vogelross.com.au

“The law on restrictive covenants in employment contracts in Australia should be reviewed, to re-enliven the ancient common law doctrine making illegal restraints of trade that are contrary to the public interest in free movement of workers, and free development of innovative ideas and practices” (University of Sydney Labour Law Professor Joellen Riley) *

Vogel Ross Pty Ltd and its directors, Peter Vogel and Duncan Ross today applied for Special Leave to appeal to the High Court over the restraint of trade lawsuit brought by former employers IceTV Pty Ltd.

Last month, the NSW Court of Appeal upheld the Supreme Court ruling that we (Duncan Ross and Peter Vogel) breached non-compete and non-solicitation contracts when we went to work for Mobilesoft Pty Ltd after being terminated by IceTV in October 2006.

The good news is that the Court of Appeal cleared our names by overturning Supreme Court judge Rein’s previous findings that we had breached our duties as employees and Directors of IceTV, saying “there is a strong argument that the primary Judge’s credit-based findings were flawed, at least insofar as they involved findings that the appellants set out to betray IceTV’s interests… it should be said, in fairness to the appellants, that it would not be safe to rely on the primary Judge’s findings as to the appellants’ motives in their dealings with Mobilesoft prior to their departure from IceTV”.

The bad news is that the Court of Appeal failed to overturn the lower court’s finding that we breached an “anti-solicitation” contract (restraint) by writing a grant application for Mobilesoft. The restraint said we must not work for a competitor to IceTV or solicit the custom of anyone who had entered into discussions with IceTV with a view to becoming a customer.

We presented evidence and arguments that Mobilesoft was not a competitor to IceTV. We also argued that we did not “solicit” in the sense of stealing a customer away, in fact we tried to conclude a deal for Mobilesoft to use IceTV’s EPG in a product they were developing for Video Ezy. We say the Court of Appeal took a much too literal approach to the circumstances of the alleged breach. For example, the Court decided that Mobilesoft was a competitor because it “had the ability to develop an EPG if it chose to do so”, and that writing a grant application was something that “IceTV could have replicated had it been given the opportunity”.

We have asked the High Court to review the judgment. As matters stand, we have been ordered to pay IceTV’s costs and damages. More importantly, the Court of Appeal has set an alarming precedent that the lower courts are required to follow. This could be devastating for other unfortunate ex-employees finding themselves sued by ex-employers.

Restraints of trade

One ground of our application to the High Court is that our case demonstrates that the Courts of NSW are not applying the laws regarding restraint of trade correctly.

In common law, restraints of trade are generally illegal and unenforceable, because they stifle competition, which is against public policy. However, if the ex-employer can show “special circumstances”, such restraints can be enforced in some cases.

In our case, we will argue that The Court of Appeal tried too hard to find reasons why the otherwise illegal restraints should be enforced. In particular, the court read down and severed parts of the restraints to remove uncertainty and narrow their scope before declaring them valid. The Court relied on the NSW Restraints of Trade Act (1976) for this purpose, however we say that the Court did not apply the act correctly. Parliament’s intention was that the restraints should not be validated “in cases where there is a real risk of oppression” but we say that the Courts of NSW are not interpreting the Act this way.

If this faulty process is allowed to stand unchallenged, the law will have moved significantly towards assisting employers to oppress employees

The injustice of our case was so obvious that even at its earliest interlocutory stage, three years ago, it caught the attention of Professor Joellen Riley:

“This case smells very much like the enforcement of a pure ‘non-compete’ covenant. Enforcement of covenants to protect not only existing client relationships and maturing business opportunities but also ‘prospective’ clients, really means the enforcement of

promises not to compete for the development of new business. In the end, that means reducing competition in the marketplace, and it allows firms to sterilise the creative talent of ex-employees for a time. This seems particularly harsh when the firm itself initiated termination of their employment contracts” (Innovation put on Ice, Intellectual property law bulletin vol 20 no 7 January 2008).

More recently, Prof Riley said:

“On what basis was it at all reasonable to restrict Mobilesoft’s options for recruitment, when it had never even become a client of the plaintiff firm? Injunctions given in these circumstances clearly stifle free competition in labour markets, to the disadvantage not only of the workers affected, but of the market as a whole. This is a particularly obnoxious result when parties’ choices are limited by an order to enforce an agreement to which they were complete strangers”.*

Prof Riley also highlights the over-arching human rights dimension to this case:

“These contemporary developments in the enforcement of restrictive covenants infringe a fundamental principle of international labour law that labour is not to be commodified”.

