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Overview

Restrictions

Are there any restrictions on the establishment of a business entity by a foreign licensor or a joint venture involving a foreign licensor and are there any restrictions against a foreign licensor entering into a licence agreement without establishing a subsidiary or branch office? Whether or not any such restrictions exist, is there any filing or regulatory review process required before a foreign licensor can establish a business entity or joint venture in your jurisdiction?

An individual may carry on business in Australia as a sole trader, a partnership, a joint venture, a trust or a company.

A foreign company may carry on business in Australia either as an Australian branch or through an Australian subsidiary.

A foreign company must register as such with the Australian Securities & Investments Commission (ASIC) to carry on business as an Australian branch. The name of the foreign company must be available in Australia and secured by application to ASIC. The foreign company must also have a registered office in Australia and appoint a local agent to represent the company in Australia. Once registered, the foreign company must lodge copies of its financial statements with ASIC periodically and comply with various notification obligations under the Corporations Act (eg, change in office holders or registered address). To conduct business in Australia, a foreign company can also establish an Australian subsidiary by registering the new company with ASIC. An Australian proprietary company must have:

  • a name;
  • a registered office in Australia;
  • at least one director; and
  • at least one director ordinarily resident in Australia.

There are no residency requirements for shareholders and no general minimum capital requirements for an Australian proprietary company.

There are no restrictions or formalities on a foreign licensor being a party to a licence agreement with an Australian licensee, where the foreign licensor is not itself otherwise carrying on business in Australia.

As a participant in an incorporated joint venture in Australia, a foreign licensor will not be subject to any filing or regulatory review process. However, the joint venture entity will be subject to this process where, for example, at least one director of the joint venture company must ordinarily be resident in Australia. Depending on the type of investment, the industry sector in which the investment will be made and the value of the proposed investment by the foreign licensor, notification to the Australian Foreign Investment Review Board by a joint venture may be required.

Kinds of licences

Forms of licence arrangement

Identify the different forms of licence arrangements that exist in your jurisdiction.

Under Australian law, a ‘licence’ will arise where the ‘licensor’ grants to a ‘licensee’ the right to use or do some other act in relation to the property or right of the ‘licensor’, without which the ‘licensee’s’ conduct would be unlawful and able to be restrained.

While confidential information, trade secrets and know-how (collectively ‘confidential information’) are not ‘property’ under Australian law, they can be ‘licensed’ in the sense that the source of that information may disclose it and permit a third party to use it.

Any ‘property’ or ‘rights’ capable of protection under Australian law can - either discretely or in combination - be the subject of an express or implied licence.

Under Australian law, a licensee can be either one or more individuals or a corporation, and the licence can be exclusive or non-exclusive. Many types of licences exist in Australia including technology transfer licences, confidentiality agreements and licences in respect of patents, trademarks, copyright, circuit layouts and plant breeders’ rights.

Law affecting international licensing

Creation of international licensing relationship

Does legislation directly govern the creation, or otherwise regulate the terms, of an international licensing relationship? Describe any such requirements.

In Australia, intellectual property is regulated at the federal level. The principal legislation comprises:

  • copyright: the Copyright Act 1968 (Cth);
  • patents: the Patents Act 1990 (Cth);
  • trademarks: the Trademarks Act 1995 (Cth);
  • registered designs: the Designs Act 2003 (Cth);
  • plant breeders’ rights: the Plant Breeders Rights Act 1994 (Cth); and
  • circuit layouts: the Circuit Layouts Act 1989 (Cth).

A range of other federal and state legislation has potential application to licensing arrangements including:

  • the Competition and Consumer Act 2010 (Cth) (CCA);
  • the Contracts Review Act 1980 (NSW); and
  • the Restraint of Trade Act 1976 (NSW).

Licensing arrangements in Australia are also subject to common law, equity and public policy considerations.

Under an international licensing arrangement, additional legislation may be relevant to the extent that the arrangement involves:

  • the importation of goods into or the exportation of goods out of Australia (eg, customs or quarantine legislation); or
  • payment of royalties by an Australian licensee to an international licensor (eg, taxation legislation).

See questions 4 and 5.

Pre-contractual disclosure

What pre-contractual disclosure must a licensor make to prospective licensees? Are there any requirements to register a grant of international licensing rights with authorities in your jurisdiction?

Except where the licence agreement is a ‘franchise agreement’ within the meaning of the Franchising Code of Conduct (see question 6), there are no formal requirements as to what a licensor must disclose to a prospective licensee. However, the accuracy of what is disclosed and the conduct of the licensor during the negotiations with a prospective licensee may be challenged subsequently, most commonly in the form of an action for misleading and deceptive conduct or misinterpretation.

The subject matter of the particular licence will determine whether registration is required, and the fact that it is an international licence agreement is not relevant. Of note are:

  • the Patents Act requires that an entitlement as licensee of a registered patent be recorded on the Patent Register
  • under the Trademarks Act, an ‘authorised user’ (see question 13) can choose to apply to have its interest recorded on the Trademarks Register;
  • the Designs Regulations 2004 prescribe that the name of any licensee be recorded on the Designs Register; and
  • there are no obligations to record a licence of a granted plant breeder’s right.

Registration

Are there any statutorily- or court-imposed implicit obligations in your jurisdiction that may affect an international licensing relationship, such as good faith or fair dealing obligations, the obligation to act reasonably in the exercise of rights or requiring good cause for termination or non-renewal?

A licence agreement is fundamentally a contract between the parties to it and, subject to any applicable non-excludable legislation and any relevant common law or equity principles or public policy considerations, the parties to a licence agreement governed by the law of an Australian state or territory (‘Australian law’) will be free to negotiate and determine the terms of their licence agreement, and their respective rights and obligations.

