Basecape Pty Ltd and Australian Trade and Investment Commission
[2020] AATA 68
•23 January 2020
Basecape Pty Ltd and Australian Trade and Investment Commission [2020] AATA 68 (23 January 2020)
Division:GENERAL DIVISION
File Number(s): 2018/1512
Re:Basecape Pty Ltd
APPLICANT
AndAustralian Trade and Investment Commission
RESPONDENT
DECISION
Tribunal:Mrs J C Kelly, Senior Member
Date:23 January 2020
Place:Sydney
For the above reasons, the reviewable decision is set aside and the matter is remitted for reconsideration in accordance with the finding that WPallimport is eligible know-how in accordance with s 27(1) of the EMDG Act and therefore the EMDG application is for an eligible product as defined in s 107 of the EMDG Act.
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Mrs J C Kelly, Senior Member
CATCHWORDS
TRADE AND COMMERCE – industry assistance – export market development grants – whether the EMDG application is for an eligible product – whether the product is an eligible know-how – whether the product resulted to a substantial extent from research or work done in Australia – Applicant conceptualised product and undertook research and work in Australia – coding of the product undertaken overseas - the Applicant’s concept is the substance of the product – product satisfies s 27 of the EMDG Act – reviewable decision set aside and remitted for reconsideration in accordance with Tribunal’s finding
LEGISLATION
Export Market Development Grants Act 1997 (Cth) ss 3, 23(2), 25(1), 25(4), 26, 27(1), 27(2), 34(4), 107
CASES
Tillmanns Butchers Pty Ltd v Industry Employees’ Union (1979) 42 FLR 331
REASONS FOR DECISION
Mrs J C Kelly, Senior Member
23 January 2020
The Australian Trade and Investment Commission (the Respondent) refused to grant Basecape Pty Ltd (Basecape) an export market development grant (EMDG) for the 2015-2016 grant year under the Export Market Development Grants Act 1997 (Cth) (the EMDG Act).
The reviewable decision dated 22 February 2018 affirmed the original decision made on 13 March 2017 to disallow the EMDG, which was sought for expenses incurred in relation to overseas representation ($527,153) and promotional literature and advertising ($127,850).
The application for the EMDG was made on 24 August 2016. In the application, the Applicant stated that it was not seeking to export goods. It described “the services or intellectual property” it intended to offer to foreign residents as:
Software Solutions for WordPress Developers enabling data import from any XML or CSV file.
The software solution is called WordPress All Import (WPallimport). In its Amended Statement of Facts, Issues and Contentions, the Applicant wrote:
WPallimport is software, a ‘plug-in’, for websites that run on a platform called Wordpress, which is used to build websites. It enables users to seamlessly import data from a database –eg. an Excel spreadsheet—onto their website. …
Wordpress is the largest website platform in the world. Over 25% of all websites run on Wordpress …
The WPallimport plug-in allows developers and owners of Wordpress websites to import large CSV or XML files onto their Wordpress website so that the data shown on the website reflects that of the source.
The key feature of WPallimport is the use of “drag and drop” functionality to import CSV or XML files onto a WordPress website. As Mr Basserabie explained, WPallimport matches the fields in a data source to the fields on a website so that the correct information from the source is captured and displayed in the right locations and formats on the website.
A one-off licence entitles a purchaser to download and use the WPallimport software on an unlimited number of sites and to receive lifetime technical support and updates. A free version is also available, with fewer features.
The issue
The issue to be decided is whether the EMDG application is for an “eligible product” as defined in s 107 of the EMDG Act.
After the hearing, the Respondent sought to raise the issue of whether Basecape was genuinely carrying on business in Australia during the grant year as required by s 7(1)(a) of the EMDG Act. At a telephone directions hearing on 16 January 2019, the Tribunal held that the issues would not be expanded and noted that if Basecape is successful, the Respondent can then consider that issue.
The Respondent also asserted for the first time at the hearing that if Basecape provided an “eligible non-tourist service” as defined in 25(1), it did not satisfy the requirement in s 25(4) that the Australian input was sufficient to ensure that Australia will derive a significant net benefit from the supply of the service. Both parties provided written submissions on that issue after the hearing.
The law
Section 3 of the EMDG Act sets out the Object of EDMG Act:
The object of this Act is to bring benefits to Australia by encouraging the creation, development and expansion of foreign markets for Australian goods, services, intellectual property and know-how. It does so by providing for an assistance scheme under which small and medium Australian exporters committed to and capable of seeking out and developing export business are repaid part of their expenses incurred in promoting those products.
