Copyright and the Parallel Importation of Goods into Australia - Two Recent Decisions

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1 The University ofqueensland Law Journal Vol. 15, No.1 85 Copyright and the Parallel Importation of Goods into Australia - Two Recent Decisions Clive Turner* The recent cases of R.A. Bailey & Co. Ltd. v. Boccaccio Pty. Ltd. l and Ozi-Sojt Pty. Ltd. v. Wong 2 demonstrate the increasing utilization of the importation and sale provisions in ss.37 and 38 of the Copyright Act 1968 by an overseas copyright owner.to prevent the parallel importation 3 of goods and thereby enabl~ the territorial division of markets and the regulation of the means of distribution of a product in Australia. Section 37 provides, in essence, that it is an infringement of copyright in a work (Le., a literary, dramatic, musical or artistic work 4 ) to import an article into Australia for sale, hire or other commercial purposes without the licence of the copyright owner, where the importer knows that had he made the article in Australia it would have infringed copyright in the work. Section 38 contains a similar provision concerning sales in Australia without the licence of the owner of the copyright. It needs to be borne in mind when considering ss.37 and 38 that, pursuant to Australia's international obligations as a member ofthe Berne Convention and the Universal Copyright Convention, the provisions of the Copyright Act 1968 extend to protect in Australia copyright in works created overseas by citizens or residents of the member countries of those Conventions in the same way as the provisions of the Act apply to Australian citizens and residents. 5 In the Bailey case, the plaintiffs were the manufacturers in Ireland of the liqueur "Baileys Original Irish Cream". The product was imported into Australia by Swift & Moore Pty. Ltd. which had entered into a distributorship agreement with the plaintiffs for the Australian market. The labels on the bottles depicted, inter alia, a country scene and referred to Swift & Moore Pty. Ltd. as the "sole Australian Importers" of the product. The defendants began selling genuine Bailey's liqueur in Australia, obtaining their supplies not from the plaintiffs directly but from a supplier in Holland to whom the liqueur had been sold by the plaintiffs. The labels on the bottles *Senior Lecturer in Law, University of Queensland. 1. (1986) 6 I.P.R (1988) AIPC "Parallel imports are goods manufactured outside the jurisdiction by, or under the authority of, the owner of an industrial property right relating to those goods, but imported by someone other than his authorised importer or distributor." D.R. Shanahan, Australian Trade Mark Law and Practice, Law Book Co., 1982, at Copyright Act 1968, s.10(l). 5. See Copyright Act 1968, Part VIII, especially s.184 and the Copyright (International Protection) Regulations. All the major industrialised countries are members of either the Berne Convention or the Universal Copyright Convention or both. See further, S. Ricketson, The Law oj Intellectual Property, Law Book Co., 1984, ch.14.

2 86 Clive Turner imported by the defendants were virtually the same as those on the bottles imported by the authorised Australian distributor, except that they bore the name of the "sole importer" for the Netherlands. The plaintiffs had registered a trade mark in Australia which closely resembled the label on their bottles. It is apparent that the plaintiffs were anxious to ensure that the importation and distribution of their product in Australia should take place only through their authorised local distributor. Accordingly, the court was asked. to determine whether the defendants had infringed: (a) the plaintiffs' registered trade mark; and (b) the plaintiffs' copyright in the label as an artistic work. Young J., in the.new South Wales Supreme Court, held that there had been no trade mark infringement. On this issue he basically accepted the exhaustion theory whereby once a trader has affixed his mark to his genuine goods and sold them, his rights are virtually exhausted and he has no further capacity to control the marketing of the goods which originated from him. 6 On the copyright issue it was not disputed that the material on the label or sticker on the bottle constituted an artistic work for the purposes of the Copyright Act Furthermore, it was held that copyright protection in the work had not been lost by reason of the "industrial application" defence in s. 77, since the sticker constituted a "label" within the exemptions from registration under the Designs Act 1906 and therefore s.77 did not apply.? On the question of infringement of copyright, the defendants raised the issue of implied licence. However, in the leading Australian decision on the importation provisions, Interstate Parcel Express Co. Pty. Ltd. v. Time-Life International (Netherlands) B. V. 8, the High Court held that in copyright law an implied licence or consent could not be inferred from the mere fact that the copyright owner had sold the goods without any restriction on their subsequent disposal. Thus, in the Time-Life case, Angus & Robertson, a Sydney book retailer, had purchased a series of cookery books from an American book wholesaler who had purchased them from the distributors of Time Incorporated ("Time Inc."), the copyright owners who had sold the books in the United States without any restrictions as to their resale. Time Inc. had granted to an affiliated company, Time-Life, an exclusive licence to publish and sell the books anywhere in the world, except the United States and Canada and the books were marketed in Australia through an authorised local distributor. The High Court held that the importation a~d 6. On this important point on which there was earlier conflicling Australian authority, Young J. preferred the judgment of Smithers J. in Atari Inc. v. Fairstar Electronics Pty. Ltd. (1982) 50 A.L.R. 274, to that of Starke J. in Atari Inc. v. Dick Smith Electronics Pty. Ltd. (1980) 33 A.L.R. 20. See further on the issue of trade marks and parallel importation: Shanahan, op. cit. at ; Ricketson, op. cit. at paras ; A. Muratore and D. Robertson, "The Trade Marks Act 1955 and Parallel Imports" [1984] Univ. N.S. W.L.J. 117 (special issue). 7. The relevant regulation was the Designs Regulations, reg. 20A in force prior to 1 April 1982, that is, before amendment ofthe Designs Act 1906 by the Designs AmendmentAct See now, Designs Regulations, reg (1977) 138 C.L.R. 534.