Unless the High Court reverses the decision in our case, the inferior courts will be bound by this precedent, leaving many ex-employees with no way of knowing which post-employment activities might land them in Court.

Peter Vogel, 19^th November 2010

* Professor Joellen Riley, Legal Studies Research Paper No. 10/65 July 2010

The appeal of the judgment against me and Duncan Ross in the restraint of trade case brought by IceTV  (IceTV vs Ross) was heard on the 22-23 July 2010 before Justices Sackville, MacFarlan and McColl.

We submitted that Rein J erred when he found that “I think it is clear that Mr Ross and Mr Vogel’s work in preparing the Clever Networks grant application was work that they were doing because of their technical and industry knowledge, which IceTV could have replicated had it been given the opportunity.” We said that the law is clear that it is illegal to restrain application of “technical and industry knowledge”. It was up to the Plaintiff (IceTV), we said, to prove special circumstances that would make such a restraint enforceable, an onus which we say they failed to discharge.

Several other key questions about restraints of trade were debated, including our position that you can’t restrain against soliciting merely prospective customers.

Another proposition I put to the Court of Appeal was that the restraints were void for uncertainty because the contracts said the restraints were to operate for 12 months “or such other lesser period as may be judged by a court of competent jurisdiction on being reasonable in the circumstances”.  The authorities make it clear, I said, that if the restraints leave it to the Court to decide what is reasonable, there has been a “mainfest failure to to attempt to make the restraint a reasonable restraint” (quoting from the Restraints of Trade Act)  and that the Court should find the restraints void.  IceTV’s Queen’s Counsel, John Ireland, argued the second part of the definition of the restrain period was severable, removing any indeterminacy.

Coincidentally, a week after the appeal hearing, Prof. Joellen Riley University of Sydney – Faculty of Law, published a paper “Commodifying Sheer Talent: Perverse Developments in the Law’s Enforcement of Restrictive Covenants” which said in relation to IceTV v Ross “The sheer injustice of enforcing a restraint when the employer had no use for the labour itself is breathtaking.”  Dr Riley’s full article is available here.

The appeal judgment is likely to take some time, but we hope it will go some way to advancing Prof Riley’s call that “the law on restrictive covenants in employment contracts in Australia should be reviewed, to re-enliven the ancient common law doctrine making illegal restraints of trade that are contrary to the public interest in free movement of workers, and free development of innovative ideas and practices.”

Watch this space.

Peter Vogel

To the spin doctor who coined the phrase “negative growth”.

Could you please come up with a similarly brilliant euphemism for a so-called “upgrade” which actually makes a product worse?

I find myself grappling for such a term more and more often.

Many thanks,

Peter Vogel

Is it just me, or has the word ‘upgrade’ foresaken its dictionary meaning of ‘improvement’ in favour of a 21st century meaning more like ‘maintenance fee’?

Call me a luddite if you like, but it sure seems that when I ‘upgraded’ my microwave oven, clothes dryer or even my car, I replaced one which was easy to use and maintain with one that requires a university degree to operate and cannot generally be repaired.

I have become particularly suspicious of any product that can be fixed by turning it off and on again.

This frustration has been growing on me over the last decade, and as a technologist who has been personally responsible for creating a number of computer-operated gadgets, I have been all too aware of the close correlation between the user-friendliness of many common appliances and the amount of ‘smarts’ inside. The negative correlation, that is.

Given the choice, I always shop for products that have a mechanical dial instead of a keypad and LCD display, no matter how smart the animated icons look.  The old fashioned computerless models are far less likely to get zapped by power surges, are truly intuitive to operate, and if something goes wrong, the fault is generally visible and fixable once you open the thing up.

It will come as no surprise to anyone who has bought a computer recently that I am in touch today with my inner grumpy old man as a consequence of a computer ‘upgrade’ debacle.  After many years of faithful service, the notebook PC I use every day for my work was starting to physically wear out. Bits were falling off and the screen was nearing the end of its life.  Fair enough, on a dollars per hour basis it had given me good value. So, off to the computer shop to buy a new one.

