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The Copyright Tribunal of Singapore today released its decision in SingNet v COMPASS.

SingNet is an ISP subsidiary of SingTel. The Composers and Authors Society of Singapore (COMPASS) had been negotiating with SingNet over the cost of the licence SingNet needed to broadcast music. SingNet brought proceedings claiming that the licence fee requested by COMPASS was unreasonable. Frontier Economics was retained by lawyers for COMPASS to provide advice and to give evidence at the hearing. The Tribunal dismissed SingNet’s claim.

Frontier Economics advises clients on a range of intellectual property valuation and dispute support matters.


Once thought of as purely an environmental issue, climate change is now recognised as a major threat to economies and financial markets around the world. As a result, public and private sector organisations are being asked to provide public disclosures of how current and future climate risks will impact their operations.

Recognising the increased need for climate change impact reporting with a greater focus on financial analysis, Frontier Economics and sustainability services consultancy Edge Environment are very excited to be partnering with each other to offer clients advice that combines in-depth environmental expertise underpinned by solid economic analysis and modelling.

“The requirements for climate disclosure reporting have been increasing around the world in recent years. We have seen climate change shift from being primary an environmental or “green” issue to one with legal, governance and financial implications” said Dr Mark Siebentritt, Edge’s Commercial Director and one of its climate risk analysis experts.

“We are seeing many of our clients step up their analysis of climate risk. This is in response to commentary by financial regulators in Australia about the need for companies to address what is now regarded as a foreseeable and material risk. Change is also coming through international markets with some countries like England and New Zealand headed toward mandatory climate risk disclosure reporting.”

One of the key challenges of climate risk disclosure reporting aligned to frameworks like the Taskforce on Climate Related Financial Disclosures (TCFD), is the need to better understand the financial implications of climate change.

“The impacts of climate change on the financial statements of an organisation is complex.  Companies can find it challenging to do this as there are many drivers that need consideration. For example, take the impact of extreme heat on a property portfolio. You first need to understand the risk of such extreme weather in different climate change scenarios. Then you need to understand the physical impacts of extreme heat, this may include increased energy costs, damage to the property and even consideration of whether the property is unhospitable in extreme heat. Finally, you need to place a financial value on these physical impacts. Climate risk specialists and financial experts working together can give companies these insights” said Ben Mason, economist at Frontier Economics.

“A key risk companies are often interested in is around energy supply transitioning to renewables and the impacts on energy prices. We have energy network models and have provided shadow carbon price advice to various clients.”

Building on our expertise in TCFD reporting, Frontier Economics is expanding into ESG related advice more broadly. Ensuring decisions are based on sound and rigorous economics is critical for companies navigating this complex area.


Edge Environment and Frontier Economics have worked across a broad range of climate risk projects, including within the property, infrastructure and government sectors. Together, this partnership provides a unique opportunity to better understand both financial risks and opportunities for Australian and New Zealand businesses.

About Edge Environment

Edge is a specialist sustainability advisory company focused on Asia-Pacific and the Americas. Its teams are based in Australia, New Zealand, the United States and Chile. Edge exists to help its clients create value from tackling one of world’s most fundamental challenges: creating truly sustainable economies and societies. Edge does this by combining science, strategy and storytelling in a way that gives our clients the confidence to take ambitious action, and do well by doing good.

About Frontier Economics

For more than twenty years, Frontier Economics has contributed sound economics to many important debates and decisions in Australia, New Zealand and the Asia-Pacific. Governments, regulators and businesses use our economic advice to inform policy development, market design, regulation and investment. Frontier Economics prides itself on delivering quality, independent economic input that can lead to better decisions and better outcomes for our clients.

Frontier Economics economists Alexandra Humphrey Cifuentes and Rosemary Jones presented a paper at OzWater21 on 5 May 2021. Decision making in the urban water sector is subject to an increasing number of challenges. "Flexible planning for an uncertain future: Applying adaptive pathways thinking to the water sector" presents an approach which values flexible decision-making.

Key points from the paper include:

Ensuring secure, reliable & cost-effective management of the water cycle is critical to support economic growth & to meet community’s growing expectations for liveable & healthy environments.

Urban population growth, climate change and interdependencies between infrastructure systems are placing significant pressure on ageing water-related infrastructure, and the health of our waterways, environment, and people. However, their impact and the appropriate policy, regulatory and investment response is uncertain.

