Don’t forget that the limited exceptions in subsection 51(3) of the Competition and Consumer Act 2010 (Cth) (CCA), to the application of Part IV of the CCA to IP licensing and assignment arrangements, come to an end on 12 September 2019 when the relevant provisions of The Treasury Laws Amendment (2018 Measures No. 5) Act 2019 come into force.
It is important for all businesses with existing or planned IP licensing or assignment arrangements to act now, because the new law will apply in relation to both new and pre-existing arrangements. The change accordingly effectively acts retrospectively, catching long term arrangements still in force which were entered into long ago when exempt status may have been assumed and the implications of competition law not fully considered.
All such businesses need to review all existing and prospective agreements and arrangements to ensure they comply with all of the prohibitions against anti-competitive conduct in Part IV of the CCA. For a useful overview of the law and action required, see for example
ACCC guidelines to facilitate compliance with the new regime are now available in draft form with public consideration and comment invited up to 19 July 2019 at ACCC Draft Guidelines on the repeal of subsection 51(3) of the Competition and Consumer Act 2010 (Cth). They should be finalised following the consultation period and published in final form before 12 September.
Without here repeating the draft guidelines or analysing the law and ACCC’s views, a useful starting point for practical business compliance now and in the lead up to 12 September 2019 is being mindful of the examples provided by the ACCC and of their views as to arrangements and conduct likely to contravene. They are set out in abbreviated summarised form below.
A and B each manufacture core sampling equipment used in mining projects across Australia and owns patents relating to their equipment, and become involved in a patent infringement and validity dispute. They settle the dispute on terms including that A will only sell its equipment to mining projects in Western Australia and South Australia, while B will only sell its equipment in the rest of Australia.
The ACCC considers that A and B’s conduct is likely to contravene the cartel provisions.
A, B, and C each own plant breeder rights relating to new varieties of banana plant and compete to license their rights to farmers. When bad weather that damages many crops, in light of the industry’s difficult financial position, A, B, and C agree that each of them will set their prices somewhere below a specified low price, so that banana farmers may still be able to purchase from them that year.
The ACCC considers that A, B, and C are likely to be engaging in price fixing cartel conduct Given the possible benefit that their actions may have for the banana industry, authorisation may be sought depending on whether the conduct results in a net public benefit.
A is a small steel manufacturing company that owns a patent over a particular method of producing high-strength, low-weight steel, and licences its method to B, a major steel manufacturer, on condition that B only produces a specified maximum amount of steel over the life of the licence.
The ACCC considers that A and B are likely to be contravening the cartel provisions.
A is a semiconductor chip research and development corporation. In 2010, it licensed a particular circuit layout to B, a major chip manufacturer in Australia, for 15 years for use in the manufacture of semiconductor chips for on-sale to others. B agreed to abide by certain costly quality requirements for the duration of its licence.
By entering into an agreement that restricts B’s behaviour until 2025, 5 years following the expiry of the circuit layout rights (10 years), A is imposing a condition that does not relate to the intellectual property rights at issue, or is collateral to them, so the ACCC considers that the conduct after 2020 would not have been exempted by subsection 51(3), and its repeal will not change the application of the CCA to this conduct.
Grant back provisions
A is a research institution that owns patents relating to touchscreen technology, and separately licenses them to B and C for manufacture and commercialisation. A condition of each of those licences is that B and C assign back to A any improvements that they make during the licence term, and A automatically licenses those improvements back to either B or C respectively, but will not license the improvements to any other.
The ACCC considers that A, B, and C are at risk of contravening section 45 of the CCA because the agreement may have the effect of foreclosing competition.
A is an Australian research and development corporation that owns a patent relating to transmission systems used in mining vehicles. It licenses the patent to B and C, the two major manufacturers of transmission systems for mining vehicles in Australia for manufacture and on-sale to others. B agrees to pay A licensing fees that are 20 per cent more than C, and A agrees to make it a condition of C’s licence that C abide by more stringent quality requirements than B. The effect of the more stringent quality requirements on C is that C is only able to produce substantially fewer transmission systems than it would be able to produce if it had the same quality requirements as B.
The ACCC considers that A and B are at risk of contravening section 45 of the CCA by making an agreement that substantially lessens competition (through making their agreement to restrict C’s output), and A may be at risk of contravening the prohibition on giving effect to that agreement (through making those quality requirements part of A’s licence to C).
A is a multinational chemicals manufacturer, operating in Australia. A’s patent on a highly profitable fertiliser product, is set to expire in six months, and it is concerned that once its patent expires, other companies will enter the market with fertiliser products that use the same chemical compounds. A enters into a supply agreement with B, Australia’s largest home improvement retailer, for the fertiliser on the condition that B will not stock a generic fertiliser product from any other competitor after their patent expires. B enters the supply agreement, as it is concerned that any generic fertiliser product may not sell as well as A’s fertiliser, due to A’s reputation as a high quality manufacturer.
The ACCC considers that A may be at risk of contravening section 47 of the CCA by engaging in exclusive dealing that has the purpose, effect, or likely effect of substantially lessening competition in a relevant market, by agreeing to supply its good on the condition that B would not acquire goods or services from a competitor to A, or re-supply a competitor to A’s products, after A’s patent expires.
Third line forcing
A is a technology developer. A’s most successful product, PhoneOne, is the market leader in smartphone sales in Australia. A is considering an exclusive licensing arrangement for the patent of the PhoneOne to B, which requires B to manufacture the product and sell it to retailers across Australia. C is a plastics manufacturer that offers a financial benefit if A requires B to acquire the plastic components for the manufacture of PhoneOne from C. A agrees and grants the licensing agreement to B on condition that B acquire the plastic components necessary to produce the PhoneOne from C.
The ACCC considers A may be at risk of contravening third line forcing provisions, as A is attempting to sell its exclusive licence on the condition that B also acquires goods from C which may have the requisite anti-competitive purpose, effect or likely effect given PhoneOne’s sales.