 I knew pretty well what I wanted – something akin to the old one but with a bigger hard drive would do me fine.  I told the assistant what I wanted and he said no problem, except I can’t have Windows XP, that’s obsolete, they all come with Vista now. He assured me it’s not a big learning curve to move from XP to Vista, adding that I also get a voucher for a free upgrade to Windows 7 when that became available.

My alarm bells started ringing. Why the assumption that I would want to upgrade my shiny new Vista computer to Windows 7? I was already worried enough about saying goodbye to XP, which I knew very well and did everything I needed.  If it ain’t broke, why fix it?

Could I install XP on the new computer, I asked hopefully. The answer was (you guessed it) ‘sure, but we can’t guarantee it will work and you will void your warranty’.

So with a heavy heart and a lighter wallet I took my new computer home, along with the voucher for the free Windows 7 upgrade which a little voice told me to keep in a safe place.

A couple of days later and I had all my old software and data transferred onto the new notebook. It was all smooth sailing, thanks to my 30 years IT experience and couple of other operational computers connected to the internet so that Dr Google and a dozen forums could help me get past multiple gotchas. How the average non-geek would manage the transition I can’t imagine.

At that point, I thought my ‘upgrade’ had been reasonably painless, although I was already sceptical that it was any better than what I had a year ago.  Over the next few weeks my worst fears started to be confirmed. This was no upgrade. Some programs which used to work just fine under XP were now flaky. Others did not work at all. I had no choice but to ‘upgrade’ packages which I was quite happy with just get back to where I was previously. And I’m not talking free upgrades. 

The salt in the wound was that when things went wrong, the error messages themselves were frequently wrong. Vista routinely sent me on a wild goose chase with messages like “You don’t have permission to perform this operation”  when the problem was “The file is open in another program”, as the old XP would have said.  Once I learned to distrust any error messages, I became more adept at fixing the problems.

After a month of immense frustration and resentment at this forced ‘upgrade’ I was almost ready to forgive and move on when I discovered that my new notebook would not connect to the wireless access point at my favourite cafe.

As per usual, I consulted Dr Google and found there had been 56,000,000 other searches on the same problem. At least I was not alone. There was an alarming array of suggested fixes, including several from Microsoft themselves. One of the most amusing was the suggestion that the problem was not actually in Vista, but in the wifi access point it was trying to connect to. The helpful suggestion was to try turning it (the access point) off and on again. How to do that in a cafe? Maybe stick a fork in a powerpoint and wait for power to be restored?

I soon found that it was not only in this cafe that I could no longer use the internet. It was about a 50-50 chance whether I could connect to any given public hotspot. Every couple of weeks I got riled up by seeing other people happily using their Macs right next to me while my new computer said accusingly “this connection is taking longer than usual” and had another crack at finding a solution. Many more wasted hours.

A couple of weeks ago a courier arrived at my door with the Windows 7 upgrade disk I had been promised. It was just one DVD, with a small flyer assuring me that Windows 7 was the answer to my prayers. I would not have to reinstall my programmes or my data, I was assured. And because the DVD was labelled as being the upgrade for my particular model of notebook, it would install all the right bits and pieces with just one click.

I took a deep breath, backup up all my data, and loaded up the DVD. The instructions said “simply run setup.exe”.  Only problem was, there was no setup.exe on the disk. So far, par for the course.  Instead, the disk took me automatically to a webpage called an “upgrade assistant”.  Here I was confronted with about 10 pages of small type which demanded a series of complex interactions that were supposed to take a couple of hours, after which you would be ready to being the upgrade. What’s worse, the major step was a download of 400 megabytes of patches which would “take up to 60 minutes using fibre-to-the-home internet”. At this point it was a tossup whether it might be quicker to wait for the National Broadband Network to be built or to attempt this manoeuvre using my humble ADSL. Being blessed with another PC to work on while the ‘upgrade’ progressed, I started the process.

Had I not had a spare PC to use in the event the notebook completely died, I would have baulked at the next step, which was to upgrade the BIOS in the notebook, something I have always avoided like the plague in spite of my professional background. Much to my relief, the notebook survived the BIOS upgrade and I left the upgrade assistant it to do its thing.