Where the licence arrangement also constitutes a franchise there is an express duty on both the franchisor and franchisee to act in good faith both during the negotiation process and after the agreement is entered into.

Intellectual property issues

Paris Convention

Is your jurisdiction party to the Paris Convention for the Protection of Industrial Property? The Patent Cooperation Treaty (PCT)? The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs)?

Yes.

Contesting validity

Can the licensee be contractually prohibited from contesting the validity of a foreign licensor’s intellectual property rights or registrations in your jurisdiction?

Yes.

Invalidity or expiry

What is the effect of the invalidity or expiry of registration of an intellectual property right on a related licence agreement in your jurisdiction? If the licence remains in effect, can royalties continue to be levied? If the licence does not remain in effect, can the licensee freely compete?

Where the relevant intellectual property (IP) right is invalidated, any licence granted in respect of such right will likely also end. However, where the rights licensed under the licence agreement include more than the invalidated right, the licence agreement will potentially continue to that extent. The express terms of the licence agreement are particularly relevant. Ongoing royalties may be an issue if only a collective royalty is provided for.

The expiry of any IP registration will, subject to any express agreement between the parties to the contrary, usually also trigger a termination of the licence agreement, leaving the former licensee free to compete with the former licensor.

A former owner of an expired or invalidated IP right who seeks to prevent a former licensee from competing based on the expired or invalidated right is likely to be successfully challenged for unconscionable conduct and unreasonable restraint of trade, although not in respect of any other rights the licensor still has to protect (eg, confidential information).

Requirements specific to foreigners

Is an original registration or evidence of use in the jurisdiction of origin, or any other requirements unique to foreigners, necessary prior to the registration of intellectual property in your jurisdiction?

No.

Unregistered rights

Can unregistered trademarks, or other intellectual property rights that are not registered, be licensed in your jurisdiction?

Although there is no system for registration of a copyright or eligible layout rights in Australia, licences can, however, be granted in respect of both copyright works and eligible layouts. Licences can be exclusive or non-exclusive and any of the exclusive rights of the owner can be separately licensed.

Unregistered trademarks can also be effectively licensed in Australia. While the Trademarks Act extends only to registered trademarks, a trademark that has been used (even if not registered) can be protected at common law through an action for misleading and deceptive conduct, misrepresentation or passing off. The basis of this protection is the use and reputation generated therefrom. The right to use an unregistered trademark can be granted under contract by one person to another, but it leaves open the question of who holds the reputation in such ‘licensed’ use.

Security interests

Are there particular requirements in your jurisdiction to take a security interest in intellectual property?

There is no requirement for a security Interest to be taken in intellectual property per se. However, if a licence has provisions that create a security interest then the interest should be registered under the Personal Property Securities Act 2009 (Cth) (PPSA) to retain priority against creditors in situations of insolvency.

A ‘security interest’ is defined in section 12(1) of the PPSA to be an interest in personal property provided for by a transaction that, in substance, secures payment for or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property). A security interest may be created over any personal property including any intellectual property right existing in Australia or any corresponding right under the law of any foreign country or over a licence of any intellectual property; provided that the licence is ‘transferrable’.

The PPSA Act specifically provides for two situations involving intellectual property rights and licences.

In the first place, a security interest over goods in respect of which IP rights subsist applies to those rights to the extent that the exercise of rights in respect of the goods by the holder of the security interest necessarily involves an exercise of those IP rights.

Second, where a licensor or sub-licensor consents to a licensee providing a licence agreement as security to a third party (eg, a bank), then the third party’s registered security interest will bind successors in title to the licensed IP provided that the original licensee retains the licence.

Proceedings against third parties

Can a foreign owner or licensor of intellectual property institute proceedings against a third party for infringement in your jurisdiction without joining the licensee from your jurisdiction as a party to the proceedings? Can an intellectual property licensee in your jurisdiction institute proceedings against an infringer of the licensed intellectual property without the consent of the owner or licensor? Can the licensee be contractually prohibited from doing so?

Except in relation to copyright, an owner of any IP right that exists in Australia can sue for infringement in Australia without joining any licensee whether foreign or local.

Whether a licensee can sue in Australia for infringement of the relevant IP right will turn on whether the licensee has standing under the applicable legislation.

In all cases, where a ‘licensee’ might otherwise have standing to sue for infringement, that right may be withdrawn or qualified under the licence agreement.

Patents

Only an ‘exclusive licensee’ has standing to commence a proceeding for patent infringement - being a licensee under a licence granted by the patentee and conferring on the licensee, or on the licensee and persons authorised by the licensee, the single and indivisible right to exploit the patent throughout the patent area to the exclusion of the patentee and all other persons. Any reservation of rights or limitation on the scope of the grant will mean that the licensee is not an ‘exclusive licensee’ under the Act.

An exclusive licensee under a registered patent who sues for infringement must add the registered owner as a respondent if not joined as an applicant.

Copyright

Only an ‘exclusive licensee’ can sue for infringement - being a licensee who, under a written agreement, signed by or on behalf of the owner or prospective owner of copyright is authorised to the exclusion of all other persons, to do an (ie, any) act that, by virtue of the Act, the owner of the copyright would, but for the licence, have the exclusive right to do.

Where a copyright owner commences an infringement proceeding in Australia in circumstances where there is an ‘exclusive licensee’, if both the owner and exclusive licensee have rights of action then, except with leave of the court, the owner or exclusive licensee, as applicable, must join the other either as an applicant or respondent. However, this requirement does not affect the granting of an interlocutory injunction on the application of either the owner or the exclusive licensee.

