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Copyright Amendment (Parallel Importation) Bill 2003

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2002

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

COPYRIGHT AMENDMENT (PARALLEL IMPORTATION) BILL 2002

 

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

(Circulated by authority of the Attorney-General, the Honourable Daryl Williams, AM QC MP)



COPYRIGHT AMENDMENT (PARALLEL IMPORTATION) BILL 2002

GENERAL OUTLINE

This Bill will amend the Copyright Act 1968 to enable the legal parallel importation and subsequent commercial distribution of computer software products, including interactive computer games, books, periodical publications (such as journals and magazines) and sheet music.  It applies to imported articles.  It also contains some minor correcting amendments in relation to the communication to the public of works and other subject matter using electronic networks.

An identical Bill (save renumbering of a section and changes to the form of the commencement provision) was introduced in the previous Parliament and lapsed with the calling of the federal election in October 2001.  In its election policy for the arts (Arts for All) the Coalition promised that it would re-introduce legislation to remove outdated parallel importation restrictions on computer software, books and periodicals, ensuring that Australians no longer have to pay higher prices in an unnecessarily limited market.

Parallel importation is importation that is parallel to, or alongside, that of the copyright owner.  The provisions of the Copyright Act 1968 currently allow a copyright owner to take action for infringement of copyright where a person imports or subsequently commercially deals with imported copyright material of that copyright owner.  Studies over the last decade, in relation to books, sound recordings and computer software, have demonstrated that this power to control the distribution of imported copyright subject matter has enabled copyright owners to exercise market control.  It has resulted, over time, in higher prices being charged to Australian consumers.  The studies also show some inefficiencies resulting from this legal environment as it impedes competition or the threat of competition.

In 1998 the Parliament passed legislation amending the Copyright Act to permit the parallel importation and sale of legitimate copies of sound recordings.  This Bill extends the application of that policy.

In the time since 1998 the use of multimedia products has proliferated, particularly in the software industry, but also in areas such as electronic books and media-rich sound recordings.  These products often include a variety of different copyright material on the same medium.

This Bill embraces within its terms, articles and media that include all types of non-infringing copyright subject matter, provided that they also first contain one of the copyright works or other subject matter that is the object of a primary provision permitting the parallel importation. 

The new provisions enabling parallel importation exclude from that coverage cinematograph films produced for cinema release or television broadcast that are of over 20 minutes duration.

The Bill includes provisions to ensure that copyright owners are not disadvantaged in bringing infringement actions in relation to parallel imported material.  To the extent they are to rely on a parallel importation provision, the onus is to be placed on any defendant who has imported or commercially dealt with imported articles, to prove the copyright legitimacy of the copyright material that is the subject of the infringement action.  This will be a powerful incentive to importers and distributors to ensure the legitimacy of the material they acquire.

The Bill includes provisions to ensure that trademark assignments cannot be used to defeat the parallel importation that would otherwise be permitted in relation to computer products, sound recordings and books and related items.  The Bill also includes a number of minor amendments designed to overcome errors or misdescriptions arising from amendments made in the Copyright Amendment (Digital Agenda) Act 2000 .

The Bill provides for the making of the amendments in three schedules.  Schedule 1 deals with the parallel importation of computer software products (articles embodying computer programs and associated subject matter) as well as electronic books, periodical publications in electronic form and sheet music in electronic form.  Schedule 1 is proposed to commence on Royal Assent.

The commencement of Schedule 2 is delayed for one year.  Schedule 2 provides for amendments to enable the parallel importation of printed books, periodical publications and sheet music.  This is the traditional area of coverage of the publishing industry.  The Government’s intention to make such a change has been clearly signalled for some time already.  However, business practices and arrangements may not be adjusted until it becomes clear that the policy will come into effect - by reason that the legislation is passed.  The Government has decided therefore to maintain its previous decision to defer implementation of the changes in this area for one year after the passage of the Bill to assist the publishing and printing industries and authors to make the necessary adjustments in their business practices and legal arrangements. 

Most of the items in Schedule 3 relate to the correction or clarification of amendments made by the Copyright Amendment (Digital Agenda) Act 2000 (the Digital Agenda Act).  These amendments will be taken to have commenced immediately after the commencement of the Digital Agenda Act, on 4 March 2001, in order to ensure the certainty of the application of these provisions.  While minor in nature, copyright owners and users ought to have certainty in relation to these changes, coming as they do in the midst of the major reforms made by the Digital Agenda Act. 

FINANCIAL IMPACT STATEMENT

The proposed amendments are expected to have little or no impact on Commonwealth expenditure or revenue.  The Government has not been convinced that parallel importation would lead to greater piracy and thus a greater call on enforcement resources.

The following regulation impact statements reflect the circumstances at the time of the Government’s consideration of this issue.  Since that time the Government has received the report of the Intellectual Property and Competition Review Committee, the Report on enforcement of copyright of the House of Representatives Standing Committee on Legal and Constitutional Affairs and the report of the Senate Standing Committee on Legal and Constitutional Affairs in relation to the Copyright Amendment (Parallel Importation) Bill 2001.  These reports have been considered in the decision to re-introduce the Bill. 

REGULATION IMPACT STATEMENT 

COMPUTER SOFTWARE PRODUCTS

1.         PROBLEM IDENTIFICATION

1.1       What is the problem being addressed?

Over the last decade there has been a vigorous debate in Australia about whether it is appropriate to use the Copyright Act 1968 to control the importation and distribution of copyright material legitimately produced overseas and whether such controls restrict competition and increase the prices paid by Australian consumers.  Restrictions on the parallel importation of software products in the Copyright Act prevent ready access by businesses and domestic consumers to the full range of available products, and limit competition between local and overseas suppliers.  The Australian Competition and Consumer Commission (ACCC) has recently confirmed that Australian consumers pay substantially more for some packaged business software and popular PC computer games than consumers in the USA.

The importation provisions in the Copyright Act allow owners of Australian copyright in a software program to prevent legitimate copies of that program from being imported except through distribution channels approved by the local copyright owner.  The Australian software market is dominated by a small number of large multinational firms.  These provisions effectively allow these firms to charge higher prices for their products in the Australian market than in other major markets and possibly to restrict the range of goods entering the Australian market.  Evidence suggests these differentials, at least in part, reflect international price discrimination rather than underlying differences in industry cost structures or exchange rate effects.

These provisions do not affect importation of software for private use.

Previous Inquiries

Several inquiries have looked at the effect of parallel importation restrictions on computer software and related areas. 

In 1988 the Copyright Law Review Committee (CLRC) reported on the importation provisions and recommended that parallel importation restrictions should remain, though be relaxed in certain respects to ensure availability (while placing the onus of proof on importers in those circumstances).  The CLRC also recommended the removal of criminal sanctions except against importation of pirated copyright material.  While the CLRC’s Computer Software Protection report released in 1995 recommended that the restrictions on parallel importation of computer programs should remain unchanged, it also recommended that the position be reviewed in three years.  This was based largely on the possible detrimental effects (piracy and reduced employment) that might follow should the restrictions be relaxed.

The Prices Surveillance Authority’s (PSA) 1992 Report Prices of Computer Software indicated that importation provisions confined Australian retailers to relatively high cost local suppliers and worked to restrict competition in the distribution of computer software in Australia.  It recommended that the parallel importation restrictions be repealed.  The key issue identified by the report was the price differential between the Australian and overseas prices.  The PSA also considered investment and employment, competition and efficiency and the implications of parallel importation for resource allocation and Australia’s international competitiveness and piracy.

The 1995 Industry Commission (IC) report, Computer Hardware, Software and Related Service Industries drew attention to trends in software prices, competition among software distributors and piracy.  The IC considered that allowing parallel imports would reduce the potential for copyright holders to charge different prices for the same product in different markets and increase competition in the Australian market.  It concluded that removing parallel importation restrictions would not change the way copyright holders respond to the threat of illegal copying.  The IC recommended that the Australian Government should actively support moves to allow parallel importation internationally and also consider whether in the light of the costs and benefits involved it should take unilateral action to permit parallel imports of computer software into Australia.

In March 1999, the ACCC reported on its examination of the potential consumer benefits of repealing the importation provisions currently applying to books and computer software.  This report found that Australian consumers of packaged business software and popular PC computer games have been paying considerably more than users in the USA.

Over the past decade advertised prices in Australia for a bundle of packaged business PC software have been on average 27 per cent higher than the price of the same bundle in the USA.  The observed price differences were not uniform across packages or package type and certain software packages were priced significantly higher in Australia when compared with the USA - for example Corel Office Professional, Lotus Approach and Adobe PageMaker.  In 1998, the price of top selling PC games were on average 33 per cent higher than in the USA.  Similarly, there was considerable variation across individual packages, for example, Myst was on average 84 per cent more expensive in Australia.  This analysis indicates that there are substantial potential benefits for consumers from price reductions, which would be possible with the removal of parallel importation restrictions on these products.

The Software Market

There is a shortage of detailed data to describe the structure of the information technology industries generally and the software industry specifically both in Australia and internationally.  This partly arises because of definitional difficulties associated with the rapid rate of technological change in these industries, and statistical difficulties in defining output and separating software from other outputs of these industries.

However, software is a growing part of the information technology (IT) market in Australia and overseas, including consulting and support services.  The Australian software industry focuses on developing specialist applications (Department of Industry, Science and Tourism (1998), Industry Commission (1995)).  Revenue from Australian produced software for 1995-96 was $821.4 million, of which $188.6 million was associated with communications software.  Exports accounted for only 12 per cent of Australian produced software, indicating that there is a strong market for locally produced software in Australia.  It also suggests that the Australian industry is cost competitive with overseas producers for these specialist products.

Software may be specifically tailored for one business, a specific type of business or involve a generic product intended for a mass market.  It is this later ‘packaged software’ that is at issue in considering the removal of parallel importation restrictions.

Packaged software products are delivered in a range of digital formats including ‘floppy’ disc, compact disc (CD or CD-ROM) and digital video disc (DVD).  They are frequently sold either ‘off the shelf’ as stand-alone packages or bundled with the purchase of a computer through retail outlets such as Harvey Norman and usually include manuals, licences, warranties and service agreements and help facilities.  Upgrades and enhanced versions are offered at additional cost from time to time.

Software is a significant cost to both business and government.  It has been estimated that in 1996, 19 per cent of software expenditure was for home use and 81 per cent was for business use, indicating the importance of business users to the Australian software industry.  Government is another important user of IT products generally and packaged software in particular: in 1995 the federal government spent approximately $130 million on packaged software, representing 8.4 per cent of the total market revenue for packaged software.

The software and the information technology industries generally are evolving rapidly.  Increased competition in the market enables local industry to respond more readily to global developments in demand and supply in these markets.  New delivery mechanisms such as the Internet are challenging traditional methods of distribution for all products, especially software, which may be purchased, loaded and delivered electronically.  

Parallel importation restrictions effectively reduce Australian business and household users’ access to internationally competitive markets for these products — in a way that is becoming increasingly artificial given the ease of even large scale electronic transfers.

Definitional issues

Technological convergence is creating products that contain both software and other copyright material.  While the Copyright Act separately defines categories of protected subject matter such as computer programs, cinematograph films and sound recordings, the distinction between these categories concerning the rights granted is increasingly difficult to make.  Simply removing the restriction on parallel importation of computer programs is likely to continue to allow producers of software to prevent the importation of software on the grounds that products are, or contain, “cinematograph film” as defined in the Copyright Act.

Not only may the same article include digitised copies of different types of subject matter but convergence can extend to one subject matter (a computer program, which is defined as a literary work in the Copyright Act) creating or generating material coming within other categories of subject matter defined in the Act.

