I INTRODUCTION

Intellectual property and competition (antitrust) in Australia are governed by federal laws. In the case of competition, they are principally found in Part IV of the Competition and Consumer Act 2010 (Cth) (CCA). The laws relating to intellectual property are found in the Trade Marks Act 1995 (Cth), the Patents Act 1990 (Cth), the Copyright Act 1968 (Cth), the Designs Act 2003 (Cth), the Plant Breeders Rights Act 1994 (Cth) and the Circuit Layouts Act 1989 (Cth).

There is very little legislative crossover between competition and intellectual property laws although Section 51(3) of the CCA provides an exemption from certain provisions of Part IV of the CCA (other than Sections 46 and 46A (misuse of market power) and Section 48 (resale price maintenance)), for the imposing, or giving effect to, a condition of a licence granted by the owner or licensee of a patent, registered design, copyright or circuit layout right or by an applicant for registration of a patent or design; or an assignment of any of these rights.

The exemption only applies ‘to the extent that the condition relates' to the invention, product, work or other subject matter, or eligible layout that is the subject of the right being licensed or assigned.

The Section 51(3) exception also applies to the inclusion of, or giving effect to, a provision authorising the use of a certification trademark in accordance with the rules that apply to use of the certification trademark; or an agreement between the owner of a registered trademark and an authorised user of the mark, to the extent that it relates to the kinds, qualities or standards of goods bearing the mark that may be produced or supplied by the authorised user.

The precise extent of the Section 51(3) exception is unclear and has been the subject of relatively little judicial comment. In Transfield Pty Ltd v. Arlo International Ltd,2 Mason J of the Australian High Court stated, in obiter dicta, that Section 51(3) goes no further than determining the scope of restrictions that a patentee may properly impose on use of the patent but not conditions that are collateral to the patent. This is to be contrasted with the decision in ACCC v. Pfizer Australia Pty Ltd 3 in which the Federal Court held that the Section should not be given a narrow construction.

Section 51(4) preserves the validity of contract terms protected by Section 51(3), which otherwise would be rendered unenforceable or void under Part IV of the CCA.

Unlike in many other jurisdictions, no guidelines have been issued by the Australian Competition and Consumer Commission (ACCC), which is the regulatory body that oversees the CCA, concerning the interaction between competition law and intellectual property law.

II YEAR IN REVIEW

On 20 December 2016, the Australian Productivity Commission released its report on its inquiry into intellectual property (IP) arrangements in Australia, Intellectual Property Arrangements: Productivity Commission Inquiry Report: Overview & Recommendations.4 The report recommended that ‘Commercial transactions involving IP rights should be subject to competition law. The current exemption under the Competition and Consumer Act is based on outdated views and should be repealed' and found that ‘Recognising that competition and IP policy are not at odds, a better approach would allow the ACCC to address any anticompetitive conduct, while minimising uncertainty for rights holders and licensees. Repealing the exemption, combined with ACCC guidance on the application of competition law to IP transactions, would achieve this outcome.'5 At the time of writing, draft legislation to amend the CCA has not included the repeal of Section 51(3) of the CCA and, accordingly, it remains to be seen whether this important recommendation will be implemented.

In terms of cases concerning the interplay between intellectual property and competition laws, the most significant event (or, more accurately, non-event) of the past year is that judgment on the appeal by the ACCC to the Full Federal Court from the decision of the Federal Court in Australian Competition & Consumer Commission v. Pfizer Australia Pty Ltd 6 remains undelivered, despite the fact that the appeal was heard in late November 2015. The ACCC appealed the findings at first instance that Pfizer had not misused its market power in breach of Section 46 of the CCA and engaged in exclusive dealing in breach of Section 47 of the CCA as a result of steps taken to minimise loss of market share to generics following the expiry of its atorvastatin patent. Those steps, taken in anticipation of intense competition from generics, to minimise expected declines in revenue, included restructuring its marketing and distribution arrangements to allow it to sell direct to pharmacies, and restructuring its rebates and discounts. The Court at first instance found that this conduct did not amount to misuse of market power because Pfizer lacked the requisite anticompetitive purpose and that it did not amount to exclusive dealing because its offer of discounts and rebates to pharmacies that purchased directly from Pfizer lacked the requisite conditionality and did not have a purpose of substantially lessening competition. Judgment on the appeal is much anticipated.