Trademarks

Under the Trademarks Act any ‘authorised user’ - being a person who uses the registered trademark under the control of the trademark owner, whether exclusive or non-exclusive - has standing to sue for trademark infringement (subject to any contrary agreement between the authorised user and the registered owner) at any time with the consent of the registered owner or, if the registered owner refuses, within two months of request, or, after two months of request if the registered owner fails to bring proceedings.

Where an authorised user of a registered trademark commences a proceeding for infringement, the registered owner must be added as a respondent if the owner is not also an applicant.

Registered designs

Under the Designs Act, actions for infringement are restricted to the registered owner.

Plant breeders’ rights

Actions for infringement of plant breeders’ rights are restricted under the Plant Breeders Rights Act to the registered holder only.

Circuit layouts

Only the owner of an eligible layout may commence an action for infringement.

Sub-licensing

Can a trademark or service mark licensee in your jurisdiction sub-license use of the mark to a third party? If so, does the right to sub-license exist statutorily or must it be granted contractually? If it exists statutorily, can the licensee validly waive its right to sub-license?

The rights of a licensee of a trademark registered in Australia comprise those rights expressly granted to it by the owner, the rights conferred on an ‘authorised user’ under the Trademarks Act and those rights implied by law.

One of the statutory rights conferred on an authorised user - but which may be varied or excluded by agreement between the registered owner and the authorised user - is the right to permit any person to apply the trademark to goods, or in relation to goods or services, in respect of which the trademark is registered.

The right to sub-license a registered trademark is therefore a statutory (but excludable) right and can be a contractual right.

In the course of sub-licensing a registered trademark, it is important for validity reasons to ensure that the use of the mark is under the control of the trademark owner (see question 12).

Jointly owned intellectual property

If intellectual property in your jurisdiction is jointly owned, is each co-owner free to deal with that intellectual property as it wishes without the consent of the other co-owners? Are co-owners of intellectual property rights able to change this position in a contract?

The rights of co-owners vary with respect to the particular type of intellectual property concerned. However, except in relation to registered trademarks, the statutory position can be changed by agreement between the co-owners.

In the case of patents and registered designs, each co-owner is entitled to an equal undivided share in the patent and is entitled to exercise the exclusive rights given by the patent for that joint owner’s benefit without accounting to the others. However, no joint owner can grant a licence or assign an interest in a patent without the consent of the other co-owners.

In the case of copyright, the joint owners take their interest in the copyright as tenants in common. No joint owner is entitled to engage in any act comprised in the copyright (including by granting a licence) without the consent of the other joint owners. Thus, one joint owner could take infringement action against a co-owner in respect of the jointly owned copyright where the co-owner is separately engaging in an act compromised in the copyright without consent.

In the case of trademarks, the rights of joint owners must be exercised ‘as if they were the rights of a single person’. Thus, any dealing in a jointly owned registered trademark must be by all of the co-owners jointly and no co-owner can deal with that co-owner’s separate interest in the trademark separately from the other co-owners.

First to file

Is your jurisdiction a ‘first to file’ or ‘first to invent’ jurisdiction? Can a foreign licensor license the use of an invention subject to a patent application but in respect of which the patent has not been issued in your jurisdiction?

Australia is a first to file country.

While a patent application does not confer on the applicant a right to sue for infringement, the Patents Act 1990 treats an invention as property (see section 15). It is common in Australia for licences to be granted in respect of inventions the subject of patent applications. However, the provisions of such a licence are likely to differ from those in a patent licence because in the application stage, there are no exclusive rights in existence. A licence under a patent application must therefore impose contractual provisions that are the equivalent of those exclusive rights that will exist upon grant.

It is possible to draft a licence under a patent application that will survive a failure of the application to result in a granted patent.

Scope of patent protection

Can the following be protected by patents in your jurisdiction: software; business processes or methods; living organisms?

Inventions of a sufficiently technical character may be protected by patents, regardless of whether those inventions are embodied in software or are used in conjunction with business processes or methods, provided the other requirements for patentability (eg, novelty and inventive step) are satisfied. ‘Pure’ business methods (that is, business methods that do not involve an invention having a sufficiently technical character) are not, without more, likely to be patentable.

Living organisms

Patents can be obtained for biological inventions including isolated bacteria, cell lines, hybridomas, related biological materials and their use, as well as for genetically modified or manipulated organisms, but not for nucleic acid sequences that merely replicate the genetic information of a naturally occurring organism.

The High Court of Australia decision in D’Arcy v Myriad Genetics Inc [2015] HCA 35 held that claims directed to isolated nucleic acids coding for mutant or polymorphic forms of a particular polypeptide do not meet the requirement of manner of manufacture and are inherently non-patentable.

After considering submissions from interested parties subsequent to the High Court decision in mid-November 2015 IP Australia published a statement on 15 December 2015 in which it indicated that examination practice post-Myriad would effectively broaden the decision to exclude as non-patentable nucleic acid probes and primers, isolated interfering or inhibitory nucleic acids and synthetic nucleic acids that merely replicate the genetic information of a naturally occurring organism as well as isolated naturally occurring DNA or RNA (coding or non-coding), but otherwise leaving as inherently patentable most other isolated biological materials, including proteins and isolated small molecules. (See further commentary at www. davies.com.au/ ip-news/ip-australia-releases-examination-practice-guidelines-following-darcy-v-myriad.) However, in 2016 the Patent Office held that claims directed to double-stranded RNA molecules that trigger RNA interference are eligible for patent protection (Arrowhead Research Corporation [2016] APO70), as are nucleic acids that have been further modified, either by incorporating additional elements (Commonwealth Scientific and Industrial Research Organisation v BASF Plant Sciences GmbH [2016] APO 83) or by codon-optimisation (Cargill Incorporated v Dow AgroSciences LLC [2016] APO 43).