A recent Federal Court case found that software generating visual images shown as moving pictures created film as defined in the Copyright Act.  The case suggests that common business software applications such as Microsoft Office that include multimedia content (or even a screen saver) may be deemed, as well as being computer software, to be cinematograph film. 

1.2       Why is government action needed to correct the problem?

As the current restrictions on parallel importation are established in the Copyright Act 1968 , the Act would have to be amended to remove these restrictions.  This course of action has been recommended to the Government in a number of reports (see above).  Recent confirmation of the existence of a significant price differential for computer software product in Australia compared to the USA by the ACCC, and the expected minimal impact on local software industry, suggests the possibility of net community benefit from this course of action.

There also needs to be recognition of the increasing impact on-line purchasing of software product is likely to have on the traditional wholesale and retail industry.

Similar concerns led to the importation provisions of the Copyright Act being amended in 1998 to allow parallel importation of sound recordings.  Price reductions in the ‘top 40’ market segment have subsequently been evident.

2.         OBJECTIVES

2.1       What are the objectives of the Government action?

The Copyright Act is an instrument for balancing the interests of creators and owners with those of users. Where rights to control the importation of copyright material impede or obstruct the effective achievement of these objectives, these rights may appropriately be adjusted or removed. 

The objective is to achieve a more competitive market for computer software products in Australia through the removal of current restrictions on parallel importation.

Increased competition between wholesale suppliers could be expected to ensure that Australian business, household and government consumers of software would have improved access to computer programs at prices comparable to the lowest prices available in the world.  Repeal of the existing restrictions on parallel importation of software would remove the legal constraint on retailers/distributors freely selecting product from all suppliers, both in Australia and overseas, on the basis of price, availability, service and reliability.

Amendments to the Copyright Act in 1998 removing parallel importation restrictions on legitimate sound recordings appear to have been effective in lowering the price of popular compact discs for Australian consumers.  Increased competition between suppliers of sound recordings has led to reported price reductions of over 50 per cent for some volume selling titles.

In order to maximise potential consumer benefit, the aim is to capture the widest possible range of computer software products within the ambit of legislative changes.  However, as discussed above, technological convergence has resulted in the emergence of products that may be regarded as both computer software and cinematograph film.  This has raised a number of definitional issues that will need to be addressed in developing the legislative framework. 

The amendments are aimed at “software” as is commonly understood, rather than the film industry.  Consequently, consideration is given to determining which cross-over products have the potential to significantly impact on the operations of the existing film industry, and so should be excluded from the scope of the proposed arrangements. 

This approach is consistent with the Government’s industry specific approach to the removal of parallel importation restrictions.

This reflects those circumstances where the principal likely or intended use of a product, despite its digital delivery format, is for viewing as a film rather than as interactive software for a computer or electronic game.  An important example is the emergence of DVDs carrying films.

However, changes to the importation provisions intended to focus on software cannot ignore the inclusion (either on the same physical media or creation by the computer programs) of visual images.  Such visual images will, in many cases, satisfy the definition of cinematograph film, which cannot be parallel imported.  Thus amendments that fail to take account of this, and apply only to computer programs per se, are likely to be easily circumvented in practice because the “film” element could be used to bring a claim against the parallel importation of the CD-ROM or other article in which the material is embodied. 

Is there regulation or policy currently in place? If so, who administers it?

The Copyright Act makes it a civil infringement and a criminal offence to import for commercial purposes, articles bearing computer programs without the consent of the copyright owner in Australia.  Copyright owners may bring civil actions for infringement of copyright.  Subsequent distribution of such articles for commercial purposes is also subject to civil and criminal infringement action.

The Copyright Act is administered by the Attorney-General’s Department  under the Administrative Arrangements Order.  The Minister for Communications, Information Technology and the Arts and the Attorney-General have joint policy responsibility for copyright.

3.         OPTIONS

3.1       What regulatory and non-regulatory options (including quasi-regulation) for dealing with the problem are being considered?

As the issue is the modification of an existing regulatory regime, a non-regulatory approach is not an option.

Four options have been identified, with options 2-4 considered to meet the objective of achieving a more competitive market for software products:

Option 1

Retain the existing restrictions on the parallel importation of copyright computer software.

Option 2

Amend the Copyright Act to allow the parallel importation of a narrow range of business and home use ‘standard’ applications - spreadsheets, word processing, database management and graphics.

Option 3

Amend the Copyright Act to allow the parallel importation of a wider range of products than in Option 2, including business, educational and recreational products such as computer games and CD-ROMs. 

Option 4

Amend the Copyright Act to allow the parallel importation of all products containing software.  This involves allowing the parallel importation of any other copyright subject matter that accompanies, or is created by, software.

3.2       Identify broad constraints which may make some options not viable.

Option 4 involves allowing the parallel importation of all computer software.  As noted above, this would have the effect of allowing the parallel importation of any other copyright subject matter that accompanies, or is created by, software.  This would impact on the film industry that is outside the scope of the objective of achieving a more competitive market for software products in Australia and which has not been the subject of inquiry or public consultation as to likely costs and benefits associated with the proposed amendments.  (The ACCC did not examine impacts in this industry.)

There is the potential for the proposed amendments to have a significant effect on the film industry, through the extension of reforms to all cinematograph film that is also software.  Most, if not all, digital products must contain computer software to enable them to be read, played or performed.  In relation to the film industry, the use of a digital format for delivery of films intended for cinema or broadcasting release is the recognised technology for the future.  A current example is the emergence of DVDs.  

Film and video in both analogue and digital format have not been examined by the ACCC and the full impact of change on the emerging digital industry is very difficult to predict.  It is not possible to quantify consumer benefits in advance of the penetration into the general market of relevant new products (such as DVDs).

The net effect of extending the amendments to this degree is consequently unclear.

Option 1 involves leaving the current law unchanged.  This option would prevent consumers from realising potential benefits from the removal of the parallel importation restrictions in terms of lower prices and improved availability of products.  Australian consumers (households, businesses and government users) would continue to bear the costs of restriction on competition which are afforded to major distributors and manufacturers of software and computer games by the protection to copyright holders from parallel importation.

A series of reports have recommended that these restrictions be removed.

In its 1999 analysis, the ACCC concluded that there are substantial consumer benefits that could be realised in an open market for computer software and recommended the repeal of the current restrictions, including those applying to computer games.  The Australian Consumer Association also opposes this option.

4.         Impact Analysis

4.1       Who is affected by the problem and who is likely to be affected by its proposed solutions?

Previous inquiries indicate that groups directly affected by changes to the import provisions applying to computer software (for those options considered viable) include:

Option 2:

·          software manufacturers, distributors and retailers; and

·          consumers of business software applications (households, businesses and government)

Option 3:

·          As for option 2 and, in addition:

·          household, business and government consumers of educational and recreational software eg PC games and CD-ROMs; and

·          the pay-per-play video game industry including producers, distributors and consumers of those products.

The status quo would essentially be retained for:

·          the film industry including producers, distributors, exhibitors and retailers of packaged films, and consumers of those products.

4.2       How will each proposed option affect existing regulations and the roles of existing regulatory authorities?

Not applicable.

4.3       Identify and categorise the expected impacts of the proposed options as likely benefits or costs; determine which groups are likely to experience these benefits or costs and what the extent of their impacts is likely to be; quantify these effects where possible.

(Note:  under item 3.2, options 1 and 4 are not considered viable and so are not discussed further.)

Option 2 :  Amend the Copyright Act to allow the parallel importation of a narrow range of business and home use ‘standard’ applications - spreadsheets, word processing, database management and graphics by focussing the amendment on allowing parallel importation of software that does not incorporate any other copyright subject matter.

Benefits

Option 2 delivers considerable benefits to business, government and home users of standard software applications.  Buyers of off-the-shelf products in particular would benefit from these changes.

In its 1999 examination of this issue, the ACCC concluded that there are substantial potential consumer benefits in an open market for computer software, and recommended the repeal of the current restrictions, including those applying to PC computer games containing ‘cinematographic’ material.  The ACCC did not examine film and video products in either analogue or digital format.

The ACCC analysis indicated that Australian consumers of packaged business software have paid on average 27 per cent more over the past decade than consumers in the US for a standard set of packaged software products.  These figures demonstrate a substantial price differential, and are indicative of the potential benefits to consumers of removal of restrictions on parallel importation.

Following the recent amendments removing restrictions on the parallel importation of sound recordings, retailers have been able to search out the best product at the best price wherever available, and pass these benefits on to consumers in the form of reduced prices.  Price reductions of up to 50 per cent for some popular sound recordings have been advertised and reported in the press.

Costs

There is a possible cost to the Government from potential opposition from the US government.

Technological convergence is blurring boundaries between software and audio-visual material and products.  Achieving a more competitive market for software may not be possible if the parallel importation is only removed for software per se since, as already noted, software may create other copyright subject matter (principally film) still the subject of parallel importation restrictions.  Similarly, software may be delivered as an article containing film material.  This factor may also increase uncertainty faced by importers and local distributors of imported software products.

Some retailers of packaged software may be critical of reform on the grounds that disruption to their distribution arrangements with major software suppliers would arise as a result of parallel importation.  Established retailers providing after sales service may also argue that as a result of reforms there would be reduced demand for their services as consumers move towards alternative, cheaper sources of product.  However, other fundamental changes are also affecting the operating environment for these businesses such as the increasing use by consumers of online delivery of software products.

The ACCC considers that few domestic creators would be affected adversely by the removal of importation provisions in this area.  Any impact on investment and employment in specific areas of the software industry is likely to be offset by growth in other areas as a result of more competitive domestic and overseas markets.  The Australian software industry focuses on developing applications solutions for vertical markets, ie. applications specific to a particular industry (Department of Industry, Science and Tourism 1998).  It is unlikely that removal of parallel importation restrictions on software will affect this section of the industry.

Because this option would continue to provide the possibility of using copyright in film to prevent parallel importation of popular entertainment and educational products bought by consumers in the domestic market, some software may be effectively excluded from the scope of the amendments.  This reduces possible consumer benefits, and only partly implements the objectives of a more competitive computer software market.  The ACCC analysis indicates that price differentials are particularly high for some of these products, and concludes that in 1998 Australian consumers paid on average 33 per cent more than users in the US.  This suggests the loss of potentially significant consumer benefits where these products are excluded.

The industry has claimed that removal of parallel importation restrictions on software will increase the incidence of piracy.  For the software industry, illegal copying is more often a domestic issue and unaffected by parallel importation.  Illicit copying may also occur through electronic distribution (eg. downloading of illicit copies from the Internet) which is also unaffected by parallel importation.  There is no hard evidence for the industry assertion that piracy will increase as a result of the removal of parallel importation restrictions.

Option 3:   Amend the Copyright Act to allow the parallel importation of a wider range of products than in Option 2, including business, educational and recreational products such as computer games and CD-ROMs.  These products include audiovisual material.

Benefits

The 1999 ACCC analysis indicates that price differentials are particularly high for some popular CD-ROMS and computer games.  Benefits to consumers are therefore considerably greater than those offered under Option 2.  This option considerably broadens the consumer benefits for households, businesses and government and, in addition, educational users, arising from a more competitive market for software products in the Australian market. 

Amusement arcade games and the associated ‘service industry’ were considered as part of the 1995 Industry Commission report into computer software, hardware and related service industries.  The National Amusement Machine Operators Association Ltd is quoted as pointing out that  since parallel importation was effectively allowed following a Federal Court decision in 1991, the coin operated video game market has benefited from greater availability and reduced costs of games.

Costs

It is likely that the major multinational companies dominating the Australian market will raise the potential for negative impacts on employment, investment and piracy resulting from a more competitive market for software in Australia, as indicated in earlier reports to government. 

