Legislative changes regarding IP rights: Review of IP contracts required

From 13 September 2019, following the introduction of the Treasury Laws Amendment (2018 Measures No.5) Act 2019 (Cth), the repeal of the intellectual property (IP) exemptions under s 51(3) of the Competition and Consumer Act 2010 (Cth) (CCA) will commence. Until 13 September 2019, s 51(3) of the CCA provides exemptions from certain anti-competitive conduct prohibitions in Part IV of the CCA for certain IP rights including patents, registered designs, copyright and eligible circuit layout rights.

What does this mean?

The repeal of s 51(3) means that the following prohibitions that were previously exempted will apply to licences, assignments, contracts, arrangements or understandings that relate to those IP rights:

• cartel conduct;
• making or giving effect to a contract, arrangement, or understanding, or engaging in a concerted practice, for the purpose, or with the effect or likely effect, of substantially lessening competition; and
• engaging in exclusive dealing for the purpose, or with the effect or likely effect, of substantially lessening competition.

The amendment will apply to not only the licences granted, assignments made, or contracts, arrangements or understandings entered into, on or after 13 September 2019, but also to those entered into before 13 September 2019 in relation to:

1. conditions imposed, or provisions included, on or after 13 September 2019; and
2. conditions imposed, or provisions included, before 13 September 2019.

How will this affect your business?

Businesses involved in the pharmaceutical, bio-technology and telecommunications industries which rely heavily on IP rights are likely to be most affected by these changes. However, regardless of the industry, all agreements involving conditional licensing or assignment of IP rights should be reviewed in light of the upcoming changes to competition law obligations.

In particular, in light of the repeal, the following types of conditions/arrangements concerning IP are some of the key risk areas which warrant careful consideration:

• licences that include restrictions on price, quantity and/or quality;
• conditions that restrict the use of IP rights with respect to certain customers or in certain territories;
• patent pooling arrangements;
• “pay for delay” arrangements, where, as part of a settlement of a patent dispute, a patent holder pays a competitor to delay the entry of their products into the market;
• exclusive cross-licences entered into by parties following settlement of a dispute; and
• licences that include “grant-back” obligations, where, licensees must license back any improvements made to the licensed IP to the licensor.

A contravention of these prohibitions under the CCA has serious consequences including:

• pecuniary penalties:
  • For a corporation, the maximum penalty for each contravention is the greater of $10 million; three times the value of the benefit gained as a direct or indirect result of the conduct; or 10% of the annual turnover of the corporation during the 12month period following the conduct.
  • For an individual, the maximum penalty for each contravention is up to $500,000, and if found guilty of a criminal cartel offence, up to 10 years imprisonment and/or a fine of up to $420,000 for each offence.
• damages;
• injunctions;
• declarations;
• disqualification of individuals from managing corporations; and
• criminal prosecution.

What are the next steps?

It is crucial for businesses to review, prior to 13 September 2019, their existing IP licensing and/or assignment arrangements to carefully consider whether they might contravene any anti-competitive conduct prohibitions previously exempted under s 51(3) of the CCA.

If businesses are able to prove that the public benefits outweigh the potential detriments for arrangements which may contravene these prohibitions under the CCA, they should also consider whether they are able to seek statutory protection by applying for authorisation by, or notification to, the ACCC. However, the ACCC cannot grant authorisation retrospectively for conduct businesses are already engaged in. Accordingly, time is of the essence for the review this article recommends.