Repeal of IP exemption under competition laws
27 Mar '19

An important intellectual property exemption has been removed from the Competition and Consumer Act 2010 (Cth) (CCA). The change, which will come into effect later this year, is a catalyst for businesses to urgently review existing IP related contracts to ensure their ongoing compliance with the competition provisions in the CCA.

Operation and repeal of section 51(3) of the CCA

Conditional licensing arrangements or assignments of certain IP rights (such as contracts that relate to the licensing of a company’s patents, registered trade marks, registered designs, copyright or eligible circuit layout rights) have, until now, been exempt from the operation of laws that prohibit certain anti-competitive conduct. The exemption exists under section 51(3) of the CCA.  

Until now, a contract that may have otherwise be seen as anti-competitive (such as a contract involving cartel conduct, exclusive dealing or an arrangement substantially lessening competition) might be permitted if the otherwise offending contractual arrangement related to a party’s specific IP rights.

Royal Assent to the repeal of section 51(3) of the CCA was granted on 12 March 2019. The repeal will take effect on 13 September 2019 thus enabling businesses to review their contracts and, if required, renegotiate new contracts and/or seek ACCC approval to relevant arrangements.

Importantly, the repeal will operate retrospectively. This means it will not be a defence that the relevant contract or arrangement was entered into before 13 September 2019.

Rationale for the exemption and its repeal

The IP exemption originally existed to resolve the perception that IP rights and competition were in fundamental conflict – i.e. that there is public benefit to be achieved in rewarding IP creators with monopoly style rights.  

Recent reports by the Harper Review and the Productivity Commission have recommended the removal of the exemption because this rationale had largely fallen away.

The repeal brings Australia into line with other comparable jurisdictions including Europe, the United States and Canada.

Impact of the repeal

We expect the impact to be significant.

Many businesses have legitimately relied on this exemption which also existed under the Trade Practices Act 1974, the CCA’s predecessor. The exemption has long been regarded as an important advantage to the protection of certain IP rights. It has, for example, provided an effective defence for licensors of IP rights (including franchisors) seeking to impose and enforce otherwise anti-competitive provisions against their licensees – e.g. provisions requiring the exclusive purchase of goods or services from the licensor or another party.

The repeal of section 51(3) will expose many businesses to liability for anti-competitive conduct unless steps are taken to either:

  1. negotiate amendments to potentially offending contractual provisions – e.g. the removal of an exclusive dealing arrangement or other conduct that might substantially lessen competition; or
  2. engage with the ACCC via a notification or authorisation process to obtain permission to engage in the otherwise potentially anti-competitive conduct.

Time is of the essence

The repeal of section 51(3) should prompt urgent action given the timeframes necessarily involved for Boards to assess these new risks and for companies to negotiate new contracts and engage with the ACCC. The ACCC is expected to issue further guidance on this issue so stay tuned. We will provide updates as further information comes to hand.  In the meantime, please get in touch if you require further information about how these changes may impact your IP contracts.

 

This article is provided by way of general information only and is not legal advice. Always obtain your own independent legal advice tailored to your business’ particular circumstances before making decisions relating to the legal issues referred to above. In this regard, we’re here to help.