Box Sentry Pty Ltd and Austrade
[2007] AATA 1610
•31 July 2007
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2007] AATA 1610
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2007/12
GENERAL ADMINISTRATIVE DIVISION ) Re BOX SENTRY PTY LTD Applicant
And
AUSTRADE
Respondent
DECISION
Tribunal Senior Member, Mrs Josephine Kelly Date31 July 2007
PlaceSydney
Decision The reviewable decision by Austrade dated 6 December 2006 is affirmed.
........................[sgd]......................
Senior Member
Mrs Josephine Kelly
CATCHWORDS
FOREIGN TRADE – Export Market Development Grant – did a product exist that was ready for export – were amounts expended on eligible promotional activities – were amounts expended for approved promotional purposes – held no product ready for export at relevant time – expenditure not incurred for approved promotional purposes – reviewable decision affirmed.
LEGISLATION
Export Market Development Grants Act1997 (Cth): sections 23 – 27, 33, 36, 37, 98, 99, 101.
REASONS FOR DECISION
Senior Member, Mrs Josephine Kelly Introduction
1. Box Sentry Pty Limited (Box Sentry) seeks the review of a decision made by the Australian Trade Commission (“Austrade”) on 6 December 2006 which affirmed an earlier decision and disallowed $51,746 that Box Sentry claimed in an application for an Export Market Development Grant (“EMDG”). The claim was made in respect of a computer software product. The relevant legislation is the Export Market Development Grants Act 1997 (Cth) (“the Act”).
The Issues
2. The issues in these proceedings are:
a.Did Box Sentry have a product now referred to as RealMail during the 2003-2004 financial year, and if so, was it ready for export during that year?
b.Did Box Sentry have a product referred to as Challenge Response during the 2003-2004 financial year, and if so, was it ready for export during that year?
c.Did Box Sentry expend monies on eligible promotional activities within the meaning of s 33 of the Act in relation to either of the above products during the 2003-2004 financial year?
d.Was any expenditure incurred in relation to maintaining an overseas representative “for approved promotional purposes” with the meaning of s 33 and 37 of the Act during the 2003-2004 financial year?
Box Sentry’s case
3. Mr Adesh Goel (“Mr Goel”), a director of Box Sentry, represented Box Sentry before the Tribunal. In short, his case was that I should be persuaded that in relation to each issue, I should find that the answer is “yes”. The Statement of Facts and Contentions submitted on behalf of Box Sentry and signed by Mr Goel states:
- “RealMail, the brand for the improved and developed product previously named Challenge Response, only came into existence in 2004.”
- “Box Sentry product was available for sale in” the 2003-2004 financial year. (That was said to be demonstrated by documents including quotes to prospective customers in April, May and June 2003.)
- “Box Sentry overseas representative was actively promoting a released, saleable product from 1 July 2003 onwards”. T6 - 92 to 146 and in particular T6-100 was relied upon as evidencing “the supply of a current released product to a prospective customer”. Further support was said to be found in the affidavit of Dr Sivaprasad dated 30 May 2007.
- “There is no dispute about the genuine and eligible activity conducted by Box Sentry’s overseas representative (T4-50 and T4-510). … Box Sentry’s expenditure on the overseas representative was in accordance with” s 33 of the Act.
- There is no dispute that the amount of at least $93,757 has been acquitted to Box Sentry’s overseas representative during the period of the claim (T4-51).
The Evidence
4. It is helpful to summarise the evidence chronologically as it was provided by Mr Goel and Box Sentry to Austrade, and then to this Tribunal.
5. The subject application for “2004-2005” was lodged with Austrade on 30 November 2005. A body of supporting material was attached. The form included a claim for expenses for overseas representation of $208,097 for the 2003-04 year. Expenses of a similar amount were also alleged for the 2004-2005 year. The total of $415,381 was apportioned between various countries. The “Main product promoted” was stated to be “BoxSentry anti-spam : RealMail”.
6. A schedule was filled out in relation to “Overseas Representation – 03/04”. Mr Manish K Goel (“Mr Manish Goel”), Mr Goel’s brother, was nominated at the “representative’s contact person”. It was also indicated that Mr Manish Goel was a “Director/Shareholder” of Box Sentry. The expenses paid were divided between “Retainer” $130,910, “Office” $906, “Rent” $65,907, and “Motor Vehicle” $10,574. In relation to each expenditure item, the country to which it related was stated to be “Europe/Asia/Gulf”. The supporting evidence in respect of each expenditure item was “Contract 10/6/03”.