Trade secrets and know-how

Is there specific legislation in your jurisdiction that governs trade secrets or know-how? If so, is there a legal definition of trade secrets or know-how? In either case, how are trade secrets and know-how treated by the courts?

Under current Australian law, ‘trade secrets’, ‘know-how’ and ‘confidential information’ (collectively ‘confidential information’) are not property.

There is no Australian legislation that specifically defines or is directed at confidential information; however, select legislation (eg, the Corporations Act) provides for the protection of confidential information against misuse by both current and former officers and employees. There is a substantial body of case law that defines what constitutes and what protection is available for confidential information.

Does the law allow a licensor to restrict disclosure or use of trade secrets and know-how by the licensee or third parties in your jurisdiction, both during and after the term of the licence agreement? Is there any distinction to be made with respect to improvements to which the licensee may have contributed?

Australian law allows for a licensor to protect confidential information for as long as it is confidential. Obligations of confidence can arise either expressly or by implication.

Subject to considerations of restraint of trade, restrictive trade practices and unconscionable conduct, and the continuing confidentiality of the subject matter (as a matter of fact), disclosure and use of confidential information can be restrained under contract both during and after the term of the licence agreement.

The position in relation to ‘improvements’ generated under a licence agreement will be determined as a combination of the application of the relevant terms of the licence agreement and the relevant legal principles as to ownership.

Copyright

What constitutes copyright in your jurisdiction and how can it be protected?

The Copyright Act codifies the law of copyright in Australia. It expressly provides that copyright (except in the context of Crown rights) does not subsist in Australia otherwise than by virtue of that Act.

There is no system of registration in Australia for copyright material. Protection for eligible subject matter - being an ‘original’ work (ie, created by the author’s own skill and labour) where the author is a citizen or resident of Australia or of a country to which the Copyright Act extends, or if the matter is first published in one of those countries - is automatic upon creation of the relevant subject matter.

Under the Copyright Act, copyright may subsist in a literary, dramatic, musical or artistic work. Copyright may also subsist in the following:

  • cinematographic films;
  • sound recordings;
  • television and sound broadcasts; and
  • published editions of works.

Software licensing

Perpetual software licences

Does the law in your jurisdiction recognise the validity of ‘perpetual’ software licences? If not, or if it is not advisable for other reasons, are there other means of addressing concerns relating to ‘perpetual’ licences?

Yes. However, the preferred approach from the licensor’s perspective is still to provide that the licence will or may be revoked should an event of default (as defined in the licence agreement) occur.

Legal requirements

Are there any legal requirements to be complied with prior to granting software licences, including import or export restrictions?

Australia is a party to the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies.

Section 112 of the Customs Act 1901 (Cth) allows regulations to be made prohibiting the exportation of goods from Australia either absolutely or without an export licence. Regulation 13E(2) of the Customs (Prohibited Exports) Regulations prohibits the exportation from Australia of ‘goods specified in the defence and strategic goods list’ without a licence.

Various software is included on the Defence and Strategic Goods list (see www.defence.gov.au/deco/DSGL.asp).

Although ‘goods’ is defined under the Customs Act as ‘moveable personal property of any kind’, current Australian authority views intangible things as being immovable (ie, not movable) and also that the download by a person overseas of software (as opposed to the receipt of a physical disk sent from Australia) is unlikely to be an ‘exportation’ for the purposes of the Customs Act.

For software imported into Australia, the Goods and Services Tax is only applicable on goods that physically enter into Australia so electronically transferred software is not subject to GST.

Restrictions on users

Are there any legal restrictions in your jurisdiction with respect to the restrictions a licensor can put on users of its software in a licence agreement?

Yes. The Copyright Act contains a number of defences to infringement of the copyright in computer programs. The following defences are not excludable and any provision in a contract that purports to exclude or limit the operation of these defences has no effect:

  • the making of a reproduction incidentally and automatically as part of the technical process of running a copy of the program for the purpose of studying the ideas behind the program and the way in which it functions;
  • the making of a reproduction for back-up purposes;
  • the making of a reproduction or adaptation of a computer program for the purpose of the owner or licensee, or a person acting on behalf of the owner or licensee, to make independently another program or an interoperable program;
  • the making of a reproduction or an adaptation of a computer program for the purpose of correcting an error that prevents the computer program from operating as intended by its author or in accordance with any specifications or documentation supplied with the original copy; and
  • the making of a reproduction or an adaptation of a computer program for the purpose of testing in good faith the security of the original copy or investing or correcting in good faith a security flaw or the vulnerability of the computer program.

Other legislation that might apply to restrictions that a licensor proposes to put on its licensees of software is the Competition and Consumer Act 2010 (see question 28) including the Australian Consumer Law.

The Australian Consumer Law contains provisions that render unfair terms in standard form contracts void where the standard form contract is with an individual who acquires, among other things, a software program wholly or predominantly for personal, domestic or household use (a consumer) or consumption or is a small business. A small business is one that employs fewer than 20 people and either the upfront price payable under the contract does not exceed A$300,000 or the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed A$1 million. A provision of a consumer contract or a small business contract will be unfair if it causes a significant imbalance in the party’s rights and obligations, is not reasonable to protect the legitimate interests of the party advantaged by the term and would cause detriment to a party if it were to be applied or relied upon. Section 25 of the Australian Consumer Law sets out examples of terms that may be unfair.

