight given by the Tribunal to various elements of the evidence as to purpose. This does not, however, disclose reviewable error.
The Existence of Eligible Industrial Property Rights
47 The appellants submitted that the industrial property rights referred to in s 11Z(8) are exclusive rights. The licence granted to the respondents did not confer such rights which were at all times retained by the licensor. The Tribunal had erred in law in finding that through their respective interests in the licences granted by TVI, the respondents had ownership of eligible industrial property rights.
48 The appellant referred to cl 14.1 of the Licensing Agreement which appears to have been drafted upon the assumption that the licensor remained the owner of the Intellectual Property. Corresponding provisions in the sub-licensee agreement were also mentioned. The appellant submitted that the respondents did not own rights in the nature of copyright in the Travel Vision System and that the Tribunal had erred in law in finding that, through their respective interests in the licences granted by TVI, the respondents had ownership of eligible industrial property rights.
49 The copyright which was the subject of the licence, so far as it related to the Product, so called, comprised copyright subsisting in literary works under s 10 of the Copyright Act 1968. The relevant literary works derived from the definition of Product in the Licence Agreement, were the software which was a "computer program or compilation of computer programs" and the instruction manuals and associated publications. The relevant copyright which subsisted in relation to the software and other works therefore was the exclusive right to:
(i) reproduce the work in a material form (s 31(1)(a)(i) Copyright Act 1968)
(ii) publish the work (s 31(1)(a)(ii) Copyright Act)
In the case of a computer program, the Act now provides for an exclusive right to enter into a commercial rental arrangement in respect of the program (s 31(1)(d)). The latter right was introduced into the Act by the Copyright (World Trade Organisation Amendments) Act1994 with effect from 1 January 1996. The right was not in existence or relevant for the purposes of the present appeal.
50 In Australian Trade Commission v Film Funding and Management Pty Ltd [1989] FCA 188; (1990) 24 FCR 595, Gummow J expressed the view that the copyright contemplated in the definition of "eligible industrial property rights" was copyright in relation to works. Copyright in a film was not copyright in relation to a work, a distinction which His Honour said, was not addressed by the Full Court in Nomad. It may be the case, however, that subject matter other than works is picked up in the collocation "copyright in relation ... to other things" which also forms part of the definition. Whether it does, or not, does not appear material to the outcome of the present appeal as the "subject matter other than works" covered in Part IV of the Copyright Act 1968 relates to "sound recordings, cinematograph films, television and sound broadcasts and published editions of literary works". The disks embodying the TVI software constituted a reproduction of the literary work comprising that program in a material form - Autodesk Inc v Dyason (1992) 173 CLR 331.
51 The rights conferred by the Licence Agreement to distribute disks supplied by TVI were said by the respondents to amount to a right to publish the disks. Thus, it was said, an exclusive right comprised in the copyright, had been conferred upon the licensee who was therefore the owner of an eligible industrial property right. The right and obligation, under the Licence Agreements, to distribute the disks to travel agents, however, did not involve their reproduction by the respondents. Nor did the proposed sub-licences confer any such right or contemplate any such arrangements. The question then is whether the distribution of disks constituted publication of a copyright work.
52 The definition of the rights comprised in copyright in relation to a literary work include, under s 31(1)(ii), the exclusive right to publish the work. Section 29 of the Copyright Act sets out acts deemed to constitute publication of literary works. It does not by doing so, cut down the meaning of "publish" in s 31(1)(ii) which is to be read as meaning to make public that which has not previously been made public in the copyright territory - Avel Pty Ltd v Multicoin Amusements Pty Ltd [1990] HCA 58; (1990) 171 CLR 88 at 93. By virtue of s 29 a literary work or an edition of such a work is deemed to have been published if, but only if, reproduction of the work or an edition of it have been supplied to the public. In my opinion the distribution of the disks to the travel agents would not have been a publication of the software to the public within the meaning of s 29. The travel agents were not the public and the distribution was undertaken in the exercise of an obligation to TVI. The agreement itself reserved all Intellectual Property to the exclusive ownership of TVI. The terms of the agreement did not contemplate distribution as a publication either within the meaning of s 29 or within the wider concept of publication in s 31. The respondents did not acquire any copyright by virtue of the Licence Agreement. Nor did those agreements authorise them to dispose of any right comprised in the copyright. There was therefore no right comprised in the relevant copyright which was conferred on the respondents.
53 The question that next arises is whether the definition of "eligible industrial property rights" under the Export Market Development Grants Act includes "rights in relation to copyright in relation to works, designs and other things". If so, does this identify a wider class of rights than those comprised in the copyright and would it pick up the licence rights? In my opinion the definition of eligible industrial property rights covers two broad classes of rights. The first is "rights in relation to inventions or trade marks". The second is "copyright in relation to works, designs and other things". The first class is a class of rights in relation to things which are not themselves rights. Inventions and trade marks are not rights. The second class is not qualified by the term "rights in relation to" which defines the first class. That is because the rights with which the second class is concerned, are those comprised in copyright.
54 In Nomad Films, the applicant, as producer of a film called "Sun Kosi - River of Gold", entered into an exclusive distribution agreement. Under that agreement Nomad was granted an exclusive licence to distribute the film throughout the world. The rights conferred by the exclusive licence included the rights to "exhibit, distribute, market, reissue, transmit, perform and otherwise deal in and exploit the film, in any and all languages and versions and in any form, in all media and for all purposes...". Additional rights included the rights to grant sub-licences and to make copies of the film in its original version and in any other size by way of transfer to video tape or to make dubbed, titled, cut-in, synchronised and superimposed versions in any or all languages or authorise sub-licensees or agents to do so.