7. In the application, under the heading “2. I have prepared for export by taking the following steps:” was written “We have identified a global market for the services provided as outlined in the attached information.We have contacted Austrade offices in the following countries for assistance and have been working closely with the offices: Hong Kong, Thailand, Singapore, India, Dubai (and the Gulf Country Reps), Korea, Japan, Indonesia, Malaysia, UK, USA).” The “strategy” for proposed international promotion was stated to be set out in the attached “Company Profile”.
8. The “Company Profile” outlined “Box Sentry’s Innovation”:
We have developed a brand new secure email messaging solution targeted at the SMB marketplace. Whilst there are well over 100 existing anti-spam/anti-solutions in the marketplace, our solution is unique in that it has been developed to handle spam in foreign languages – especially those in non-roman script (eg. Chinese, Arabic, Thai etc). Most existing systems have been developed to effectively handle English language spam and occasionally a few European languages; however no system that we are aware of can handle non-roman script no multiple languages as ours does..
9. The product was identified as “RealMail”. The competitive advantage was stated to be the ability to handle multiple languages, and no false positives, that is, when legitimate email is inadvertently marked as “spam” by a spam-filter.
10. The Company Profile also stated:
RealMail has been in R&D and pre-release market development since 2003. The first commercial production version of RealMail will be released early in the new year. The technology has been finalised, tested and has a number of pilot/proof of concept installations have been taking place with our distribution partners in various non-english speaking countries.
We are in advanced discussions with a number of large service providers around the word (particularly the non-english speaking world) who have expressed a strong interest in our product and the business model for subscription. We hope to close our first major contract within the next few weeks.
Version 2 is scheduled for release during Q2 2006. This is to allow us to build our product strategy through the release of additional feature sets to expand our product applicability to other geographic regions.
…
RealMail is owned by Box Sentry Pty Limited …
Box Sentry is a spin-out from Webgenie Software Pty Limited which is also based in Adelaide and has a 10 year history of R&D and innovative technology products within the e-commerce sector….
We have applied for a business process patent and have appointed lawyers to investigate other forms of protecting our IP, trademarks and domains etc. …
Our core focus has been on developing and refining the system …resolving issues and thoroughly testing/benchmarking and piloting the system. We are now in the process of rapidly launching and commercialising the product.
In order to quickly deploy our technology we have spent the past two and a half years developing our distribution network.
11. It stated that distribution partners had been appointed in several specified countries in Europe, Latin America, the Middle East and East Asia.
12. The profit and loss statement attached to the application showed no income was earned for the 2004-2005 year.
13. There were in evidence two copies of an Overseas Repesestative (sic) Agreement dated 10 June 2003 between Box Sentry and Mr Manish Goel. An unexecuted copy was included with the application. The second copy is in a somewhat different form, and had been executed by Mr Manish Goel. That copy has a Box Sentry logo in the top right hand corner of each page. The contract was for an initial period of two years, whilst the Companies (sic) products are developed for commercialisation. While it is a reasonable expectation that this level of engagement will continue for at least 4 years to fully commercialise the product, no guarantee can be given. The agreement provided a retainer of £UK1,000 per week.
14. Schedule 1 to that agreement stated:
“The representative recognizes that solution which is under development is one which is likely to only become commercialized in the medium term (not before 12-18 months). However, as international strategic distribution has been determined … to be important when the product is ready to commercialize, the Representative will make contact with and appoint several strategic distribution partners across various jurisdictions”.
15. The Schedule also stated that “given the lengthy commercialisation timeframes, there may be the requirement for the Representative to ‘self-fund’ some or part of the expenses”, in respect of which provision for future payment was referred to and also a form of compensation by way of “performance based options”.
16. Before a determination was made, an officer of Austrade met with Mr Goel for the purpose of assessing the claims made in the application and also interviewed Mr Manish Goel. The Austrade officer noted that Mr Manish Goel was involved “100% marketing”.
17. On 15 June 2006 a determination was issued by an authorised officer of Austrade. It assessed eligible expenses of $42,011 and calculated a grant of $13,911 accordingly. Two amounts for Overseas Representation expenses were disallowed. The amount of $321,624 was disallowed because the expenses had not been paid in the Grant Year. The further amount of $51,746 was disallowed because the expenses had not been substantiated. An Austrade file note of that date states that no sales had been made, a patent was awaited, and no evidence had been provided of promotion by the overseas representative in the relevant year. The Austrade officer accepted payment of $51,746 was made on 11 May 2004 for the relevant period, but found that it had not been established that it was for eligible promotional work.