3 Copyright and the Parallel Importation 87 sale of the books by Angus & Robertson infringed copyright under ss.37 and 38 of the Copyright Act 1968 and rejected the argument that the sale of the books by Time Inc. in the United States implied a licence in favour of the buyer, and any person claiming through him, to deal with the books as he saw fit, including their importation and sale in Australia. In the Bailey case, the defendants sought to distinguish Time Life on a number of grounds. First, it was argued that an artistic work which constituted a trade mark should be regarded as an exception to the principle in the Time-Life case. Although Young J. said that such proposition was arguable, he did not think it compatible with the basis of the judgment in Time-Life"... that there must be a necessary implication in the contract between the copyright holder and the transactions which he puts through." 9 Secondly, the defendants argued that where an artistic work is created for the purpose of use as a trademark there is an implied surrender of any copyright protection inconsistent with liberties afforded under trade mark law. The argument was based on the recent decision of the House of Lords in British Leyland Motor Corp. Ltd. v. Armstrong Patents Co. Ltd. 10 However, Young J. did not think that the latter decision assisted the defendants since it was directed towards a particular problem and did not deal with the wider proposition that a person who had both a trade mark and copyright was generally entitled to protection against both. Thirdly, the defendants argued that as every subsequent commercial dealing in the bottles involved a use of the trademark, it was necessary that the owner of the copyright in the label be taken to have licensed or consented to any activity which was permitted by trade mark legislation. This contention relied on Solar Thompson Engineering Co. Pty. Ltd. v. Barton II where the U.K. Court of Appeal held that there was an implied licence under a patent to repair pulleys by replacing worn rubber rings, so that it must follow that purchasers of the pulleys were also impliedly licensed to infringe the plaintiff's copyright in their drawings to the extent necessary to enable such repairs to be carried out. However, Young J. rejected the contention since in his view there was insufficient to distinguish the facts before him from Time-Life: thus, the mere fact of sale by the plaintiffs to their Netherlands' distributors and the fact that the plaintiffs could not object to the use of their trade mark on the bottles did not lead to the inference of an implied licence. The general effect of the decision was that the defendants' importation and sale of the liqueur bearing the plaintiffs' label constituted an infringement of copyright in the label as an artistic work. Accordingly, the defendants would be effectively prevented from obtaining the product from their Dutch supplier, and if they wished to continue marketing the liqueur in Australia would have to acquire their supplies from the authorised local distributor. 9. (1986)6 I.P.R. 279 at [1986] 1All E.R. 850; (1986) 6 I.P.R [1977] R.P.C. 537.

