10 September 2019

Time’s up for review of IP licensing arrangements

This article was written by Lisa Huett and Stephanie Swan.

This is the last week in which businesses who license their intellectual property (IP) rights have specific protection from the cartel laws and other Part IV prohibitions in the Competition and Consumer Act 2010 (Cth) (CCA).

After 13 September the longstanding IP exemption found in subsection 51(3) of the CCA will cease to have effect and all licensing arrangements (both new and existing) will be subject to Part IV of the CCA. Existing arrangements will not be grandfathered.

Just in time for this change, the Australian Competition and Consumer Commission (ACCC) has published guidelines on the repeal of subsection 51(3), explaining the ACCC’s enforcement approach to IP rights. These guidelines are a substantial improvement to the draft guidelines published in June and provide some welcome clarity regarding the ACCC’s approach to enforcement of the cartel provisions and sections 45 and 47 of the CCA to conduct that was previously exempt.

That said, the guidelines cannot make amends for the failure of Treasury to include a new vertical supply exemption at the time the s 51(3) exemption was repealed, leaving certain IP licensing arrangements potentially exposed to the cartel laws in circumstances where they would ordinarily be viewed as pro-competitive or competitively neutral.

Guidelines published

For those concerned by some of the analysis and direction taken by the ACCC in its draft guidelines published in June, the final guidelines provide a more detailed and “sympathetic” analysis of typical IP licensing arrangements and recognition that IP owners need certain protections and safeguards when licensing or assigning IP.

The ACCC has included several useful examples demonstrating where the purpose condition or competition condition (both prerequisites for a cartel provision) is not satisfied. The Guidelines also include more extensive commentary on the substantial lessening of competition (SLC) test and when it is applied, as well as giving some examples to demonstrate the way in which the exemptions may be applied.

Potential exposure remains

The guidelines cannot overcome the potential exposure to cartel laws brought about by the failure of Treasury to include a new vertical supply exemption as part of the reform package following the Harper review.  

The Harper Review identified that not all forms of vertical supply restrictions are exempt from the cartel laws and recommended protection for trading restrictions imposed by one firm on another in connection with the supply or acquisition of goods or services (subject to a test of whether the conduct has the purpose, effect or likely effect of substantially lessening competition). Indeed, the recommendations to repeal subsection 51(3) were linked to this key reform to vertical supply restrictions and it was accepted that IP licensing restrictions should not be prohibited per se under the cartel prohibitions. 

Given subsection 51(3) has been repealed without the inclusion in the CCA of the recommended vertical supply restriction exemption, and the ACCC is not considering issuing a class exemption relating to IP rights, this has created some genuine and very practical problems for IP owners and licensees. As the law will stand from 13 September, the per se cartel laws could potentially apply to a number of pro-competitive or competitively neutral IP licensing arrangements.

How can we help?

KWM is at the forefront of this shift in the market and what it means for you. We can provide you with the support you need so that your IP licences and assignments either avoid the cartel laws or fall within one of the existing exemptions. If you have any questions about the ACCC’s Guidelines, this provision and how the change may impact you, please get in touch to discuss how we can help.

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