Four hours later it was complete and I was ready to start the upgrade.

Once again, close reading of complex instructions replete with the mandatory double-negatives was required at several points.  Several hours later it was 30% installed when I went to bed and left it installing. I don’t know how long it actually took, but I would guess the whole process would take 8 hours if (a) you know what you’re doing and (b) nothing goes wrong.  Remember, this is using an upgrade disk customised for the very computer I owned..

The next few days were punctuated with inexplicable crashes and weird behaviour, but eventually I fixed most of the problems or found workarounds.  Several mysteries remain unsolved, such as a tantalising dialog that appears every time I try to open a .pdf from a website which is blank except for a question mark and an “OK” that I have to click before proceeding.  At least there is only one choice, it would be worse if there were a yes/no choice to be made to this somewhat undefined question.

The good news is that that the wifi problem seems to have been fixed and I can now connect to wifi hotspots again. So, after three months of immense frustration, waste of time and significant expenditure, the upgrade is complete.  I have a computer which works nearly as well as my old XP one.

I have to take my hat off to Apple. They have sponsored a Google ad which came up when I searched for help with my Windows 7 ‘upgrade’ problems, saying “Upgrading to Windows 7? There’s never been a better time to switch to a Mac”. Talk about a well targetted ad!

The remaining big mystery is, how could the world’s biggest software company get it so wrong?

Here’s my theory – I don’t think it was a mistake at all.  I reckon that Microsoft were hard pushed to find real improvements that would make it worth buying an upgraded version of Windows, so someone had this clever idea: let’s produce an upgrade so awful that everyone will be delighted when the next upgrade comes along and brings them back to where they were with XP.

There can be no other explanation.

Posted by Peter Vogel, 1 Jan 2009

IceTV has won the first round of its restraint of trade action against us (Duncan Ross, Peter Vogel and Vogel Ross Pty Ltd) and we are now preparing for a lengthy appeal.

After nearly three years of court proceedings, the Supreme Court of NSW found that we breached our employment agreements with IceTV, the company we worked for from 2005-2006.

In the process, a lot of information that IceTV’s Directors might have wished to keep to themselves became public and has started popping up in the trade press.

The background to these proceedings are summarised below in this blog, and also this article by an Australian professor of law.

The court accepted our submission that the restraint provisions of the employment contracts under which we were sued were too broad to be enforceable. Although the Court “read them down” to make them narrower it still found that we had breached them by working for Mobilesoft.

We were certainly surprised by this judgment. We presented what we thought was an irrefutable case that the restraints in our employment contracts were outrageously broad and if interpreted as IceTV proposed would prevent us from earning a living in our field of expertise. We also gave evidence that we were not trying to compete with IceTV and that by no stretch of the imagination could Mobilesoft be considered a competitor. In fact, the evidence shows that we hoped that IceTV would be the EPG supplier in any deal we managed to pull off.

Sadly, this matter is unfortunately still far from finalised. We have filed a Notice of Intention to Appeal and are will ask the Court of Appeal to reverse the decision of the court below.

Until the matter is finalised we naturally cannot go into details, however the full judgment, which can be found on the Supreme Court of NSW website, makes very interesting reading, particularly for anyone interested in the development of the restraint of trade doctrine in Australian law.

We have also filed a cross-claim against IceTV and the three individuals who were directors at the time IceTV started the action. The cause of action is basically “oppression” under the Corporations Act as we were, and continue to be, shareholders in IceTV.

We believe the hearing of the appeal, and the outstanding cross-claim, will answer many of the disturbing questions raised by proceedings to date.

When it comes to bold scientific experiments, I’ve got to hand it to the Europeans. Take for example the Large Hadron Collider completed last year near Geneva. This is the world’s biggest science experiment, occupying a 27-kilometre long underground tunnel. Its purpose is to smash particles one trillionth the size of a mosquito into each other at 99.9 per cent the speed of light. To me, the most impressive part is that the motivation is fundamental research, not a stepping stone to better bombs or to making iPhones cheaper.

On an ever grander scale, a Swiss company Living PlanIT SA has just announced plans to build a complete experimental city from the ground up. Occupying 1700 hectares of beautiful Portuguese countryside, PlanIT Valley will be a massive laboratory where companies can try out the latest ideas in sustainable urban development under real-life conditions.