Any impact on investment and employment in specific areas of the software industry may be offset by growth in other areas as a result of more competitive domestic and overseas markets.  This may include the emergence of additional wholesalers.  The Australian software industry is most competitive in the provision of specialist applications tailored to the needs of business users.  It is unlikely to be negatively impacted by parallel importation, with the development of these applications expected to continue to be contracted locally.

Major suppliers of software also argue that parallel importation will increase the incidence of piracy.  Piracy of software is most often a domestic matter either in the form of illegal copying of existing material in Australia or illicit downloading of material from the Internet.  Neither of these activities is affected by parallel importation.  There is no hard evidence for the industry assertion that piracy will increase as a result of the removal parallel importation restrictions.  The Parliament is currently examining issues related to copyright enforcement in Australia.  This may result in enhanced arrangements applying to all copyright material.

The US Government has consistently argued against the removal of parallel importation restrictions by Australia.  It is likely that there will be strong pressure from US industry representatives opposing amendments to allow parallel importation of software.

Retailers of computer games provided under current distribution arrangements may argue that their business will be adversely affected by the changes.  Parallel importation allows new distribution channels offering cheaper product to become available.  The experience in the CD market is that many consumers switch to the cheaper product.  These adverse effects will be offset by the opening up of new market opportunities for retailers made possible by the proposed reforms.

4.4       Summary of outcomes for each option and Conclusion

Option 2 :  Amend the Copyright Act to allow the parallel importation of a narrow range of business and home use ‘standard’ applications - spreadsheets, word processing, database management and graphics.

This option delivers some considerable benefits to consumers and users of standard applications - that is households, businesses and government.

It will be opposed by the major global software distributors and manufacturers.  The US Government is also likely to oppose the removal of these restrictions.

Option 3:  Amend the Copyright Act to allow the parallel importation of a wider range of products than in Option 2, including business, educational and recreational products such as computer games and CD-ROMs. 

This option potentially delivers greater consumer benefits than those identified in Option 2, as identified by the ACCC.  It has the advantage of including computer games in the reforms.  It is supported by the Australian Consumers’ Association.

This option is opposed by the major global software companies, the US Government and the Australian Visual Software Distributors’ Association.

Option 3 is the preferred option, providing the opportunity for the greatest net benefits to the community.

5.         CONSULTATION

5.1       Who are the main affected parties?

For the preferred option 3, the main affected parties include software manufacturers and distributors (mainly large multinational companies), retailers, business users and consumers. 

5.2       What are the views of those parties?

Opposition to the Parallel Importation of Computer Programs

The Australian Information Industries Association (AIIA), which represents foreign owned software companies and local firms, and the Business Software Alliance of Australia (BSAA), which primarily represents major foreign-owned corporations such as Microsoft, have made submissions to the 1992 PSA inquiry and representations to Government opposing parallel importation.

Key concerns expressed by the AIIA and the BSAA were that allowing parallel importation would:

·          reduce the ability of software providers to exploit the Australian market;

·          reduce Australia’s attractiveness for software creation;

·          cause trade retaliation by the US;

·          threaten the viability of independent distributors;

·          reduce the profitability of the retail sector;

·          reduce incentives for overseas developers to establish an Australian base;

·          reduce the availability of software in Australia;

·          facilitate dumping; and

·          increase levels of software piracy.

Additional submissions received by the 1992 PSA inquiry that opposed parallel importation included Microsoft (which argued employment would be threatened; piracy would increase; prices would not fall); WordPerfect Pacific (overseas suppliers would dominate; prices would not fall); and Borland International (prices would not fall; after sales service and marketing would decline; dumping would occur; piracy would increase; local investment would drop; foreign debt would increase).

Dataflow Computer Services claimed that opportunistic traders would import software but not supply after sales consumer service.

Piracy has been raised by industry interests as a principal reason for maintaining parallel importation restrictions.  Infringing copying relates more to domestic users in the Australian market, both through duplicating hard copy discs and downloading illicit copies from the Internet.  This type of copyright infringement is unaffected by parallel importation restrictions.  Since the repeal of parallel importation restrictions for sound recordings, there has been no clear evidence of increased piracy resulting from the change.  There are also technological and educational opportunities available to industry to limit the impact of illicit copies in the marketplace.

The Australian Visual Software Distributors’ Association Ltd claimed in a submission to the ACCC in 1999 that parallel importation allows the computer games industry to monitor the censorship classification of its products.  Parallel importation does not, however, remove the legal requirement for all commercial distributors (producer, distributor or retailer) of products with moving pictures to obtain classification.

The US Government has consistently argued against the lifting of parallel importation restrictions by Australia, suggesting that changes could breach international obligations.  Advice from the Attorney-General’s Department  and the Department of Foreign Affairs and Trade is that the proposed changes are consistent with Australia’s international obligations, in particular those pertaining to intellectual property under TRIPS.  Further, there has been no challenge to any country that has lifted parallel importation restrictions.

Support for Parallel Importation of Computer Programs

The Australian Consumer’s Association supports removal of remaining restrictions on parallel importation as it expects lower prices, increased choice and improved availability.

In 1990-92 the PSA conducted an inquiry into the prices of computer software.  The PSA reported that restrictions on parallel importation were the reason for higher prices in Australia in comparison with the USA and other countries.  Following an examination of computer software prices in 1999, the ACCC has argued that parallel importation could be expected to enable lower prices by encouraging competition between local and overseas suppliers.  This is consistent with the finding presented by the PSA in the 1992 report on the prices of computer software.

Submissions received by the PSA for the 1992 inquiry included support for parallel importation by the Insurance Council of Australia, Creative Computer Concepts (business users of computer software) and the Regional Alliance of PC User Groups.

The National Amusement Machine Operators Association Ltd strongly supports the removal of restrictions on the parallel importation of amusement arcade games, in place following a 1997 Federal Court decision.

The 1999 ACCC report concluded that there are substantial consumer benefits that could be realised in an open market for computer software and recommended the repeal of the current restrictions, including those applying to computer games.  Amending the Copyright Act should enable consumers to realise these benefits identified by the ACCC of an open market.

What consultations were undertaken with those parties?

Consideration of parallel importation in the software industry has been the subject of an inquiry by the PSA in 1992.  The issue was also examined by the Copyright Law Review Committee in 1988 and again in 1995.  The (then) Industry Commission (IC) conducted an inquiry into computer hardware, software and related service industries in 1995.  These inquiries have included extensive consultation with industry and other parties, involving written submissions, public hearings and the release of draft reports for comment.  Those bodies participating in this process are listed in the appendices to these reports.

In relation to the video arcade game industry, submissions to the 1995 IC inquiry were made by the National Amusement Machine Operators Association Limited, the Video Industry Distributors Association, Sega-Ozisoft Pty Ltd and Aristocrat Leisure Industries Pty Ltd.

In its 1999 examination of these issues, the ACCC sought information from various industry sources.  A list of consulted parties is attached to the ACCC report.

There has been considerable consultation over a number of years  with affected parties by government  in relation to the issue of parallel importation .  A number of submissions have been received from participants in the amusement arcade game industry.

6.         CONCLUSION AND RECOMMENDED OPTION

It is recommended that Option 3 be supported.  This option incorporates the widest range of computer software products, ensuring the largest potential consumer benefits, without impacting on other industries for which the impact of the proposed amendments has not been the subject of comprehensive public examination.

The proposed amendments will remove restrictions on the commercial importation of non-infringing computer programs.  This will remove impediments to their importation by wholesalers and retailers that do not hold the Australian copyright.

Removal of parallel importation restrictions will facilitate a more competitive market for software products and enable those benefits to be passed onto consumers in the form of lower prices and improved service and product availability.  The PSA and ACCC, into which the PSA was subsequently merged, have both recommended this course of action as the only means to ensure genuine competition.

There is not expected to be any negative impacts on local computer software producers.

The film industry has not been the subject of a recent inquiry by the PSA or ACCC.  The impact of amendments to the Copyright Act to permit parallel importation in this sector remains unclear.  The benefits and costs cannot be assessed within the scope of this regulation impact statement. 

It would be unwise to proceed with parallel importation in this industry in the absence of a separate consultation.  This will occur as part of the current national competition policy review of Commonwealth intellectual property legislation, for which public submissions have been sought.

The proposed amendments will not affect restrictions currently in place on the importation of computer programs manufactured without the consent of copyright owners, that is, of pirated products. 

Amendments to the Copyright Act in 1998 to allow the parallel importation of sound recordings included provisions that strengthened penalties for the manufacture, sale and importation of intellectual property products and changed the onus of proof for civil actions.  For sound recordings, defendants in civil cases for infringement of copyright by importation or commercial dealings in imported sound recordings are now required to prove that they are non-infringing copies.  These arrangements will be extended to apply to copyright computer software products.

7.         IMPLEMENTATION AND REVIEW

Adoption of the preferred option will require legislative change.  It is anticipated that this will involve:

·          repealing those provisions of the Copyright Act restricting parallel importation of computer programs; and

·          amending the current definition of ‘cinematograph film’, as it relates to parallel importation, to reflect the government’s objective to exclude from its scope those computer software products that do not incorporate film in its entirety, including an interactive component, intended for broadcasting or cinema release.

These provisions will be reviewed no later than 10 years following commencement, in accordance with the requirements of the Competition Principles Agreement .

Government reports used in the preparation of this RIS

Australian Bureau of Statistics, Information Technology Australia 1995-96 , ABS Cat No 8126.0

Copyright Law Review Committee 1988, The Importation Provisions of the Copyright Act 1968 , AGPS, Canberra.

Copyright Law Review Committee 1995, Computer Software Protection , Commonwealth of Australia

Department of Industry, Science and Tourism - Information Industries and Online Taskforce 1998, Stocktake of Australia’s Information Industries : Strengths, Weaknesses, Opportunities and Threats , Commonwealth of Australia 1998

Industry Commission 1995, Report No 46, Computer Hardware, Software and Related Service Industries , AGPS, Canberra

Prices Surveillance Authority 1991, Inquiry into Cinema Admission Prices , PSA Report No 38, Commonwealth of Australia

Prices Surveillance Authority 1992, Inquiry into Prices of Computer Software - Final Report , PSA Report No 46, Commonwealth of Australia

Revesz, J. 1999, Trade-Related Aspects of Intellectual Property Rights , Productivity Commission Staff Research Paper, AGPS, Canberra

 

BOOKS (AND SIMILAR PRODUCTS)

1.         PROBLEM IDENTIFICATION

1.1       What is the problem being addressed?

Australia has a publishing market that is dominated by subsidiaries of multinational publishers based in either the USA or the UK.  This feature, together with the ability to divide markets territorially using copyright control over importation, creates the conditions that allow international price discrimination. 

As noted by the Prices Surveillance Authority, for international price discrimination to prevail, three conditions are generally required:

(i)           the existence of market power held by suppliers;

(ii)          differences in demand and/or supply conditions between markets; and

(iii)         effective segmentation of geographical markets such that profitable international arbitrage is not possible (ie, there is no ability for third parties to bring in cheaper products from elsewhere).

The first of these conditions is supported by the exercise of proprietary rights in literary, dramatic and artistic copyright.  Australia’s small population size, isolation from alternative markets, and the spending profile of our population meets the second condition.  The third condition is satisfied by the ability of copyright owners to exclude alternative supply into Australia by others.

Consequently, copyright holders are in a position to set Australian book prices at levels higher than prices charged for the same books available in other markets. 

Research conducted by the former Prices Surveillance Authority (PSA), and recently, the Australian Consumer and Competition Commission (ACCC), has found that changes to the Copyright Act in 1991 to partially remove the restrictions on parallel importation of books, and thereby the ability to treat the Australian market separately from the USA, the UK, and other markets, has not resulted in an improvement of competition.  Significant price discrimination has continued to exist, particularly for best seller titles in paperback form.