In this context, a challenge for decision-makers is to identify resilient and flexible decision-making pathways, which are well placed to respond to uncertainty and change. Economic tools and techniques such as adaptive pathways (or real options) analysis builds on cost benefit analysis to value this flexibility, by modelling costs and benefits of responding (or not responding) to new information in future. Decision-makers can then compare the value of flexibility to the cost of the investment, and more importantly, accurately compare the costs and benefits of different options. This is extremely valuable information when making critical decisions about significant infrastructure investments.

While engineering and planning expertise in adaptive infrastructure already exists across the sector, robust approaches to placing an economic value on that flexibility and using economic analysis to explore maximum value infrastructure pathways under uncertainty is an underutilised decision-making tool.


How valuing the invaluable can change our future urban landscapes

Government policy is increasingly putting green infrastructure front and centre of its vision for the future cities where most of us will live. Urban green infrastructure refers to the canopy, parks, waterways, vegetation, wetlands and lakes in our cities. More than just urban nature: these features are assets which deliver valuable services. They can make our cities cooler, healthier, more ecologically sustainable, and attractive places to live and work. To realise a policy vision of greener cities and change our future urban landscapes, we need to start treating green infrastructure in the same way we treat traditional physical ‘grey’ infrastructure ─ by subjecting it to rigorous economic assessment and assurance processes.This isn’t easy, but it can be done. Right now there is significant opportunity to embed green infrastructure in growth areas as part of the urban fabric, especially in areas with large greenfield developments in the planning phases (such as in NSW).  But the clock is ticking as development continues, and this needs to happen quickly. This bulletin explores how we can build green infrastructure into our infrastructure planning processes and what challenges still lie ahead for greener urban communities.

Policy shoots

The NSW State Government in Australia recently released two documents that, together, indicate a policy vision for the role of green infrastructure in the urban environment. ‘Greener Places’ from Government Architect NSW outlines what green (and blue) infrastructure is in the urban context and how it can improve our cities. In addition, the discussion paper and draft ‘50-year vision for Greater Sydney’s Open Space and Parklands’ outlined four key strategic directions to grow and improve parks, open spaces, connectivity and greenery, and resilience.

Both documents convey a fundamental shift in thinking which considers urban nature as genuine infrastructure that delivers valuable services to the community and which merits policy and planning priority. They recognise that the natural green (and blue) assets of a city can deliver real public benefits like mitigating the urban heat island effect, protecting and restoring ecological health, promoting active lifestyles, and providing beautiful places to live, work and play. These benefits can be measured and quantified in dollar terms such that they are no longer an incidental bonus of investment, but part of the baseline justification and cost-effectiveness of green infrastructure in delivering critical services to the community.

A clear government policy vision for green infrastructure is a good (and necessary) start. But for green infrastructure to be funded it must be robustly integrated into formal proposal, evaluation and assurance processes. Realising a vision for greener cities will depend on how effectively we can develop rigorous processes, methods, resources, datasets, and capabilities to value and assess green infrastructure as an ongoing, long-term package of service-delivering investments.

Capturing the value of green infrastructure

There are different ways we could embed active consideration of green infrastructure into our planning and decision-making processes on a more equal footing with traditional ‘grey’ infrastructure options.

For example, government policy could mandate investment in green infrastructure. But green infrastructure will not always be the best option in all circumstances and prescribing a one-size-fits-all approach does not guarantee smart investments. The alternative approach is to assess green infrastructure proposals on their individual merits—by requiring a fair, rigorous, quantitative assessment of the economic, environmental and social impacts of each investment—as we do with traditional physical ‘grey’ infrastructure. Investment would then occur where and when it can be demonstrated to deliver genuine community value relative to the alternative levers available.

However, green infrastructure impacts can be tricky to evaluate because:

We look at each of these issues below.

Challenges with valuing the benefits of green infrastructure

Decisions to invest in infrastructure by governments or other parties are (or should be) determined by the relative weight of benefits to costs. A cost-benefit analysis is the formally preferred evaluation tool of state treasuries and infrastructure agencies around the country and is essential to ensure that limited public money is used as wisely as possible.