Royalties and other payments, currency conversion and taxes

Relevant legislation

Is there any legislation that governs the nature, amount or manner or frequency of payments of royalties or other fees or costs (including interest on late payments) in an international licensing relationship, or require regulatory approval of the royalty rate or other fees or costs (including interest on late payments) payable by a licensee in your jurisdiction?

The amount, frequency and manner of payment of ‘royalties’ under a licence agreement governed by Australian law or that are payable in respect of ‘Australian IP’ are not in general terms the subject of specific legislation. These are all matters for negotiation and agreement by the licensor and licensee. Australian tax law does, however, impose a ‘withholding tax on certain ‘royalties’. Separately, the imposition of any fees or costs that constitute a ‘penalty’ (ie, an amount of money that it has agreed will be paid when there is a breach of contract), but such amount exceeds a genuine pre-estimate of the damage likely to be caused by the breach (eg, excessive interest on late payment) will be unenforceable under Australian law.

‘Withholding tax’ is a tax (generally 15 per cent) payable on dividends, interest and royalties paid by an Australian tax resident to a non-resident. While the person liable for the tax is the non-resident payee, Australian law requires the payer to withhold an amount on account of the tax, which the payee can then credit against its liability in its tax jurisdiction.

Under the Income Tax Assessment Act 1936 (Cth), ‘royalty’ includes any amount paid or credited as consideration for the use of or right to use any copyright, patent, design or model, plan, secret formula or process, trademark or other like property or right.

Although licence agreements often confer various rights on the licensee but provide for a collective ‘royalty’ to be paid, only those moneys that constitute a ‘royalty’ are subject to withholding tax (eg, not a fee for a distribution right per se). In some cases, there should be a breakdown of the fees payable so as to avoid withholding tax applying to the aggregated amount.

Restrictions

Are there any restrictions on transfer and remittance of currency in your jurisdiction? Are there are any associated regulatory reporting requirements?

Under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and the Rules made thereunder, the ‘sender’ of funds greater than A$10,000 transmitted out of Australia, or the ‘recipient’ of funds transmitted into Australia must report the transaction to the Australian Transactions Reports and Analysis Centre (AUSTRAC) within 10 business days after the day the payment instruction was sent or received. In general terms the ‘sender’ or ‘recipient’ may be a bank or other financial institution. Significant civil penalties (A$18 million for companies and A$3.6 million for other persons) apply for failure to report a relevant transaction.

Further, the Australian government regulator - AUSTRAC - collects data on overseas transfers greater than A$10,000 to combat money-laundering and other serious crimes. Payers or recipients of sums greater than A$10,000 in Australia may be audited and asked to verify the bona fides of the payment or receipt (see www.austrac.gov. au/international-funds-transfer-instructions-iftis).

Also, from time to time the federal government may impose restrictions on particular transfers of moneys to places outside Australia. For example, since March 2012 transactions of A$20,000 or more between Australia and Iran are prohibited without prior authorisation from the Federal Department of Foreign Affairs and Trade (see dfat.gov.au/ international-relations/security/sanctions/sanctions-regimes/iran/ pages/restrictions-on-financial-transactions-involving-iran.aspx).

Taxation of foreign licensor

In what circumstances may a foreign licensor be taxed on its income in your jurisdiction?

Liability to pay tax to the Australian Taxation Office is determined according to whether or not the ‘person’ is a resident of Australia for tax purposes.

An individual is primarily a resident of Australia for (Australian) taxation purposes if he or she resides in Australia within the ordinary meaning of the word ‘resides’. ‘Residence’ is quite different from domicile and nationality.

A company is liable to pay tax in Australia where it carries on business in Australia. Subject to withholding tax issues (see question 29) a foreign licensor that only receives royalties from an Australian licensee is not a ‘resident’ of Australia for tax purposes.

Competition law issues

Restrictions on trade

Are practices that potentially restrict trade prohibited or otherwise regulated in your jurisdiction?

The Competition and Consumer Act 2010 (the CCA) proscribes a range of business practices that are regarded as being inimical to a competitive market. These proscribed practices include:

  • price fixing between competitors;
  • market sharing between competitors;
  • misuse of substantial market power;
  • resale price maintenance and agreements; or
  • arrangements that have the purpose or effect of substantially lessening competition in a relevant market.

As licences can be contracts or arrangements, the provisions of the CCA clearly apply to their provisions. However, at the present time, the CCA contains a safe harbour (section 51(3)) that protects provisions in assignments and licences of intellectual property, in general terms, to the extent that the provisions ‘relate to’ the subject of the relevant intellectual property right (the safe harbour). While this provision has been widely criticised as being uncertain in its application, it has meant that some provisions in licence agreements, particularly licence agreements between competitors, have escaped the impact of the CCA; for instance, the grant of exclusive rights, territorial and field of use restrictions and sub-licensing restraints. However, the government has signalled its intention to repeal the safe harbour. However, for the time being, the safe harbour remains in the CCA.

In drafting an intellectual property licence involving Australia in the immediate future, care should be taken to ascertain whether or not legislation to remove the safe harbour has been introduced into parliament and, if so, what protections might be introduced in its place in respect of intellectual property licences or assignments.

In general terms, a provision in a contract, arrangement or understanding (an arrangement) which:

  • fixes the price (or an element of price);
  • restricts outputs in the production and supply chain;
  • allocates customers, suppliers or territories or imposes field of use restrictions;
  • rigs bidding; or
  • by parties that are, or would otherwise be, in competition with each other, is absolutely prohibited unless specifically authorised by the Australian Competition and Consumer Commission (the Commission) on public benefit grounds.

