Australian consumers would benefit from key Recommendations contained in the Competition Policy Review Draft Report released last week – meaning better access to, and cheaper prices for digital content and tech products. In particular:

• any remaining prohibitions on parallel imports would be abolished, unless there is a public interest factor in retaining them; and
• Intellectual Property licenses would no longer be exempt from the requirements of the Competition and Consumer Act.

Introduction

I don’t propose to cover the whole scope of the Policy Review here – but instead focus on the practice known as geo-blocking, whereby customers in one jurisdiction can be prohibited from buying goods and services from another jurisdiction, simply due to their country of residence. (For example, Australian consumers are currently unable to purchase music downloads from Amazon’s dedicated Australian site, or from any of its international sites; and numerous titles listed on iTunes’ US and UK stores are not available for download via iTunes Australia.)

Context

It is now more than 20 years since the Hilmer Report (which led to the National Competition Policy), and as last week’s Draft Report states, much has changed since then in terms of new technology, market globalisation, the Internet and the digital economy. (Back in the mid-90s, before Amazon, PayPal and eBay, I recall having to buy from overseas via e-mail – including the payment information!)

The Review Panel, under the Chairmanship of Professor Ian Harper is to be commended for the speed of its draft review, and the breadth and depth of its Draft Recommendations, which cover a full range of structural and regulatory reforms. The Review was announced in December 2013, and based on current performance, is on target to deliver its Final Report within 12 months of being launched. (But I don’t expect much to happen by way of legislation until after the next Federal Election in 2016.)

The end of geo-blocking?

Most notable for the purposes of this article is Draft Recommendation 9 – the removal of any remaining prohibitions on parallel imports. Since this is a rather technical aspect of IP law, and because the proposal seeks primarily to benefit consumers, any reforms in this area will require extensive public education initiatives.

For example, some current restrictions on parallel imports may relate to health and safety issues (e.g., electrical items sourced from overseas which are not designed to run on Australian power supplies); others appear to be merely the capricious whims of trade mark owners, copyright holders, IP licensors and their licensees, designed to create artificial market barriers, especially when it comes to product pricing and availability).

So, if consumers and businesses are going to benefit once parallel imports are fully legitimized, they will need help in understanding their rights and obligations under the proposed reform. By way of example, if I can’t download a movie from iTunes Australia, and if this content is not available via any other local online store, can I force Apple to sell it to me if it is available in another iTunes store (and at a truly comparable price)? Can I seek to buy a copy directly from the copyright owner or from the locally licensed distributor, even though neither of them have chosen to make it available in this market?

Shades of Grey?

Parallel imports (also known as “grey market goods”) are not the same as counterfeit or pirated goods – grey goods are authentic and otherwise legitimate products originating in one country that have not been specifically licensed for direct sale or distribution into another market. Given that local consumers can already access many goods from overseas online retailers, and since items bought for personal consumption are generally not caught by the ban on parallel imports, there are already ways to get round these obstacles. (For example, Levis Australia does not import all sizes of its jeans for sale in the domestic market, but a careful search on eBay can usually uncover a retailer in the US willing to ship direct – and probably cheaper than buying locally if available, even allowing for shipping costs).

The bum deal for Aussie consumers

In its Issues Paper released in April this year, the Review Panel highlighted the impact of international price discrimination on Australian consumers, which in my view is a direct consequence of both the ban on parallel imports and restrictive IP licensing practices:

“A further issue in relation to imports is international price discrimination. International price discrimination occurs when sellers charge different prices in different countries and those prices are not based on the different costs of doing business in each country. A recent parliamentary inquiry found that Australian consumers and businesses must often pay much more for their IT products than their counterparts in comparable economies, in some cases paying 50 to 100 per cent more for the same product.” (1)

Noting that price discrimination is not specifically prohibited under Australian competition law, the Issues Paper also acknowledged that consumers and businesses alike already circumvent this “legitimate” trade practice via parallel imports, despite the potential legal and other risks.

Redefining the market

Unsurprisingly, the Draft Report does not recommend a ban on international price discrimination (2), mainly because of the cost and difficulty of enforcement (similar arguments have been made against lowering the GST-free threshold on online imports). And yet the Review Panel is in favour of extra-territorial reach under the Competition Law (making it easier to pursue legal action against off-shore parties). It also suggests redefining the scope of “competition” to include markets for goods and services that are “capable” of being imported or supplied into Australia (Draft Recommendations 20 and 21).

Delivering the desired outcome

Consequently, for Draft Recommendation 9 to have any real impact, it must facilitate consumer and business access to goods (especially technology, software and other digital content) that have not been licensed for direct sale or distribution in Australia, either because the overseas manufacturer chooses not to make it available in the Australian market or because the local licensee/distributor chooses not to supply it (or not at a comparable price). In other words, it should not be more onerous (or expensive) for an Australian customer to acquire legitimate goods from overseas if an off-shore supplier is willing to fulfil local orders direct. (Expect huge resistance from the global tech suppliers – who are probably concerned about the implications for transfer pricing and other international tax issues; and await a backlash from the FMCG sector – where some companies have already been disputing territorial control over sales of instant coffee.)(3)

Related reforms

Along with the repeal of Section 51(3) of the Competition and Consumer Act 2010 (to bring IP licenses within the purview of the Act – Draft Recommendation 8), the Draft Report also proposes a thorough review of Intellectual Property law in light of “new developments in technology and markets” and their impact on competition (Draft Recommendation 7).

The latter recommendation can be linked not only to the practice of geo-blocking, but also to the emergence of the shared economy, aspects of which challenge traditional notions of markets, vertical supply chains, business models, ownership and licensing.  Elsewhere, the Draft Report comments on the significance of services like Uber (which has faced industry resistance since launching in Australia).

Conclusion

Most importantly, the Review Panel is keen to ensure Australia has a more relevant (and robust) IP regime that both encourages innovation and enhances market competition. A positive start would be an end to geo-blocking.

Footnotes:

(1) Source: The Australian Government Competition Policy Review – Issues Paper, April 2014, Chapter 2.6 (emphasis added; see also my earlier blog).

(2) It is worth noting that price discrimination is prohibited within the EU.

(3) The full ACCC Decision can be found here. Makes for interesting reading.

NEXT WEEK: What is CSIRO up to?