14 October, 2019
What you need to know
- Dealings with intellectual property (IP) rights have always been subject to some competition laws, but some dealings enjoyed a limited exemption under the Competition and Consumer Act 2010 (Cth) (CCA).
- On 13 September 2019 that exemption was repealed with retrospective effect.
- This means all IP dealings will be subject to competition law, and the removal of the exemption may trigger a renewed interest from the Australian Competition and Consumer Commission (ACCC).
What you need to do
- Review any IP arrangements that relied on the exemption (which was contained in section 51(3) of the CCA) to ensure that they comply with competition law.
- Moving forward, make sure that any new arrangement complies with the CCA or, if there are public benefits that outweigh the public detriment, consider whether the ACCC will authorise it.
IP exemption repealed
As reported in the March 2019 edition of IP @ Ashurst, in February 2019, Parliament passed a Bill repealing section 51(3) of the CCA. Section 51(3) contained a limited exemption for certain dealings in relation to intellectual property (IP) rights.
The Australian Competition and Consumer Commission (ACCC) supported the repeal, and has issued guidelines explaining its approach to enforcement.
What was previously exempt?
The exemption applied to:
- conditions in patent licenses and assignments, registered designs, copyright or protected circuit layouts to the extent those conditions related to the subject matter of the patent/registered design etc;
- provisions included in contracts, arrangements or understandings that authorised the use of certification trade marks (in accordance with Part XI of the Trade Marks Act 1995); and
- provisions included in contracts, arrangements or understandings between registered proprietors and registered users of other (non-certification) trade marks that related to the kinds, qualities or standards of goods bearing the trade mark.
The effect of section 51(3) was that these dealings did not contravene Division 1 (cartel provisions), or sections 45 (anti-competitive contracts, arrangements, understandings and concerted practices) or 47 (exclusive dealing) of Part IV of the CCA.
How could your IP arrangements be at risk?
The ACCC has recognised that IP rights, by their nature, confer exclusive rights on their holders. Exercising those exclusive rights will generally not raise significant anti-competitive concerns because they provide an important incentive for parties to invest in innovation and commercialisation.
Similarly, IP licensing arrangements usually encourage competition by allowing IP rights to be exploited more than would be the case if they were not licensed.
However, licensing, assignment and other dealings with IP rights can raise competition issues. The ACCC has indicated it will focus on "matters that will, or have the potential to, harm the competitive process or result in widespread consumer detriment".
Anti-competitive purpose or likely effect
Breaches of sections 45 and 47 of the CCA may arise if any aspect of the agreements or dealings between parties have the purpose or likely effect of substantially lessening competition in a market.
Generally, an arrangement or dealing may be capable of being anti-competitive where it imposes a restraint on a person's freedom to operate independently in a market. Signs of a substantial lessening of competition in a market include increased prices, lower levels of service and greater barriers to entry.
Importantly, when considering these effects, the focus is on competition in the market as a whole, and not only the particular position of individual competitors. Exclusive licensing and distribution arrangements may control or limit the way a person markets and supplies products using licensed IP without necessarily harming competition in the market.
An example of a breach of s 45 is provided in the ACCC's guidelines. Firm A licenses a patent for the manufacture of transmission systems to Firms B and C, who compete with one another. Firm B agrees to pay 20% more than Firm C for the licence. In return, Firm A agrees to impose more stringent quality restrictions on Firm C. The result is that Firm C produces fewer transmission systems. The ACCC considers that this arrangement would contravene s 45 of the CCA as it has the purpose of substantially lessening competition (rather than imposing bona fide conditions to, for example, protect goodwill).
Cartel conduct
The repeal of section 51(3) also means that dealings in IP rights between actual or potential competitors are subject to the strict cartel conduct laws.
Cartel conduct is illegal whether or not there is an anti-competitive purpose or likely effect, and is both a criminal offence and civil contravention. Broadly, cartel conduct involves an agreement (including tacit agreements) between competitors to:
- fix or maintain prices;
- restrict production, output or supply;
- share markets;
- boycott suppliers or customers; or
- rig bids or collude in tender processes.
IP licensing or similar agreements between two competitors that limit each other's ability to compete (for example, preventing a competitor from supplying in a particular geographic region, or to certain customers, or requiring them to charge certain prices) could raise cartel conduct issues, and would therefore need to be carefully scrutinised.
Ensure compliance
As the repeal operates retrospectively, it is essential that participants in the types of IP arrangements listed above (ie, that were previously covered by the exemption) review their compliance with the CCA. This includes both licensors and licensees.
Parties should consider whether the conditions they have imposed in their agreements have the purpose, effect or likely effect of substantially lessening competition in an Australian market.
If you are concerned that conduct may contravene the CCA, there are other exemptions in the CCA that may assist (particularly the joint venture exemption), and it is also possible to have conduct authorised by the ACCC through the authorisation and notification processes.
For further information, please contact:
Justin Jones, Partner, Ashurst
justin.jones@ashurst.com