Other provisions (other than those constituting the abuse of substantial market power and resale price maintenance) are only unlawful if they have the purpose, effect or likely effect of substantially lessening competition in a relevant market. Again, this prohibition is subject to the safe harbour. Conduct that is not protected by the safe harbour is unilateral conduct by a company that has a substantial degree of power in a market that has the proscribed purpose or effect and resale price maintenance. Resale price maintenance would catch the granting of a sub-licence and therefore arguably prohibits a head licensor regulating the ‘price’ under which a licensee can grant a sub-licence. However, resale price maintenance under the most recent amendments can be made the subject of a notification to the Commission, which will protect the conduct unless the Commission is satisfied that any public benefits of the conduct will not outweigh the detriments.

The Commission is also empowered to grant authorisation on public benefit grounds in respect of any category of proscribed conduct.

The safe harbour purports to apply to provisions that relate to:

  • inventions that are the subject of patent or patent application or articles made by the use of that invention;
  • goods that are the subject of an application for a registered design or a design registration;
  • an eligible layout that is the subject of the Circuit Layouts Act 1989;
  • the kinds, qualities or standards of goods bearing a registered trademark; and
  • a work or other subject matter in which copyright subsists.

However, there is some doubt as to whether the safe harbour protects provisions in trademark licences owing to the repeal of the former trademarks regime by the Trade Marks Act 1995 and the fact that no consequential amendment was made in the CCA.

Settlement Agreements involving intellectual property rights are also likely to receive more attention in the future, particularly those concerning companies in the pharmaceutical industry. The Australian government has accepted a recommendation that a system be established for the reporting and monitoring of settlements between originator and generic pharmaceutical companies to identify ‘pay for delay’ agreements. While pay for delay agreements have not been considered by Australian courts to date, it is likely that they will come under scrutiny from the ACCC in the future. Pay for delay agreements should be carefully scrutinised to ensure that they do not amount to a cartel provision that is absolutely prohibited under the CCA; this concern becomes even greater if the safe harbour is removed.

Legal restrictions

Are there any legal restrictions in respect of the following provisions in licence agreements: duration, exclusivity, internet sales prohibitions, non-competition restrictions and grant-back provisions?

Duration

The Patents Act gives a right of termination on three months’ notice to any party to a patent licence after the patent, or all of the patents protecting the invention at the time the contract was made, have ceased to be in force. This is a non-excludable right. However, the relevant section does not give a right of termination in respect of a patent that was only in the application stage at the time the patent licence was made.

None of the other intellectual property statutes restricts the duration of licence agreements although the common law doctrine of restraint of trade and possibly the rules regarding a total or partial failure of consideration could conceivably apply in the event that the underlying right ceased to exist.

Exclusivity

As noted above, the Competition and Consumer Act applies to exclusive arrangements, whether in the form of exclusive grants, territorial restrictions or field of use restrictions (subject to the application of the safe harbour). If the safe harbour does not apply, then exclusive arrangements between competitors will need to be scrutinised carefully.

Internet sales prohibitions

There are no restrictions on provisions prohibiting internet sales.

Non-competition restrictions

Restraint of trade provisions are subject to the common law rules that, in general terms, invalidate restraints of trade unless they are reasonable in the public interest and as between the parties.

Grant-back provisions

There are no specific restrictions in relation to grant back provisions although there has been speculation as to whether particular forms of grant back provisions could be argued as having the purpose, effect or likely effect of substantially lessening competition in a relevant market. This has not been explored by the courts in Australia as yet.

IP-related court rulings

Have courts in your jurisdiction held that certain uses (or abuses) of intellectual property rights have been anticompetitive?

There have been no court decisions in the superior courts in Australia which have held that the use or abuse of an intellectual property right has substantially lessened competition in a relevant market. However, that position could well change in the not too distant future.

The ACCC is presently running an action against Pfizer in which it is alleging that Pfizer took advantage of its substantial degree of market power in the lead-up to the expiry of its patent for Atorvastatin for the anticompetitive purpose of deterring generic manufacturers from engaging in competitive conduct. The ACCC also argued that Pfizer had engaged in unlawful exclusive dealing by bundling its generic form of Atorvastatin with its proprietary version known around the world as ‘Lipitor’. Pfizer also introduced an accrual funds scheme involving rebates and discounts dependent upon the level of purchases of generic Atorvastatin and Lipitor. The ACCC has alleged that the conduct which was characterised as exclusive dealing was unlawful because the purpose was to substantially lessen competition in the relevant market.

The matter has now been heard by a court of first instance and an appeal court and both have held that Pfizer did not have the requisite anticompetitive purpose to render the conduct unlawful. However, the ACCC has now applied for leave to have the matter appealed to the High Court to get clarification as to how it should assess anti-competitive purpose under the CCA.

In earlier times, in discussions surrounding the ‘safe harbour’ which would protect the use of intellectual property rights from some of the prohibitions in the CCA (see question 30), there was discussion as to the type of conduct involving intellectual property rights that might, under certain circumstances, be anticompetitive. In discussing the limits of the safe harbour, the High Court commented that conditions in a licence agreement that sought to gain advantages collateral to a patent would not be covered (Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83).

The ACCC has recently released interim guidelines discussing the type of conduct which may involve a contravention of the abuse of market power proscription in the CCA. In this regard, the ACCC has specifically referred to refusals to deal, restrictions on access to an essential input, predatory pricing, loyalty rebates, margin or price squeezing and tying and bundling. As recent amendments to the proscription have introduced an ‘effects test’ (that is, the effect or likely effect of substantially lessening competition in a market), the types of conduct referred to above are likely to come under more scrutiny. However, the Commission has commented that innovation, efficient conduct, responding to price competition and responding efficiently to other forms of competition are not likely to raise concerns.

