Following the repeal of the IP exemption in s51(3) of the Competition & Consumer Act (the CCA), the Australian Competition and Consumer Commission (the ACCC) has released draft guidelines setting out its interpretation of the impact of the change. The ACCC is seeking input from third parties on its proposed approach (the draft guidelines can be found here), with submissions open until 19 July 2019.
Prior to its repeal, s51(3) provided an exemption for some IP related conduct from a number of the prohibitions in Part IV of the CCA. As a consequence, from 13 September 2019, conduct involving IP rights will be subject to the anti‑competitive conduct prohibitions in the same way as all other conduct. Any market restrictive conditions in existing arrangements or intellectual property licences or assignments must comply with the general requirements of Part IV of the CCA.
The application of s51(3) was relatively limited in that it applied to conditions of licences and assignments that related to IP rights and had no application to conduct constituting a misuse of market power or resale price maintenance. Therefore, in practical terms, the impact on businesses as a result of the exemption’s removal may be minimal, although the change in law does warrant a review of existing and planned arrangements in light of anti-competitive conduct prohibitions.
The draft guidelines work through examples of market sharing, resale price maintenance and exclusive dealing, and provide some guidance on the ACCC’s attitude and assessment of those scenarios following the repeal of the exemption.
The examples appear largely uncontroversial and serve to highlight the narrow application of the exemption in the first place. The draft guidelines do, however, detail a number of examples of particular relevance to organisations that innovate and license intellectual property.
In particular, example 5 relates to license back provisions ̶ said by the guidelines to be at risk of contravening section 45 of the CCA. Section 45 prohibits a corporation from making or giving effect to a contract, arrangement or understanding, or engaging in a concerted practice for the purpose, or with the likely effect of, substantially lessening competition.
The examples detail a common situation whereby Company A licenses its patents to Company B and C for manufacture and commercialisation on the condition that those entities assign back any improvements they make to the patented technology during the licence term. Upon that assignment, Company A agrees that it will automatically license those improvements back to Company B and C and will not license the improvements to any other entity. This scenario is a relatively common one in patent licences because the improvements developed by a licensee can often be the biggest source of revenue and patentees commonly seek to own this IP, but provide a licence back.
Under the draft guidelines, the ACCC considers the arrangement is at risk of contravening s45 of the CCA. Because Company A has agreed to license the improvements only to its licensees, the agreement may have the effect of substantially lessening competition.
Perhaps more importantly, the draft guidelines provide insight into the ACCC’s likely attitude and approach to IP related conduct and serve as a timely reminder for any companies that rely extensively on intellectual property rights to review their existing arrangements in light of Part IV of the CCA.
Any companies who would like assistance with the review of their IP arrangements or in formulating submissions to the ACCC on the draft guidelines should contact Malcolm Bell or David Longmuir at Phillips Ormonde Fitzpatrick Lawyers.