The PlanIT Valley founder and former Microsoft executive, Steve Lewis, says: “Cities lie at the absolute core of the world’s environmental crisis. They occupy 2 per cent of the Earth’s land mass but consume 75 per cent of its resources. The world must fix the way that cities are built and the way they are operated.”

To have any impact on global warming, the need to develop sustainable cities is urgent. Lewis says construction of PlanIT Valley will start this year. This would be an impossible dream if the project, like the Large Hadron Collider, relied on government funding but PlanIT Valley is a self-funding commercial venture. It will be developed and operated from the ground up in collaboration and partnership with major corporations, research institutions and universities. “The future doesn’t lie in creating another Silicon Valley,” Lewis says. “It lies in moving to the next level a living R&D laboratory in the form of a complete urban environment.” This unique laboratory will include everything a city needs housing, offices, shops, health care, light manufacturing, active and passive recreation and entertainment, schools and a university. By starting literally with green fields, there will be no restrictions on what the participating corporations can test out under actual living conditions. The development will be able to deploy today’s most advanced systems for energy supply, resource management, transportation, communications and other essential infrastructure.

Living PlanIT’s mission is “to find a way to meet the physical, intellectual and spiritual needs of our growing populations within urban centres that are ecologically sound”. PlanIT Valley is designed to produce its own power with a 50 per cent surplus to sell. The project includes creation of sustainable forests, rivers, lakes, a marine biology research and education centre and restoration of indigenous flora and fauna.

While aggressively promoting its social and environmental objectives, Living PlanIT makes no apologies for the profit motive of the venture. PlanIT Valley was recently named the Best Foreign Investment in Europe in High Tech at the World Investment Conference held recently in La Baule, France.

The project announced for Portugal is only the prototype of what can be built anywhere on the planet and the plan is to get other cities under way even before PlanIT Valley is completed. The Living PlanIT president, Malcolm Hutchinson, says: “Our integrated urban infrastructure can be replicated in any region striving to accommodate accelerating urban growth. While the Portuguese project is the most advanced one, we’re in active discussions with other locations we’re finding there’s an enormous global emerging business opportunity.”

This kind of “the sky’s the limit” thinking shows how the twin disasters of global warming and financial collapse could deliver some positive synergies.

This  article was first published in the Sydney Morning Herald.

For further details see the Living PlanIT website.

Peter Vogel

If you’re a business owner, chances are you’ve been cold-called by an IT boffin pitching to fine-tune your Google Adwords. You don’t use Adwords? Tsk, tsk, tsk.So, what’s this Adwords caper all about and does your little business really need it? Most importantly, can you afford it? On the surface it looks expensive and complicated. Well, it’s not. It’s also likely to outperform your traditional advertising methods and in future may well become the mainstay of your promotional activity.

Adwords is a web-based advertising service operated by Google. It’s “pay-per-click” advertising – that is, you pay nothing unless someone clicks on your ad. The ads appear either under “Sponsored links” on the right-hand side of the Google search page or maybe under “Ads by Google” on other web pages.

The clever thing about Adwords is that they appear on web pages or search pages with keywords you have specified. So if someone searches for “roof repairs” and you have chosen “roof repairs” as a key phrase, your ad appears next to Google’s search results. Hopefully someone then clicks on the link and you score a customer.

The closer your ad is to the top of the list, the more likely the searcher is to click on it. The position in this list depends on how many advertisers pay for the same keyword and how much they are willing to pay. If you type in “home mortgage” you’ll get a lot of paid ads and should you click through to one of those advertisers’ sites, that advertiser will pay Google handsomely. However, if by chance you are interested in purchasing an “Outer Mongolian rock rabbit” and enter that phrase instead, you’ll most likely see there are no paid advertisements at all. It means no one is prepared to pay Google for those keywords.

All paid ads take a form Google specifies. This includes a headline, two lines for a “call to action” and your web address. When you sign up to Google Adwords, you make up these ads. In fact, you can have many such ads all running at the same time using different keywords.

The way ads are selected to be shown is based on keywords and phrases and, to some degree, your budget. Think of the keywords you think customers would type in to find you. These may include product names, services and processes. And here’s a secret: include common misspellings of those words.