Indemnification, disclaimers of liability, damages and limitation of damages

Indemnification provisions

Are indemnification provisions commonly used in your jurisdiction and, if so, are they generally enforceable? Is insurance coverage for the protection of a foreign licensor available in support of an indemnification provision?

Indemnity provisions are commonly used in arrangements where the commercial exploitation of Australian IP is involved. Subject to the application of any non-excludable statutory provisions and the application of any common law principles (such as restraint of trade and penalties) indemnity provisions will be enforceable. It is not uncommon for indemnity provisions to be accompanied by insurance provisions, whereby the party providing the indemnity is also required to secure insurance to cover its potential liability under the indemnity provisions, among other specified risks. Availability and cost of insurance will depend on the nature and scope of the risk or risks being covered. It may be unavailable or otherwise cost-prohibitive.

Waivers and limitations

Can the parties contractually agree to waive or limit certain types of damages? Are disclaimers and limitations of liability generally enforceable? What are the exceptions, if any?

Subject to the application of any non-excludable statutory provisions (imposing terms, conditions, guarantees or warranties) parties can contractually agree to limit or waive liability for certain types of damages. The problem will usually be the interpretation of these provisions and the determination as to whether and how the limitation or waiver provision applies in the particular circumstances.

Termination

Right to terminate

Does the law impose conditions on, or otherwise limit, the right to terminate or not to renew an international licensing relationship; or require the payment of an indemnity or other form of compensation upon termination or non-renewal? More specifically, have courts in your jurisdiction extended to licensing relationships the application of commercial agency laws that contain such rights or remedies or provide such indemnities?

In general terms, Australian law does not impose conditions on or otherwise limit when an international licence agreement may be terminated or otherwise not renewed and does not otherwise require the payment of any indemnity or other form of payment upon termination (other than any moneys for which either party may be liable by reason of breach or other accrued right).

The circumstances for termination of a licence agreement, other than a franchise agreement or as the result of an ‘ipso facto’ clause will be regulated solely by the terms of the particular agreement. Renewal of all licence agreements, including franchise agreements, is also regulated solely by the terms of the relevant agreement. However, as applicable, termination or (non-)renewal might be challenged as wrongful.

Where the licence agreement constitutes a franchise agreement (see question 6), the Code will apply and prevail over any inconsistent provisions in the franchise agreement.

Under the current Franchising Code (2015), a franchisee can terminate a franchise agreement:

  • within seven days of entering into the agreement or paying any non-refundable money; or
  • where the franchise agreement allows termination.

Franchisors can terminate in accordance with the terms of the franchise agreement but subject to the processes set out in the Code.

Where the franchisor asserts breach by the franchisee, the franchisor must:

  • give the franchisee reasonable written notice of its proposed termination because of breach;
  • tell the franchisee what needs to be done to remedy the breach; and
  • allow the franchisee a reasonable time of up to 30 days to remedy the breach.

The right to terminate for breach is lost when the breach is remedied within the prescribed time.

Absent a breach by the franchisee, if the franchise agreement allows for termination by the franchisor before expiration, a franchisor may terminate provided it has first given notice of the proposed termination and the reason or reasons for it.

The Franchising Code also identifies certain ‘special circumstances’, which, if included in the franchise agreement, entitle a franchisor to terminate the franchise agreement without following the termination procedures noted, namely, where the franchisee:

  • no longer holds a necessary licence;
  • becomes bankrupt;
  • voluntarily abandons the franchise; or
  • is convicted of a serious offence.

Legislation was passed in 2018 that provides for a stay period where a termination right arises or a termination is effected by the insolvency of a contracting party to an agreement. These reforms took effect on 1 July 2018 and provide that a contractual clause will be unenforceable for a period where the automatic or discretionary termination arises due to the insolvency of a party. In general terms, the stay period ends when the particular insolvency procedure is completed. There are a number of exceptions to the application of the stay and these are set out in the Corporations (Stay on Enforcing Certain Rights) Declaration 2018.

Impact of termination

What is the impact of the termination or expiration of a licence agreement on any sub-licence granted by the licensee, in the absence of any contractual provision addressing this issue? Would a contractual provision addressing this issue be enforceable, in either case?

Absent any express provision in a sub-licence to address the impact on the sub-licence of the termination or expiration of the (head) licence, and subject to any other relevant considerations (eg, the conduct of the (head) licensor), the likely position under Australian law is that, as between the (head) licensor and the sub-licensee, the sub-licence is unenforceable. That does not, however, mean that the sub-licensee might not still have an action against the sub-licensor.

Bankruptcy

Impact of licensee bankruptcy

What is the impact of the bankruptcy of the licensee on the legal relationship with its licensor; and any sub-licence that the licensee may have granted? Can the licensor structure its international licence agreement to terminate it prior to the bankruptcy and remove the licensee’s rights?

In Australia, the term ‘insolvency’ applies to corporations and the word ‘bankruptcy’ applies to individuals. For present purposes, the term ‘bankruptcy’ is used to cover both individuals and corporate entities except where otherwise indicated.

So far as individuals are concerned, the Bankruptcy Act 1966 (Cth) provides that a provision in a licence agreement that purports, on the bankruptcy of the licensee, to terminate or modify the agreement or repossess property to which the licence relates, is void.