4 88 Clive Turner Whether the enforcement of such marketing arrangements is the proper function of copyright law would seem seriously open to question. In the second case, Ozi-Sojt Ply. Ltd. v. Wong I 2, the applicants comprised the Australian licensee and fourteen overseas copyright owners of the computer programs relating to certain video games. On the agreed statement of facts, the respondents had purchased diskettes of the video games in the United Kingdom with the consent of the copyright owners and no restrictions had been imposed on,the respondents, nor the persons from whom they had bought the diskettes, as to how the respondents might subsequently deal with them. The diskettes reproduced a substantial part of the computer programs relating to the games. Computer programs are now protected in Australia as literary works under the Copyright Act It was clear that the importation and sale of the diskettes by the respondents was not done with the express consent of the applicants and accordingly, unless consent could be implied, such importation constituted an infringement ofcopyright under s.37. The respondents argued that since the copyright owners had originally sold the diskettes without any express restriction as to subsequent dealings with them, there should be implied a licence for their importation and sale in Australia. However, Einfeld J. held, following the Time-Life case, that no such licence could be implied from the' mere'fact that the' copyright owner had sold the goods without any restriction on their subsequent disposal. Hence the respondents' 'importation and sale of the diskettes was done without the licence of the copyright owner in breach of s.37 of the Copyright Act The learned judge rejected the respondents' argument of implied licence seemingly based by analogy on the impermissibility of imposing restrictions upon the resale of goods under European community law l4 and under the Sherman anti-.trust legislation in the United States. In the course of his judgment, Einfeld J. echoed the sentiments of Murphy J. in Time-Life that there was an element of public interest in copyright enforcement cases and that should the facts show a reasonable possibility of serious breach of the Trade Practices Act 1974 or injury to the public, the Court can and should require the offending party to negate this before upholding its copyright. 15 However, Einfeld J. said that on the facts before him there was no evidence of any serious breach of trade practices legislation, nor any allegations of grave injury being caused to the 12. (1988) AIPC This was brought about by the Copyright Amendment Act 1984 which came into operation on the 15 June See the definitions of "literary work" and "computer program" in s.10(1). 14. Citing Polydor Ltd. v. Harlequin Record Shop [1980] F.S.R In Time-Life Murphy J. questioned whether the nature of the arrangements between Time-Life and Time Inc. may have constituted breach of the monopolization (s.46) or resale price maintenance (s.48) provisions of the Trade Practices Act However, as the point had not been argued before the Court, he did not feel that he could reach any final opinion on the point «(1977) 138 C.L.R. 534 at ). The issues were recently raised in Warman International Ltd. v. Environtech Australia Pty. Ltd. (1986)67 A.L.R. 253.

5 Copyright and trte rarauellmporlation 89 public if the diskettes could not be marketed in Australia at the relevant time. On a more critical note, Einfeld J. commented: "It may be that some other mechanism needs to be developed to resolve these issues, because the interests ofthe Australian people in having free access to literary, musical and artistic works, even computer video entertainment, are adversely affected if oppressive restrictions on importation and sale may be imposed by copyright owners who are not themselves importingorintendingto import the works in question. Nevertheless, despite the force of the respondents' argument, they have failed to persuade me that I ought not to.follow the principles enunciated in Time-Life and its result.... Adapting the comments of Stephen J. in Time-Life (supra at p.555), any undesirable community or societal consequences which may flow from this aspect of copyright protection are matters for the legislature." 16 Sections 37 and 38 of the Copyright Act 1968 are concerned with the infringement of copyright in works by their importation and sale in Australia without the licence of the copyright owner. The Act also contains analogous provisions in relation to subject-matter other than works 1? which have similarly been utilised to prevent, in effect, the parallel importation of records 18 and video-tapes. The use of copyright to prevent the parallel importation ofgoods raises important policy issues beyond the scope of the present note. The question is under consideration by the Copyright Law Review Committee which has issued a Discussion Paper on the topic 19. The Committee's final recommendations on what is becoming an increasingly important area of copyright law is awaited with considerable interest. 16. (1988) AIPC at 38, Copyright Act 1968, ss.102, See, for example, Polygram Records Pty. Ltd. v. Monash Records (Australia Pty. Ltd. (1985) 72 A.L.R. 35; Chrysalis Records Ltd. v. Vere (1982) 43 A.L.R Copyright Law Review Committee. "The Importation Provisions of the Copyright Act 1968", Discussion Paper, Canberra, February 1986.