Until now, conditional licensing or assignments of certain IP rights (being patents, registered designs, copyright and eligible circuit layout rights) have been exempt from the full ambit of the CCA's competition provisions. The exemption applied to cartel conduct, exclusive dealing and other arrangements which may substantially lessen competition in a market (but did not extend to misuse of market power or resale price maintenance).

New changes, commencing on 13 September 2019, will make IP arrangements subject to the full extent of Australian competition law. Combined with a new misuse of market power prohibition, and a new prohibition on concerted practices, this means that additional care must be taken with IP arrangements to avoid making or entering into any arrangement, or otherwise engaging in conduct, that raises competition concerns.

These reforms represent a noticeable shift in how IP arrangements (particularly the exploitation of IP rights) are assessed under Australian competition law, and a new lens towards risk must be applied.

Changes to the Treasury Laws Amendment (2018 Measures No. 5) Bill 2018

The Treasury Laws Amendment (2018 Measures No. 5) Bill 2018, which passed both houses on 18 February 2019, enacts recommendations from the Harper Report and Productivity Commission's IP Arrangements Inquiry Report by repealing the IP licensing exemption in s 51(3) of the Competition and Consumer Act 2010 (Cth) (CCA) and equivalent provisions in state legislation.

The repeal of section 51(3) will commence on 13 September 2019. From this date, conduct or dealings by universities involving IP rights will no longer be exempt from certain provisions of the CCA, and will be treated like any other conduct or dealing from a competition law perspective.

Importantly, the repeal applies to both existing and future:

• grants of a licence
• assignments
• other contracts, arrangements and understandings.

There is no 'grandfathering' of the current exemption with respect existing licences, assignments or other arrangements. In practice, this means all existing arrangements (even if entered into some time ago) must be reviewed.

Why the change to the IP laws?

The proposed repeal of s 51(3) is not a new concept but has gained momentum recently, as the Harper Report and the Productivity Commission Inquiry Report both argued that the repeal would improve competition and innovation in the intellectual property sector in Australia. The change is said to bring Australia into alignment with comparable jurisdictions such as Europe, Canada and the US.

What does Australian competition law cover?

Key competition law prohibitions under the CCA include (at a high level):

• Cartel conduct (which is a per se civil prohibition and a criminal offence) – this involves parties who are or may be competitors making or giving effect to a contract, arrangement or understanding to (i) price fix, (ii) restrict or limit supply, production or acquisition, (ii) collusive tender or bid rig, or (iv) allocate markets, customers, territories or suppliers. Universities should recognise that they can be actual or potential competitors with each other (including through related research arms) in relation to the supply or acquisition of technology and other goods / services.
• Resale price maintenance (which is a per se civil prohibition) – this involves a supplier of goods / services imposing a minimum re-sale price or preventing a reseller from discounting those goods and services
• Exclusive dealing - this involves various forms of acquisition or supply restrictions and conditions in vertical arrangements (including exclusive acquisition or supply conditions), which are illegal if they have the purpose, effect or likely effect of substantially lessening competition
• Misuse of market power – this involves a party with a substantial degree of power in a market from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition in a market
• Concerted practices – this involves parties (who may or may not be competitors) engaging in a concerted practice (namely a form of coordination or cooperation which does not necessarily involvement commitment), which is illegal if it has the purpose, effect or likely effect of substantially lessening competition in a market

Cartel conduct and other anti-competitive conduct are priority enforcement areas for the ACCC (and other competition regulators). There is a real prospect that the ACCC will take action to enforce this broader application of the CCA's competition provisions to a range of IP arrangements, both to understand the Court's approach to these issues and to achieve general and specific deterrence.

What conduct is at risk?

Conditional licensing is a cornerstone of IP commercialisation. Stipulating the territory, field of use or even market segment in which an owner's IP rights can be exercised, and imposing quality requirements relating to manufacture, are common features of IP licensing arrangements. These conditions enable IP owners to control the use of their IP assets in the manner they see fit (which is permitted under IP legislation).

Practically, the change (along with new misuse of market power and concerted practice prohibitions) mean that IP arrangements and conduct relating to the exploitation of IP (including a decision not to licence) will need to be scrutinised carefully by universities to determine whether they:

• contain cartel provisions – for example restrictions/conditions relating to:
  
  • prohibited uses;
  • territorial or field restrictions;
  • quantity restrictions;
  • supply / output limitations;
  • price of goods/services supplied under licence.
• amount to exclusive dealing (eg, exclusive licences); or
• otherwise have the purpose, effect or likely effect of substantially lessening competition in the relevant market.