18. Following is a summary of the further material available to Austrade when that determination was made. A report dated June 2006 prepared by Mr Manish Goel summarised “progress during the past two weeks”. It refers to responses from various organisations in Thailand, Singapore, Hong Kong Korea, and Japan. The conclusion begins: “The market is certainly awaiting our product. We have a backlog of people actively wanting to try the solution … The market is also looking forward to v2”. … “we need to educate the market re False Positives, benefits of a HOSTED SECURITY SERVICE and how filtering can be dangerous”.
19. There were also various emails dated September and October 2004 from Mr Manish Goel to organisations in different countries, the earliest was dated 2 September 2004. They referred to “Box Sentry”, which appears to refer to an anti-spam product, and in general terms could be described as promotional material.
20. A document entitled Board Progress Report Manish Goel May 2006 began:
1. The solution is fully functional with several extended beta customers (early adopters) in 7 countrIes “rounding out” final localisation aspects”.
The business is still in stealth (launch expected in July 06).
RealMail (the product) has now won two awards …
21. Mr Goel wrote to Austrade on 12 July 2006 seeking to appeal against the determination. Austrade treated it as only an appeal against that part of the determination challenged by Mr Goel. He stated that “Austrade has disallowed $51,746.00 of the claim on the basis that Overseas Representation expenses paid in the 2003-2004 financial year have not had a promotional element substantiated”. Included with the letter was a series of 18 emails from Mr Manish Goel covering the period from 14 August 2003 to 22 June 2004, two draft press releases, one dated 9 November 2003, a draft “Reseller Agreement” dated 15 June 2004 and the first and last pages of an executed agreement between the same parties dated 21 June 2004.
22. Austrade replied by letter on 20 July 2006 advising that the 12 July letter would be treated as a written notice of an appeal for the purpose of s 98 of the Act, and requested Box Sentry to submit any further information within 14 days. An appeal lies to this Tribunal only from a reconsideration decision made under s 98 (see s 99).
23. On 3 August 2006 a Senior Grants Auditor met with Mr Goel to review the basis of the appeal. It was during this meeting that a software product called “Challenge Response” was first referred to by Mr Goel or Box Sentry. The next day, that Auditor sent an email to Mr Goel asking for further supporting information. The Auditor wrote: 3. While you stated that Representative’s activities also involved marketing the company’s core product “Challenge Response” (which you stated was ready for sale as opposed to “RealMail” that was yet to be developed) ...”.
24. On 11 August 2006 Mr Goel sent a letter to the Senior Grants Auditor setting out information about Challenge Response, and attaching “price enquiry responses which demonstrate a product existed and was capable of being sold at a price.” The letter also responded to various matters set out in the 3 August email. The “price enquiry responses” sent with this letter were communications between Dr Sivaprasad who had a “Webgenie” email address, and various individuals, some in Australia and others who were apparently overseas. They are dated from April to June 2003. Some refer to Box Sentry and mention SPAM blocker. None referred to Challenge Response. Dr Prasad is a director of Box Sentry.
25. Included in the material from Mr Goel, was correspondence dated 19 December 2002 from a firm of solicitors who specialized in intellectual property to another firm of solicitors about the making of a patent application for a “Spam Project”. There was no reference to Box Sentry, or any individual, or product associated with Box Sentry. There was only a reference to the “inventor Mr Sivaprasad (‘Siva’)”.
26. There is in the s 37 documents a print-out from the Box Sentry web site about RealMail dated 14 August 2006 which states:
“Over the past two and a half years BoxSentry’s engineering and product development teams based around the world have developed the RealMail service …
27. The Senior Grants Auditor subsequently prepared an appeal report dated 22 August 2006. He concluded that Box Sentry had failed to substantiate that the expenditure claimed was for an approved promotional purpose pursuant to sections 36 and 37 of the Act, rather the expenditure claimed was for "pre-release market development" for "the product which was not yet existent and therefore the expenditure can't be considered as eligible...".
28. Notwithstanding the Senior Grant Auditor's recommendation to deny the appeal, Austrade held a further meeting with Mr Goel on 6 September 2006 (at T10-185). Consequently, Austrade agreed to allow Box Sentry to submit further information in relation to the "Challenge Response" product. Austrade sent Mr Goel an email dated 7 September 2006 setting out various questions about Challenge Response, and its relationship to RealMail. There was an exchange of emails on that day. Mr Goel expressed frustration with the application process and among other matters stated that the “goal posts” had been changed, and that the evidence overwhelmingly supported the application.
