Intellectual Property exemptions for competition law breaches are repealed

By Elizabeth Thompson, Lawyer

Legislative Changes

Commencing on 13 September 2019, the limited exemptions from competition law breaches provided for in section 51(3) of the Competition and Consumer Act 2010 (Cth) (CCA) will cease.  This follows a Productivity Commission recommendation and the passage of the Treasury Laws Amendment (2018 Measures No. 5) Act 2019 (Cth) on 18 February 2019. Equivalent provisions in State and Territory legislation will also be repealed with effect from 13 September 2019.

The resultant change means that certain conduct involving IP rights will now be subject to the suite of provisions in Part IV of the CCA relating to prohibitions on anti-competitive conduct including:

  • cartel conduct (in particular price fixing, output restrictions and market sharing);
  • exclusive dealing; and
  • other arrangements, including concerted practices, that have the purpose, effect or likely effect of substantially lessening competition in the market.

The legislative changes will apply to existing contracts, arrangements and understandings as well as those contracts, arrangements and understandings entered into on or after 13 September 2019.

The changes are expected to have major impacts in markets where there are few substitutes or concentrated IP rights, such as the pharmaceutical and telecommunications markets, and the use of licensing and cross licensing increases.

The changes to the CCA mean that the law in Australia now aligns with comparable jurisdictions, including the US, Europe and Canada.

Key Business Risks

In reviewing IP licensing arrangements, organisations and individuals must consider competition implications.

A key risk area for organisations and individuals arising from the changes to the CCA includes cross licensing and conditional licensing between competitors, or potential competitors, where the licensing or assignment of IP rights will amount to cartel conduct. Such conduct includes provisions that have the purpose, effect or likely effect of fixing prices, allocating markets or restricting production, capacity or supply.

Specific conduct that may risk breaching the prohibitions on anti-competitive conduct in the CCA includes: arise from contracts, arrangements or understandings that:

  • assign IP rights including patents, registered designs, copyright or eligible circuit layout rights;
  • provide for patent pooling, which involves licensing one or more patents to third parties;
  • provide for reverse payment settlements or “pay-for-delay” arrangements, which are commonly used to settle patent infringement litigation;
  • provide for grant-back obligations, under which improvements to licensed technology is licensed back to the licensor; and
  • provide for hold-up arrangements, which involves patent holders imposing higher license fees on users after they have invested up front.

A certification trade mark (CTM) is not considered by the ACCC to be exposed to additional risk with the repeal of the exceptions as the ACCC will have already assessed the competition impacts of the proposed CTM rules in providing approval for the CTM and found that the rules would not be to the public detriment. The ACCC has confirmed in its guidelines on the repeal of section 51(3) of the CCA that it does not foresee a situation where it approves CTM rules and later takes action against parties acting in accordance with these approved rules.

The options available to organisations and individuals to reduce these risks are to:

  1. remove any provisions in existing contracts, arrangements or understandings that will now breach the CCA and cease implementing such provisions;
  2. for future contracts, arrangements or understandings, to either refrain from including such provisions or apply to the ACCC for an appropriate authorisation, under which the conduct will not be held to breach the CCA.

In applying for authorisation from the ACCC, businesses will need to establish that provisions in question in the contract, arrangement or understanding will not substantially lessen competition or that the public benefit of the provision in question will outweigh the public detriment.

It is important to note that the authorisation will only apply to conduct engaged in after the authorisation was granted.

As an alternative to authorisation, a business can notify the ACCC of the conduct in question in circumstances where the conduct the parties propose to engage in would be classed as exclusive dealing. The notification will come into force after being validly lodged with the ACCC unless the ACCC objects to the notification. The ACCC may only object to a notification if the likely benefit to the public from the notified arrangements would not outweigh the likely public detriment.

Potential Penalties

The CCA provides for both civil and criminal penalties for breaches of Part IV of the CCA. For corporations, the penalties are the greater of:

  • $10 million;
  • three times the value of the benefit obtained as a direct or indirect result of the act or omission; or
  • 10% of the corporation’s annual turnover in the 12 month period following the contravening conduct.

In respect of individuals, the following penalties may apply:

  • $500,000 for civil offences; and
  • up to 10 years in jail and/or a fine of up to $420,000 for each offence in respect of the criminal cartel provisions of the CCA.

Any organisation or individual seeking further information should contact Mills Oakley’s Competition Partner, Kathryn Edghill, on 02 8035 7853 or [email protected]

For further information, please do not hesitate to contact us.

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