Although measuring the costs of green infrastructure is (mostly) straightforward, many of its benefits are not as easy to identify or measure. This can lead to a cost side of the equation that looks robust, ‘real’, and in many cases relatively large, but a benefit side of the equation that looks vague, unreliable and risky.

Take the example of a neighbourhood park. The costs of building and maintaining it are easy to estimate. We could look at what other, similar parks have actually cost. Or, a landscaping firm could provide an estimate of the cost of design, earthworks, materials, park benches, tree planting, tree trimming, etcetera. But how do we measure the benefits of that park to the local community? It’s irrefutable that we value relaxing, exercising, and socialising in parks. Parks clearly provide a range of identifiable community services for mental and physical health, amenity, and aesthetic enjoyment (and others). But none of those benefits are directly paid for per use or otherwise traded directly in a market (for most parks). This means there’s often no observable price to provide some indication of the value of park visits – a so-called ‘non-market’ benefit.

But this does not mean those benefits aren’t real. It does not mean that the community will be better off if we choose not to build that park, or preserve urban canopy, or restore an urban waterway. It simply means that we have to work harder and smarter to identify the end-use benefits of these investments, quantify these (with scientific and engineering tools), and convert those benefits to a robust and fair estimate of value in dollar terms.

Economics has a range of methodologies that can assist (e.g. willingness-to-pay methods, hedonic pricing modelling, productivity cost methods, and more). While these methods require assumptions and are affected by uncertainties, they are a great deal better than nothing and can be refined over time as more and better data become available. The key is executing these methods well. This means exploring (rather than shying from) core uncertainties in the modelling, be those assumptions or data inputs.

Linking investment to impact: the challenge of complex causal chains

To ensure a consistent and systematic treatment of non-market impacts of green infrastructure, it is also important to understand what effects green infrastructure actually has in the urban environment.

A core principle of good cost-benefit analysis is that we only compare costs and benefits that are clearly and exclusively caused by the proposed investment, and not those which would happen anyway, or which would happen under every alternative option. This is the incremental impact of investment, and this is the end measure we convert to a monetary value to tally up different types of costs and benefits.

Nailing down the incremental impact of an investment with rigour can be the most difficult, resource-intensive step in the evaluation process. This is because it requires both a) a defensible case that green infrastructure causes the impact, then b) a defensible measure of how big that impact is.

Demonstrating causal links for green infrastructure is challenging, partly because scientific research and data cannot always readily establish a) and b) above. Further, green infrastructure evaluation can require multiple causal chains to be articulated and linked in a sequence to establish the final incremental impact of investment. This can be extremely complex.

Cooling by urban canopy

A key policy concern is the risk to health, life, and urban amenity of extreme city temperatures. Climate change will likely increase the number of ‘very hot’ (over 35 degrees) days, exacerbated further by the urban heat island effect. This heat can have serious consequences for health, and is a contributing factor for mortality, especially among the elderly and infants. It is also an extreme (and expensive) stress on our electricity infrastructure.

Urban canopy is one form of green infrastructure that can help reduce these impacts. The natural evapotranspiration processes of trees can cool surrounding air temperature. But the first step to evaluating the cooling benefits of urban canopy is to estimate, for the specific site and proposed investment (including what kind of trees, in what numbers, in what kind of environment, at what scale, etc.), the amount of cooling caused by increasing urban canopy. This is a non-trivial exercise, heavily reliant on the state of scientific research and site-specific modelling. Even once achieved, this will only establish one quantified causal chain – how much change in air temperature will result from additional urban canopy (a similar process applies to the case of cooling from retaining water in the landscape).

The second step involves quantifying the causal link between air temperature changes to human health, electricity infrastructure requirements, and potentially other recreation-related outcomes. Again, this would require scientific research and is a data-intensive task.

But both steps are required to eventually establish the benefits, in monetary terms, that result from investment in urban canopy. Recent work in Western Sydney indicates that these benefits can be significant, and more than outweigh the additional costs.

This example demonstrates that that if this process is to be applied as the standard for green infrastructure proposals, it will require developing, accessing and expertly using high-quality, localised primary research and data. Much of this data will be scientific in nature. However, empirical economic data is also critical. Economic research using best-practice research methods is required to uncover the best possible estimates of what value the community places on alternative possible services provided by green infrastructure.

Where to from here?

