AUSTRALIAN INFORMATION INDUSTRY ASSOCIATION LIMITED
17 May 1999
INTELLECTUAL PROPERTY ISSUES
Professor Allan Fels
Australian Competition &
Thank you for the opportunity to address the Australian Information Industry Association. Tonight I intend to discuss a few recent issues in the areas of electronic commerce and the telecommunications industry.
I will firstly outline the framework within which the ACCC operates. Among other legislation, the ACCC administers the primary piece of consumer protection and fair trading legislation in Australia – the Trade Practices Act.
The stated aim of the Trade Practices Act is to enhance the welfare of Australians through the promotion of competition and fair trading and consumer protection.
In particular it focuses on:
- unfair prices
- the abuse of market power; and
- the violation of consumer rights
for the whole of Australia.
The role of the ACCC is to apply the Trade Practices Act properly, without fear or favour to anyone, no matter how powerful economically or politically, for the benefit of consumers of all kinds everywhere in Australia, including household consumers; small, medium and big business; farmers; local, state and federal governments; and all people everywhere, in capital cities, country towns and farms. All have an interest in being supplied competitively and efficiently at low prices with good service; and where they sell, to sell to buyers who have to compete for their output.
In general, the ACCC is not involved in advocating changes in the law, even where laws are anti-competitive, for example, laws that restrict entry into a profession; laws that restrict shopping hours; or laws that confer monopoly power. The ACCC is therefore not involved in the numerous reviews of laws carried out under the National Competition Policy.
Applying the law
The ACCC is committed to vigorous enforcement of the law. The goals of the Commission in taking enforcement action are:
- to stop unlawful conduct;
- to seek compensation for those damaged by unlawful behaviour;
- to secure compliance with the law;
- to seek deterrence and, if appropriate, punishment.
Although the Commission is committed to the vigorous enforcement of the Trade Practices Act, it is equally committed to following lawful processes. It is always careful to stay within the law in its own behaviour. There are important safeguards for business in the Act. Essentially the Commission must prove its case in court, usually against well heeled highly defended litigants.
No one likes having the law applied to them. The usual fear and loathing apply to the regulator. When the Commission applies the law to someone a frequent response is:
- the behaviour did not occur;
- if it occurred, it was not unlawful;
- if it was unlawful, it was justified in the circumstances;
- the business is being unfairly picked upon;
- others in the industry or in other industries are breaking the law more than this business and should be the target of the Commission rather than this business;
- the Commission should exercise its discretion not to apply the law;
- if the law must be applied there should be absolute minimal resolution, e.g. by means of a warning or exchange of letters between the Commission and the offending party.
The Commission’s view is ultimately that the Trade Practices Act is an important one and it should be upheld. There should be no special favours to any groups. In short, the law should be applied without fear or favour in the way Parliament clearly intended.
Internet commerce can provide considerable benefits to consumers, in terms of improvements in transaction convenience, choice, range and even price. For businesses, Internet commerce is attractive because it offers access to a global market, has low start up and operating costs, has few regulatory burdens, and provides cheap and efficient marketing and distribution mediums.
However, the development of Internet commerce also brings with it certain competition and consumer protection concerns. In addition, the international nature of some Internet commerce transactions can make consumers susceptible to difficulties unique to cross border transactions.
Tonight I want to discuss those electronic commerce issues.
A general statement of the application of the Trade Practices Act is that what is a breach of the law ‘off’ the Internet remains a breach of the law ‘on’ the Internet. Indeed, matters such as pyramid selling schemes become far more serious when perpetrated on the Internet, as the operators are able to directly access millions of consumers worldwide. Previously these approaches were limited by the cost of postage and stationery.
At the International level, many consumer protection enforcement agencies internationally have similar legislation in place to regulate market conduct. This legislation applies in the particular country to protect that country’s consumers.
Electronic commerce, including Internet transactions, is fast becoming and will quite possibly become the principal means by which consumers transact their business. Already, consumers purchase goods and services via the Internet, and mechanisms such as EFTPOS are a way of life. While these new methods of consumer transactions can offer many benefits to consumers in terms of accessibility, choice, price and convenience, they will only achieve their full potential if consumers have confidence in them.
The growth of on-line commerce is part of a wider growth in global commerce. The emergence of the ‘global market place’ raises jurisdictional problems for consumers and national consumer protection agencies alike.
