Anti-competition laws will soon apply to IP arrangements

March 7, 2019

Until recently, intellectual property licences, assignments or arrangements (including patents, trade marks or copyright) were exempt from the Restrictive Trade Prohibitions outlined in Part IV of the Competition and Consumer Act 2010 (Cth).

This part of the Act prohibits behaviours that reduce competition, including anti-competitive contracts and arrangements, cartel conduct and the monopolisation and misuse of market power (Restrictive Trade Prohibitions). These prohibitions take aim at practices that ‘substantially lessen’ competition.

On 18 February 2019, a bill passed which removes those exemptions effective in 6 months. So the Restrictive Trade Prohibitions will apply to IP licences, assignments or arrangements after that date – regardless of when they were entered into (including those entered into before 18 February 2019).

What is now prohibited?

Some examples of Restrictive Trade Prohibitions that now apply to IP licences, assignments or arrangements include the prohibition of:

(a)  Third line forcing – this may occur when IP is only licensed (or licensed for a particular price) if the licensee purchases certain goods or services.

(b)  Full line forcing – this may occur when IP is only licensed (or licensed for a particular price) if the licensee agrees not to purchase goods or services from a competitor or resupply goods acquired from a competitor.

(c)  Price fixing – where licensing occurs to divide markets and/or fix prices or quantity provisions in certain territories.

(d)  Onerous exclusivity provisions, which give limited rights to use and commercialise IP.

What are the risky areas?

(a)  Most IP arrangements between competitors or potential competitors because there is a risk of cartel conduct.

(b)  Settlement of IP disputes where terms may include anti-competitive non-compete clauses or other IP use restrictions.

(c)  Patent pooling or cross-licensing where two or more patent owners license their patents to each other, which has the effect of: (a) enhancing the market power of those owners; or (b) involves anti-competitive restrictions, such as  exclusions of potential licensors of substitutable IP.

(d)  Assignments back to the licensor of improvements made by the licensee to licensed IP (especially if this limits the licensee’s incentive to engage in research and development).

Anti-competition regimes similar to the Restrictive Trade Prohibitions have long operated in other jurisdictions like Europe, the United States and Canada. There is already substantial case law from those jurisdictions, which may pre-empt how Australia’s Courts could interpret the application of the Restrictive Trade Prohibitions to IP arrangements.

Penalties

A corporation that contravenes the Restrictive Trade Prohibitions may have to pay whichever is the greater of: (a) $10 million; (b) three times the value of the benefit from the act or omission; or (c) 10% of the corporation’s annual turnover in the last year (if the benefit can’t be calculated).

The maximum penalty for contravention by an individual is $500,000.

What should you do?

Businesses with existing IP arrangements should review them for anti-competitive elements. The Restrictive Trade Prohibitions will apply to those arrangements from 19 August 2019.

Businesses who enter into new IP arrangements in the future must ensure that the arrangements are crafted in compliance with the Restrictive Trade Prohibitions.

If you are concerned that your IP arrangements may breach the Restrictive Trade Prohibitions, you can seek immunity from the Australian Competition and Consumer Commissioner via authorisation or notification processes. You will need to show that the use of those arrangements will result in a net public benefit.

For advice on how the anti-competition laws will affect your IP arrangements, talk to an IP specialist at Mahoneys.


Written

Share