29. Emails dated 5 October 2006 and 8 November 2006 were forwarded to Box Sentry enquiring about the provision of the further material. The email of 8 November also advised that, in the absence of a reply by 15 November 2006, Austrade would have little option but to disallow the appeal.
30. Box Sentry responded in a letter dated 13 November 2006, stating, among other things, that:
(a) "Challenge Response" was conceived by WebGenieMail and all intellectual property was transferred to Box Sentry by Deed of Assignment dated 1 February 2003, which was included;
(b)promotion of "the product" took place via email to existing WebGenie customers in April 2003;
(c) although the product was exhibited at Cebit no sales were made;
(d) RealMail now incorporates a component of Challenge Response and, for that reason, it argued that marketing of Challenge Response has never really stopped.
31. The Deed of Assignment was dated 1 February 2003. The “assignor” was Dr Sivaprasad and two Webgenie companies, and the assignee was Box Sentry. It stated that the assignor “has developed a system to fight the Spam epidemic affecting Email communication”. The subject of assignment was “Software” which “means the anti-Spam software, WebGenieMail”. The Assignee was “given only a non-exclusive, unconditional licence for the use of any module within the Software that was derived from other WebGenie Software products”. Certain components used in the Software “are still owned by the Assignor”. The assignor was subject to a six month non-competition provision in respect of anti-spamming software. Dr Sivaprasad signed the deed on behalf of himself and each of the WebGenie companies.
32. A services agreement between Box Sentry and a firm of solicitors for “Spamming Software Patent and Commercialisation” dated 23 January 2003 was in evidence. A registration confirmation for participation in a Software Showcase @CeBIT Australia 2003 was in evidence. It was addressed to Mr Goel of Box Sentry and Dr Sivaprasad. An incomplete company profile on that document states:
“Boxsentry provides a solution to combat the growing worldwide problem of email Spam. This 100% Australian owned and developed solutions uses a patent pending process which does not …”.
33. After considering the matters raised, the opinion of the Senior Grants Auditor was that the further information submitted by Box Sentry cast more doubt on the ownership of the product and its state of existence for the claimed Grant Year
34. Austrade affirmed the original determination in a letter dated 6 December 2006.
35. Additional material included in the s 37 documents that seems to have been before Austrade when it made that decision is a printout from website dated 20 November 2006. The products for sale include:
BoxSentry: NEW!
Anti-Spam/Anti-Spoofing
36. The website repeats that Real Mail is “New” where the description of it is given. The prices on the website are “effective from May 24, 2005”. “RealMail” was not included in the software price list.
37. A company search dated 30 November 2006 shows that Mr Manish Goel has never been a director of officeholder of Box Sentry. Dr Sivaprasad and Mr Goel are directors and Mr Goel is also the secretary and has been since 14 January 2003. The start date of Box Sentry was 10 January 2003.
38. Mr Goel submitted additional evidence to the Tribunal: an affidavit of Dr Sivaprasad, sworn 30 May 2007, and an “expert’s report” of Mr Ajoy Ghosh dated 7 June 2007. Relevantly, Dr Sivaprasad stated that he had developed Challenge Response following a conversation with Mr Goel and had assigned his rights to Box Sentry. He attended CeBIT in May 2003 with a view to securing sales of that product. As a consequence of the interest at CeBIT and internationally through promotion to the WebGenie client base, it was decided to engage an overseas representative. He said the product continued development and was branded RealMail in 2004 to assist marketing. It is now available in various formats.
39. Mr Ghosh states that he has over 15 years’ experience in information technology, specializing in computer crime and forensics, information technology security, audit and reliability. He was provided with a letter of instruction from Mr Goel and a computer ZIP archive containing “an early UNIX server version of the Box Sentry Product”. His task was to “verify if it was probable, on the balance of probabilities, that a product had been created by Box Sentry in 2003”.
40. Mr Ghosh disclosed that he had had involvement with Box Sentry and its “product(s)” in a previous job he held. He described his examination of the 165 files within the ZIP archive and concluded that the software was “capable of performing some of the claimed functions and that the software was available on 3 October 2003 with versions available as early as 18 August 2003”. Mr Ghosh does not describe those functions and the letter of instruction made no reference to functions that Box Sentry claimed the software could perform. It is not clear what the claimed functions are to which Mr Ghosh refers.
THE LEGISLATION
41. The Act provides for the grant of financial assistance by the CEO of Austrade to small and medium Australian enterprises (“SMEs”) to provide incentives for them to develop export markets. The Minister may issue guidelines that regulate the exercise of Austrade's power under the Act (s 101).
