End of the IP exemption era: repeal of the IP exemption from competition laws

Section 51(3) of the Competition and Consumer Act 2010 (CCA) contained an exemption for transactions involving licensing or assignment of certain intellectual property rights from certain prohibitions against anti-competitive conduct.

Legislation has been passed that repeals the intellectual property exemption from section 51(3), effective from 13 September 2019. The repeal comes from recommendations made by the Productivity Commission’s Intellectual Property Arrangements Inquiry Report in December 2016 and the Harper Competition Policy Review (March 2015).

How will the repeal affect you?

The result of the repeal is that any conditions of licences, assignments, contracts, arrangements or understandings relating to intellectual property will now be subject to competition laws in the same manner as any other commercial transactions.

It is important to note that the removal of section 51(3) does not only affect IP related arrangements entered into on or after 13 September 2019. It also includes those entered into before the repeal is effective. This means that conditions in arrangements relating to IP that were in place before 13 September 2019 may expose a business to substantial fines for being in breach of the CCA.

Businesses should review their IP arrangements to ensure that any restrictions or conditions do not contravene the anti-competitive conduct prohibitions in the CCA.

If it is not feasible to amend an offending provision, it is possible for affected businesses to apply to the ACCC for authorisation of conduct that could contravene the CCA. In doing so, notification and authorisation can provide immunity from competition law in cases where the particular arrangement or conduct is likely to result in a net benefit to the public. However, the ACCC may take up to six months to make a decision, so there is a risk that offending conduct will be unlawful during any period that it subsists without authorisation.

The ACCC have published guidelines on the repeal that set out general principles that the ACCC will consider when proceeding to investigate and enforce Part IV in relation to conduct involving intellectual property rights. The guidelines also set out the types of previously exempt conduct and provide examples of conduct the ACCC considers is likely or unlikely to contravene the CCA.

Penalties

The repeal may impact the lawfulness of existing IP arrangements. For each breach of the competition provisions in the CCA, the maximum civil penalties are:

1. for individuals – $500,000
2. for corporations – the greatest of:

• • $10 million
  • if the Court can determine the ’reasonably attributable‘ benefit obtained from the conduct – three times that value
  • if the Court cannot determine the size of the benefit – 10% of annual turnover in the preceding 12 months.

Other penalties, such as criminal penalties, may also apply for certain conduct.

What you need to do

In light of the repeal, it is important that businesses consider any IP arrangements that involve conditions that were not contrary to the CCA because of the application of the exemption in section 51(3) – for example, provisions that:

• prevent, restrict or limit the supply of intellectual property
• fix, control or maintain the price of intellectual property
• restrict a licensee from the resupply of intellectual property to certain customers or in certain territories
• restrict a licensor from supplying intellectual property to certain persons or territories
• limit use of patented inventions in a defined field
• divide or allocate customers, suppliers, or territories among the parties to the arrangement
• seek to settle intellectual property dispute arrangements by requiring a competitor to delay the entry of their products into the market or to grant a licence over the intellectual property rights.

Please contact the team at Cooper Grace Ward if you would like our assistance in this regard or have any further questions.