Monday 18 February 2019

Do your Australian licence agreements comply with competition law?

The Australian legislature passed a bill on 18 February 2019 that removes the intellectual property (IP) exceptions from Australian competition law. Licences and other IP agreements that cover Australia will now need to comply with Australian competition law. We recommend taking the time to consider whether your Australian agreements comply with Australian competition law, now the IP exceptions no longer apply.

What is the IP exception?

Australia and New Zealand both had exceptions to their competition laws for agreements relating to IP rights. The exceptions meant that parties could include some potentially anti-competitive provisions in agreements relating to the licensing or enforcement of IP rights, without breaching competition laws.

For example, a licence agreement could include a provision that the parties will agree the price at which the licensed products will be sold. That might otherwise constitute price fixing. However, such provisions were protected under the IP exceptions.

A number of reviews of the Australian competition law over many years have recommended the removal of the IP exceptions. The Australian government finally actioned these recommendations in the Treasury Laws Amendment (2018 Measures No. 5) Bill 2018, which is now law.

What kinds of arrangements should be reviewed?

Businesses now have six months from the date of Royal Assent to ensure that they comply with the amended law. The amended law applies to any agreement that remains effective after that date, regardless of when it was entered into.

The key prohibitions under Australian competition law are against:

  • arrangements that have a purpose or effect which may substantially lessen or hinder competition in Australian markets;

  • exclusive dealing or third line forcing or refusals to supply that have a purpose or effect which may substantially lessen or hinder competition in Australian markets; and

  • cartel arrangements such as market allocation or price-fixing with competitors, or bid-rigging.

We recommend that businesses review all pre-existing IP arrangements in Australia, particularly agreements which contain terms:

  • relating to the allocation of customers or territory between competitors;

  • that fix, or provide for agreement on, the price for any goods or services;

  • that tie together supply arrangements and IP licensing; or

  • that otherwise might restrict competition between parties that would otherwise be competing.

We also recommend that any agreements between competitors, including cross-licensing agreements, patent pooling agreements and settlement or co-existence agreements also be reviewed.

What are the risks of non-compliance?

The penalties for breach of the Australian competition laws are potentially very high. For corporations, the maximum penalty is the greater of:

  • if no gain is made, $10 million;

  • three times the ‘reasonably attributable’ benefit obtained from the conduct; and

  • if the Court cannot determine the size of the benefit, 10% of annual turnover in the preceding 12 months.

For individuals, the maximum penalty is $500,000.

What about New Zealand?

There aren’t any current proposals to remove the IP exceptions in New Zealand. However, New Zealand often follows in Australia’s footsteps when it comes to competition law matters, so it would be wise to consider similar issues when entering into IP arrangements in New Zealand.

It’s worth noting that the New Zealand IP exceptions do not apply to the prohibitions on abuse of a dominant position in the market or to resale price maintenance. The application of the IP exceptions is also not entirely clear in New Zealand, and has not been extensively tested in court here. We therefore generally recommend that clients comply with New Zealand competition laws as if the exceptions did not exist.

These issues are also relevant for any global licensing deals you may do. Most other countries never had, or no longer have, the same IP exceptions to competition laws as Australia and New Zealand.