Section 4 of the EMDG Act provides that a person is entitled to a grant in a particular grant year in the amount worked out under Part 6, if that person:
(a)is eligible under Part 3 for a grant in respect of a grant year; and
(b)has incurred eligible expenses in that grant year in relation to eligible products; and
(c)has applied for a grant in accordance with Part 7.
An eligible product is relevantly defined in s 107 of the EMDG Act to mean:
(a)eligible goods;
(b)eligible services; or
(ba) eligible events;
(c) eligible intellectual property; or
(c)eligible know-how.
Part 4 of the EMDG Act is entitled “Eligible Products”. It includes ss 23 to 27. Section 23(2) states that the underlying principle of Part 4 is that “a product should be eligible only if it is substantially of Australian origin”.
An eligible service is defined in s 25 of the EMDG Act:
(1) Subject to subsection (4), a non-tourism service is an eligible non-tourism service if the service is supplied (whether in or outside Australia) to a person who is not a resident of Australia.
…
(4) Despite subsection (1) or (2) (as the case requires):
(a) a particular non-tourism service; or
(b) a particular tourism service;
that, apart from this subsection, would be an eligible non-tourism service or an eligible tourism service (as the case may be), is not such a service if the CEO of Austrade determines, in writing, having regard to all the facts available to him or her, that the Australian input in the service is not sufficient to ensure that Australia will derive a significant net benefit from the supply of the service.
“Eligible intellectual property” is defined in s 26 of the EMDG Act. In the case of rights relating to any other thing than “rights relating to a trade mark”:
Intellectual property is eligible intellectual property if the CEO of Austrade is satisfied:
(b)… — that the thing resulted to a substantial extent from research or work done in Australia.
“Eligible know-how” is defined in s 27 of the EMDG Act:
(1) Know-how is eligible know-how if the CEO of Austrade is satisfied that it resulted to a substantial extent from research or work done in Australia.
(2) In subsection (1):
know-how means private knowledge, information or expertise relating to commercial or industrial operations that:
(a) is of commercial value; and
(b) is imparted for the purpose of enabling the recipient to carry out a particular activity.
History of WPallimport
The contemporaneous evidence of how WPallimport was developed is in emails between Mr Gavin Basserabie and Mr Daniel Aufrichtig in January 2010. In an email dated 10 January 2010, Mr Basserabie asked Mr Aufrichtig for guidance:
I have been trying to get some of my own affiliate websites using wordpress but I’m not technical.
A lot of the websites with products I want to promote ie: real estate or Amazon state that they offer feeds of all their inventory. I have looked at this and its offered as an XML feed. The good thing about this is when they update their inventory, I wont have to update mine, if it will auto update, ,[sic]even better.
If you can split it into 2 screen, the available products on the left and my site on the right, I can then drag and drop what I want out of the feed.
Mr Basserabie set out his idea in a diagram:
DRAG AND DROP
He wrote:
I have been working with … Arthur … to build an automated tool that allows you to take any feed and put it into your template, that would work ideally for non technical people like me. I’m thinking a drag and drop system.
He was not sure that Arthur was the right person and asked Mr Aufrichtig:
… - can you look at what he has done so far and let me know your thoughts?
In his reply, Mr Aufrichtig asked for log-in details for a computer code sharing platform so he could see what had been done, and wrote:
… I know what you trying [sic] to do you told me about it when I was there. I like including auto updates. I can see use case in some of my sites. There are others on wp but all crap
Mr Aufrichtig advised Mr Basserabie to do it as a subscription and speak to Louis Reingold who was:
…great at wordpress backend dev
If you put this into basecape I will do seo (search engine optimisation) at cost until business can sustain fees
Mr Basserabie agreed to speak to Mr Reingold and to put it into Basecape, and asked for a budget:
I’m not keen on subscription. I spoke to lots of ppl at the wordcamp conf and all said most successful plugins for them are all once off licenses. I want to do free plus upgrade to pro that has the auto updates.
Evidence prepared later in time from Mr Basserabie, Mr Aufrichtig, and Mr Arthur Broadbrow corroborate that evidence.
Mr Basserabie is an Australian Chartered Accountant and entrepreneur. Mr Aufrichtig is a digital marketing professional specialising in SEO. His company is Montigen Limited, based in Mauritius. Mr Basserabie incorporated Basescape Pty Limited in Australia in February 2010. He is the sole director and secretary. He and Mr Aufrichtig became equal 50/50 shareholders, Mr Basserabie owning some shares through a company.