55 Smithers J concluded that even if eligible industrial property rights pertaining to copyright in a work were confined to the bundle of rights comprising copyright, it would not prevent the licensee or assignee of such rights from being as much the owner of an eligible industrial property right as the owner of the copyright itself. In this way, his Honour said, at 75:
"...it matters not whether the words "rights in relation to", where first appearing, qualify copyright."
And further:
"...even if the expression "in relation to" or "rights in relation to" in this definition are not to be read as qualifying "copyright", the definition is to be interpreted as saying that eligible industrial property rights means each of those rights which appertain to the class of property known as copyright in relation to works, designs and other things. According to circumstances persons other than the original owner of the copyright, namely, an assignee, an exclusive licensee and a bare licensee, will have those same rights or one or more of them."
Nevertheless his Honour went on to express the view that the words "rights in relation to" in the definition of "eligible industrial property rights" qualified not only the words "inventions or trade marks" but also "copyright in relation to works, designs and other things". His Honour's conclusion was based partly upon a purposive view of the definition:
"The object of building up of export earnings will be achieved by the licensee to the same extent and with the same benefit to Australia as it would by an author or assignee exploiting the copyright. And the merits of the licensee, in the way of expenditure of money or effort in earning export income is no less than that of an owner.(at p 78)
I respectfully disagree with his Honour's construction, which even on his Honour's view, would appear to make no difference to the position of a licensee or assignee of rights comprised in the copyright.
56 Northrop J adopted a position similar to the primary position adopted by Smithers J. He said at 101:
"It is to be stressed that the copyright is the exclusive right to do all or any of the specified acts; emphasis added. Section 30 of the Copyright Act 1968 recognises this and makes provision for cases where different persons are the owners in respect of different rights of copyright in the same mark or thing.In these circumstances, it is not necessary for me to consider whether, in the definition of "eligible industrial property rights" the words "rights in relation to" apply to or qualify the word "copyright".
His Honour concluded, having regard to the provisions of the Copyright Act 1968 and the provisions of the Distribution Agreement that Nomad was the owner of eligible industrial property rights. As his Honour observed:
"There is no doubt that Nomad has the exclusive right to do some, if not all, of the acts specified in s 86 of the Copyright Act 1968."
57 Sweeney J, who dissented in the result in the particular case, rejected the proposition that "rights in relation to" qualified "copyright in relation to works, designs and other things". As the section was drawn he saw it evincing a plain intention to include copyright within the meaning of "eligible industrial property rights". He dissented on the basis that the distribution agreement did not involve any assignment of copyright to Nomad and that the holding of an exclusive licence was not the same as ownership or rights comprised in copyright.
58 As can be seen from these judgments there was no majority in favour of one construction or the other. For the reasons I have expressed, in my opinion the preferable construction is that adopted by Sweeney J. The purposive aspect of the legislation is adequately served by adopting, as Smithers J did, a wide view of the concept of ownership of eligible industrial property rights referred to in s 11Z(8)(a)(iii). In summary, the respondents owned no copyright in relation to the CD-ROMS. The source of such rights as they had in each case was the licence agreement. This conveyed no right to reproduce the CD-ROMS, nor to publish them to the public in the sense contemplated by s 31(1). The respondents therefore had no eligible industrial property rights and were not in a position to dispose of such rights.
59 It should also be noted that there was no submission that the expenditure in respect of which the respondents claimed was incurred for the purpose of disposing of eligible know-how.
Disposal of Eligible Industrial Property Rights
60 At the hearing of the appeal the appellant proposed the inclusion of an additional ground, 6A, in the following terms:
"6A. His Honour erred in law in finding that the Administrative Appeals Tribunal had not made an error of law in finding that the Respondents sought to dispose of their eligible industrial property rights to persons resident outside Australia."
In par 30 of the appellant's written submission it was contended that, assuming the licensee's rights were eligible industrial property rights, each licence agreement permitted only the grant of a sub-licence to a person within the territory "to enable that person to assist the licensee to fulfil its obligations hereunder". The appellant submitted that this was not a right to dispose of rights owned by the licensee within s 11Z(8) of the Act. The respondents argued that none of the existing grounds of appeal raised the issue of disposal.
61 The question was evidently not squarely raised before the Tribunal nor reflected in the grounds of appeal before Nicholson J. It is, however, a question which was closely connected to the issue of the existence of eligible industrial property rights in this case but resolved by the conclusion on that point. It is therefore unnecessary to deal with the amendment further.
62 For the reasons set out above there were no eligible industrial property rights in the respondents and therefore there was no disposal of such rights under the Licence Agreements. The Tribunal erred in coming to a contrary conclusion and on this basis the appeal must be allowed. The appeal being allowed on this basis, which is fatal to the claims for entitlement to grants under the Act, the decision of the Administrative Appeals Tribunal should be set aside and that of the appellant affirmed. I agree with the orders proposed by Kiefel J.
63 Having regard to the conclusions which I have reached, it is unnecessary for me to address the argument in relation to the application of s 38 of the Export Market Development Grants Act.
