Intellectual property safe harbour at bay

The Competition and Consumer Act 2010 (the Act) prohibits companies and individuals from engaging in certain types of conduct that reduces competition, such as cartel behaviour and exclusive dealing.

Subsection 51(3) provides an exemption from certain prohibitions in the Act for conditional licensing or assignment of intellectual property (IP) rights such as patents, registered designs, copyright or eligible circuit layout rights.

This established safe harbour provision is set to be repealed by the Treasury Laws Amendment (2018 Measures No. 5) Bill 2018. The Bill, which will be presented to the Senate when it resumes sitting on 12 February 2019, proposes the repeal of subsection 51(3) in its entirety.

Momentum for this Bill came from the Productivity Commission’s Intellectual Property Arrangements Inquiry Report (December 2016) and the Competition Policy Review (March 2015) which recommended subsection 51(3) of the Act be repealed because the rationale for the exemption has largely fallen away. Rightly or wrongly, IP rights and competition are no longer thought to be in conflict and they should not remain mutually exclusive.

The report indicated that IP rights do not, in and of themselves, have significant competition implications. Rather, competition implications arise in those cases where there are few substitutes or where the aggregation of IP rights may create market power.

The Commission considered that commercial transactions involving IP rights, including the assignment and licensing of such rights, do not justify special safe harbour treatment and it should be subject to the Act in the same manner as transactions involving other property and assets.

The repeal of subsection 51(3) will bring Australia into line with other comparable jurisdictions such as the United States, Canada and Europe which do not provide an IP exemption from competition laws. In this vein, IP assignments, licences and their conditions will be assessed under competition laws in the same manner as all other commercial transactions.

If Parliament does not make any drastic changes to the Bill and the Australian Competition and Consumer Commission does not declare a class exemption for IP arrangements, all businesses should consider whether their existing IP contracts will continue to be compliant after the changes are introduced. The change could potentially have a significant impact on standard commercial arrangements, for instance, territory restrictions on a licensee, the compulsory handover to the licensor of a licensee’s improvements and product quality control clauses.

Take home message

Any business that licenses their IP should start reviewing their existing contracts to ensure their current licensing arrangements will not contravene the anti-competitive conduct prohibitions in the Act. It is important to note that the repeal will apply to both existing and future contracts. While businesses are likely to have a six month period to review their existing arrangements (between the Bill receiving Royal Assent and commencement), it would be prudent for businesses to start this review process early and seek appropriate advice to ensure compliance.

Macpherson Kelley will monitor this issue and publish further guidance at the appropriate juncture. Our lawyers have extensive technical knowledge and industry experience advising on complex competition law and IP arrangements. If you need any assistance or advice on how this change may impact your business or to ensure your IP arrangements remain compliant, please do not hesitate to contact Belinda Sigismundi or Kelly Dickson in our Intellectual Property and Trade teams.

This article was written by Belinda Sigismundi, Principal Lawyer – Commercial and Alymer Low, Lawyer – Commercial.