Plugcorp Pty Limited (Plugcorp) owns the WPallimport intellectual property. The company was incorporated in Australia in October 2010. Mr Basserabie is the sole director and secretary. Mr Reingold accepted 50% shareholding in return for managing the coding of WPallimport, which, according to Mr Basserabie, meant that Mr Reingold found the right people to do the coding. Basecape owned the other 50% shareholding. A restructure of the shareholdings in 2015 maintained Mr Reingold’s 50% shareholding. The other 50% is split equally between Mr Basserabie and Mr Aufrichtig.
An Exclusive Intellectual Property Licence between Basecape and Plugcorp dated 19 January 2016:
formalises a verbal agreement and understanding concluded in December 2013.
In summary, Plugcorp licensed Basecape to use WPallimport intellectual property “for the purpose of marketing it and generating income”. The initial term of the licence was five years. On 30 June 2018, Plugcorp extended the agreement for a further five years.
The parties accept that WPallimport was starting to earn revenue around 2012. Correspondence dated 6 December 2017 to the Respondent from a business adviser on behalf of Mr Basserabie, stated:
·Up until 2013 or 2014 there was ‘light’ activity on the site, generating revenue of $5,000 per month
·In November 2014 “we pivoted the business and it took off”.
The “pivot” was the development of a WPallimport “add-on” or “plug-in” for WooCommerce. Mr Basserabie explained that WooCommerce is the dominant ecommerce platform for WordPress, that is, it enables the sale of products on a website created using WordPress. The WPallimport “wooco add-on” enables a WooCommerce user to import data onto their website more easily. Mr Basserabie described the add-on as a piece of middleware between the WooCommerce user’s back end system and their website that was running WooCommerce.
The parties’ contentions
While both parties accepted that WPallimport could be both intellectual property as defined in s 26 of the EMDG Act and know-how as defined in s 27 of the EMDG Act, the Tribunal’s view is that it is know-how within the meaning of s 27(2) of the EMDG Act because it is expertise relating to commercial or industrial operation and is imparted, by means of a piece of downloaded software, for the purpose of enabling the recipient to carry out a particular activity, that is, to import data onto their website more easily. The licence agreement for WPallimport also entitles the purchaser to support and “lifetime upgrades” that “never expires, not that we will continue providing upgrades indefinitely”.
The first contentious issue between the parties is whether WPallimport resulted to a substantial extent from research or work done in Australia as required by s 27(1) of the EMDG Act. Subsection 26(b) sets out the same criterion if WPallimport were “eligible intellectual property”.
Basecape accepts that WPallimport resulted to a substantial extent from the coding arranged by Mr Reingold but argues that Mr Basserabie’s work and research satisfied the statutory criteria. It argued that the Tribunal does not have to determine who made the more substantial contribution.
It argued that intellectual property (s 26) and know-how (s 27) are the products of the mind, in contrast to goods (s 24) and services (s 25), and that the objects of the EMDG Act (s 3) support the export of Australian ideas. The idea was Mr Basserabie’s. Significant weight should be given to the intellectual capital and intellectual labour that Mr Basserabie invested into developing WPallimport which is the outcome of that investment.
Basecape relied on Deane J’s discussion of the meaning of “substantial” in Tillmanns Butchers Pty Ltd v Industry Employees’ Union (1979) 42 FLR 331 at 348:
The word "substantial" is not only susceptible of ambiguity: it is a word calculated to conceal a lack of precision. In the phrase "substantial loss or damage", it can, in an appropriate context, mean real or of substance as distinct from ephemeral or nominal. It can also mean large, weighty or big. It can be used in a relative sense or can indicate an absolute significance, quantity or size. The difficulties and uncertainties which the use of the word is liable to cause are well illustrated by the guidance given by Viscount Simon in Palser v Grinling where, after holding that, in the context thereunder consideration, the meaning of the word was equivalent to "considerable, solid or big", he said: "Applying the word in this sense, it must be left to the discretion of the judge of fact to decide as best he can according to the circumstances of each case ... .
It developed that argument as follows.
“Substantial” is a measure of degree which cannot be reduced to an arithmetical or quantitative exercise which looks to the hours spent producing a result. Account must also be taken of the quality or value of the contribution made towards to a particular result. The present case is concerned with the commercial exploitation of ideas, that is, intellectual property / know-how, in foreign markets. Sections 26 and 27 of the EMDG Act give legislative recognition to the economic value of Australian ideas.