As noted in paragraph 35, recent amendments to the Corporations Act 2010, which commenced on 1 July 2018, will also affect the enforceability of so-called ipso facto clauses that allow a contract to be terminated on the insolvency of a counterparty. Under the legislation, these clauses are subject to a temporary stay on enforcement until the application for a scheme of arrangement is withdrawn or dismissed by the court or a voluntary administration ends, as the case may be. These changes do not apply to contracts entered into before 1 July 2018.

These comments apply equally to question 34.

The bankruptcy of a licensee will result in a third party taking control of the assets of the bankrupt party. That third party will determine the fate of the head licence agreement and any sub-licence agreements.

A major issue for a licensor who is receiving royalty payments from a licensee who becomes bankrupt is that some of those payments could become unfair preference payments if made within six months of the bankruptcy and thereby become repayable.

A liquidator of a company has the power to disclaim a contract (see question 34). Furthermore, an administrator under a scheme of arrangement entered into by a company has the ability to avoid further liability of the company under administration by notice to the licensor that it will cease to use the intellectual property in its business. This election must be made within five days of appointment.

Impact of licensor bankruptcy

What is the impact of the bankruptcy of the licensor on the legal relationship with its licensee; and any sub-licence the licensee has granted? Are there any steps a licensee can take to protect its interest if the licensor becomes bankrupt?

In the case of companies, an external administrator of any description may choose simply to allow the licensor company to breach a licence agreement (if the act of appointment did not already qualify as a breach), whereupon the licensee would merely become an unsecured creditor of the licensor company.

A receiver, or a receiver and manager, of a company (a receiver) that has granted a licence under an intellectual property right has no right to disclaim or terminate the licence unless entitled to do so by the terms of that licence. However, a receiver may have power to dispose of the assets of the company under the terms of the document of appointment. In that event, the receiver or receiver may have power to assign the licensed rights to a third party. The assignment of that right without recognition of the licence would likely place the company in breach of the licence unless assignment was permitted by the licence itself.

In the case of patents and trademarks, if the licensee had its interest as licensee recorded under the Patents Act 1990 (Cth) or the Trade Marks Act 1995 (Cth) respectively, the purchaser would likely acquire the intellectual property rights subject to the licence. There is no provision for the recordal of copyright licences in Australia and no statutory provision dealing with the recognition of the rights of licensees of copyright.

An administrator of a company that has granted a licence under an intellectual property right has no right to disclaim or terminate the licence unless entitled to do so by the terms of that licence. However, an administrator has rights to dispose of assets of the company.

A liquidator has certain rights to disclaim the property of a company, including contracts. However, a liquidator cannot disclaim a contract (except unprofitable contracts) without leave of the court. An unprofitable contract is in this context one that imposes continuing financial obligations on the company that are regarded as detrimental to creditors or that will delay the winding-up of the company’s affairs because performance would take place over a substantial period of time or would involve unrecoverable expenditure.

Governing law and dispute resolution

Restrictions on governing law

Are there any restrictions on an international licensing arrangement being governed by the laws of another jurisdiction chosen by the parties?

Subject to a challenge to the application of the relevant law of the jurisdiction chosen by the parties on the grounds of public policy, and the overriding application of non-excludable Australian laws to a licence agreement having effect in Australia (eg, CCA - cannot be excluded if the proper law of the contract would, but for the parties’ selection, be the law of any part of Australia), or where the court does not consider a party’s choice to be bona fide, an Australian court will recognise and uphold the parties’ choice.

However, the Australian courts will issue an anti-suit injunction to restrain foreign parallel proceedings in appropriate circumstances. Thus, where Kraft commenced arbitration proceedings in the United States and parallel proceedings in Australia alleging misleading and deceptive conduct, the court issued an injunction against Kraft continuing the arbitration proceedings. In the particular case (that concerned the get-up of a label for peanut butter) the court issued the injunction because the issues in the proceedings overlapped and there was a real risk of inconsistent findings.

Contractual agreement to arbitration

Can the parties contractually agree to arbitration of their disputes instead of resorting to the courts of your jurisdiction? If so, must the arbitration proceedings be conducted in your jurisdiction or can they be held in another?

An Australian party to a commercial agreement can agree contractually to have all or some (as clearly identified in the agreement) disputes determined by final and binding arbitration rather than litigation and where that arbitration will be held.

Contracting parties are free to agree to resolve disputes by any means of alternative dispute resolution including arbitration. There is no requirement that the arbitration proceedings be conducted in Australia and if an alternative jurisdiction is used, then the only practical consideration would be to ensure that jurisdiction was a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention).

Enforceability

Would a court judgment or arbitral award from another jurisdiction be enforceable in your jurisdiction? Is your jurisdiction party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards?

Australia is a party to the New York Convention, but it is not a party to the Hague Convention on Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters 1971.

Only monetary judgments of courts outside Australia that are covered by the Foreign Judgments Act 1991 (Cth) and the Regulations made thereunder or the equivalent state or territory legislation and judgments made in a country that has a bilateral treaty with Australia for reciprocal enforcement (see http://austlii.edu.au/au/other/dfat/subjects/Judicial_Cooperation.html, eg, with the United Kingdom for the Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters 1994) are enforceable in Australia.

Injunctive relief

Is injunctive relief available in your jurisdiction? May it be waived contractually? If so, what conditions must be met for a contractual waiver to be enforceable? May the parties waive their entitlement to claim specific categories of damages in an arbitration clause?

Yes, injunctive relief is available. It may it be waived contractually, both in respect of interim or final injunctions. Parties may waive their entitlement to claim specific categories of damages in an arbitration clause or otherwise (but see question 22).