Being able to assess good green infrastructure options from bad is critical. Valuation is a key element and as we have seen, can be a difficult process. Too often this step is avoided, with the focus on ‘how to invest’ (e.g. funding, delivery, governance etc), prior to answering the question ‘should we invest’.

This may be accomplished more easily in some sectors than others. Water utilities, for example, already have experience in the kind of robust green infrastructure evaluation processes described above. This is because many of the ‘assets’ they build and manage include multi-service delivering natural features. For example, from a traditional water industry perspective, an urban wetland might be one way to manage stormwater quantity, quality and floodplain issues. This is one manifestation of Water Sensitive Urban Design (WSUD), which is now a standard industry concept that prioritises smarter use of nature and its materials to provide services in all stages of the water cycle.

But that wetland is also a piece of green infrastructure that delivers open space, recreational opportunities, wildlife habitat, and possibly other services (for example, large water in the landscape might also be able to cool urban temperatures). The water industry has developed capability because of the regulatory framework that requires scrutiny of spending by utilities. The resultant expertise, datasets, and experience includes quantification of impacts of green infrastructure and the values placed on these impacts by the community (for example, impacts of WSUD options on water quality and species diversity).  Sharing and accessing the information held by various sectors will be a key part of unlocking the data and skill required in the valuation process across different forms of green infrastructure.

Government policy encouraging different industry sectors to view our future urban environments with a green infrastructure focus invigorates the approach to infrastructure development and broadens the horizons for what our future urban landscapes can become. Policies should encourage industry players to factor in liveability, amenity, sustainability, the circular economy and a range of other urban policy goals in infrastructure development. However, demonstrating the value that could result from these investments (or broader interventions) is critical. If we genuinely see these investments as value-enhancing community infrastructure, this step must come first. Further, it must be done well if the case is to be made convincingly and for the long-term that multi-servicing delivering green infrastructure is a sound use of the community’s resources.


How real options analysis improves decision making

Standard techniques used to appraise commercial and government investments often ignore the value of flexibility to adapt investment strategies as circumstances change. Misvaluation of this kind can result in suboptimal investments being chosen. This problem can be particularly acute for infrastructure projects, which typically involve large sunk costs and uncertainty over long asset lives. Real options analysis addresses this shortcoming by valuing flexibility explicitly, thereby promoting better decision-making.

Making decisions under uncertainty

The 6th of June 1944 marked the beginning of the Battle of Normandy, a decisive turning-point in World War II that led to the liberation of Western Europe. Under General Dwight D. Eisenhower’s bold plan, 160,000 Allied troops would cross the English Channel under cover of darkness, land on several beaches in Northern France and push deep into German-held territory. The Normandy landings remain the largest seaborne invasion ever recorded, and one of the most successful Allied campaigns during World War II. However, the whole endeavour was nearly scuppered by the most mundane of things: bad weather.

The landings were originally planned for the 5th of June. However, it became clear by the 4th that heavy winds and rough seas would make the audacious landings impossible. Meteorologists advising Eisenhower forecast that conditions would improve sufficiently by the 6th for the invasion to proceed. The Allied Commander wisely heeded the advice to delay, changed plans that had taken months of meticulous preparation—and the rest, as they say, is history.

Flexibility when making decisions is valuable not just in military strategy. All of us adjust our plans in response to changing circumstances and new information—whether that entails taking a different route home from the usual one to avoid traffic, or more life-changing choices, like whether to buy a house when the outlook for the property market is highly uncertain.

Commercial and public investment decisions are no exception. Businesses and governments making major investment choices often do so in the face of significant uncertainty about the future. Rarely are the investment choices completely fixed. Investment plans can often be adapted—for example, by waiting to see what happens rather than taking a decision now, or by pursuing a different investment strategy—when confronted with new information that affects the value of the investment.

Bizarrely, even though many investors do in practice change their behaviour in response to new information, the techniques typically used to value investments ignore this flexibility. For example, standard Net Present Value (NPV) analysis used in commercial investment appraisals and cost-benefit analysis (CBA) used to assess the net public benefits of government investments generally assume fixed investment plans that cannot be revised, regardless of how circumstances change.

If the flexibility to change investment strategies is valuable—and it can be materially so in many situations—then standard NPV analysis and CBA will understate the value of investments. Investors who realise this often resort to ad hoc, qualitative judgment in order to take account of the value of flexibility—usually an excellent way to make bad decisions.