Parallel importation means importation without the licence of the local copyright owner of legitimately-made copies (that is, copies made with due regard to copyright in the place where the copies were made.)  Books published since 23 December 1991 but not published in Australia within 30 days of first publication elsewhere, as well as books ordered from the Australian copyright owner but not available within 90 days, can be parallel imported (pursuant to amendments made in 1991).  But in all other cases the importation of copies for a commercial purpose, if not authorised by the owner of the Australian copyright, is a copyright infringement (see ss.37, 44A).  Such an infringement can be a criminal matter under s.132 of the Copyright Act.

In addition to the continued ability provided to copyright owners to charge consumers higher prices than would generally occur in a more competitive market, the use of copyright protection over importation of books has led to a book industry that is less efficient than would otherwise be the case. Inefficiencies through excessive stock-holding, non-competitive distribution relationships and an apparent allocative inefficiency with large numbers of booksellers, were identified in the 1989 PSA review of  book prices.  In its 1995 Report into book prices and parallel importation, the PSA noted that there had been little change in the structure of distribution following amendments to the book importation provisions in 1991.  Distribution continued to be done primarily by publishers.  Independent wholesaling was absent at the national level.  The PSA found that the relaxation of the importation provisions from 1991 had provided some impetus for efficiency gains by requiring those wishing to retain importation controls to meet availability deadlines.  It nevertheless concluded that it was “of the view that an open market for legitimate editions is the only option that would give confidence that prices are determined competitively.”

The emergence of these issues is reinforced by the nature of the book publishing industry in Australia.  It is characterised by a few large firms dominating the market, with the majority being multinational companies, and many small publishers ((84% or 219 firms with less than 20 employees) that earned just over 13% of total sales of all books).  In 1997-8 (the latest year for which general (ABS) statistics are available) the publishing industry had a turnover of $1.24 billion of which $1035.6 m was generated through the sales of books. Some $412.1m of the $1035.6m in total book sales was from imported books with 60% of the value of books sold ($623.5m) being Australian titles (whether or not the author was Australian). (Figures for annual sales of books written by Australian authors are not available.)  The top twenty publishers each had an annual turnover in excess of $43m and together accounted for more than 70% of sales. 

The concern with prices is not a simple price comparison.  What matters, as is stated in the April 2000 Interim Report of the Intellectual Property Competition Review Committee (IPCRC), “is not a static comparison of Australian prices today with prices elsewhere; rather it is the comparison between prices as they are with import restrictions in place, and the level of prices which would prevail absent those import restrictions.  If it is indeed the case that prices in Australia are low compared to overseas, and are no higher than the level that would prevail absent the import restrictions, then it is not apparent that removing the restrictions would cause any harm” (page 22).

1.2       Why is government action needed to correct the problem?

As copyright is codified in the Copyright Act, the Act would have to be amended to widen or remove the provisions that prevent full parallel importation of books.  This step has been recommended to the Government on a number of occasions by the PSA which examined book prices in 1989, again in 1995 (following 1991 amendments to the Copyright Act to permit parallel importation of some books) and by the ACCC with which the PSA was subsequently merged, in its report to Government in March 1999 on book prices. 

Allowing parallel importation was also recommended by the IPCRC, as part of its broader review of intellectual property legislation including the Copyright Act, in accordance with the requirements of the inter-governmental Competition Principles Agreement. The Agreement states that legislation that restricts competition should only be retained where it can be demonstrated that the benefits of the restriction to the community as a whole exceed the costs and the objective of the legislation can only be achieved by restricting competition.  The report of this review contains a conclusion in favour of the removal of all of the restrictions in the Copyright Act on parallel importation.

The 1991 amendments appear to have improved the speed with which new best seller titles are made available in Australia and broadened the possible range of books that may be parallel imported.  But they have not resulted in a removal of higher prices being charged in Australia for high-demand titles.  Pricing data collected by the ACCC shows that Australian consumers paid, on average over the last 10 years, 50% more for popular fiction titles in paperback form than the price in the USA and 12% more than in the UK.   Over the last 4 years, the average differential has still been over 30% between Australia and the USA, excluding the hardback format.  The latter format is not directly comparable because of different production qualities between Australia and the UK and USA.

Similar concerns about pricing led to the importation provisions of the Copyright Act being amended in 1998 to allow parallel importation of sound recordings. 

2.         OBJECTIVES

2.1       What are the objectives of Government action?

The objective is to prevent international price discrimination that exists under present arrangements to the detriment of Australian consumers and facilitate efficiency in the Australian book publishing industry, while protecting copyright.

2.2       Is there a regulatory policy currently in place?  If so, who administers it?

The Copyright Act makes it a civil infringement and a criminal offence to import books for commercial purposes without the consent of the copyright owner for Australia, except in 3 cases:

(i)           for books published after 23 December 1991, if they are not published in Australia within 30 days of first publication overseas;

(ii)          if the copyright owner for Australia does not supply an order for a book title within 90 days (they must advise within 7 days that they propose to fill the order);  or

(iii)         importation of single copies of particular titles requested (multiple copies in the case of libraries) in response to a verifiable request. 

A book for the purposes of (i), (ii) and (iii) excludes computer manuals sold with computer software, books consisting primarily of musical notation and periodical publications.

The Copyright Act is administered by the Attorney-General’s Department.  On this matter the Department of Communications, Information Technology and the Arts has joint policy responsibility.

3.         OPTIONS

3.1       What regulatory and non-regulatory options (including quasi-regulation) for dealing with the problem are being considered?

As the issue is the modification of an existing statutory regime, a non-statutory approach is not an option; for example, industry self-regulation.

Option 1   - maintain the existing provisions (arising from the 1991 amendments to the Copyright Act) for a limited form of parallel importation, to enable the greater availability of titles not supplied by the book industry while at the same time allowing the industry to maintain their control over importation of those titles regarded as worth the effort and investment to ensure that they were published in Australia within 30 days of first publication. (This “30 day rule” is treated as “first publication” in accordance with relevant international copyright treaties.)

Option 2   - focus on the involvement of the Australian right-holder in a book’s publication in a similar fashion to the trade marks law.  That is, where a book has been put on the market anywhere with the permission, direct or indirect, of the copyright owner in Australia, it should be available to be imported into Australia.  If the owner of the relevant copyright (ie, the right to reproduce the book) in the place of reproduction/export and the copyright owner for Australia are the same, copies of those titles from those jurisdictions should be allowed to be imported into Australia by any person, without restraint by the copyright owner.   

Option 3   - allow parallel importation where a published version is not available in Australia.

Option 4   - repeal the provisions restricting the parallel importation of books.

3.2       Identify broad constraints which may make some options not viable

Option 1 involves leaving the current law unchanged.  This option will prevent consumers from realising potential benefits from the complete removal of the parallel importation restrictions.  A series of reports have recommended that these restrictions be removed and the ACCC in its 1999 analysis concluded that there are substantial consumer benefits that could be realised in an open market for books.  This is supported by the views expressed by the IPCRC in its Interim and Final Reports.

Option 2 approaches the issue from the point of view that the right to control importation is an integral aspect of copyright owners’ rights.  As such, it does not target the practice of international price discrimination.  It would allow the parallel importation of some titles but only where the person owning the relevant copyright (the reproduction right) is the same in the country of production as in Australia.  Only then could it be said that the Australian owner consented to the publication.  Corporate ownership of rights means that rights can and are often owned by different corporate entities in different jurisdictions.  Whether or not a book could be parallel imported under this option would depend on, from a pricing perspective, an essentially arbitrary and extraneous issue of whether or not ownership of the right was the same in the country of production and in Australia.  This would not ensure that competitive pressure could be placed on pricing in Australia because parallel importers could not choose to import from the countries with cheaper prices than Australia.  They could only import from the countries where the owner of the relevant copyright in Australia and in that country were the same, regardless of whether the relevant book prices in that jurisdiction were cheaper than in Australia.  This would do little to overcome international price discrimination and to introduce broader competition into the Australian book market. 

The rationale for granting a right of distribution of copyright on the basis of the ownership of the literary work is the right to exploit the property in the work, not to prevent consumer confusion nor to directly provide a right of distribution in a particular jurisdiction. This right may thus be fashioned, shaped or negated according to the desired outcome.  It is not inherent in the copyright right of reproduction that, because the right can be assigned to different owners in different jurisdictions, the law must necessarily prevent competition in a jurisdiction from copies made, or authorised, by those other owners. 

Option 2 also has practical difficulties.  While it is generally possible to identify trade mark owners via a search of the register, no such convenient mechanism is available for book copyright which does not require registration.  Last, although it would be possible to take up this option, and it would allow some level of parallel importation, the scope to parallel import would be less than is available under the current arrangements.  This would negate the objectives of promoting internationally competitive prices and industry efficiency.  This option is, therefore, not viable.

Option 3 focuses on the availability of Australian versions of books.  It is not useful in ensuring the desired outcome of internationally competitive book prices for consumers and greater efficiency in the publishing industry.  Under this option, the Australian copyright owner would retain the ability to prevent parallel importation if they made the book available in the format and quantity requested within a reasonable time.  The uncertainty of determining what is a “reasonable time” might be overcome by specifying an arbitrary time period, as the Copyright Act does presently in relation to orders.  However, by allowing the copyright owner to control distribution in the market, this option would place an impediment against the importation of books not specifically requested.  It would not necessarily address price and competition issues since all an Australian publisher would need to do in the face of a cheaper overseas version would be to print its own in that format, and the right for third parties to import and sell would then be lost. 

Option 3 also lacks certainty.  In a world of perfect information it would be possible to know when an Australian publisher had provided supply in the relevant format. In the normal trading environment that is far from the case.  The PSA noted, in relation to a developed form of this option put to it, that “Booksellers currently appear unwilling to parallel import if they are unsure that a book has met the 30 day rule.  Booksellers would be often likely to experience uncertainty as to whether they have made ‘reasonable’ inquiries and waited a ‘reasonable’ time for supply.  Where this uncertainty occurs, booksellers would be unlikely to risk infringing copyright by parallel importing.”  When and how would a bookseller or importer know that the “Australian edition” was no longer available?  What would be the effect if the Australian edition were different in quality to the overseas edition?  The PSA concluded that the option would probably not improve the effectiveness of the importation provisions.

The approach in option 3 would require a range of new regulatory concepts and applications wholly foreign to copyright.  There would be a need to define what is an “Australian publisher” or an “Australian edition”.  And, the key concern, the ability to practice international price discrimination so that Australian consumers have no option but to pay the price of the Australian copyright owner, that the PSA and ACCC have found to have been exercised adversely to Australian consumers, would not be addressed.  Taking these matters together, it is considered that this option is not viable.

Option 4 , to provide for open importation of books, is the viable option for Government action.

4.         IMPACT ANALYSIS

4.1       Who is affected by the problem and who is likely to be affected by its proposed solutions?

The groups potentially affected by any changes to the importation provisions of the Copyright Act concerned with books are:

·          book publishers;

·          authors, and to a lesser extent composers and artists;

·          book retailers;

·          book purchasers, including libraries and educational institutions;

·          book wholesalers;and

·          book printers (who believe that they will be indirectly affected - see paragraph 31).

As noted previously, the Copyright Act requires that copyright owners must publish books in Australia (subject to conditions) to retain the right to control parallel importation.  Book printers consider that the removal of this requirement may reduce demand for book printing in Australia.

4.2       How will each proposed option affect existing regulations and the roles of existing regulatory authorities

Not applicable.

4.3       Expected impacts of the proposed options

(Note:  under item 3.2, options 2 & 3 are not considered viable and are not therefore further considered.)