I certify that the preceding sixty-three (63) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French. |
Associate:
Dated: 22 October 1999
IN THE FEDERAL COURT OF AUSTRALIA |
|
WESTERN AUSTRALIA DISTRICT REGISTRY |
W 19 OF 1999 |
BETWEEN: |
AUSTRALIAN TRADE COMMISSION Appellant |
AND: |
DISKTRAVEL First Respondent JOHN GAETANO MARIO FIOCCO Second Respondent DIVOT PTY Ltd Third Respondent HOLDEN BARLOW Fourth Respondent CECK INVESTMENTS Fifth Respondent |
JUDGES: |
FRENCH, KIEFEL, MANSFIELD JJ |
DATE: |
22 OCTOBER 1999 |
PLACE: |
PERTH |
KIEFEL J:
64 Each of the respondents and Travel Vision International Pty Ltd ("TVI") were applicants for grants under the Export Market Development Grants Act 1974 ("the Act"), in the claim year 1994-5. TVI licensed each of the respondents to use a software programme it had developed. It is not a respondent to this appeal. The reference in these reasons to "the respondents" in the hearing before his Honour the primary Judge, and that before the Administrative Appeals Tribunal ("the Tribunal"), is to the five licensees. The expenditure incurred by each of them, which was said to qualify them for grants under the Act, was the payment of marketing fees to a company Plutora Pty Ltd. The Tribunal substituted a decision in favour of the respondents and the primary Judge affirmed that decision. The Australian Trade Commission ("the Commission") appeals from his Honour's decision.
Background
65 In June 1993 TVI, a company incorporated in Australia, retained Microbase Business Systems to develop a software programme using CD-Rom disks which could store images and texts of products offered by wholesalers and retailers in the Australian and international travel industries. The aim was to create a database of travel and tourism information. It is not necessary to further describe the product for the purposes of this appeal. Further reference will however be necessary to the rights in and granted with respect to the products distributed.
66 Among the facts agreed between the parties before the Tribunal was that "at all times TVI has owned the intellectual property rights in and associated with the Travel Vision system". There was no other evidence as to ownership of the copyright in the software developed.
67 TVI granted licences to the respondents ("the Licence Agreements") to "use and commercially exploit the intellectual property and the product in the manner set out in this Agreement within the Territory and for the Term." The territories were areas in Australia or countries overseas. It is only dispositions in the latter, obviously, to which export grants relate. The respondents, as licensees (or their sub-licensees, to which reference will shortly be made), were to obtain information and images relevant to the territory and TVI was to produce the disk for distribution by the respondents to participating travel agents. The disks contained advertisements, for which a fee was paid. Advertising fees received by the respondents were to be paid to TVI. Further reference will be made to these contractual provisions later in these reasons. Under the Licence Agreement the respondents were able to grant sub-licences, subject to the approval of TVI.
68 The main source of income for the respondents, following their entry into a Licence Agreement, was an initial fee to be paid by a Sub-licensee in the territory, together with a percentage of advertising fees.
69 On the same date as the Licence Agreement, a Marketing Agreement was entered into with Plutora Pty Ltd. TVI and Plutora shared common directors. Under the marketing agreement, Plutora was appointed as marketer and as agent of the licensee in question; it was retained to obtain sub-licences for the territory and was given authority to enter into such agreements. A marketing fee was paid to it and this was the expenditure upon which the respondents' claims were based.
70 Another agreement was entered into at the same time, a "Limited Recourse Loan Agreement", by which Plutora agreed to lend each respondent a sum which, in part, enabled them to pay for operating expenses in Australian licensed territories. By way of example, the respondent Disktravel was obliged to pay $1.57M to Plutora pursuant to the Marketing Agreement and $1.425M was to be loaned by Plutora to it. The payments actually made by Disktravel with respect to the first Licensing Agreement were $20,000 to TVI and $145,000 to Plutora, the last mentioned being the difference between the two figures just mentioned; and with respect to a second licence, $10,000 to TVI and $135,000 to Plutora, a total investment of $310,000 which enabled it to claim a grant of $60,000.
71 It was not disputed that, by these means, investors in TVI's licensing scheme were able to obtain a tax deduction and, possibly, an export market development grant, together with whatever income was generated by fees paid by the sub-licensees. The respondent Disktravel did enter a Sub-licence Agreement but did not receive monies from it. An initial fee of $US200,000 was to have been paid. The sub-licensee, in Ireland, was to sell advertising material to be recorded on the disk and was entitled to that revenue, but a percentage of it (15 per cent in the first year and 25 per cent thereafter) was to be paid to Disktravel. The system was short-lived, largely because of the impact of the Internet on the market.
The Act and the Issues on Appeal
72 Section 12(2) of the Act provides for the payment of a grant to a claimant where the Commission determines there is entitlement for one. Eligibility for a grant in a claim period is dealt with by s 14(1), which requires the claimant to have incurred "eligible expenditure", in the claim period, of a minimum sum. Expenditure only qualifies as eligible if it has been "incurred" by the person, is "claimable expenditure" and is "qualifying export development expenditure" (s 11A(1)). The latter term is defined by s 11Z(8):
(8) Expenditure is qualifying export development expenditure of a person to whom this section applies if:(a) in the Commission's opinion, it is incurred primarily and principally for the purpose of:
(i) creating or seeking opportunities for; or
(ii) creating or increasing demand for;
the disposal, by that person, to persons resident outside Australia for use and enjoyment outside Australia of:
(iii) eligible industrial property rights owned by that person; or
(iv) eligible know-how owned by that person; and
(b) the disposal by that person is for reward and in the course of carrying on business in Australia."
73 Section 3(1) defines "disposal" as meaning:
"disposal" includes sale, grant, assignment or supply, and "disposed of" has a corresponding meaning"
And it defines "eligible industrial property rights" as meaning:
"...rights in relation to inventions or trade marks, or copyright in relation to works, designs and other things, being:(a) inventions, works, designs or things that, in the opinion of the Commission, have, to a substantial extent, resulted from research or work performed in Australia; or
(b) trade marks that, in the opinion of the Commission, were first used in Australia or have increased in significance or value by reason of their use in Australia;
and "eligible know-how" as meaning:
"...know-how that, in the opinion of the Commission, has to a substantial extent resulted from research or other work performed in Australia."
