Repeal of IP exception to competition law

Articles Written by Sar Katdare (Partner), Wolfgang Hellmann (Special Counsel)

What you need to know

If your business is involved in the licensing or assignment of IP rights (such as patents, registered designs or copyrights), you should urgently seek legal advice to ensure that all such arrangements comply with competition law.

This is because a current exception to competition law relating to IP rights will soon be repealed making all IP arrangements subject to competition laws including cartel and exclusive dealing provisions.

This is particularly important for existing IP arrangements because you may currently be taking advantage of the IP exception to competition law.  Indeed, your business may have even received legal advice to this effect.

The new law (repealing the IP exception to competition law) is likely to come into effect in mid-2019.

What you need to do now

  1. Identify whether any of your IP arrangements are between competitors or potential competitors.  If so, the arrangement will no longer be exempt from cartel laws and may constitute cartel conduct.  Seek legal advice to determine whether any such arrangements risk contravening cartel laws.
  2. Identify whether any of your IP arrangements are exclusive or otherwise fall under provisions of competition law.  If so, the arrangement may contravene competition law if it has the purpose, effect or likely effect of substantially lessening competition in a market.  Determine whether this is likely to be the case and/or seek assistance.
  3. In limited cases, the license or assignment of IP rights may constitute both cartel and exclusivity conduct (i.e. both points 1 and 2 above). In such circumstances, the arrangement will only contravene competition law if it has the purpose, effect or likely effect of substantially lessening competition in a market (rather than falling under the cartel provisions). Determine whether this is the case and/or seek assistance.

How to continue your IP arrangements and still comply with competition law

It may be that your IP arrangements do not constitute cartel conduct and are unlikely to substantially lessen competition in any market.  In such cases, you can continue with your IP arrangements without risk of contravening competition laws.

If the IP arrangement constitutes cartel conduct, you can seek immunity for the arrangement if you can demonstrate to the ACCC that the public benefits arising from the IP arrangement are likely to outweigh the public detriments (including anti-competitive detriment).

If there are competition concerns (non-cartel) in relation to an IP arrangement, you can seek immunity for the arrangement if you can demonstrate to the ACCC that the arrangement is unlikely to substantially lessening competition in a market or that the public benefits arising from the IP arrangement are likely to outweigh the public detriments (including anti-competitive detriment).

The ACCC also has the power to make “class exemptions” for specific types of conduct from one or more provisions of competition law.

The ACCC is able to do so if it is satisfied that, in all circumstances, a particular type of conduct is unlikely to substantially lessen competition or is likely to result in a net public benefit. A class exemption provides a “safe harbour” for the specific type of conduct, allowing businesses to engage in that conduct without risk of breaching the relevant provisions of competition law.  The chances of the ACCC issuing a class exemption for IP arrangements are likely to increase if affected businesses make recommendations to the ACCC of particular types of arrangements which warrant protection from the application of competition law by way of class exemption.  The European Commission has issued a “Block Exemption” for categories of technology transfer agreements, including IP licensing agreements and IP assignments, subject to market share thresholds and a “black list” of hard-core restrictions.  Whether or not the ACCC follows suit remains to be seen.  

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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