Option (1): retain the existing provisions

Benefits

Under this option book printers and book publishers would have a more certain environment in which to trade.  Publishers commonly acquire the copyright of the books they publish.  They would be able to continue to exercise their rights over importation of new overseas titles provided they ensure publication in Australia within 30 days of first publication. 

The retention of the current provisions would enable copyright owners to fully reap the benefit of all sales of that title and of reciprocal arrangements for licensing of foreign titles generating greater support for promotion of Australian literature in other countries.

Authors, both Australian and foreign, would benefit from the royalties paid in Australia and would have the certainty that virtually all sales in Australia would generate royalty income in Australia.

Book printers would continue to hold business arising from the requirement to publish new titles in Australia within 30 days if copyright control over importation is to be maintained.

The current availability of books for consumers would be maintained.

Libraries and educational institutions gain no particular benefit from the retention of the existing provisions other than that the current provisions provide for libraries to be able to seek the assistance of book resellers in the acquisition of multiple titles of books from overseas.

This option has produced some consumer benefit.  The publishing and printing industries argue that it adequately addresses consumer needs while providing an appropriate environment for industry development and efficiency.

Costs

The retention of the current arrangements perpetuate an environment where it is possible for publishers (who are usually the copyright owners) to engage in international price discrimination and to target their activities in such a way as to achieve maximum benefit from such practices.  Consumers will be forced to continue to pay higher prices or to pay for higher quality book production.  While this may not happen with every title, or with every format, the possibility of competitive pressure from the cheapest available titles of books will be absent.

The PSA found various industry practices, enabled by the control over-supply by the copyright owner, to be inefficient.  These included sale or return arrangements with retailers, excessive stockholdings by publishers and limited competitive pressure on wholesale arrangements.  Leaving the law as it stands will enable such practices to continue and encourage industry practices that are not best practice.  The PSA found that a universal practice (ie, in Australia and overseas) was for publishers to take back unsold volumes with the retailer paying only for those sold.  These arrangements, it found, permitted less commercial pressure on retailers to accurately gauge their market.  It found that returns of up to 40% on mass-market titles were not uncommon.  Returns were pulped by the publishers.  The PSA commented that “it is difficult to see how such a wasteful system of distribution could be sustained under competitive market conditions”.  It further found that publisher stockholdings were high compared to the average for the manufacturing industry and that without a competitive market it was impossible to say that the level was optimal nor that the distribution operations were being conducted in the most efficient manner. 

The PSA recorded that there was uncertainty about the use of the provisions for parallel importation.  Retailers were unsure of the factual information relating to whether or not the rule concerning publication within 30 days had been satisfied and there is also uncertainty about the scope of the permission to parallel import in the absence of supply within 90 days of a specific request.

This uncertainty contributes to a situation whereby the apparent opening of the market by the 1991 amendments to a much higher level of possible parallel importation does not operate as a matter of practice.  It is possible that some amendments could be made to rectify those aspects of the law concerned.  But it would defeat the operation of the provisions to move away from the test of first publication and it is this factual issue which introduces the greatest practical uncertainty. 

Option (4): open parallel importation of books

Benefits

The benefit of this option is that it would remove the key means by which publishers are able to practice international price discrimination.  It is the usual practice in the publishing industry that publishers acquire the copyright of the books they publish. 

Competition, or its threat, from overseas editions of book titles can be expected to lead to lower pricing of, particularly, high-demand paperback titles, perhaps by as much as nearly one third, based on data from the ACCC noted previously (see item 1.2).  Other book formats and market segments might also benefit.  For example, the ACCC noted evidence it received of one comparison of professional and technical texts which showed higher prices, on average of 39% (or $71) between Australian and US texts and one price difference of as much as $160.

The ACCC noted that the issue of pricing can be affected by exchange rate movements.  However, without parallel importation the prospect of improvements in the rate being reflected in pricing is far less certain.

A more competitive market is likely to also emerge with greater possible sources of supply for book retailers and a reduction in inefficient practices such as general sale and return policies and excessive stock-holding as identified by the PSA and discussed in paragraph 38 above.  It may be that a competitive market will continue to support a relatively high level of stockholding in the book trade.  A competitive market will determine the level and mix of stocks which best meets consumer demands, including any trade-offs between price and availability.  The opportunity to parallel import would also allow publishers and retailers to counter opportunities lost in relation to Internet sales.  While no statistics on these sales are available the world’s biggest on-line bookseller, Amazon.com, has acknowledged that Australia is its third largest export market.

There was inconclusive evidence before the PSA, and its findings were equivocal, whether or not open importation would create the opportunity to develop distribution businesses for books, independent of the current publishers which currently are the only source of supply for their titles.  Following the opening of the market for parallel importation of music CDs a number of importing wholesale businesses have emerged.  While it is not possible to extrapolate too far from a different industry, that development, consistent with expected market practice, suggests that the development of such businesses is viable.  A factor in favour of the development of independent wholesalers is that, as compared to 1995, communications and transport facilities are improved reducing the barriers to entry of such independent competition. 

Such businesses should place competitive pressure on the distribution networks already established by the major publishers and so add additional pressure on publishers to reduce their excessive stockholding.

Costs

The main costs of this proposal lie in its potential to damage the Australian book publishing and printing industries and the possibility that authors may suffer a decline in royalty income. 

A more competitive market may see some individual publishers fail. 

Various claims are made regarding the costs of this measure.  These are examined below.

Publishers

Publishers have expressed concerns about displacement of sales to imported titles on which no, or lower, royalties have been paid but where they remain obliged to pay the higher royalties, difficulties with obtaining reciprocal distribution rights for their titles in other jurisdictions and a general lowering of prices where their recoupment on ‘best-sellers’ or higher volume titles will be less because this is where they consider importers will target their activities.

There may be some loss of confidence.  However, the publishing industry is the oldest and most well-established of the cultural industries in Australia that rely heavily on copyright protection.  As noted above, book sales were in excess of A$1 billion in 1997-8.  The book publishing industry is made up of a small number of large organisations and a large number of small ones with the smaller publishers often focussing on specialised markets.  Although not directed at this issue, the package of measures proposed by the Government in relation to the introduction of the GST will do a great deal to offset any loss of confidence about the industries ability to compete against imported editions.  This package of measures, amounting to $240 million over 4 years ($60 million per year), targets the purchase of Australian books in schools and assistance with the purchase of textbooks, and additional industry support measures of $48 million to printers to enable them to effectively compete against overseas printers and various initiatives to better market books and understand and obtain relevant data concerning the book market.

Aside from the boost to confidence from the GST-related package of measures, the largest publishers are large corporations well able to make adjustments to meet changed business conditions.  The small publishers may be less well-placed but many publish in niche markets that are unlikely to become targets for parallel importers.  Further comments are made below.

Book Printers

Printers claimed in evidence to the inquiry in 1996 into the book printing industry conducted by the Industry Commission that a substantial number of jobs could be lost if the remaining restrictions on parallel importation were removed and they were not compensated for negative assistance for inputs such as dutiable paper.  The Printing Industries Association of Australia (PIAA) stated that Maryborough in regional Victoria was virtually dependent on book printing and ancillary services. South Australia also has some large printing companies. 

The Industry Commission noted in relation to industry claims that “to the extent that Australian book printing activity is adversely affected by removal of bounty, there will be regional implications.  However, the magnitude of any adverse effects is uncertain.  The Commission considers that adverse effects arising from removal of bounty (and ending of the 30 day rule) will be significantly offset if the market trends evident in the last few years continue”.  The industry continues to obtain some assistance to offset negative effects of the cost of duty on paper input under the Printing Industry Competitiveness Scheme and this scheme will be boosted significantly by further assistance over 4 years to be provided under the Book Industry Assistance Plan to offset cost changes resulting from the introduction of a goods and services tax.

The risk of adverse impacts on the book printing industry depends on looking at a worst-case scenario about the removal of the 30 day rule.  Adoption of this option would make a segment of the market for books more contestable and, on a worst-case scenario, might therefore result in a reduction in printing of some books in Australia.  On the other hand, the potential for the lowering of the price of new release books, in particular, could equally be expected to generate new sales and boost interest in the consumption of books.  Moreover, as noted, the industry will be boosted by the injection of $48 million in assistance which, although not directed at this issue will, nevertheless, provide a substantial incentive to maintain book printing in Australia.

Australian printers found that the 1991 amendments, which they opposed, generated new business because they were able to prove themselves internationally competitive on overall price and quality.  It is unclear why such efficiency and readiness to compete would not be maintained or further enhanced by this option.  Books printed in Australia already face competition from overseas printed books in the form of those that can be purchased over the Internet at such sites as amazon.com.  Australian publishers can already have their stock printed overseas.  They use Australian printers because they find it commercially beneficial to do so.  Whether, parallel importation is, or is not, allowed, that situation will not alter.

Authors

The Australian Society of Authors in evidence to the PSA for its 1995 Report said the amendments in 1991 had stimulated changes in 3 ways: a trend to payment of lower royalties; a trend to produce less hardback editions (for which authors receive a higher level of royalty); and greater discounting, for which lower royalties might be payable depending on the level of the discount.

The fact of lower overall royalty payments between 1991 and 1992 was confirmed by the PSA. It suggested that such lower returns related to factors not necessarily connected to the 1991 amendments, such as a worldwide trend to first publication in softback (for which royalties are lower) rather than hardback format.  Concerns about contractual conditions providing for lower royalties to be payable by related bodies corporate, were matters not related to the importation provisions.

The major concern consistently stated by publishers and authors is of displacement by parallel imports of sales of Australian authors’ books and displacement of sales generated by Australian publishers.  Overseas royalties are said to be lower and circumstances could result in a title being remaindered in one jurisdiction and a roaring success in another.

The concerns about displacement is that new entrants selling imported books will supplant and remove sales from existing publishers and potentially depress general pricing, reducing royalties payable to authors.  However, the extent of substituted sales will depend a great deal on the competitive behaviours of the existing publishers.  On pricing, the intended outcome is to reduce prices to the internationally competitive level.  If this occurs, or is already occurring authors finding favour with consumers could expect that greater numbers of their books will be sold.  Some authors may find their royalty revenue decreased as a consequence of not being able to match the competition in obtaining consumer attention and support.  Authors meeting the consumer demand for Australian literature or textbooks or children’s books are, necessarily, meeting a demand that cannot be substituted by imported foreign titles. 

In relation to remaindered books it has been suggested that Australian authors could form as many as half of the best seller titles and each of these could be an international success thereby being at risk of parallel importation.  The level of risk of this for the market generally or for the authors, in particular, would, however, appear to be low.  The official statistics do not disclose the number of Australian authors published overseas. However, it seems likely that the number of successful Australian authors published overseas and therefore subject to potential competition from the sales of their books back into Australia from the overseas market is small.  This is because the overall numbers of Australian authors is quite small.  The Australia Council, the Australian Society of Authors and the Australian Writers Guild estimate that about 3500 people are employed in full or part-time creative writing.  Other sources, (1997 ABS survey and research by Throsby and Thompson ) estimate between 2,300 and 2,800 people in Australia receive income as authors.  (Note that in 1998/9 the public lending right program allocated payment to 8127 Australian authors this being all Australian authors whose books were borrowed from public libraries in the previous year whether or not they continue to write.)  Average income is estimated by the Australian Bureau of Statistics as between $12,000 - $15,000 with a median income of less than $4,000 per annum.  The “at risk” group of successful authors writing books with an international appeal and having their books published overseas must, necessarily, be a subset of this group, and the income figures suggest they are a small subset. 