Be as specific as possible using two- or three-keyword phrases. Avoid generic terms such as just “rabbits” if you breed Outer Mongolian rock rabbits. Otherwise, every time a customer looks for just any old rabbit he might get your ad and you waste your advertising budget. Provide a more accurate phrase such as “Outer Mongolian rock rabbits” or “exotic pets”.

Now the money bit. You choose how much you spend per month. You also choose geographically where you want your ads to appear; city, state, country. While this is not an exact science, it works pretty well. But how much should you spend and how much does each ad impression cost you? If your ad appears but is not clicked on, you pay nothing. This is called an “impression” and Google tells you how many of those you have each month.

However, if the searcher (your future customer) clicks on your ad and gets forwarded to your website, you pay based on the amount you offered for that word or phrase.

This action is called a “click” or “click through”.

And how much do you offer for that word or phrase? Paying more will bump you closer to the top of the display list but you will use up your budget faster. While experienced users can set a maximum figure for each word or phrase, to get the hang of this process simply choose Google’s Starter Edition. This relies on Google’s advanced black magic to take your budget, whether $5 or $5000 a month, and calculates the likely cost of your keywords based on what other companies are bidding. It then pitches as many impressions of your ad as possible through the month.

A typical click-through costs 20 cents to $2 but keywords for high-ticket sales such as mortgages can cost many dollars per click. Don’t panic – you cannot be charged more than the budget you set. A small business might start with a budget of $100 a month and see how it goes. You pay by registering a credit card.

Importantly, monitor the results from time to time. The statistics Google provides are excellent. They tell you how each word is performing along with the number of impressions and click-throughs. This allows you to fine-tune your campaign by tweaking the keywords. Try offering a wickedly good special that can only been accessed via a special web page your Google ad goes to. That way you can track the actual number of customers you get from your campaign.

So give it a go. Sign up for Adwords by following the “Advertising Programmes” link from www.google.com. It won’t take you more than an hour or so and the knowledge you’ll have gained will be invaluable in understanding this very cool and effective way of advertising.

Duncan Ross, May 2009

This story was first published in The Age.

The High Court has ruled that the electronic program guide created by IceTV does not infringe Nine Networks’ copyright.

The full judgment of French CJ,Gummow, Hayne, Heydon, Crennan and Kiefel JJ (73 pages) is available here.

In summary, the court found that, in terms of the Copyright Act,  IceTV did not copy a “substantial” part of Nine’s weekly schedule.

The judgment notes that IceTV did not copy any of the broadcasters’ program synopses, and that:

IceTV’s synopses had a different commercial purpose from that of Nine, as evidenced by the use of humour or criticism.  For example, the IceGuide synopsis for the Nine programme The Footy Show (AFL) on 28 September 2006 read
“From the Rod Laver Arena comes this extra long torture session.  Apologies for not bringing you the ‘entertainment’ line up, it’s not through lack of research.  Unfortunately, the only way to have truly known was to be watching The Footy Show last week and frankly, not for love or money will the IceMan do that.  So, those of you who enjoy the ‘humour’ and baffling ego inflation.  Enjoy.”

Having found that  IceTV did not copy a substantial part, it was not necessary for the Court to consider the issue of “indirect copying” which was one of the main reasons previously given for the contrary finding in the Federal Court of Appeal. I discuss that subject in an earlier post.

I was pleased to see the Court took into account the balance between the public interest issues of this case.  They said:
“The Full Court approached the issue of substantiality at too high a level of abstraction, and in doing so tipped the balance too far against the interest of viewers of digital free to air television in the dissemination by means of new technology of programme listings.  The Full Court did so by treating the issue of substantiality as dominated by an “interest” in the protection of Nine against perceived competition by Ice.”

The history of this litigation is explored further in this category of our blog. It has its roots with my idea, back in 1988, that an electronic program guide could be used to overcome the difficulty people were then having setting their VCRs to record the correct program. When I approached the TV networks to buy their data, they said they would not sell it for that use. When I came up with the idea of creating an EPG independently, without breaching copyright, TV industry representatives said “we’ll sue you”.

The rest is history.

Peter Vogel (Shareholder but no longer employed by IceTV)

The decision in the case of Nine Networks v IceTV  will be handed down at the High Court in Canberra at 10.15 tooday.