74 The principal issue that arises on this appeal (the Tribunal referred to it as the "core issue") concerns the intellectual property rights, if any, in the software and disks, which passed to the respondents under the Licence Agreements. The Commission submits that no act involved in copyright can be seen to be authorised by the Licence Agreement (and therefore capable of transfer to Sub-licensees); that any rights given by TVI to the respondents were non-exclusive and that will not suffice; and further that there was no disposition intended of any such rights to sub-licensees.
75 The Commission also submits that the expenditure in question could not have been viewed as "primarily and principally" connected with the purpose of the possible disposition of any intellectual property rights, as s 11Z(8) also requires. This issue focuses upon the scheme of the transaction and the benefits the respondents would acquire, in particular by way of tax deduction and possible export grant.
76 The other issue raised is whether s 38 of the Act, which operates to limit artificial transactions designed to procure an entitlement, or greater entitlement, to a grant, has application to these transactions. That question will be dealt with at the conclusion of these reasons. It is convenient now to consider that relating to the respondents' purposes in paying Plutora.
A Claimant's "Purpose"
77 The Commission in the first place, and the Tribunal when it comes to review that decision, is required to form an opinion about the objectives and motives of an applicant for a grant, for the purpose of subs (8) par (a) of s 11Z.
78 The Tribunal said:
"135. The objective purpose of these applicants in incurring the expenditure to Plutora was to provide Plutora with sufficient funds to acquit its obligations to the applicants pursuant to the agreements. That is, to promote the disposal of the licences by way of granting sub-licences. That is what the expenditure was intended to achieve .... The investment or outlay of each applicant was motivated by an expectation that in achieving the objective purpose, it would generate income, in the form of royalties. And more remotely, there was the hope that, in due course sufficient income would be generated to repay the limited recourse loans and provide a return on the original investment. Those were the objectives and motives of the applicants. As a result of entering into the agreements with Plutora the six applicants had a reasonable expectation, on the basis of the information provided to them by Mr Snow, and in Mr Fiocco's case, on the basis of advice from his accountant, that they would receive income tax relief and an export market development grant.136. The evidence is that the directors of TVI, the consultants and Mr Martinson, at the time of their overseas promotions trips and the incurring of the expenditures in question, believed they would succeed in "selling" sub-licences. Mr Fiocco's evidence is that he too thought that was a possibility but not without considerable risk. He saw the prospect of the financial effect of enhanced income tax deductions and an export market development grant as the incentive. That is, subjectively, it was those possible consequences of making the investment which induced the applicants to enter into the arrangement. But the purpose of their investment was as stated. If the arrangement offered by TVI lacked commercial realism then it would be open to a tribunal of fact to conclude that the subjective purpose, of obtaining financial gains, through exploitation of the income tax and export market development grants laws, was dominant. On that basis the requisite purpose would not be met. However, this Tribunal finds, on the evidence, that the arrangement entered into between TVI and the applicants and Plutora and the applicants, at the time, was sufficiently commercially plausible to be considered, objectively, as a reasonable investment, the risk of which had been considerably reduced by the prospect of income tax and export grant financial benefits."
79 The approach which the Commission submits was taken by the Tribunal, and which it submits was in error, was to take the payment made pursuant to the Marketing Agreement, in discharge of the respondents' obligations under it, as the "objective purpose" and then to determine that any "subjective purpose" would only be dominant if the agreement lacked commercial credibility. The "subjective purpose" of the respondents identified by the Tribunal was "obtaining financial gains, through exploitation of the income tax and export market developments grants laws". The Commission did not take issue with that finding, but sought to show that the Tribunal had posed the wrong question for itself.
80 His Honour held that the relevant purpose may be gleaned either from subjective or objective elements or both, applying the reasoning of Lockhart J in Parker Pen (Aust) Pty Ltd v Export Development Grants Board [1983] FCA 77; (1983) 67 FLR 234, 242 to which the Tribunal had also referred. In his Honour's view, it was neither a requirement of the subsection, nor the law in general, that intention was to be ascertained by reference only to objective facts.
81 A person's purpose is, as Lockhart J pointed out in that case, the conclusion reached when regard is had to what the person might say was their purpose and what might be ascertained otherwise, by reference to objective facts. The Commission's argument is to be understood as having the Tribunal reason from a point where it had two competing and equal purposes: one to fulfil a contractual obligation to pay the market fee and the other to obtain tax advantages and grants; and then to elevate or diminish the latter depending upon whether the agreement could be seen to be part of a real business transaction, not a sham. That point is only reached, in my view, by piecing together individual statements made by the Tribunal, without following its reasoning as a whole, and in particular its description of the business transaction involved. It may be added that, even had the Tribunal analysed the matter in the way contended for, it would be incumbent upon the Commission to show that there was an error of law, in order to avoid an impermissible review of the facts by this Court: (see Collector of Customs v Pozzolanic [1993] FCA 456; (1993) 43 FCR 280; 286-7; Jolley v FCT (1989) 86 ALR 297, 307). There are difficulties in that path, for implicit in the Commission's argument is the assumption that the payment under the agreement with Plutora was made in order to maximise the tax and grant benefits, which is to overlook that the respondents, as investors, may have hoped to earn income from the "sales" of sub-licences, which is clearly a matter the Tribunal took into account.