To be parallel imported, foreign-sourced books of those authors must be supplied through or by a third party.  For such competition to arise, a number of events or circumstances must occur.  Enough copies of the book must remain unsold in the foreign jurisdiction in order to be able to bring the copies back into Australia in economically significant quantities, the price must be ‘right’ (including costs of transport) and there must be continuing demand in Australia for that title or author to drive the sales.  Open importation creates the prospect of parallel imports competing with “home grown authors” but does not require or guarantee it will occur if there is little incentive or opportunity.  While there may be some instances of remaindered stock of popular authors being brought into Australia to compete with the locally-produced product, the obstacles (noted above) to this happening regularly and commonly, suggests that such instances will be the exception rather than the rule.

Piracy

Although there are problems of piracy of books in some countries around the world, difficulties with piracy of books is not an issue in Australia, whether of imported books or domestically produced books.  The specialised equipment needed to produce a result acceptable to the market is high-cost and bulky.

4.4       SUMMARY AND CONCLUSION

Option 4 is the only viable option that readily presents the prospect of leading to some lower prices for consumers of books and enabling sufficient competitive pressures to emerge so as to make the book publishing industry more efficient.  The expected costs of this change are minimal.

5.         CONSULTATION

5.1       Who are the main affected parties?

The main affected parties are book publishers, authors and artists, book retailers and consumers.  These bodies and persons were consulted in a systematic way as part of the process engaged in by the PSA for its 1989 and 1995 reports.  Further specific consultations have not been undertaken (see paragraph 78).  Book printers also believe they will be adversely affected by open parallel importation of books. 

These groups had a further opportunity to put arguments and submissions to Government on parallel importation in the context of the review undertaken by the IPCRC.  Book publishers took that opportunity.  The other groups noted, did not.  None of the material noted by the IPCRC in its consideration of this issue appears to have raised new matters or arguments of substance beyond those already presented to the Government or Government agencies in formal and informal consultations over a number of years.

5.2       What are the views of those parties?

Some individual authors, the Koorong Bookshop, consumer groups such as the Australian Consumers’ Association and libraries and universities have expressed support for parallel importation of books on the basis that this will guarantee the greatest availability of titles and the cheapest prices for Australian consumers.  

The book industry as a whole, and book publishers, opposed the changes in 1991 that constitute the current law.  They now support those provisions as providing a boost to printing of works in Australia and as a way of ensuring that there is a constant and early supply of new books onto the Australian market (in order to protect the right to parallel import).  They do not agree that Australian prices of books are, in general, higher than in the UK or the USA and point to such things as differences in quality and market size as explaining such differences that exist or to the favourable price comparisons that can be obtained by comparing some of the large print format books, in which first publication occurs in Australia, with hardback formats in other jurisdictions.

A number of adverse consequences have been argued by publishers as following from allowing the open parallel importation of books.

It has been said that stockholding and, therefore, availability, will decline. 

The PSA found that bookseller stockholdings were excessive and noted that since there was no competition between distributors of each title, there was no guarantee of appropriate stockholdings in any event.  Competition will tend to result in the absorption of air-freight costs for overseas titles, thereby reducing the delays associated with centralised overseas stock holding.  Additionally, the growth of electronic communications and development of on-line book suppliers, such as Amazon.com, already enable speedy delivery. 

It has been suggested that there will be a decline in advertising and promotion (because of the fear of free-riding by parallel importers).

It is not possible to say, under the current arrangements, that the level of advertising and promotion is optimal nor that it is clear that advertising and promotion will fall under an open importation regime.  Advertising is still an effective means of attracting business and developing markets.  To the extent that global editions of books become more common, an open market will not reduce the market for individual publishers, it will only prevent them from practising price discrimination.

The concern has been stated that the changes will concentrate publishing in the hands of multinational companies by allowing them to become distributors of all manner of titles.

The publishing industry is already dominated by multinational firms.  Global trends suggest that a process of consolidation will continue in this industry as in others.  At the same time, however, there will continue to be a role for small niche publishers in Australia.  The majority of such publishers produce for a domestic market and, where rights to publish (make copies) elsewhere in the world are important, they will continue to have the opportunity to exploit these rights.

Authors, through the Australian Society of Authors (ASA), have expressed concerns about lower returns under the 1991 amendments and these concerns would apply under an open importation regime.

The primary “at risk” group is that group of Australian authors who are sufficiently successful to be able to be published elsewhere, traditionally and commonly, this is in the USA and the UK. 

Speaking on the behalf of this group, the ASA and some publishers have expressed concern about the risk of substantial losses of revenue to writers and themselves from the import of their books remaindered in another country.  As noted above, this risk is likely to be far smaller than appears to be feared by these bodies or persons.

The evidence to the PSA was inconclusive about the extent to which, if any, open parallel importation would affect the way in which rights are licensed for overseas titles.  The Australian Publishers’ Association, in its evidence to the PSA for its 1995 report, suggested that the practice of including Australia in the grant of rights to UK publishers had not changed as a result of the 1991 amendments.

5.3       What consultations were undertaken with those parties?

For both its 1989 and 1995 reports the PSA conducted a public inquiry involving written submissions, face-to-face consultations and the opportunity to comment on the draft report on each occasion that it produced a report.  The then Industry Commission for its 1996 report on book printing similarly conducted an extensive round of consultations.  Publishers have been given, and have often taken, the opportunity to state their position in all of the 6 inquiries directly or indirectly addressing parallel importation since 1989.  For the most recent inquiry by the IPCRC, the review was advertised nationally and comments and submissions invited.  The IPCRC released an issues paper in September 1999 and the Committee met with a number of groups and individuals to discuss issues of concern.  The Committee received over 80 written submissions (across the whole spectrum of intellectual property) including from publishers.  No extensive additional consultations separate from those undertaken for these reports have been conducted.  The Government is in regular contact with representatives of publishers, authors and printers.  These groups have been aware that the Government had not provided a response to the reports referred to in this regulation impact statement.

The 1995 PSA report into book prices and parallel importation received submissions from the Australian Book Publishing Association (now Australian Publishers’ Association), which then had 140 members representing nearly 80% of industry turnover, Harper-Collins Australia and Allen & Unwin, the latter being the largest Australian-owned publisher.

The bodies that made submissions to the 1989 and 1995 PSA inquiries and the Industry Commission examination of the Book Printing industry (Report No 54, 23 October 1996) are listed in appendices to the Reports.  The bodies consulted by the IPCRC are listed at Appendix 3 of the Interim Report and see Appendix 2 of the final Report on Parallel Importing under the Copyright Act 1968 (http:// www.ipcr.gov.au ).

The ACCC sought information on prices from various industry sources for its review of book prices in the first quarter of 1999. - Its sources of information are listed in the report.

6.         CONCLUSION AND RECOMMENDED OPTION

The current provisions for limited parallel importation have not delivered substantial or sustained price benefits to the Australian book purchaser.  Alternative and often cheaper books can be obtained but Australian consumers are denied access to them other than via a direct order or using electronic means due to provisions that are not necessary for, and indeed probably inhibit, the health of the Australian publishing industry.  Comparable prices to those in the USA for best seller paperbacks are not available in Australia. 

The removal of current parallel importation restrictions on books, which perform a significant role in maintaining existing price discrimination practices by restricting local competition, will create the opportunity for reduced prices and improved product range for consumers. The potential for increased competition will also provide an impetus for local suppliers to seek greater operational efficiencies, with consequent flow-on effects in terms of reduced costs and prices and/or improved service levels. 

This incentive will be reinforced by the trend towards on-line consumer purchasing - although this is not as yet a universal or necessarily a lower cost option.  Although price impacts may vary across market segments, even small reductions will have a significant effect given the size of the book market of over $1 billion in sales per year. 

If the Australian market is already competitively priced in international terms, there is no compelling evidence to suggest that the removal of the ability of copyright owners to control parallel importation will impose significant individual or net community costs.  To the extent there are any costs, these will tend to be offset by the GST compensation package.  Open parallel importation of books should be allowed.

The adoption of option 4 is recommended.

7.         IMPLEMENTATION AND REVIEW

Adoption of the preferred option will require legislative change.

The effect of the amendments on prices for consumers and the book printing and book publishing industry should be reviewed within 10 years as provided by the National Competition Principles after the coming into effect of the changes.

NOTES ON CLAUSES

Clause 1          Short title

1.                   This clause is a formal provision that provides for the Bill, when enacted, to be cited as the Copyright Amendment (Parallel Importation) Act 2002.

Clause 2          Commencement

2.                   This clause provides for the commencement of the provisions of the Bill.  It does so by reference to a table set out in subclause 2(1).  Item 1 of the table provides that sections 1 to 3 and any other provisions not otherwise specifically referred to, commence on the day on which the Act receives the Royal Assent.  Item 2 of the table provides that Schedule 1 of the Act is to commence on Royal Assent.  Item 3 provides that the Schedule 2 will commence on the first anniversary of the date on which it receives the Royal Assent.  Items 4, 6 and 8 of the table provide that items 1-3, 5 and 7 of Schedule 3 are taken to have commenced immediately after the commencement of the Digital Agenda Act, reflecting the fact that these items correct misdescriptions and minor drafting errors in that Act.  Items 5, 7 and 9 of the table provide that items 4, 6, 8 and 9 of Schedule 3 of the Act commence immediately after the commencement of Schedule 1 of the Act.  This reflects the fact that some of these items amend items contained within Schedule 1 of the Act.

3.                   Subclause 2(2) stipulates that column 3 of the table in subclause 2(1) may contain additional information that may be printed with the Act but such information is not part of the operative provisions of the Act.

Clause 3          Schedule(s)

4.                   By virtue of this clause, the provisions in the Copyright Act 1968 (the Copyright Act) are amended or repealed as set out in Schedules 1, 2 and 3 of the Bill.



SCHEDULE 1 - COMPUTER SOFTWARE

Item 1            Subsection 10(1) (definition of accessory )

5.                   Item 1 amends the definition of “accessory” in subsection 10(1) of the Copyright Act by omitting everything after the words “but does not”, and substituting “include any label, packaging or container on which the Olympic symbol (within the meaning of the Olympic Insignia Protection Act 1987 ) is reproduced.”

6.                   The amended definition of “accessory” removes the reference to “a manual sold with computer software for use in connection with that software.”  The amendment is intended to reflect that the Bill allows for both the parallel importation of computer software and the manuals sold for use in connection with that software.

Item 2             Subsection 10(1) (at the end of the definition of accessory )

7.                   Item 2 inserts a legislative note after the definition. The note draws attention to the fact that proposed section 10AD (introduced by Item 8) introduces an expanded meaning of “accessory” in relation to certain imported articles (ie, those covered by this Bill).

Item 3             Subsection 10(1)

8.                   Item 3 amends subsection 10(1) of the Copyright Act by inserting a definition of “electronic literary or music item”. The term is defined to mean a book in electronic form, a periodical publication in electronic form or sheet music in electronic form (regardless of whether there is a printed form).

9.                   The term electronic literary or music item is used by later provisions as a short form of reference to the particular types of works mentioned.  The need to specifically refer to electronic versions, arises from the  delayed commencement of Schedule 2 in relation to printed books, print music and printed periodical publications.

Item 4             Subsection 10(1) (at the end of the definition of infringing copy )

10.               Item 4 amends the definition of “infringing copy” in subsection 10(1) of the Copyright Act by adding new paragraphs (i) and (j). The amendment provides that  “infringing copy” will not include a non-infringing copy of a computer program whose importation does not infringe that copyright, or a non-infringing copy of an electronic literary or music item whose importation does not infringe that copyright.

11.               This is a technical change to ensure that the provisions of the Copyright Act that refer to “an infringing copy” do not refer to items that can be parallel imported.

Item 5             Subsection 10(1) (paragraph (c) of the definition of non-infringing accessory )

12.               Item 5 amends paragraph (c) of the definition of “non-infringing accessory” in subsection 10(1) of the Copyright Act by inserting the words “, or is” after “that is”. This technical change is for consistency with the expanded meaning of accessory provided in new provisions proposed to be inserted into the Copyright Act by this Bill.  Under this expanded meaning the whole of a work, or subject matter other than a work, can itself be an accessory to an article.