Worse still, what happens if two competing investment options are being considered side-by-side, but one presents the investor with more (or different kinds of) flexibility than the other? How are those two options to be compared on a like-for-like basis? Unless the flexibility is valued quantitatively, there is every chance that the two investment opportunities will not be compared on a level playing field, and the wrong (i.e., value-destroying) investment may inadvertently be selected.

The value of flexibility: a simple example

Figure 1 presents a simple example, which shows that when faced with uncertainty, flexibility to respond to new information can increase the value of an investment.

A flow chart indicating the outcomes of two scenarios of investing immediately, or waiting and investing only if cash flows increase

Consider two investment options available to an investor.

Under Option 1, the investor can invest at Time 0 at a cost of $10 million. The investment will provide a guaranteed cash flow of $1.25 million at Time 1. However, the cash flows at Time 2 (and thereafter) are uncertain: with equal probability they will either rise to $2 million, or fall to $0.5 million. This uncertainty resolves only at Time 1. Under Option 1, this occurs after the investment decision has been. If the investor takes Option 1, the expected NPV of the investment (at a constant discount rate of 10%) would be $2.5 million.

Note that the expected NPV represents the average outcome, given that there is a 50/50 chance of cash flows from Time 2 onwards increasing or falling significantly. If the investor is unlucky and cash flows drop, then the actual NPV of the investment would be -$6.59 million. The investment would have turned out to be a very bad one.

Under Option 2, the investor could—in recognition of uncertainty about the future—wait until Time 1 and choose to invest only if the cash flow at each point in time increases to $2 million. This would mean giving up a guaranteed cash flow of $1.25 million at Time 1. However, in exchange, the investor can avoid an outcome where the cash flow drops significantly and forever to $0.5 million, producing a loss-making investment. If the investor takes Option 2, the expected NPV of the investment would be $4.55 million—significantly higher than under Option 1, where the investment would occur immediately regardless of future uncertainty. By selecting Option 2, the worst the investor can do is avoid losses by not investing if the cash flows decline.

The difference in the NPVs under Options 1 and 2, $2.05 million, represents the economic value of flexibility (the ‘option value’) to change the investment strategy in response to new information.

Real options analysis

Real options analysis (ROA) is a technique that allows the systematic quantification of the economic value of flexible decision-making. Unlike standard NPV analysis or CBA, ROA recognises that investors can alter the way a project is rolled out as circumstances change and calculates the value of the project under different possible investment strategies rather than a single, fixed strategy.

Examples of flexibility in decision-making that ROA can account for include the options to:

ROA has two main advantages over standard NPV analysis and CBA:

When is flexibility valuable?

A key insight from the ROA literature is that the value of flexibility can be particularly large if:

This means ROA can be particularly useful when valuing infrastructure investments—such as: roads, rail lines, ports, airports, water networks, desalination plants, water recycling plants, telecommunications networks, mining and exploration assets, gas pipelines, electricity grids and power stations.

This is because infrastructure investments tend to be long-lived (so economic conditions can change materially over the life of such assets), and typically involve billions in sunk costs.

The NBN: an application of ROA

With a forecast peak funding requirement of $51 billion, the National Broadband Network (NBN) represents the largest infrastructure project ever undertaken in Australia.

Given the size of the project, it is astonishing that the Rudd Labor government, which pledged to deliver the NBN, refused to conduct a CBA to assess its merits. Indeed, the Federal Communications Minister at the time argued that the benefits of the NBN to Australia were self-evident, and that conducting a CBA would be a “waste of time, waste of effort, waste of money.”

The most contentious aspect of Labor’s NBN plan was a commitment to deliver fibre to the premises to 93% of the population with broadband speeds of up to 100 megabits per second. The ambitious choice to build fibre to the premises was intended to deliver a network with sufficient capacity to last for generations, but also involved the highest construction costs.

The decision to roll out fibre to the premises was particularly controversial because it was unclear in 2009, when the plan was first announced, that there would be sufficient future demand to justify the broadband speeds and build costs associated with a fibre to the premises network. Whether fibre to the premises would be truly worthwhile depended on what sort of applications would emerge, and how consumers would choose to use broadband services, in future. However, the government of the day pressed on with its plans for a “Rolls-Royce” NBN as though such speeds would definitely be required, regardless of the uncertainty over future demand. No account was taken of the option to delay or to build gradually.