82 It was also submitted that the only evidence of "subjective purpose" was given for the second respondent and that there was none offered for the first, third, fourth and fifth respondents. The Commission must necessarily be taken to submit that those respondents have failed to discharge some onus of proof of relevant purpose under the subsection, since it otherwise accepted the correctness of the finding of this purpose with respect to the second respondent, that is to say of "obtaining financial gains, through exploitation of the income tax and export market developments grants laws". It could not, however, in my view be concluded that there was no evidence referrable to the other respondents, or the respondents as a whole. The Tribunal's reasons at this point and earlier contain reference to written advices supplied by TVI to the respondents and to which they almost certainly had regard. They contained, in particular, an opinion of an accounting firm as to income tax deductions which may be available and to the potential for recovery of some of the investment outlaid through the export grant scheme. The second respondent's witness also referred to his assessment of risk, but it was clearly open to the Tribunal to consider that the other respondents were likely to have held the same view, when regard is had to the elements of the transaction.
83 The Tribunal assessed for itself what was likely to have been the approach of the respondents as investors. In summary, the view it arrived at was that the transaction was one by which a return on investment was genuinely sought. The purpose of the payment to Plutora was to assist in obtaining that income. There was, however, the risk that that might not eventuate (as an export grant might not) and the prospect of income tax and export grant benefits operated to reduce that risk to an extent. The potential benefits were in that sense an incentive, but not the reason, for the outlays. These findings were clearly open to the Tribunal. A conclusion that the respondents' primary and principal purpose was to enable Plutora to obtain sales of sub-licences, consequential fees for it and advertising under it, might follow. His Honour, was in my view, correct to hold that no error of law was disclosed in this part of the Tribunal's reasons. This ground of appeal fails.
Eligible Industrial Property Rights
84 Section 11Z(8) also requires that the property, the disposal of which is sought to be achieved by reason of the expenditure, be either "eligible industrial property rights" or "eligible know-how". The definition of those terms, in s 3, is set out above. The Tribunal found that the Licence Agreements did not confer ownership of know-how in the applicants and this is not in issue on the appeal. It considered, however, that the respondents had acquired ownership in eligible industrial property rights. (I shall refer to these as "eligible rights" in the balance of these reasons).
85 The Tribunal doubted the correctness of the position of TVI, as owner of the intellectual property in question, as had been agreed between the parties. The doubt appears to have been created by a reference in the tender document between TVI and Computerbase which, however, is ambiguous. It considered that it was, in any event, likely that TVI held an exclusive licence to the copyright in the software and it considered the system to be a commercially exploitable one.
86 The Tribunal did not identify any particular intellectual property right referred to in the Licence Agreement, but expressed the general view that it created an exclusive licence with respect to eligible rights. His Honour, the primary Judge, held that what was comprehended by the Agreement, and clause 2 in particular, was the exclusive right of each respondent to sell to the public in the Territory. The respondent also submits that the particular act comprised in copyright which is involved is the right to publish which would occur on the distribution of the disks to travel agents.
87 Clause 2 of the Licence Agreement above, was in the following terms:
"2. Grant of LicenceIn consideration for the Initial Fee and the Advertising Service Fees, the Licensor hereby grants to the Licensee a licence to use and to commercially exploit the Intellectual Property and the Product in the manner set out in this Agreement within the Territory and for the Term".
88 In the case of Disktravel the term was one year, with an option for renewal.
89 The Licence Agreement provided that the "Intellectual Property" the respondents were permitted to "commercially exploit" was:
"...all the copyrights, design rights, trade mark rights and any other proprietary rights of every kind comprised by or incorporated in the Product and the Name and the Disks;"
"Product" was defined to mean the Travel Vision Software, howsoever stored and data relating to it. The commercial exploitation was, by clause 2, to be "in the manner set out in this Agreement".
90 Despite the apparent width of the definition, the respondents did not contend that all that was comprised in the copyright in the software passed to them under the Licence Agreement and contended only for the right to publish the program or disks. That would seem to me to be a correct approach. Whilst the definition of "Intellectual Property" in the Agreement takes up each of the sources of rights referred to in the definition of eligible rights in the Act, clause 2 limits the right to one to "use and commercially exploit" and further qualifies that by the phrase "in the manner set out in this Agreement". The essential questions, it seems to me, are what use of the works can be seen to be intended and whether that is what is comprehended by "copyright in relation to works" as eligible rights.
91 It will be observed that, whilst "eligible industrial property rights" are defined in s 3 of the Act to mean "rights in relation to" inventions or trade marks, it refers only to "copyright" in works and not "rights in relation to copyright" in works. Nevertheless, the respondents submit that it must have been intended to refer to each of the rights going to make up copyright. They refer to the judgments of two Judges of the Full Court in Nomad Films International Pty Ltd v Export Development Grants Board (1986) 11 FCR 67 as authority for this and also for the proposition that a bare licence will suffice as a right for the purpose of the Act. The Commission contends that an exclusive licence to do an act of copyright is required and that was not something for which the Licence Agreement provided.
92 In Nomad Films, the Full Court (Smithers, Sweeney and Northrop JJ) was concerned with the predecessor to the provisions of the Act here under consideration which were, in all necessary respects, in the same terms. In that case, pursuant to a distribution agreement, a distributor to whom the payment in question was made was given an exclusive licence to distribute a film throughout the world and the rights given included that of exploitation generally, exhibiting the film, transmitting, making copies and granting sub-licences. Whilst they were rights in a sense arising from copyright, within the meaning given to that term by the Copyright Act 1968 (Cth), it could not be said that all such rights were conveyed to the distributor. The producer of the film retained ownership in the copyright.