Item 6             Subsection 10(1)

13.               Item 6 amends subsection 10(1) of the Copyright Act to replace the definition of “ non-infringing copy”.  The new definition  refers to the sections where the term is defined in relation to different copyright subject matter.  In relation to sound recordings it is section 10AA; in relation to computer programs it is section 10AB (introduced by Item 8 of Schedule 1); and in relation to an electronic literary or music item it is section 10AC (introduced by Item 8 of Schedule 1).

Item 7             Subsection 10(1)

14.               Item 7 amends subsection 10(1) of the Copyright Act by inserting a definition of “qualifying country”.  The requirements of a qualifying country ensure copyright owners are able to rely on a minimum level of copyright protection in regard to parallel imported material.  The term “qualifying country” means a country that is party to the Berne International Convention for the Protection of Literary & Artistic Works.  It also means a member of the World Trade Organization (WTO), with laws consistent with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) in relation to the ownership and duration of copyright or related rights in and the reproduction of, works, sound recordings and cinematograph films.

15.               The form of the provision is borrowed from the existing form of the definition of “non-infringing accessory”.  Australia is a member of both the Berne Convention and the WTO.  Members of the latter were required to bring their laws into conformity with the terms of the TRIPS Agreement by 1 January 2000, except for least-developed countries in certain respects.  The form of the provisions caters for this and the fact that it is clear that some developing country members of the WTO have not yet fully implemented their obligations.

Item 8             After section 10AA

16.               Item 8 inserts new sections 10AB, 10AC and 10AD.

17.               New section 10AB contains a definition of the term “ non-infringing copy of a computer program”.  A copy of a computer program will only be non-infringing if it is made in a qualifying country, and its making did not constitute an infringement of any copyright in a work under a law of that country.

18.               New section 10AC contains a definition of the term “ non-infringing copy of an electronic literary or music item”.  A copy of an electronic literary or music item must be made in a qualifying country, and its making must not constitute an infringement of any copyright in a work, or a published edition of a work, under a law of that country to qualify as a non-infringing copy.

19.               New subsection 10AD(1) provides that if a person imports into Australia an article that has embodied in it a copy of a computer program, or a copy of an electronic literary or music item, then a copy of any work or other subject matter (other than a feature film) that is on, embodied in, or included with, the article on its importation is taken to be an accessory to the article.

20.               A legislative note to be inserted after new subsection 10AD(1) refers to sections 44C and 112C of the Copyright Act.  These provisions provide, in relation to works and subject matter other than works respectively, that the importation or doing of an act in section 38 of the Copyright Act, if done in relation to a non-infringing accessory, is not an infringement of copyright. 

21.               New subsection 10AD(2) defines the term “feature film” as used in the section as meaning a cinematograph film of more than 20 minutes in duration, that is wholly or principally produced for exhibiting to the public in cinemas or by way of television broadcasting.

22.               New subsection 10AD(3) provides that this section does not limit the meaning of “accessory” in subsection 10(1) of the Copyright Act.

23.               The effect of section 10AD is that where the relevant article has embodied in it a copy of a computer program or a copy of a literary or music item, the remaining copyright protected subject-matter is treated as an accessory.

24.               Convergence of technologies means that most forms of works and subject matter other than works, or reproductions or copies thereof, can be included on or in a single physical article together with the computer software.  Consequently, in order to permit parallel importation of computer software products, and not merely computer programs, this provision, when combined with the application of sections 44C and 112C, enables the parallel importation of this additional copyright subject matter. 

25.               However, while enabling the parallel importation of computer software products such as interactive games, the provision restricts the reach of the additional coverage in relation to the main product of the film and television industries - namely, full length cinema feature films and products produced for television half hour segments and longer.

26.               The definition of a feature film is intended to ensure that those productions that are produced to the standard expected for cinema or television release, are excluded if they are more than 20 minutes in length. 

27.               The 20 minute criterion ensures the ability to parallel import multimedia.  Multimedia products can include substantial excerpts of films including those that were produced for cinema or television release. 

28.               The framing of the provision in this way will also ensure that the parallel importation of legitimate interactive video games, including arcade games will not be able to be opposed on the basis of the copyright in a film created, or accessed by, the computer program.  Moving images created by interactive game software, or utilised by it, are generally not made for cinema or television broadcast but are made for use with, or as part of the game.  By contrast, a feature film may have interactive, or game elements, including those created utilising software, but it would, nevertheless, remain a feature film and not be subject to parallel importation if it is 20 minutes in duration or longer.

Item 9 Subsection 44C(1)

29.               Item 9 amends subsection 44C(1) of the Copyright Act by inserting “, or is” after “which is”.  This amendment expands the operation of the subsection by including a work which is itself a non-infringing accessory  (see the commentary on Item 5 of Schedule 1).

Item 10           At the end of subsection 44C(1)

30.               Item 10 adds a legislative note to the end of subsection 44C(1) which refers to the definition of “accessory” in subsection 10(1) of the Copyright Act, and to the extended definition of “accessory” in proposed section 10AD (see Item 8 of Schedule 1).

Item 11           Subsection 44C(2)

31.               Item 11 amends subsection 44C(2) of the Copyright Act by inserting “, or is” after “that is”.  This amendment expands the operation of the subsection by including a work which is itself a non-infringing accessory (see Item 5 of Schedule 1).

Item 12           After section 44D

32.               Item 12 inserts new sections 44E and 44F into the Copyright Act. 

33.               New section 44E provides that the copyright in a computer program that has been published in Australia or a qualifying country is not infringed by a person who imports into Australia an article that has embodied in it a non-infringing copy of the program.  The section also provides that a person, who does an act mentioned in section 38 of the Copyright Act (ie, commercial dealing) involving such an article does not infringe the copyright in the computer program.

34.               The legislative note to new section 44E refers to section 130B regarding the burden of proof on a defendant to a civil action.

35.               New section 44F is in identical terms to new section 44E in relation to a work that is, or is part of, an electronic literary or music item.

Item 13           Subsection 102(1)

36.               Item 13 amends subsection 102(1) of the Copyright Act by removing “112C and 112D” and substituting “112C, 112D and 112DA”.  This has the effect of adding new section 112DA (inserted by Item 16 of Schedule 1) to the list of provisions in subsection 102(1) of the Copyright Act.  Section 102 provides that it is an infringement of copyright to import without the consent of the copyright owner, subject matter other than works.  Subsection 102(1) currently provides that its operation is subject to the operation of sections 112C and 112D.

Item 14           Subsection 103(1)

37.               Item 14 amends subsection 103(1) of the Copyright Act by removing “112C and 112D” and substituting “112C, 112D and 112DA”.  This has the effect of adding new section 112DA (inserted by Item 16 of Schedule 1) to the list of provisions in subsection 103(1) of the Copyright Act.  Section 103 makes it an infringement of copyright to, inter alia, commercially deal with copyright subject matter other than works if the relevant subject matter was made, or imported, without the consent of the relevant copyright owner.  Its operation is currently subject to the provisions of sections 112C and 112D.

Item 15           At the end of subsection 112C(1)

38.               Item 15 adds a legislative note to the end of subsection 112C(1) of the Copyright Act which refers to the definition of “ accessory ” in section 10(1) and to the expanded definition of “accessory” in new section 10AD (see Item 8 of Schedule 1).

Item 16           After Section 112D

39.               Item 16 inserts new section 112DA of the Copyright Act in relation to the importation, sale and other acts in relation to copies of electronic literary or music items.  New section 112DA provides that the copyright in a published edition that is part of an electronic literary or music item that has been published in Australia or a qualifying country, is not infringed by a person who imports into Australia, or does an act mentioned in section 103 of the Copyright Act involving, an article that has embodied in it a non-infringing copy of the electronic literary or music item.

Item 17           After section 130A

40.               Item 17 inserts new sections 130B and 130C.

41.               These provisions place the onus on a defendant in infringement proceedings to establish that the copyright that is the subject of the action, was not infringed by the making of the articles that the person has imported or commercially dealt with subsequent to importation.  They are in a similar form to existing section 130A of the Copyright Act. 

42.               New section 130B provides that in an action by a plaintiff for infringement of copyright under sections 37 or 38 of the Copyright Act relating to the plaintiff’s copyright in a computer program, it must be presumed that the copy is not a non-infringing copy so far as it relates to the plaintiff’s copyright unless the defendant proves otherwise.

43.               The effect of this amendment is to clarify that the onus of proving whether a copy of a program is not an infringing copy falls on the defendant to the action.  The scope of this evidentiary provision is restricted to articles that have been imported as this is the context in which the concern relating to proof of the copyright status of such material has arisen.

44.               New section 130C of the Copyright Act provides that in an action by a plaintiff for infringement of copyright under sections 37, 38, 102 or 103 of the Copyright Act, relating to the plaintiff’s copyright in a work, or in a published edition of a work that is, or is part of, an electronic literary or music item and involving an article that has embodied in it a copy of the electronic literary or music item, it must be presumed that the copy is not a non-infringing copy, so far as it relates to the plaintiff’s copyright, unless the defendant proves otherwise.

45.               The effect of this amendment is to clarify that the onus of proving whether a copy of an electronic literary or music item is not an infringing copy falls on the defendant to the action.  It applies not only in relation to sections 37 and 38 in Parts III of the Copyright Act but also to sections 102 and 103 in Part IV in order to cater for the possibility of an action for breach of the copyright in any published edition contained in the item.  The scope of this evidentiary provision is restricted to articles that have been imported as this is the context in which the concern relating to proof of the copyright status of such material has arisen.

Item 18           Subsection 135(10)

46.               Item 18 amends subsection 135(10) of the Copyright Act by omitting “112A or 112D” and substituting “44E, 44F, 112A, 112D or 112DA”.  The effect of this amendment is to provide that Division 7 of Part V of the Copyright Act (Seizure of imported copies of copyright material) does not apply to copies of copyright material whose importation into Australia does not constitute an infringement of copyright because of new sections 44E, 44F, 112A, 112D or 112DA.

Item 19           After Section 198

47.               Item 19 inserts a new section 198A into the Copyright Act.  This provision has been included to ensure that assignments of trade marks can not be used to defeat the importation of imported goods where their importation would not be an infringement under the Copyright Act.  The application of the provision is restricted by this amendment to computer software and electronic literary and music items (ie, books, periodical publications and sheet music in electronic form), together with  accessories to these items as explained below.  Item 8 of Schedule 3 adds reference to sound recordings and the amendments made by Items 10 and 11 of Schedule 2 (which is to commence 1 year after the amendments made by this Schedule) adds reference to printed literary and music items (ie, printed books, printed periodical publications and printed sheet music) and any accessories to these items. 

48.               This provision ensures that in relation to the non-infringing importation of, or subsequent commercial dealing with the specified copyright subject matter, where there was consent to the use of the mark by a registered owner of the mark in Australia, or a former registered owner of the goods involved, who retains ownership of the mark where it was applied, the mark will not be infringed.    

49.               New subsection 198A(1) of the Copyright Act provides a number of conditions whereby a person who uses a registered trademark in relation to imported goods that are similar to goods for which the trademark was registered will not infringe that trademark.

50.               The trademark will not be infringed if (a) the importation is not a copyright infringement by virtue of the operation of a parallel importation provision; and (b) the trademark was applied to or in relation to the goods before the goods were imported (whether before or after the commencement of the section); and (c) the mark was applied by or with the consent of that owner or a former registered owner. 

