Important changes to the Competition and Consumer Act 2010 (Cth) (CCA) come into effect on 13 September 2019. The repeal of subsection 51(3) from the CCA, which is effective from that date, will remove certain exemptions that currently apply to transactions involving the licensing and assignment of intellectual property (IP), including franchise agreements and R&D contracts.
The new law will apply to all IP transactions, regardless of whether they were entered into before or after 13 September 2019. There are substantial penalties for breach of the competition law provisions of the CCA, and all businesses should review their IP contracts to ensure that they are compliant with the new law before the repeal takes effect.
Identifying and assessing competition law risks
The Australian Competition and Consumer Commission (ACCC) has recently released on its website new guidelines ahead of the repeal of subsection 51(3), which outlines the approach that the ACCC will take to the application of the new law.
The ACCC recognises that the licensing or assignment of IP is often pro-competitive, by enabling IP to be exploited more widely than would otherwise be the case, which can encourage competition. However, the ACCC also warns that certain conditions in IP contracts may be anti-competitive and unlawful. The new guidelines provide examples of such conditions that the ACCC considers are likely to breach the CCA.
Under the CCA, some conduct is unlawful regardless of its actual market impact, notably agreements between competitors that involve:
- fixing prices;
- restricting the volume or type of particular goods or services that may be provided;
- sharing markets (by dividing or allocating customers, suppliers, or territories); or
- collusive tendering.
Other conduct is only unlawful if the purpose or likely effect of the conduct is to substantially lessen competition. Examples given by the ACCC in the context of IP licensing include:
- conditions that seek to restrain a licensee’s behaviour beyond the life of the licensed IP, such as obligations that extend beyond the term of a licensed patent;
- ‘grant-back of improvements’, where a licensee is required to assign or exclusively license back to the licensor any improvements generated by the licensee through use of the licensed IP; and
- “no challenge” clauses, which prohibit a licensee from challenging the validity of the licensed IP.
Other common licence terms that may amount to unlawful “exclusive dealing” include:
- restricting the licensee’s freedom to supply licensed products or services to designated geographic areas or to particular customers, or for certain applications or users;
- restricting when the licensee is permitted to supply licensed goods and services;
- requiring the licensee to acquire products or services (whether from the licensor or a third party) or otherwise restricting the licensee from acquiring products or services from a third party.
The new law may also affect the legality of settlement agreements arising from IP litigation and disputes, such as where:
- the IP rights holder wishes to delay a third party’s entry into the market or prevent them from challenging the validity of an IP right in return for compensation (also known as pay-for-delay arrangements); or
- the parties enter into cross-licensing arrangements, which impose restrictive obligations on each licensee, such as division of markets, non-compete clauses or price-setting.
In some cases, businesses may be able to obtain immunity by taking advantage of the notification and authorisation procedures under the CCA. These procedures can provide legal protection for conduct that would otherwise breach the CCA, depending on the nature of the relevant conduct, its impact on competition and any public benefit resulting from the conduct. For example, conditions in a franchise agreement that require franchisees to obtain raw materials or ingredients from a particular supplier, designated by the franchisor, may be justified as necessary for maintenance of consistent product quality.
For any businesses that have not yet reviewed their IP contracts, the release of the ACCC’s guidelines is a timely reminder that they should do so well in advance of the new law coming into force.