93 Smithers J, upon whose decision the Tribunal placed most reliance, held that the section to which s 11Z(8) corresponds contemplated the disposal of rights in property and not property itself (73), and it was then satisfied where rights of any kind exist in some property. His Honour rejected the submission that the definition in s 3 of "eligible industrial property rights" drew a distinction between "rights" in relation to inventions and trademarks on the one hand and "copyright" in relation to works on the other, and held that the latter referred to all rights comprised in the copyright (74). Sweeney J, in dissent, held that the distinction was intended and that the approach to construction adopted by Smithers J, which necessarily ignored the comma after "trade marks" and treated the phrase "rights in relation to" as governing all that followed, including copyright, was impermissible and that it strained the language of the section. Smithers J considered that the right to do each and every act comprising copyright is an eligible right and further that a bare licence with respect to them would be sufficient to constitute the licensee an owner, since they would be capable of disposing of them by way of a grant to another, as the definition of "disposal" permitted (75). Copyright was, after all, a collection of separate rights (79). Northrop J considered what was meant by the word "copyright", holding that it was the exclusive right to do all or any of the specified acts, as is referred to in the Copyright Act (101). It was not then necessary for his Honour to consider the approach to construction adopted by Smithers J. It also follows from his Honour's reasoning that it is only an exclusive right to do specified acts which qualifies, that being the hallmark of copyright. His Honour considered the existence of an exclusive right, and the ability to enforce such a right assisted, in resolving the question of ownership (103-4).
94 The decision in Nomad Films was referred to by Gummow J in Australian Trade Commission v Film Funding and Management Pty Ltd [1989] FCA 188; (1989) 24 FCR 595, 610-3. The respondents rely upon this decision as an approval of the view of Smithers J, which would recognise any right connected with copyright, such as a mere licence to undertake an aspect of it, rather than requiring that it be the exclusive right to do so. It seems to me however that Gummow J did not decide that point, holding only that it may be enough that there be a bare licence, albeit a personal right, "in relation to" copyright (613). Obviously this would depend upon the approach which was adopted with respect to the construction of the definition in s 3.
95 Whilst the primary Judge did not consider that there was absolute identity between the reasoning of Smithers J and Northrop J, his Honour appeared to have regarded their decisions as constituting a majority view, and that Film Funding served to confirm the authority of Nomad Films.
96 I think it doubtful that there was a majority decision in Nomad Films such as could be said to have decided any proposition of law: see Trade Practices Commission v Abbco Iceworks Pty Ltd [1994] FCA 1279; (1994) 52 FCR 96, 113 and the cases there referred to. Whilst Smithers J and Northrop J both concluded that the definition of eligible rights does not require one to regard "copyright" as a single item of property, and that it is apt to refer to all rights going to make it up, their reasoning was quite different. In particular, Smithers J appears to have accepted that any rights "in relation to" copyright would be sufficient and not just those acts comprised in copyright, viewed themselves as rights. This emerges most clearly from the view expressed by his Honour that the definition extended to non-exclusive rights having a mere connexion with copyright, such as a licence to publish.
97 The starting point with respect to a consideration of copyright is the assumption that, absent any evidence on the subject, the law relating to copyright is the same in each overseas country to which the Licence Agreements relate as that contained in the Copyright Act 1968 (Cth) (see Australian Trade Commission v Film Funding, 608).
98 Copyright in relation to a work (which software is, see the definition in s 10 of "work", "literary work" and "computer program") is a phrase found in s 31 of the Copyright Act, which provides by subsections (1) and (2):
"31. Nature of copyright in original works(1) For the purposes of this Act, unless the contrary intention appears, copyright, in relation to a work, is the exclusive right:
(a) In the case of a literary, dramatic or musical work, to do all or any of the following acts:
(i) to reproduce the work in a material form;
(ii) to publish the work;
(iii) to perform the work in public;
(iv) to broadcast the work;
(v) to cause the work to be transmitted to subscribers to a diffusion service;
(vi) to make an adaptation of the work;
(vii) to do, in relation to a work that is an adaptation of the first-mentioned work, any of the acts specified in relation to the first-mentioned work in subparagraphs (i) to (v), inclusive; and
(b) in the case of an artistic work, to do all or any of the following acts:
(i) to reproduce the work in a material form;
(ii) to publish the work;
(iii) to include the work in a television broadcast
(iv) to cause a television programme that includes the work to be transmitted to subscribers to a diffusion service; and
(c) in the case of a literary work (other than a computer program) or a musical or dramatic work, to enter into a commercial rental arrangement in respect of the work reproduced in a sound recording; and
(d) in the case of a computer program, to enter into a commercial rental arrangement in respect of the program.
(2) The generality of subparagraph (1)(a)(i) is not affected by subparagraph (1)(a)(vi).
99 (Subsections (3) to (7), which follow, deal with what does not amount to a commercial rental program).
100 Section 13 provides:
"13. Acts comprised in copyright(1) A reference in this Act to an act comprised in the copyright in a work or other subject-matter shall be read as a reference to any act that, under this Act, the owner of the copyright has the exclusive right to do.
(2) For the purposes of this Act, the exclusive right to do an act in relation to a work, an adaptation of a work or any other subject-matter includes the exclusive right to authorize a person to do that act in relation to that work, adaptation or other subject-matter."
101 "Exclusive licence" is defined in s 10 as follows:
"exclusive licence means a licence in writing, signed by or on behalf of the owner or prospective owner of copyright, authorizing the licensee, to the exclusion of all other persons, to do an act that, by virtue of this Act, the owner of the copyright would, but for the licence, have the exclusive right to do, and exclusive licensee has a corresponding meaning."
102 And section 15 provides:
"15. References to acts done with licence of owner of copyrightFor the purposes of this Act, an act shall be deemed to have been done with the licence of the owner of a copyright if the doing of the act was authorized by a licence binding the owner of the copyright."
103 In my view, there is a reason for the separate description of rights relating to inventions and trade marks and copyright in relation to works and the words were most likely deliberately chosen by those drafting the definition of eligible rights because they most accurately reflected the rights spoken of.