It would be an odd result if, in the context of s 26 and s 27, the assessment of whether a thing or know-how resulted to a substantial extent from research or work done in Australia did not attach considerable significance to the conception of the thing or know-how that is then, as in this case, exploited in foreign markets.
None of the words ‘primarily’, ‘predominantly’ or ‘principally’ is used in s 26 and s 27, in contrast to s 34(4) of the Act. Therefore, the provisions admit of the possibility that a thing or know-how may have resulted substantially from research or work done in and outside Australia.
In the subject statutory context, including ss 3 and 23, it may be accepted that the word ‘substantial’ means ‘considerable, solid or big’.
Before setting out the evidence in support of its case that the statutory standard was satisfied, Basecape asserted that WPallimport is the product of “Mr Basserabie’s intellectual capital”.
Mr Basserabie’s evidence about his contribution was in correspondence with the Respondent, including by a consultant on his behalf, two affidavits, and oral evidence. He also wrote to the Tribunal on 22 March 2017 providing “additional information/written argument to support the eligibility” of the expenses. His evidence was as follows.
He conceived the idea of WPallimport in late 2009 when he was working full-time in the e-commerce industry in Australia and was looking for opportunities to create small amounts of passive recurring revenues to supplement his income. He purchased or had built approximately four or five different website businesses for that purpose. He assessed over 100 different opportunities to find those opportunities.
During the course of that “research” he considered purchasing an ecommerce business that took product feeds from other sources and sold the products on its website. He decided not to purchase the business because he found “based on my due diligence” that uploading the feeds was a cumbersome and error ridden manual process that could not be replicated in a timely way on a large scale to handle many transactions for many users without errors. That is, the process was not “scalable”.
Mr Basserabie “then undertook further research”. He searched the web for other ecommerce websites that uploaded data feeds from other sources to display on their websites and for any tools or plug-ins that could streamline the process.
He found that there were many ecommerce websites which ran on WordPress, similar to the one he had considered purchasing, but there was no simple solution to avoid the manual process of uploading data onto the websites from a separate source. He was familiar with WordPress and “decided to apply myself to solving the problem I had identified”.
Thereafter, Mr Basserabie engaged Mr Arthur Broadbrow, a Melbourne based programmer, and then Mr Reingold, as set out above.
Mr Basserabie wrote that he provided Mr Reingold “with the technical specifications for WPallimport” by email, phone and Skype on:
(a)The problem he had identified and the concept he had to solve it.
(b)How he envisaged the plug-in would work.
(c)Some of the detailed functionality and features he wanted to include were: how to make it user-friendly for a non-technical person to match fields from a source to a destination website - “drag and drop”; how to make future scheduling easy to configure; and videos explaining how easy it was to install and operate WPallimport.
Mr Basserabie used his work email account to which he does not have access. He did not keep copies of his email communications with Mr Reingold who wrote the code for WPallimport “according to my technical specifications”.
In around late 2011, Mr Basserabie launched a free beta version of WPallimport to test the solution and get feedback from users. Mr Reingold refined WPallimport further based on that feedback. The first standard version of WPallimport was launched in 2012. The WooCommerce and Elite versions came to the market at the end of 2014.
Mr Basserabie did all the above “research and work” in Australia.
(A print-out of the WP All Import web-page dated 11 October 2016, shows that there was a free version of WPallimport that could be downloaded and a ‘pro version’ that could be purchased. There were three options of the ‘pro version”: standard, WooCommerce, and Elite. The latter includes the functionality of both the other versions and more.)
In his submission to the Tribunal dated 22 March 2017, Mr Basserabie provided further descriptions of his efforts and concluded that:
It is very hard to estimate the number of hours (happened 7 years ago), but it was almost a full time job for months prior to Gavin providing the specs to Louis. Gavin has estimated his time to be in excess of 300 hours.
He estimated that he spent another 50 hours communicating with Mr Reingold and funding the development. He estimated the total value of his contribution as $122,500 and that of Mr Reingold who “oversaw the coding” as $20,000.
Mr Basserabie did not keep records of the development of WPallimport, including the time he spent “bringing it to market”, because he was employed full-time and “undertook a wide number of ad-hoc projects”, including WPallimport, in his spare time.
My approach to the development of WPallimport was, in my experience, typical of most start-ups. I had an idea. I then endeavoured to bring that idea to market with minimal paperwork and formality in the hope that it would ‘stick’ and start generating revenue.
All his work and emails was done on a work computer that he had to return when he left his job in 2011. He retained no copies of files or emails. At that time WPallimport was in a beta version, was not generating income, and he had no thought of having to provide documentary evidence of the work he had done. He never expected it to generate the revenue it has.