When Labor lost the 2013 general election, the incoming Coalition government commissioned a CBA of the project. That study assessed the net benefits to taxpayers of three options for rolling out the NBN. It concluded that, against the base case scenario of halting the project immediately:

The study suggested that Labor had picked the worst of all rollout options.

A commendable aspect of the CBA—which made it stand out compared to most other government CBAs—was that it made some effort to account for optionality. The CBA recognised that a key uncertainty was the extent of future growth in demand for high-speed broadband. The study concluded that whilst a multi-technology mix rollout would offer slower speeds than a fibre to the premises rollout, it would allow the NBN to be upgraded at a later date, if demand turned out to be higher than anticipated.

The authors of the CBA modelled the net benefits of having the ability to upgrade later if required, under a multi-technology mix rollout, instead of building full fibre to the premises capability upfront. Figure 2 presents the value of the multi-technology mix rollout over and above the fibre to the premises rollout if:

A graph indicating the net benefits of a multi-technology mix scenario over fibre to the premises scenario with and without upgrade

This analysis demonstrated two important things:

Based on these results, the CBA concluded that:

Overall the [multi-technology mix ] MTM scenario has significantly greater option value than the [fibre to the premises] FTTP scenario. The MTM scenario leaves more options for the future open because it avoids high up‐front costs while still allowing the capture of benefits if, and when, they emerge. It is, in that sense, far more ‘future proof’ in economic terms: should future demand grow more slowly than expected, it avoids the high sunk costs of having deployed FTTP. On the other hand, should future demand grow more rapidly than expected, the rapid deployment of the MTM scenario allows more of that growth to be secured early on, with scope to then upgrade to ensure the network can support very high speeds once demand reaches those levels.

Making us better off

John Maynard Keynes is often credited with saying “When the facts change, I change my mind. What do you do, sir?” In fact, the actual source of this quote was not Keynes, but Paul Samuelson, another famous economist.

Regardless of who actually said the words, the sentiment behind them makes intuitive sense to most of us. We do not go through life following a perfect linear path, regardless of what life throws at us. We adapt our plans as circumstances change because doing so makes us better off.

Commercial and government investment decisions are much the same. Yet, standard NPV analysis and CBAs used to appraise such investments typically ignore the value that can be gained from changing the investment strategy in response to new information. This can result in the value of investments—particularly those that are long-lived, exposed to significant future uncertainty and involving large sunk costs—being mis-estimated. This, in turn, can lead to suboptimal investments being selected, at significant cost to shareholders or taxpayers.

ROA addresses this problem by quantifying explicitly the value of flexibility, and allowing identification of optimal investment strategies, thereby improving decision-making.

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The Australian offices of Frontier Economics will be closed from 5pm Monday 24 December 2018 and will re-open at 9am on Wednesday 2 January 2019.

The Singapore office of Frontier Economics will be closed for the public holidays of Tuesday 25 December 2018 and Tuesday 1 January 2019.

We wish you all a Merry Christmas and hope you enjoy the festivities of the holiday season.

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The Singapore office of Frontier Economics has moved. Our new office offers us greater flexibility for growth and additional features to support our work.

“Frontier’s presence in Singapore continues to expand and we are excited to have worked with many new clients as well as longstanding clients on new matters and in new jurisdictions across the Asia-Pacific region. Our new office will provide a larger platform to support our continued growth in Singapore and beyond” says Frontier (Asia-Pacific) director James Allan.

From our base in Singapore, Frontier Economics is fully committed to providing independent, high quality economic advice across the region.

Frontier Economics can now be found at:

60 Anson Road
Level 17, WeWork
Singapore 079914

Tel: +65 9450 5627

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The International Trademark Association (INTA) today in Singapore launched a report on the economic contribution of trademark-intensive industries to five ASEAN economies -  Indonesia, the Philippines, Malaysia, Singapore and Thailand – that together account for 90% of the ASEAN region’s GDP.  James Allan, Director, Frontier Economics (Asia-Pacific), presented the report’s key finding and methodology. The research was led by Amar Breckenridge, Senior Associate, Frontier Economics (Europe). The report will be publicly available on 15 September.