104 The rights which exist "in relation to" inventions and trade marks are those provided for in the Patents Act 1990 (Cth) and the Trade Marks Act 1995 (Cth). Rights follow from a grant of a patent or the registration of a mark. In each case they are rights of monopoly of use and, with respect to inventions, of exploitation and rights to authorise others to do so (see s 13 Patents Act; s 20 Trade Marks Act).
105 "Copyright" in relation to works is itself a description of all of the rights associated with works which the Copyright Act recognises. In that respect, it differs from the two types of intellectual property referred to above. The phrase "copyright in relation to works" is a term of art and can be found in s 31 of the Copyright Act, which is set out above. As appears from that section, copyright is a collection of rights. It may also be described as the exclusive right to do all or any of the acts comprised in the copyright: see Avel Pty Ltd v Multicoin Amusements Pty Ltd [1990] HCA 58; (1990) 171 CLR 88, 100. It is therefore unnecessary to add the words "rights in relation to" before the word "copyright". The word itself conveys that meaning.
106 Each of the intellectual property rights referred to in the definition of eligible rights is an exclusive right to do something. Monopoly is their essential characteristic. Necessarily then, it seems to me, the definition must have intended to import the notion of exclusivity of right.
107 When one comes then to consider the word "ownership", which appears in s 11Z(8) as attaching to the eligible right it may be taken to refer to rights in this sense, which is to say, rights held to the exclusion of others and which are capable of sale or grant or assignment or supply. Attributing that meaning to ownership in my view sits most comfortably with the wider definition of "disposal" of the rights.
108 In my view, copyright in relation to works as eligible rights refers to the right to undertake all or any of the acts comprised in copyright including, as is here relevant, the right to publish. It may be observed that the construction I have favoured accords most closely to that adopted by Northrop J in Nomad Films.
109 As earlier discussed, it is necessary to refer to what was to be undertaken under the Licence Agreement, in order to ascertain what "use" and "exploitation" of the intellectual property was contemplated. It may first be observed that exploitation of intellectual property is used more often to refer to inventions, but in any event in clause 2 it is preceded by "commercially". This tends to suggest that the utilisation of the intellectual property in the software and disks was not intended, and that it was a reference merely to financial reward from them.
110 TVI's part in the scheme was principally in the production of the disk and its provision to the licensees for distribution. Its income was from the licence and the advertising fees. The licensees' income, when a sub-licence was effected, was the same. The respondents, as licensees, were obliged to find advertisers and travel agents, to whom the material was required to be distributed by them. The agreement does not suggest that the disks were to be sold. It is possible that further monies, by way of fees, were to be earned from the "Travel Agency Licences", but it is not suggested that this involved the use of any intellectual property. Whilst it is also possible that some use may have been made of the programme and disks, such as to amount to one of the acts listed in s 31(1) of the Copyright Act, including entry into a commercial rental arrangement, none is mentioned in the Agreement. As the respondents' submissions recognise, the most that could be said is that the licensees were authorised to distribute the disks to travel agents in their Territory. A right to distribute, and even to sell, even if it be expressed as an exclusive right, does not however equate to the right to publish, within the meaning of the Copyright Act: see Avel v Multicoin, 101-3, 116-7; 93.
111 It follows, in my opinion, that despite references to copyright in the Licence Agreement no right to undertake an act of copyright can be identified as passing to a licensee (and therefore to a sub-licensee). There was no eligible right, the subject of disposition, for the purposes of s 11Z(8). The references to such property in my view were likely to have been included in the hope of attracting a grant under the Act. They do not bear any relationship with the undertaking involved.
112 Because of the conclusion I have reached, a discussion about whether the licences were exclusive is not meaningful. A consideration of the topic does however confirm, in some respects, the view that no right comprised in copyright was the true subject of the licence.
113 The Commission pointed to there being no statement of authorisation of use to the exclusion of all others, including the owner of copyright itself and relied upon the terms of clause 14.1 and in particular clause 14.1(3) of the Licence Agreement.
"14.1 The Licensee acknowledges confirms and agrees that:(1) both during the Term and after the expiration of this Agreement, the Licensee will not contest or impugn in any legal proceedings or otherwise, the proprietorship, ownership and interest of the Licensor in the Intellectual Property;
(2) the rights granted to the Licensee under this Agreement shall in no way affect the exclusive ownership by the Licensor of the Intellectual Property;
(3) other than in the Territory, the Licensor has the sole right, authority and absolute discretion (together with all rights to Advertising Service Fees and any other fees) to grant any licences, privileges or endorsements in respect of the Intellectual Property;
(4) in relation to the use or display of any part of the Intellectual Property, the Licensee will:
(a) if required by the Licensor in any specific instance, indicate clearly that the Licensor is the owner of the Intellectual Property;
(b) not cause any part of the Intellectual Property to be used in connexion with any goods or services which have not been approved by the Licensor (which approval shall be within the absolute discretion of the Licensor);
(c) if called upon by the Licensor, enter into a registered user agreement in respect of any of the rights included in the Intellectual Property;
(d) supply the Licensor with samples of all logos, insignia, markings and representations where any part or item of the Intellectual Property is to be affixed or depicted so that the Licensor may give its prior written approval and the Licensee shall observe any corrections or amendments required by the Licensor."