51.               The effect of paragraph (c) is to make the consent of either the registered owner at the time the mark was applied, or a former registered owner, relevant to the question of trade mark infringement.  In the case of the latter, the provision makes it clear that the consent by a former registered owner is applicable only where that former registered owner was the owner of the mark, at the time, and in the place, where the mark was applied.

52.               New subsection 198A(2) provides that an expression used in this section has the same meaning as in the Trade Marks Act, unless a contrary intention appears.

53.               New subsection 198A(3) provides that in this section, “parallel importation provision” means sections 44E, 44F or 112DA or sections 44C or 112C as far as they relate to an accessory to an article referred to in new subsection 10AD(1) (see Item 8 of Schedule 1).  Section 44E deals with computer programs only.  Section 44F deals with electronic literary and music items.  Section 112DA deals with published editions of electronic literary and music items.  Subsection 10AD(1) provides that works and other subject matter included on an article bearing a computer program or an electronic music or literary item, are to be taken to be accessories to the article. 

54.               It is only when such material is present that the provision has any effect.  Hence, section198A is restricted in its application by paragraph (a) to use of goods involving articles embodying a computer program, a book in electronic form, a periodical publication in electronic form or sheet music in electronic form (and sound recordings, printed books, periodical publications and sheet music as noted above when the provisions relating to them come into force) and goods involving any copyright subject-matter than is an accessory to them. 

55.               The listing in this way indicates that the provision is intended to apply where the relevant copyright subject matter, including subject matter that is an accessory to the computer program etc., is the object of the importation   It is not intended that the mere inclusion of software such as in a car would invoke the application of the provision in relation to the machine.  It could hardly be said in that case that the goods the subject of the trade mark use, bore any real relationship to the software being imported.  Similarly, for the other subject matter and accessories to that subject matter.  Section 198A will only apply if the copyright material is non-infringing. 

Item 20           Application

56.               Item 20 provides that the amendments in Schedule 1 of the Bill apply in relation to works or published editions of works published before or after the commencement of the Schedule, and to copies of computer programs and electronic literary and music items imported into Australia after the commencement of the Schedule (regardless of whether they were made before or after the commencement of the Schedule).



SCHEDULE 2 - PRINTED BOOKS, PERIODICALS AND SHEET MUSIC

Item 1             Subsection 10(1) (paragraph (f) of the definition of infringing copy )

57.               Item 1 amends the definition of “infringing copy” in subsection 10(1) of the Copyright Act by omitting the words “non-infringing book” and substituting the words “non-infringing printed literary or music item”.  This amendment is a result of the new definition of “non-infringing printed literary or music item” (see Items 3 and 4 of Schedule 2).

Item 2             Subsection 10(1) (definition of non-infringing book )

58.               Item 2 repeals the definition of “non-infringing book” in subsection 10(1) of the Copyright Act.

Item 3             Subsection 10(1)

59.               Item 3 inserts a definition of “non-infringing printed literary or musical item” into subsection 10(1) of the Copyright Act, which refers to new section 10ACA (see Item 4 of Schedule 2).

Item 4             After section 10AC

60.               Item 4 inserts new section 10ACA into the Copyright Act.  New section 10ACA defines the term “non-infringing printed literary or music item” to mean a printed book, a printed publication or printed sheet music  that was made in a qualifying country, and whose making did not constitute an infringement of any copyright in a work or in a published edition of a work under a law of that country.

Item 5             After subsection 10AD(1)

61.               Item 5 inserts a new subsection 10AD(1A) after subsection 10AD(1) of the Copyright Act.  New subsection 10AD(1A) is in the same form as subsection 10AD(1) (see Item 8 of Schedule 1).  It provides that if a person imports into Australia an article that is a printed book, printed periodical publication or printed sheet music, then a copy of any work or other subject matter (other than a feature film) that is included with the article on its importation is taken to be an accessory to the article.

62.               These items are thus treated in the same way as the items in

Schedule 1.

63.               Item 5 also inserts a legislative note which refers to sections 44C and 112C of the Copyright Act (concerning the non-infringement of copyright in works or other subject matter that are accessories to imported articles).

Item 6             Section 44A

64.               Item 6 repeals existing section 44A of the Copyright Act (which contains the current scheme for the parallel importation of books) and inserts a new section 44A.  New section 44A is in the same form as new sections 44E and 44F inserted by Item 12 of Schedule 1.  It provides that the copyright in a work that has been published in Australia or a qualifying country is not infringed by a person who imports into Australia a non-infringing literary or music item.  The section also provides that a person who does an act mentioned in section 38 of the Copyright Act (ie, commercial dealing) involving such an item does not infringe the copyright in the work.

65.               Item 6 also inserts a legislative note explaining that new section 130D of the Copyright Act deals with the burden of proof a defendant bears in an action for copyright infringement.

Item 7             Section 44E (note)

66.               Item 7 omits the word “Note” and substitutes the words “Note 1”.  This is a consequential amendment arising from Item 8 following.

Item 8             At the end of section 44E

67.               Item 8 inserts a new legislative note at the end of new section 44E of the Copyright Act (introduced by Item 12 of Schedule 1 of the Bill). 

68.               Since a computer program may also be reproduced in electronic or hardcopy/printed form and, in the latter form, may be included as part of a book or periodical publication, the note refers to section 44A of the Copyright Act in relation to such a case, namely, a computer program that is embodied in a printed book or printed periodical publication.

Item 9                         Section 112A

69.               Item 9 repeals existing section 112A of the Copyright Act and substitutes a new section 112A.  Its intent and effect is the same as Item 6 above, namely to replace the form of the provision dealing with the existing scheme for parallel importation of books with the scheme provided for by this Bill.  New section 112A provides that the copyright in a published edition of work that has been published in Australia or a qualifying country is not infringed by a person who imports into Australia a non-infringing literary or music item.  The section also provides that a person who does an act mentioned in section 103 of the Copyright Act (ie, commercial dealing) involving such an item does not infringe the copyright in the published edition of the work.

70.               Item 9 also inserts a legislative note advising that new section 130D deals with the burden of proof a defendant bears in an action for copyright infringement involving this subject matter.

Item 10           After section 130C

71.               Item 10 inserts a new section 130D of the Copyright Act in the same terms as sections 130B and 130C inserted in Item 17 of Schedule 1.  In an action for infringement of copyright by importation, or subsequent commercial dealing, involving a printed music or literary item (ie, printed book, printed periodical publication or printed sheet music or any published edition of these) the defendant bears the requirement to establish that the item is a non-infringing item.

72.               New section 130D provides that in an action by a plaintiff for infringement of copyright under sections 37, 38, 102 or 103 of the Copyright Act in relation to the plaintiff’s copyright in a published edition of a work, involving an article that is a printed book, printed periodical publication or printed sheet music, it must be presumed, unless the defendant proves otherwise, that the article is not a non infringing printed literary or music item, so far as it relates to the plaintiff’s copyright.

Item 11           Subsection 198A(3) (paragraph (a) of the definition of parallel importation provision )

73.               Item 11 omits “44D, 44E, 44F, 112D or 112DA” and substitutes “44A, 44D, 44E, 44F, 112A, 112D or 112DA” in paragraph (a) of subsection 198A(3) of the Copyright Act.  The effect of this amendment is to add the reference to sections 44A and 112A in the provision, thereby extending its scope to cover the use of goods where a printed book, printed periodical publication and printed sheet music are embodied in an imported article.  See the notes to Item 19 of Schedule 1 for the effect of new section 198A.

Item 12           Subsection 198A(3) (paragraph (b) of the definition of parallel importation provision )

74.               Item 12 inserts the phrase “or (1A)” after “10AD(1)”.  This has the effect of including an accessory mentioned in new subsection 10AD(1A) in the definition of “parallel importation provision” in new section 198A (see Item 19 of Schedule 1).

Item 13           Application

75.               Item 13 provides that the amendments in Schedule 2 of the Bill apply in relation to works or published editions of works published before or after the commencement of the Schedule, and to printed books, printed periodical publications and printed sheet music imported into Australia after the commencement of the Schedule (regardless of whether they were made before or after the commencement of the Schedule).



SCHEDULE 3 - OTHER AMENDMENTS

Item 1             Subsection 10(1) (definition of circumvention device )

76.               Item 1 omits the word “effective” from the definition of “circumvention device” in subsection 10(1) of the Copyright Act.  This is to ensure consistency with the definition of “technological protection measure” in section 10(1) of the Copyright Act. 

Item 2             Subsection 10(1) (definition of circumvention service )

77.               Item 2 omits the word “effective” from the definition of “circumvention service” in subsection 10(1) of the Copyright Act.  This is to ensure consistency with the definition of “technological protection measure” in section 10(1) of the Copyright Act. 

Item 3             Subsection 10(1) (definition of technological protection measure )

78.               Item 3 omits the word “licensee” and substitutes the words “exclusive licensee” in the definition of “technological protection measure” in subsection 10(1) of the Copyright Act.  The civil remedies and criminal offences contained in sections 116A, 132(5A) and 132(5B) of the Copyright Act, as introduced by the Copyright Amendment (Digital Agenda) Act 2000 , refer to the person who may give permission to manufacture, supply or otherwise deal with a circumvention device or service, or, in the case of the civil remedies, provide who may bring an infringement action.  In both situations, it is the copyright owner and an exclusive licensee who may both bring an action and give permission.

79.               Item 3 amends the definition of “technological protection measure” to refer also to the copyright owner and exclusive licensee.  This is to ensure consistency with the provisions introduced by the Copyright Amendment (Digital Agenda) Act 2000

Item 4             After paragraph 10AD(1)(b)

80.               Item 4 inserts a new paragraph (c) to subsection 10AD(1) to provide that, when an article has a sound recording embodied in it, a work or other subject-matter that is embodied in or included with the article, will be taken to be an accessory to the article.

81.               The amendment will ensure that the treatment of accessories to a sound recording is the same as the treatment of accessories to all the other cases of parallel importation, namely, computer programs and electronic and printed literary and music items.

Item 5             Paragraph 39A(a)

82.               Item 5 omits the phrase “for the making, by reprographic reproduction, of copies of documents”, and substitutes “including a computer”.  This amendment is made to correct a misdescription in the Copyright Amendment (Digital Agenda) Act 2000

Item 6             Subsections 44D(4) and (5)

83.               Item 6 repeals subsections 44D(4) and (5) of the Copyright Act.  These provisions, which were included in amendments in 1998, are no longer required by virtue of the coming into force of section 44C which covers the same ground.  Further, they are rendered unnecessary by the wider provisions inserted by the previous item.  The remaining provisions of section 44D are still applicable although overlapping to a considerable extent with the accessory provisions as applied to sound recordings by section 10AD.

Item 7             Paragraphs 53(b) and (c)

84.               Item 7 replaces the word “copy” wherever it occurs in paragraphs (b) and (c) of section 53 of the Copyright Act with the word “reproduction”.  This is a consequence of amendments made by the Copyright Amendment (Digital Agenda) Act 2000 substituting “reproduction” for “copy” in the provisions to which paragraphs 53(b) and (c) refer.

85.               A legislative note is included after item 7 to correct a typographical error in the heading to section 153C of the Copyright Act.

Item 8            Subsection 198A(3) (paragraph (a) of the definition of parallel importation provision )

86.               Item 8 omits the phrase “44E, 44F or 112DA” and substitutes “44D, 44E, 44F, 112D or 112DA”.  Its effect is to add sound recordings and accessories to the copyright subject matter in relation to which new section 198A applies.  Section 198A is added by Item 19 of Schedule 1.

Item 9             Application

87.               Item 9 provides that the amendments in items 4 and 6 of Schedule 3 of the Bill apply in relation to copies of sound recordings imported into Australia after the commencement of the Schedule (regardless of whether they were made before or after the commencement of the Schedule).