The Australian Federal Government recently commissioned a comprehensive competition policy review (Harper panel review) culminating in a final Report released last week on 31 March 2015. The final Report covers a broad range of issues in competition laws and policy making fifty-six recommendations. Among these are proposals that may have a tangible impact on Intellectual Property (IP) rights in Australia.

The Harper panel made three main recommendations relating to IP law and policy in the Report:

  • Recommendation One: An overarching review of IP Policy
  • Recommendation Two: Repeal current IP licence/assignment exemptions from Competition and Consumer Act 2010
  • Recommendation Three: Remove some existing restrictions on parallel imports

The Federal Government has indicated general support for the direction of the final Report, and the Australian Competition and Consumer Commission (ACCC) are supportive of the recommendations regarding IP.

Consultation on the final Report is underway and submissions must be made by 26 May 2015. Ultimately it will be up to Parliament to decide whether to implement the various recommendations of the Harper panel.

Each recommendation is summarised below.

Recommendation One - Overarching review of IP Policy

Firstly, the Report “considers that Australia’s IP rights regime is a priority area for review”, and on that basis recommends that the Australian Government should task the Productivity Commission to undertake an overarching review of intellectual property.” The Report suggests that this should be a technology-neutral review conducted over twelve months focussing on the extent and duration of IP protection and whether IP policy actually provides incentive for innovation.

Chapter nine of the Report elaborates on the rationale for such a review referring to several previous IP reviews and submissions from various stakeholders. While acknowledging the benefits of an IP system in promoting innovation the Report notes that determining the appropriate extent of IP protection is a complex and ever-changing task, and that fostering inappropriate levels of IP rights can provide anti-competitive outcomes. For example, if IP rights provide higher rewards than are required to induce an invention there may be a reduction in the invention’s net benefit to the community, with a higher share of the benefit going to the IP rights holder. Monopolistic behaviour might arise from the IP rights if there are no substitutes for the invention.

Although acknowledging the worth of a number of recent IP reviews the Report states that these were only partial examinations and recommends an overarching review of IP policy. This is based on concerns that an overarching IP policy framework or objective guiding changes to IP protection does not currently exist.

The Report also calls for a separate review to assess the Australian Government processes for establishing negotiating mandates to incorporate intellectual property provisions in international trade agreements.” This recommendation may have arisen at least in part due to the strictly confidential nature of negotiations for the proposed Trans-Pacific Partnership agreement which includes Australia and the US, and is believed to incorporate strong focus on IP protection. As Australia is a net importer of IP, access to protected IP held by our major trading partners represents a potential cost (e.g. from royalties). The Report thus recommends that “trade negotiations should be informed by an independent and transparent analysis of the costs and benefits to Australia of any proposed IP provisions”.

Recommendation Two - Repeal current IP licence/assignment exemptions from Competition and Consumer Act 2010

Subsection 51(3) of the Competition and Consumer Act 2010 (‘CCA’) exempts certain conditions of an IP licence or assignment from many of the CCA’s anti-competitive product provisions. Some stakeholders have asserted that there is no valid reason why IP licensing and assignments are exempt. They have pointed out that agreements such as conditional licences can substantially reduce competition, for example, when cross-licensing arrangements drafted to resolve a dispute impose anti-competitive restrictions on each licensee. Other stakeholders have favoured the exemptions on the basis that restrictions on the capacity to exploit IP rights are contrary to the basic principles of IP law.

The Report recommends that subsection 51(3) be repealed without delay, independent of the proposed review of IP Policy (recommendation one discussed above). This proposal comes with the caveats that:

  1. IP licences should be exempt from the per se cartel provisions of the CCA insofar as they impose restrictions on goods or services produced through application of the licensed IP. Such IP licences should only contravene the competition law if they have the purpose, effect, or likely effect, of substantially lessening competition; and
  2. IP licensing or assignment arrangements at risk of breaching the CCA but which are likely to produce offsetting public benefits can be granted an exemption from the CCA through the notification or authorisation processes.

Additionally, the Report recommends the introduction of a block exemption which could be used to specify ‘safe harbour’ licensing restrictions for IP owners. This could be used to clarify the scope of permissible conduct relating to the use of IP rights and thus provide additional certainty for businesses. In the case where proposed conduct falls within the safe harbour, IP owners can avoid committing the time and resources required to seek authorisation or notification for IP licences or assignments that would otherwise be at risk of breaching the CCA.

Recommendation Three - Removal of some restrictions on parallel imports

Parallel imports refer to goods that are imported into Australia by someone other than the licensed or authorised distributor or manufacturer in Australia. They provide an alternative source of supply, which promotes competition and can provide consumers with products at lower prices.

Parallel importation of some copyright products is restricted under the Copyright Act 1968, and under the Trade Marks Act 1995 it appears that trade mark owners have the capacity to prevent parallel imports of trade marked goods into Australia by limiting trade mark licences to specific territories.

The Report indicates a view that parallel import restrictions generally are similar to other import restrictions (such as tariffs) in that they benefit local producers by shielding them from international competition. With this viewpoint in mind, the Report considers parallel import restrictions to represent an implicit tax on Australian consumers and businesses.

In assessing stakeholder submissions, the Report proposes that removing parallel import restrictions would promote competition and potentially lower prices of many consumer goods, while concerns raised about parallel imports (such as consumer safety, counterfeit products and inadequate enforcement) could be addressed directly through regulatory and compliance frameworks, as well as consumer education campaigns.

The specific recommendations of the Report in relation to parallel importation are that:

  1. restrictions on parallel imports relating to books and second-hand cars are removed; and
  2. the Federal Government should seek an independent review of the parallel importation defence available under the Trade Marks Act and all provisions of the Copyright Act that restrict parallel imports, with a review to potentially removing them.