Businesses that assign or license intellectual property (IP) rights will soon have to comply with further competition laws under the Competition and Consumer Act 2010 (Act).

Previously, section 51(3) of the Act operated to exempt commercial transactions involving certain IP rights (like patents, copyright, registered design and circuit layout rights) from particular restrictive trade practices provisions under Part IV, including exclusive dealing and cartel conduct.

On 12 March 2019, a Bill to revoke those exemptions received Royal Assent. The Treasury Laws Amendment (2018 Measures No. 5) Act 2019 will repeal section 51(3) of the Act, and the equivalent provisions under State Competition Codes.

Businesses now have under six months to ensure that all pre-existing and new IP arrangements, understandings, licences, and contracts satisfy Part IV of the Act. By mid-September, transactions involving IP rights will have to comply with competition laws, like any other transaction of property or assets.

The change in law will particularly impact businesses that rely on IP rights like those in media, entertainment, telecommunications, medical technology, information technology and fintech industries.

Many IP arrangements that are common practice may soon be illegal. Companies should consider whether their IP arrangements involve the following red flags:

  • prevent, restrict or limit supply of IP
  • fix, control or maintain the price of IP
  • limit or allocate IP use to certain territories or consumers
  • include exclusivity clauses that restrict who a licensor can supply IP rights to, who a licensee can license IP rights from, or who the licensee can resupply to
  • oblige a licensee to license improvements to the IP back to the licensor, or
  • settle a dispute over IP rights by granting a licence to IP, or imposing certain restrictions over those IP rights.

For instance, many entertainment arrangements could be impacted. Common clauses in licence agreements, like certain territorial restrictions or exclusive rights to future works (like sequels), may no longer be defensible based on the exemption from competition laws. In most cases it will be necessary to show a substantial lessening of competition in the relevant market, but in an era of increasing convergence the analysis of the affected market may well be a complex task.

Provisions that license IP rights on the condition that the licensor uses other services from a certain third party (third line forcing) could also breach the Act.

There may be scope for businesses with pre-existing arrangements to apply to the ACCC for authorisation, and under the ACCC’s power to make class exemptions, it is possible that certain IP exemptions could arise in future. However, to avoid breaching the Act, businesses should review their IP arrangements as soon as possible.