In answer to Basecape’s argument that WPallimport resulted to a substantial extent from research or work done in Australia, the Respondent argued that:
·the product in the grant year was a different product from that conceived by Mr Basserabie;
·Mr Basserabie’s research or work was not substantial.
The Respondent relied on the oral and written evidence of Mr Peter West, the Manager of the Special Investigations Unit of the Respondent. He wrote an assessment report after investigating Basecape’s application and swore an affidavit in these proceedings. He is not an information technology expert. He conducted research which suggested that there were six steps in developing software products:
(i)Conceptualising (including entrepreneurial opportunity);
(ii)Requirement gathering and analysis, costings, etc;
(iii)System design, specifications and analysis;
(iv)Coding;
(v)Testing; and
(vi)Feedback loop.
Mr West acknowledged the difficulty in establishing the percentage of time to be given to each step, particularly because of the lack of supporting documents provided by Basecape. In his opinion, Steps 1 and 2 were not significant areas. He considered steps 4 to 6 “should be given the heaviest weighting”. His affidavit attached a transcript of a presentation by Mr Joe Guilmette in 2017 who discussed how Soflyy (Mr Reingold’s entity) built two products, WP Sandbox and Poopy.life from 2013 to 2017 “because of the need to demo WP All Import”. In Mr West’s opinion, that presentation supported the importance and weighting to be placed on the sixth step that he had identified, the feedback loop, and strengthened his view that the heaviest weighting should be placed on steps (iv), (v) and (vi) of the product development. All that work was not carried out in Australia.
Mr Guilmette provided a statement in response to that affidavit. He stated that he was a consultant to Basecape and has a customer focused role. He stated that WP Sandbox and Poopy.life were not built to seek feedback but were built to demonstrate WPallimport to users so they could see if it did what they needed it to do.
In his statement, Mr Guilmette said that that WPallimport has not changed in any fundamental way since its launch and that:
…Mr Basserabie’s drag and drop functionality is still the only reason it makes any money.
Consideration
The Respondent’s case was focussed on the relative extent of the research and work carried out by Mr Basserabie and by others in relation to the development of WPallimport according to the approach taken by Mr West.
The EMDG Act is focussed on whether a person is entitled to a grant in a particular grant year and has incurred eligible expenses in that grant year in relation to eligible products. The success of the claimed eligible product, WPallimport, was a consequence of the “pivot” in November 2014, primarily the development of the WooCommerce add-on, and the Elite version. The successful versions of WPallimport being sold in the 2015-2016 grant year included specific versions designed for WooCommerce users. They were different from the versions sold prior to the pivot in 2014.
However, Mr Basserabie’s concept of “drag and drop” functionality for importing large CSV or XML filed onto WordPress websites was embodied in and essential to all of the versions of WPallimport being sold in the grant year. It was that functionality that purchasers sought. The WooCommerce add-on was a specific application of that functionality.
The statutory test is whether the eligible know-how resulted to a substantial extent from research or work done in Australia, not whether it resulted from substantial research or work done in Australia.
In the context of the EMDG Act, “substantial” means “considerable, solid or big”. WPallimport would not exist if Mr Basserabie had not conceived his idea which he developed through research and work done in Australia. The coding was a set of digital instructions to a computer to execute the process that Mr Basserabie conceived. WPallimport resulted to a substantial extent from both Mr Basserabie’s idea and the coding that was done to create WPallimport as it existed in the grant year.
The Tribunal is satisfied that the know-how, WPallimport, resulted to a substantial extent from research or work done in Australia. It is eligible know-how in accordance with s 27(1) of the EMDG Act and therefore the EMDG application is for an eligible product as defined in s107 of the EMDG Act.
Decision
For the above reasons, the reviewable decision is set aside and the matter is remitted for reconsideration in accordance with the finding that WPallimport is eligible know-how in accordance with s 27(1) of the EMDG Act and therefore the EMDG application is for an eligible product as defined in s 107 of the EMDG Act.
I certify that the preceding 68 (sixty-eight) paragraphs are a true copy of the reasons for the decision herein of Mrs J C Kelly, Senior Member.
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Associate
Dated: 23 January 2020
Date(s) of hearing: 9 January 2019 Date final submissions received: 22 February 2019 Solicitors for the Applicant: Mr A Fisher, HWL Ebsworth Lawyers Solicitors for the Respondent: Mr L Leerdam, DLA Piper Australia
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