The report, the first of its kind for the region, underscored the importance of trademark-intensive industries to the region. Of these industries, computers and electronics are the most significant in terms of their contribution to value add and employment. Food, motor vehicles and chemicals are also significant in some of the countries studied. Taking into account direct and indirect contributions, these industries accounted for between 40% and 60% of GDP in the countries concerned. Econometric modelling suggested that for the five countries as a whole, productivity per worker was nearly twice as high in trademark intensive industries than in others.

Frontier Economics regularly advises on matters of international trade, intellectual property and economic growth.

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In 2012, Generic Health released a generic version of Bayer's best-selling oral contraceptive, Yasmin. Bayer was denied an interim injunction but in June 2014 it succeeded in stopping the sale of the generic. Bayer then applied for damages on the basis that each unit sold of the generic was one less unit sold of Yasmin.

Today, Justice Jagot of the Federal Court of Australia awarded damages of more than $25 million plus interest and costs (amounting to a total of around $30 million) to Bayer for Generic Health’s infringement of its patent. The award represented the full claims by Bayer except for a discount of 2% for the uncertainty about Bayer Pharma AG’s costings. Frontier Economics (Asia-Pacific) was retained by lawyers for Bayer and gave expert evidence in the proceedings for damages.

Frontier regularly provides companies and their legal representation with expert economic advice in legal disputes. In particular, we have recently advised on a number of cases relating to damages arising from alleged infringement of patents.

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Holders Of Patents And The Australian Trade Practices Act

Many holders of patents (and some intellectual property lawyers) do not realise that the exercise of patent rights is constrained by the provisions of the Australian Trade Practices Act 1974. In particular, the monopolisation section of the Trade Practices Act (section 46) may well be infringed if the holder of a patent refuses to grant a licence to a party that requests one. This bulletin discusses how economic analysis can play a vital role in a court’s decision in such cases.

Some patent holders believe that the rights granted by their patents confer a sort of exempt status from the normal legal framework in which they operate. However, this is not the case. The Australian Trade Practices Act 1974 (the Trade Practices Act) is the legal instrument that governs how the marketplace operates and so is of primary importance to patent holders. So how might a patent holder infringe this Act? We look at the case law below.


The principal monopolisation provision of the Trade Practices Act is section 46(1). It states that a corporation infringes the section if it:

Although there are provisions to exempt conduct from the reach of this proscription, these exemption provisions do not apply to patents. It is absolutely clear that the monopoly rights granted by patents can be the basis of an infringement of the monopolisation provision of the Trade Practices Act.

Section 46 does not prevent the charging of a high price. It does not strike at “monopolists” or those in a “monopolistic position”. Nor does it look to attain a commercially reasonable result. Charging a price that is dependent on one’s market power will constitute a taking advantage of that market power; but the conduct will not be for damaging a competitor. Indeed, the charging of a high price will be more likely to benefit one’s competitors rather than damage them.

The exception to this generalisation is if a monopoly input supplier competes in a downstream market. In that case, charging a high price for the input may damage a competitor in the downstream market and, by this means, infringe s46.


This was the situation in the seminal case under s 46: Queensland Wire Industries Pty. Ltd. V. The Broken Hill Proprietary Company Limited & Anor (1989) 167 CLR 177. In that case, BHP was found to infringe s 46 because it charged such a high price for Y-bar that it had constructively refused to supply this input to Queensland Wire Industries, which was its competitor in the downstream rural fencing products market. The High Court had no hesitation in upholding the finding of the Court at first instance that BHP’s constructive refusal to supply was for one of the proscribed purposes.

Because purpose is readily established, most of the heavy lifting in deciding claims under s 46 is done by the requirement for a firm to ‘take advantage’ of its market power. This requires proof of a causal connection between the market power and the conduct that is said to infringe. As Mason CJ and Wilson J stated in Queensland Wire:

In effectively refusing to supply Y-bar to the appellant, BHP is taking advantage of its substantial market power. It is only by virtue of its control of the market and the absence of other suppliers that BHP can afford, in a commercial sense, to withhold Y-bar from the appellant. If BHP lacked that market power – in other words, if it were operating in a competitive market – it is highly unlikely that it would stand by, without any effort to compete, and allow the appellant to secure its supply of Y-bar from a competitor.