42. Part 4 of the Act (sections 23 to 27) sets out the conditions to be satisfied in deciding if a particular product (whether goods, services, an event, intellectual property or know‑how) is an eligible product.
43. Section 33 of the Act sets out expenses that can be claimed in relation to specified eligible promotional activities. Relevantly, item 1A is maintaining an overseas representative to the extent that the representative is maintained for approved promotional purposes.
44. Section 36 states that:
This Subdivision explains what are approved promotional purposes.
45. Section 37 relevantly provides:
(1) For the purposes of section 33, an eligible promotional activity in relation to an applicant is for an approved promotional purpose if it is carried out for the purpose of creating, seeking or increasing demand or opportunity in a foreign country for any of the following:
(a) eligible goods owned by the applicant and that the applicant intends to sell for export or to export and sell;
(b) if the applicant is making goods in Australia--eligible goods:
(i) made in Australia by the applicant; and
(ii) that any person intends to sell for export or to export and sell;
(c) eligible goods that:
(i) are not made in Australia; and
(ii) any person intends to sell outside Australia;
(d) if the applicant is not an approved body or an approved trading house--eligible services that the applicant intends to sell to persons that are not residents of Australia;
(da) if the applicant is not an approved body or an approved trading house--eligible tourism services that the applicant intends to sell, or has sold:
(i) to a person that is a resident of Australia; but
(ii) for sale by that resident, in the course of trade, to persons that are not residents of Australia;
(e) if the applicant is not an approved body--eligible intellectual property or eligible know‑how:
(i) owned by the applicant; and
(ii) that the applicant intends to dispose of;
(f) if the applicant is an approved body or approved trading house--eligible intellectual property or eligible know‑how:
(i) owned by another person; and
(ii) that the other person intends to dispose of;
(g) if the applicant is an approved body:
(i) eligible goods made in Australia and that any other person intends to sell for export or to export and sell; or
(ii) eligible services supplied by another person.
Consideration
46. In my opinion, the position set out in the Company Profile in the application accurately reflects what happened. At the date of the application, the “first commercial production version of RealMail” was to be released early in 2006. During the previous 2 to 2 ½ years they had been resolving issues and thoroughly testing/benchmarking and piloting the system. In his May 2006 report to the Board, Mr Manish Goel was expecting the launch to be in July 2006, and in his July 2006 report he stated “the market is certainly awaiting out product”. I find that Box Sentry did not have a product called RealMail during the 2003-2004 financial year.
47. I also find that Box Sentry did not have a product called Challenge Response during the financial year 2003-2004. Mr Goel primarily based his argument on the evidence of Dr Sivaprasad, and the emails to and from Dr Sivaprasad in April to June 2003. Mr Ghosh’s report is helpful to the extent that it strongly suggests that whatever it was Dr Sivaprasad was referring to in that email correspondence it was not the software that Mr Ghosh reviewed. Mr Ghosh says that the software was available on 3 October 2003 with versions available as early as 18 August 2003. He does not suggest that it was available in April to June 2003. There is no reference to a purchase of a product called Challenge Response during the relevant period. All the evidence suggests that Box Sentry did not start to market any product until sometime in 2006.
48. The 18 emails from Mr Manish Goel dated 14 August 2003 to 22 June 2004 is the key evidence relied upon by Mr Goel to substantiate the expenditure of $51,746 for eligible promotional activities within the 2003-2004 financial year. In my view, those emails refer to establishing a distribution network for a product which was in the process of being developed. This accords with the statements in the application about the product being in “pre-release market development since 2003” and that “The technology has been finalised, tested and has a number of pilot/proof of concept installations have been taking place with our distribution in various non-english speaking countries”. In any event, this material does not support the expenditure claimed but it does support my conclusions that there was relevantly no product, either RealMail or Challenge Response, which was being marketed or promoted by Box Sentry during the 2003-2004 financial year.
49. I am not satisfied that the expenditure was incurred in relation to maintaining an overseas representative “for approved promotional purposes” within the meaning of sections 33 and 37 of the Act during the 2003-2004 financial year.
Decision
50. The reviewable decision by Austrade dated 6 December 2006 is affirmed.
I certify that the 50 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member,
Mrs Josephine Kelly.Signed: Ms P Nimmagadda
Associate
Date of Hearing 12 June 2007
Date of Decision 31 July 2007
Solicitor for Applicant Self-represented
Solicitor for the Respondent Sparke Helmore Lawyers
Counsel for the Respondent Mr S Lloyd
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