From the hammering that Nine got from the bench at the hearing of the appeal last year, I’d say IceTV will romp home. However a decision in IceTV’s favour would signifcantly change the course Australian copyright law has taken, so I’d reduce the odds to 60% in Ice’s favour.

Stay tuned!

Last week I attended a public consultation on the government’s proposed $1.3 billion Green Car Innovation Fund. The fund is part of the “New car plan for a greener future” which provides $6.2 billion to support Australia’s automotive industry.

In summary, the fund is a grant scheme which offers $1 for every $3 funding provided by the applicant. To qualify for a grant, the project must be aimed at developing ways to significantly reduce the greenhouse gas emission of passenger vehicles. It covers R&D, proof-of-concept, early-stage commercialisation and pre-production activities. Full details of the fund cab be downloaded from the Department of Innovation, Industry, Science and Research website.

This initiative is basically a good thing, as it recognises that with the right policies, going green can be a boost to Australia’s economy, rather than a drain on it. However there are a couple of glaring problems that I suggest the government should look at before the fund kicks off.

Size of the fund

The Fund will provide $1.3 billion over ten years from 2009, or an average of $130m per year.

This is not a lot of money to support the greening of Australia’s biggest export earning manufacturer. To put the size of the Fund in perspective, this represents about 1% of fuel excise collected.

In the light of the present world economic situation the total fund should be significantly increased, perhaps drawing on part of the government’s recently announced economic stimulus package.

Merit critera
The key criterion is reduction of greenhouse gas emissions. But at the public consultation in Sydney, it was stated that only the emission of the vehicle itself are relevant to this criterion,  factors such as embodied energy of the vehicle would not be taken into account in assessing the merit of an application.

This is clearly a fundamental oversight. To be consistent with the stated objective of greening the industry, the total greenhouse gas emissions must be reduced by the proposed technology, including for example the carbon footprint of fuel production and transportation. I fear, however, that because this fund is part of an automotive industry package, and not a climate change initiative, this is unlikley to change. Expecting the car industry to put the environment before profits is akin to asking the tobacco companies to remove the addictive chemicals from cigarettes.

Funding formula
The proposed funding ratio of 1:3 is the fund’s biggest problem. It was explained at the consultation that the rationale for this low ratio is that this will result in a multiplier effect for the government’s investment – $1 of grant resulting in a total of $4 worth of innovation.

This logic is seriously flawed.

Only companies with existing revenues or a strong capital base will be able to find the matching funding, and these companies would carry out the project whether or not they receive a grant. For them, the fund will just represent a nice 25% “icing on the cake”.

Small companies, individuals, university researchers and the like, simply cannot raise the money required. To make matters worse, the fund pays retrospectively, so the grantee actually needs to find 100% of at least the first few months of the project cost themselves. This represents a significant practical cash flow barrier for small innovative and efficient developers.

The government says it has fixed the funding at 1:3 because it wants to get the best bang for its buck. However the exact opposite will result. The biggest returns will come from the small research projects, not the big ones. With the minimum grant being $100,000, it also dictates that the minimum project size is therefore $400,000. We are aware that some of the most innovative work being carried out in Australia at the moment in the field of electric vehicles is by small companies who would have neither the management bandwidth nor the cash flow to execute a project of that size.

Giving a hundred inspired individuals $100,000 each with no strings attached is much more likely to produce some new groundbreaking technology than giving a car manufacturer a $10m cashback on a $40m project.

A better solution would be to calculate the funding ratio on a sliding scale, so that small projects receive 100% funding (removing the impossible matching funding barrier) and large ones be funded at 1:4.

Funding should also be paid in advance, tranched against a projected cashflow.

Otherwise, the scheme will, by its very design, eliminate the target organisations it seeks to support.

This post was also published by the Sydney Morning Herald.

2009 UPDATE: ICETV WINS HIGH COURT APPEAL

2008 post follows:

The transcripts of the IceTV vs Nine Networks appeal to the High Court of Australia have now been published.

The first day 16th Oct 2008
Second day 17th Oct 2008

My comments on each day’s arguments are presented in previous entries in my blog.

Going by last year’s High Court Annual Report, a judgment can be expected within 3-6 months.