A patent holder cannot defend itself against an allegation that it has infringed s 46 by arguing that its refusal to grant a licence is a use of a property right rather than a use of its market power. As Dawson J pointed out in Queensland Wire:

Nor is it helpful to categorise conduct, as has been done, by determining whether it is the exercise of some contractual or other right. …The fact that action is taken pursuant to the terms of a contract has no necessary bearing upon whether it is the exercise of market power in contravention of s 46.

The High Court made similar remarks in NT Power Generation Pty Ltd v Power and Water Authority (2004) ATPR 42-021:

Further, to suggest that there is a distinction between taking advantage of market power and taking advantage of property rights is to suggest a false dichotomy, which lacks any basis in the language of s 46. As already discussed, property rights can be a source of market power attracting liability under s 46 and intellectual property rights are often a very clear source of market power.


Although Queensland Wire, involved a refusal to supply, a mere refusal to supply or license is unlikely to infringe s 46 because such a refusal would usually not be for one of the purposes proscribed in s 46. A refusal to supply is most likely to infringe s 46 if the owner of the patent is also a competitor in the market where the party that is refused supply is competing.

Following Queensland Wire, Australia has had a raft of refusal to supply cases. There have been some refusal to license cases but none of these has proceeded to judgment. However, the ACCC has shown an interest in the matter in the past and, on one occasion, went so far as to issue proceedings before the matter was settled.

In the first matter, the Australian Competition and Consumer Commission (ACCC) issued proceedings against the Commonwealth Bureau of Meteorology (BOM). The BOM had refused to license a potential competitor in the supply of weather forecast data to newspapers. The ACCC alleged that this refusal to supply infringed s 46. However, the case was settled prior to trial when the BOM agreed to make the data available.

At about the same time, the ACCC formed the opinion that Telstra had breached s 46 by refusing to license third parties who wished to use its Yellow Pages database to compete with Telstra in producing directories. The ACCC decided not to issue proceedings after extracting an undertaking from Telstra that it would supply the data to potential competitors on terms approved by the ACCC.


The various refusal to supply cases under s 46 suggest that it is only a matter of time before Australia experiences the trial of a patent owner who refuses to grant a licence. In order for the refusal to infringe, the patent owner would have to be competing with the applicant – probably in a downstream market.

When confronted by such an allegation, a patent owner could argue that it did not have the requisite degree of market power and/or that its refusal to license did not constitute a taking advantage of its market power. Economists can help answer both of these questions: the first is the bread and butter of competition economists while the second involves an analysis of the firm’s business.

A patent does not necessarily confer on its owner great market power: the patent may relate to a minor part of the activities of its owner or the commercial life of the patent may be very short. However, the various obiter referring to patents as sources of market power suggest that it may be difficult to sustain a claim that a firm that was undertaking conduct contingent upon a patent did not have the requisite degree of market power to infringe the section.

The more-likely form of defence would be to claim that the conduct did not constitute a taking advantage of market power. Firms can generate profits in two ways: (i) by using their market power; or (ii) by undertaking conduct that is economically efficient. One way of defending oneself against an allegation that the conduct constitutes a use of market power is to show that the conduct (in this case a refusal to license) is consistent with economic efficiency; to use the language of the United States’ courts, one may be able to show that there was a valid business justification for the refusal to license that was unrelated to whether or not the firm had market power.


What reasons might a firm give to show that licensing may be inconsistent with the efficiency of its operations? One reason may be that it is very difficult to write efficient contracts. The marginal cost of using a technology that has already been developed is zero. Any licence fee that increases the per-unit costs of the licensee would tend to raise its marginal costs above the marginal costs of the vertically-integrated enterprise (the licensor). To avoid both the disputes to which such ‘discrimination’ could give rise and the difficulties of negotiating and enforcing a non-distorting contract (that is, a lump-sum contract) the more-efficient solution may be not to license at all.

Whether such arguments were relevant to any real-world dispute would depend on the particular industry in question. What is important is to recognise that economics can assist courts in deciding whether or not conduct (such as a refusal to license) constitutes a use of market power.

This bulletin is based on a paper presented by Philip Williams to the Annual Conference of the Institute of Patent and Trade Mark Attorneys of Australia in April 2010.