114 The definition of "exclusive licence" in the Copyright Act requires a written authorisation exclusive of "all other persons" (s 10), but this would not prevent a term to that effect being implied were it considered necessary to give commercial efficacy to an agreement: see Kervan Trading Pty Ltd v Aktas (1987) 8 IPR 583; Avel v Multicoin, 104. It would seem to me to follow from the reference to the "Territory", and business sense, that the agreement was intended to be exclusive in that area. But, as I have said, the agreement is to be seen as no more than one giving exclusive rights of distribution. It says nothing about the use of rights in copyright. The provision of clause 14.1(3) confirm that no other licence will be granted. Whilst it speaks, meaninglessly in my view, of a promise on the part of TVI not to grant any other privileges in respect of any intellectual property, had the question whether any right in copyright was exclusively authorised arisen in this case, it could not have been inferred from this clause that the copyright owner was prevented from using the software, or exhibiting and publishing the programme for itself in order, for example, to promote advertising itself (see Avel v Multicoin, 103). Further, as was the case with the agreement in Avel, the Licence Agreement here contains no provision equating the duration of it with that of the copyright.
115 It is not necessary to deal with the final issue which was sought to be raised by the Commission with respect to the provisions of s 11Z(8) being fulfilled, namely whether a relevant "disposal" of rights to any sub-licensee was intended.
116 It is strictly not necessary either to deal with submissions as to whether s 38 ought to have been applied on the facts of this case, but I shall attempt to do so shortly. The section provides:
"Adjustment of amounts38.(1) Where the Commission is of the opinion that:
(a) an effect of an act done on or after 20 May 1985 is to distribute or transfer expenditure or income among some or all of the persons (in this subsection referred to as the "participants") affected by the doing of the act; and
(b) as a result, the Commission would, but for this section, be liable to pay to such of the participants as are claimants, in respect of the grant year commencing on 20 May 1985 or a subsequent grant year, a total amount by way of grant that exceeds the total amount (if any) by way of grant that would have been payable to the participants if:
(i) the act had not been done; and
(ii) such of the participants (if any) who ceased to exist had not ceased to exist;
the Commission may, for the purposes of this Act and to the extent it thinks necessary to prevent or limit that result, treat the whole or any part of any expenditure or income that has been so distributed or transferred as if it were re-allocated among some or all of the participants in such manner as the Commission determines.
117 Subsection (2) provides, in the same terms: where the effect of an act done is to transfer or re-arrange a business activity or business activities between persons, resulting in the Commission being placed in a position where a grant would be made, the Commission has a discretion to treat the monies in question as thought they were reallocated.
118 The subsections are in the nature of anti-avoidance provisions and are "concerned with the effect of the act done, not the motive or purpose of the act, or the motive or purpose of the person doing the act": Australian Trade Commission v Correia & Zaknich Holdings Pty Ltd (1992) 38 FLR 153, 165. They are intended to apply where there is an artificial reallocation of income or expenditure on transfer or rearrangement of a business activity to gain a higher grant than would have been the case without the artificial reallocation (164).
119 His Honour the primary Judge held that the acts identified, entry into the Licence Agreements and the Marketing Agreements, did not have the effect of distributing or transferring expenditure and further that any such effect of rearranging a business activity was not to create an entitlement to a grant, but to create a position where expenditure could be incurred. His Honour referred to Australian Trade Commission v World Geoscience Corporation Ltd (20 August 1997, unreported) where I held that the result of entry into the agreement in question did not effect a distribution of transfer of expenditure, it simply placed the party, which became the claimant, in a position where it would incur expenditure entitling it to claim.
120 The Commission submits that that situation differs from the present case because here one can see a change effected by the agreements, namely that before them TVI would incur all promotional expenditure and after they were entered into both the respondents and TVI would. That does not, in my view, show a necessary transfer or distribution of expenditure as between the parties to the agreement. As his Honour correctly concluded, in my respectful view, the effect of the agreement was to place the licensees in a position where they would incur expenditure in the future, in connexion with their obligations under the Licence Agreement.
Conclusion on the Appeal
121 The Tribunal and his Honour were in error in concluding that eligible industrial property rights could be the subject of any disposition under Sub-licence agreements, having regard to the terms of the Licence Agreements and the definition of that term in the Act. The conclusion that must have been reached, as a matter of law, was that there was no entitlement to grants in the period in question.
122 In my view, there should be orders that the appeal be allowed; that the order of this Court of 5 February 1999 and the decision of the Administrative Appeals Tribunal be set aside, in so far as they relate to the respondents to this appeal and the decision of the appellant notified on 25 October 1996, that each of the respondents to this appeal is "not eligible for a grant under the Export Market Development Grants Act 1974 in respect of the claim year 1994-5", be affirmed. The respondents should pay the appellant's costs.
I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel. |
Associate:
Dated:
IN THE FEDERAL COURT OF AUSTRALIA |
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WESTERN AUSTRALIA DISTRICT REGISTRY |
W 19 OF 1999 |
OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN: |
AUSTRALIAN TRADE COMMISSION APPELLANT |
AND: |
DISKTRAVEL FIRST RESPONDENT JOHN GAETANO MARIO FIOCCO SECOND RESPONDENT DIVOT PTY LTD THIRD RESPONDENT HOLDEN BARLOW FOURTH RESPONDENT CECK INVESTMENTS FIFTH RESPONDENT |
JUDGES: |
FRENCH, KIEFEL & MANSFIELD JJ |
DATE: |
22 OCTOBER 1999 |
PLACE: |
PERTH |
MANSFIELD J:
123 In my judgment, this appeal should be allowed for the reasons given by Kiefel J, with which I respectfully agree.
I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.
Associate:
Dated:
Counsel for the Appellant: |
Mr A. Robertson SC and Mr P. Macliver |
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Solicitor for the Appellant: |
Australian Government Solicitor |
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Counsel for the Respondents: |
Mr C.J.L. Pullin QC and Mr R.G. Castledine |
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Solicitor for the Respondents: |
Minter Ellison |
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Date of Hearing: |
25 May 1999 |
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Date of Judgment: |
22 October 1999 |
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