The development of e-commerce as a means whereby consumers transact across borders has thrown up new challenges for consumer affairs agencies. Unless we rise to meet the challenge, a growing black hole in the traditional basic protection consumers expect will emerge. Consumer affairs agencies will need to develop new paradigms to ensure that consumers can transact on the global market with real confidence. To do nothing will mean that a potential for increased consumer welfare will be dissipated.
Consumer affairs agencies can no longer indulge in a “beggar thy neighbour” approach. If a fraudulent Internet trader is domiciled in Country A and commits fraud, misleading conduct or sharp practices on citizens of Country B, then the consumer affairs agency or agencies in Country B should have the expectation that the consumer affairs agency in Country A take appropriate remedial action, such as stopping the behaviour, securing compensation for consumers, and, if appropriate, seeking penalties. If this situation was reversed, then similar expectations would arise.
Internet Sweep Days
I must say that I am already heartened by the co-operative approach taken by consumer affairs agencies through such initiatives as the International Marketing Supervision Network and the annual international Internet sweep days that the ACCC have conducted to date.
The sweep days involved more than 70 agencies from 30 countries “sweeping” the Internet for get-rich-quick schemes, miracle cures and other health products. Those websites that offered the targeted activity were sent educational email messages telling them about the existence of relevant consumer protection legislation and how to comply. The sites were then revisited one month later, with the result that approximately one quarter had been removed or amended in order to comply with the relevant legislation.
With the advent of the Internet, fraud, misleading conduct and scams know no boundaries. These sweep days have not only shown that consumer affairs agencies can work co-operatively towards reducing scam operators, but also that they are responsible for setting the groundwork for an effective network.
The ACCC has also set up a slam a scam facility on its homepage, so that consumers can ‘dob in’ scam sites. We are also planning to conduct another sweep day this year.
CONSUMER PROTECTION ISSUES
As is the case in any consumer market, from time to time things can go wrong in global commerce transactions, and consumers who buy services or goods on the Internet and other global mechanisms are confronting the following type of consumer protection issues:
- After sales difficulties, such as failure to supply the goods or services after payment has been made, problems with the delivery of goods, unsatisfactory goods or services, or goods or services that present health or safety risks;
- Information deficiencies, such as the inability of the consumer to find out basic information about the product or service, and the trader, on which to make informed decisions;
- Fraud and unethical conduct, such as identity deception, false advertising, receiving payment without intending to supply , and scams like pyramid seeling schemes, and some work from home or investment schemes; and
- Problems with privacy issues.
The potential for problems also exists when consumers make payments over the Internet, including loss, errors and unauthorised transactions. A critical issue in undertaking on-line transactions is the security of payment details such as credit card numbers and bank account details.
There are also consumer protection issues associated with domain naming and the protection of intellectual property on the Internet. In fact, for only a few hundred dollars, an unrelated body can own the domain name of an entity that has spent considerable time and money to develop its reputation in the traditional market place.
ENFORCEMENT ACTIONS BY THE ACCC
I believe that regulatory agencies like the ACCC must react quickly and effectively in the formulation of new enforcement strategies for the global market place.
As the national competition and consumer protection regulator for Australia, the Australian Competition and Consumer Commission has a keen interest in how consumers will be protected in the new global marketplace.
In recent years the Commission has increasingly found itself in the position of trying to deal with complaints by Australian consumers about products and services which they have purchased directly from other countries. The Commission has also had to deal with complaints by overseas consumers about products and services they have purchased by direct selling techniques from Australia. These complaints have raised a series of enforcement challenges for the Commission and have driven the ACCC to investigate new ways of enforcing consumer protection legislation. They have also led to us working in closer collaboration with our overseas counterpart agencies who are experiencing similar challenges. In some instances we have been able to provide a measure of redress for consumers, in others we have not had the jurisdictional reach or remedies needed.
These circumstances have led the Commission, together with overseas agencies, to consider how best we can protect the interests of consumers in the increasingly global marketplace. We are learning how we can improve our enforcement techniques and improve cooperation levels with overseas consumer protection agencies, how we can encourage ethical traders to take self-regulatory action to ensure that the interests of consumers are protected and how consumers themselves can avoid the ever growing number of international scams targeted at them.
Strategies for addressing consumer protection issues
Alternative mechanisms for consumer protection will be required, in addition to legal remedies, if consumers are to operate safely within the global market place. The following initiatives are essential to the development of a satisfactory framework for consumer protection for Internet commerce.
Coordinated law enforcement and compliance strategies
Cooperation by enforcement agencies is vital at both the national and the international levels, and can allow for the sharing of enforcement techniques and information, cooperation in investigatory and enforcement actions, and a united approach to the development of consumer protection strategies for Internet Commerce.
