FTA Exposes Government and Business To Risk

Brendan Scott, a lawyer specializing in IT and Telecommunications law, says changes proposed under the FTA will inflate compliance costs and give vendors in many industries a legislative imprimatur to engage in anti-competitive behaviour, imposing extra costs on consumers. The changes might also reduce the ability of Open Source projects to increase competition in the market. And he says the vindictive nature of infringement remedies are a serious cause for concern.

“The FTA includes a requirement for harsh enforcement of infringements of (IP) rights. In effect, defendants found guilty of an infringement are not sanctioned according to the loss that they have occasioned (as is typically the case when someone commits an actual property offence); rather they are punished so as to make an example of them,” Scott says. “The provisions effectively seek for these guilty souls to be publicly flayed for their indiscretions, regardless of what an independent judiciary would consider appropriate. You might call it a passion of the copyright.”

Scott says as anyone ever forced to undergo a licensing audit can attest, it can be practically impossible to ensure that a business is fully compliant with licensing terms. The FTA makes the consequences of non compliance more serious than they already are. This, in turn, means compliance costs for all businesses and government agencies will increase.

And he says the FTA is likely to encourage a more favourable environment for the patenting of business methods. Such patents, which have been the subject of significant criticism in the US, pose serious burdens on business.

Green Light for Anti competitive practices

Scott says the FTA includes detailed provisions against circumvention devices, designed to limit product availability to Australian consumers and implement pricing which discriminates against Australian consumers.

“It is difficult to understand how these aims are consistent with a reduction of trade barriers,” he says.

“The prognosis for the future is even more bleak. We are already in a position where it is possible to embed microprocessors onto most manufactured items. Manufacturers in the US have already embedded such processors into garage doors and printers allowing them to control after markets for these products. For example a printer interrogates the consumable cartridges to determine their origin and if they are from a competitor refuse to operate or, worse, will operate to a lower standard without alerting the consumer.”

He says the anti-circumvention provisions will prevent competitors from making functional accessories, leading over time to the emergence of serial monopolies and price gouging. Economics tells us we will get increased prices and lower quality in these circumstances.

The patent and enforcement provisions in the FTA are also likely to throw open source into disarray. Scott predicts business and government will find it impossible to make an honest assessment of risks involved in moving to open source because the consequences of error will be wholly disproportionate to the extent of that error.

“No longer can you assume that because you've created the work independently and in good faith you will be free from claims, as these are not defences to a patent suit. As a result we can expect transaction costs for open source projects (i.e. project maintainers needing to conduct copyright clearances and patent searches) to skyrocket over the medium term,” he says.

“This is particularly dangerous for the open source industry because it relies on massively scaled incremental innovation. Increasing the transaction costs for that innovation even moderately is likely to have substantial impacts on the process as a whole.”

And he warns the anti-circumvention provisions could permit the creation of data formats which will be effective in permitting incumbents to lock out competition.

Linux Australia President Pia Smith says agrees the government will have to spend a lot more on software development in order to fund patents research and patents liability insurance. Linux Australia says by adopting the FTA, the Australian Government stands to irreparably cripple the Australian software industry with the wholesale acceptance of US style patent and intellectual property laws.

“Sourcing people to develop software would become much harder, as smaller software development companies would be greatly affected by the changes, again having to factor in the high liability insurance costs,” Smith says.

And she warns the large software development community in Australia, especially those involved in Open Source development, could be encouraged to take their projects and skillsbase overseas if the Australian environment is adversely changed.

Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

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