In addition to the common conditions or restrictions in IP licences set out above, the following types of arrangements are examples of potential risk areas that may be particularly relevant to universities:

• patent pooling or cross-licencing between IP rights holders
• collaborative R&D arrangements involving the sharing of, or restrictions relating, to, the IP outputs
• restrictions or conditions in IP assignments (including non-compete or other restrictions)
• patent licences conditional on supplying products manufactured or produced using the patented method at a particular price
• copyright licences with conditional or discriminatory terms
• refusals to licence (including constructive refusals)

Where potential risks are identified, universities will need to consider whether to remove the offending provisions, whether another exemption / defence applies (as discussed below) or, in appropriate cases, whether to seek appropriate authorisation from the ACCC (as discussed below).

What happens if you breach the CCA?

The potential consequences of breaching the competition provisions of the CCA are significant.

• Contravention of Australian competition law can expose organisations to penalties / fines of up to the greater of A$10 million, three times value of the benefit to the cartel as a whole or (when that benefit cannot be determined) 10% of the group’s annual turnover. These apply per contravention.
• For individuals, a contravention of the criminal cartel offences exposes an individual to a maximum fine of A$420,000, while a contravention of the civil cartel prohibitions (and other anti-competitive conduct) carries a maximum penalty of A$500,000. These apply per contravention.

The consequences are not only financial. Individuals involved face potential disqualification orders and, in the case of criminal cartel conduct, potential imprisonment of up to 10 years. In addition, a range of other orders can be made, including injunctions, declarations, and orders for damages.

Are there any other exemptions or defences to the CCA?

There a number of exemptions and defences to anti-competitive conduct.

However, these exemptions and defences are technical in nature and limited in scope, and advice should always be sought before relying on them. Further, the scope of the protection conferred by s 51(3) is (generally) wider than the scope of the protection afforded by these exemptions / defences – therefore, they may not offer a complete solution.

While there is an exemption to cartel conduct for restrictions or conditions in vertical arrangements that constitute exclusive dealing, the limitation of this exemption is that it requires the restriction / condition to fall precisely within the scope of exclusive dealing and it does not permit any conditions relating to price. While the Harper Report recommend that a much broader 'vertical' exemption be introduced in conjunction with the repeal of s51(3), this has not (yet) occurred.

There are also exemptions / defences for certain types of anti-competitive conduct in relation to:

• arrangements between related bodies corporate
• in the case of the sale of a business, restrictions solely for the protection of the purchaser in respect of the goodwill of the business being acquired
• arrangements relating to joint ventures, providing particular criteria are met (including that the joint venture supplies or acquires goods / services);
• collective acquisition (in relation to price fixing only)

Can the ACCC approve the conduct / arrangements?

The CCA includes mechanisms for parties to seek 'authorisation' from the ACCC in respect of arrangements or conduct which would otherwise contravene the CCA's competition provisions. This requires that the parties establish (in basic terms) that the public benefit of the arrangement / conduct outweighs any anti-competitive effects (ie resulting in a net public benefit). The effect of authorisation is to provide legal immunity for the arrangement / conduct.

Authorisation thereby provides a mechanism by which universities could obtain protection to engage in IP arrangements with restrictions / conditions that might otherwise raise competition concerns where the arrangements generate net public benefits (that could not be achieved without the relevant anti-competitive conduct). There are a number of strategic issues to consider in relation to a potential authorisation, including cost, timing and confidentiality (noting the process is public).

It is also possible, under a different process, to 'notify' the ACCC of a number of specific types of anti-competitive conduct (namely collective bargaining, exclusive dealing and resale price maintenance) on net public benefit grounds and obtain immunity in this way (again, provided that could not be achieved without the relevant anti-competitive conduct). The procedures, timing and cost of the authorisation and notification processes differs.

Finally, the ACCC now has a 'class exemption' power. This provides the ACCC with an ability to exempt a 'class' of conduct which is unlikely to generate competition concerns and / or likely to generate net public benefit. Such an exemption creates (in effect) a 'safe harbour' which protects conduct falling within the scope of the exemption, noting that businesses and organisations would be required to self-assess their eligibility. There are currently no class exemptions (although the ACCC is currently consulting on a potential class exemption for collective bargaining by small businesses).

Guidance from the ACCC

The ACCC has confirmed it is currently drafting guidelines on the application of the CCA's competition provisions to IP which will outline how the ACCC proposes to investigate and enforce these provisions in relation to conduct involving IP rights. The ACCC has indicated that this will also provide hypothetical examples to illustrate conduct that the ACCC considers is likely or unlikely to contravene the CCA's competition provisions. The ACCC plans to release the draft guidelines for public comment in mid-2019, and will publish a final version before the repeal commences on 13 September 2019.

Universities should review existing arrangements involving IP rights

With this heightened exposure to the CCA, universities should review existing and proposed licensing, assignment and other arrangements involving IP rights to ensure that they do not raise competition concerns.

While not every restriction or condition will contravene the CCA, universities must now actively consider the potential competition law implications of their IP arrangements.

If you need assistance in understanding these changes, reviewing existing and proposed arrangements, understanding the nature of authorisation / notification regimes, or in making submissions to the ACCC relating to the guidelines, please contact us.