International cooperation can be achieved through international networks of consumer protection agencies, like the OECD Committee on Consumer Policy, the International Marketing Supervision Network (IMSN), and the International Society of Consumer and Competition Officials (ISCCO).
In fact, the OECD is currently working on and debating the Guidelines on Consumer Protection in Electronic Commerce. The Guidelines state that governments, businesses, and consumers should work together to ensure that equivalent protection for electronic consumer transactions is applied by reviewing and adapting laws and practices, if necessary, to address the special circumstances of electronic commerce.
Improved enforcement and compliance strategies
The quickly evolving, technical nature of problems found associated with Internet commerce requires enforcement agencies like the ACCC to take new approaches and maintain new tools in order to enhance consumer welfare. Cooperative action between enforcement agencies needs to allow the development of enforcement tools and processes such as:
- Information sharing systems
- Joint enforcement action
- Reciprocal enforcability of orders; and
- Statutory powers to obtain temporary funds freezing and/or cease and desist orders, pending court review.
Industry based solutions
Both domestically and globally, an important element of any overall solution to the consumer protection problems associated with Internet commerce should involve industry associations and their members seeking appropriate remedies rather than waiting for a regulatory response from government.
At the corporate level, industry associations are well placed to oversee and encourage the adoption of both national and International industry-based consumer protection mechanisms, such as codes of conduct, consumer issues committees, certification/accreditation schemes and industry level dispute resolution schemes.
It also makes sense to target consumer protection mechanisms at other industry participants that have an association with, and may inadvertently assist fraudulent and unethical traders. For instance, regulatory or self regulatory efforts may best be directed at Internet service providers, credit card and other finance and payments systems industry members, and international delivery services.
Regulation of on-line commerce
The rapid development of new marketing methods, such as the Internet, has led some national and state governments to introduce legislation to protect consumers. An example is the recent Californian Assembly Bill, which expanded regulations applying to the sale and lease of goods, so that they applied equally to Internet commerce. In addition to the problems associated with the extraterritorial reach of domestic consumer protection laws, the special features of the new world of global commerce, in terms of size, speed and anonymity, largely render conventional domestic consumer protection measures inadequate from a practical point of view. As an alternative, national governments can contribute to the creation of International norms or rules for consumer protection, while also encouraging the industry itself to undertake self regulatory efforts.
The issues involved in electronic commerce are complex, diverse and continually evolving. It is the ACCC’s hope that, in protecting consumers and ethical on-line businesses and network operators, the Commission will have a close and constructive relationship with the on-line industry in Australia and internationally. After all, it is in the industry’s best interest to impose order and protect its consumers as much as it is the ACCC’s responsibility.
I will now turn to the area of telecommunications.
The telecommunications and information technology industries are the fastest growing sectors in the economy. Telecommunications industry revenues alone are now around $25 billion (nearly 5% of GDP) and are forecast to grow to around $30 billion early in the next decade.
While competition in this area is still a bit patchy and we are looking to increased competition to further improve services and lower prices, we can already see that prices have fallen significantly for some services, a growing number of new operators are entering the market and many more new and innovative services are becoming available.
There is particularly strong growth in data, internet and mobile services, which is also where most of the innovation has been focussed and reflects the increasing importance of the information economy and the growth in electronic commerce.
It becomes clear that an efficient and innovative telecommunications sector is becoming more significant for business than ever before and an important factor in why the Commission has concentrated so much attention on this sector over the past 18 months when deregulation and regulatory responsibilities for competition matters were shifted to the Commission.
We have already started to see some encouraging results from deregulation and open access.
Competition is most apparent in voice services, particularly long distance services, which were the first services to be opened up for access. Long distance charges have more than halved since June 1997 when this industry was deregulated. We expect to see even further reductions in long distance and international charges in the future.
Local service competition has been quite limited in contrast. However a number of new operators are constructing fibre and other similar networks, including AAPT, Primus, Powertel, MCI Worldcom, ACTEW and Northpower. It is also encouraging to see that, after several technical hiccups, Optus’s broad-band cable is starting to provide a bundle of telephony, pay TV and data services in much larger numbers than ever before. This provides greater competition with Telstra for local and other services. We expect access to local netwoks to open up further following the ACCC’s local access inquiry, facilitating greater competition in voice and data services.
In mobile services we have three digital mobile network operators which has broadly resulted in a more competitive market than in fixed services. Recent studies suggest that while usage charges have not fallen significantly, overall mobile charges are relatively low in Australia as compared to most OECD countries.