III LICENSING AND ANTITRUST

i Anticompetitive restraints

The imposition of terms of intellectual property licences that restrict the ability of the licensee to compete with the owner or rights holder or restrict or limit the scope of the licence in terms of pricing, territory or customers may be a breach of the following provisions of the CCA:

    • a the prohibition on the making or giving effect to agreements, arrangements or understandings that have the purpose, effect or likely effect of substantially lessening competition in a market (Section 45 of the CCA), but only if it does not fall within one of the exceptions in Section 51(3);
    • b the prohibition on exclusive dealing in Section 47 of the CCA (by, for example, the holder of an intellectual property right making the licensing of the right conditional on the acquirer accepting a restriction on its rights to deal with competitors), but, again, only if it does not fall within one of the exceptions in Section 51(3);
    • c the prohibition on the making and giving effect to provisions of agreements between competitors by which one or more is restricted, prevented or limited from supplying goods or services to, or acquiring goods or services from, particular persons or classes of person (a primary boycott), which is also prohibited (Section 4D/Section 45 of the CCA), but, again, only if it does not fall within one of the exceptions in Section 51(3); or
    • d the prohibition on misuse of market power in Section 46 of the CCA (which is not subject to the exception in Section 51(3)).
ii Refusals to license

Australian competition law does not oblige a party to license its intellectual property rights. While a refusal to license by a party that has a substantial degree of market power, done for the purpose of substantially damaging or eliminating a competitor or preventing or hindering a party from entering into or competing in a market, may be a misuse of market power in breach of the current Section 46 of the CCA, the Australian High Court in Melway Publishing Pty Ltd v. Robert Hicks Pty Ltd 7 has recognised that, where a party is otherwise entitled to do so without contravention of the CCA, it is not the purpose of Section 46 to dictate how that party should choose its licensees.8 Whether that reasoning holds true if Section 46 is amended, as discussed in Section IV.i, below, to replace the current purpose test with a test of having the purpose, effect or likely effect of substantially lessening competition in a market, remains to be seen.

iii Unfair and discriminatory licensing

Engaging in unfair and discriminatory licensing may breach the following provisions of the CCA:

  • a the prohibition on misuse of market power in the current Section 46 of the CCA, if engaged in by a company with a substantial degree of market power for the purpose of substantially damaging or eliminating a competitor or preventing or hindering a person from entering or competing in a market;
  • b the prohibition on unconscionable conduct contained in Section 21 of the Australian Consumer Law, which is Schedule 2 to the CCA, particularly where the party imposing the unfair and discriminatory licensing is in a stronger bargaining position than the licensee or where undue influence or pressure is brought to bear; and
  • c the prohibition on unfair contract terms in standard form consumer contracts or small business contracts contained in Section 25 of the Australian Consumer Law.

Where the conduct involves requiring the licensee to sell goods, manufactured using the licensed intellectual property, at a particular price, this may amount to resale price maintenance, which is prohibited by Section 48 of the CCA. The exception in Section 51(3) does not apply to resale price maintenance.

iv Patent pooling

The aggregation of patent rights that are then offered as a joint package and portfolio cross-licensing of patents have been recognised by the ACCC as having the potential to give rise to competition concerns.9 These concerns include cartel conduct, through facilitation of price-fixing, coordinated output restrictions among competitors; substantial lessening of competition, where there is foreclosure of innovation; and the enabling of the exercise of market power. Notwithstanding the identification of these concerns, no case has been brought before the Australian courts in which allegations of breach of competition laws arising from patent pooling and cross-licensing have been determined.

v Software licensing

Australian competition law does not contain any provisions that are specific to software licensing. However, in ACCC v. Valve Corporation (No. 3),10 the Federal Court held that licence agreements under which consumers access certain software constituted a supply of goods for the purposes of the CCA, meaning that software licences are subject to the consumer guarantee provisions of the CCA.

vi Trademark licensing

As is the case with software licensing, Australian competition law does not contain any provisions that are specific to trademark licensing.

IV STANDARD-ESSENTIAL PATENTS

To date, Australian courts have not delivered any decisions in which standard-essential patents (SEPs) have been enforced. Similarly, no Australian court has yet delivered judgment on the question of whether conduct involving SEPs amounts to a breach of the Australian competition laws. Rather, there has been one case in respect of SEPs declared essential in respect of certain 3GPP standards, which was commenced and then settled within 18 months after issue,11 and the long-running Apple v. Samsung dispute,12 which was settled after the completion of an unprecedented number of trial-hearing days over an 11-month period, imminently hours before the judgment was due to be handed down by the Federal Court.

For this reason, it remains only conjecture as to whether the reasoning of the European Commission in Huawei13 as to enforcement of SEPs and appropriateness of remedies in such proceedings would be applicable in the Australian courts.

As to the legal force of SEPs in general, it is to be expected that Australian courts would be persuaded by the reasoning of the UK courts as to the legal effect a declaration of essentiality and the fair, reasonable, and non-discriminatory (FRAND) terms undertaking of a patentee. In this regard, the recent decision of Birss J of the High Court of Justice in Unwired Planet 14 provides a sound prediction of the approach of Australian courts: ‘As a matter of French Law, the FRAND undertaking to ETSI is a legally enforceable obligation which any implementer can rely on against the patentee. FRAND is justiciable in an English court and enforceable in that court.'15

However, as to the remainder of the reasoning applied in Unwired Planet, it is uncertain that it would apply given the differences between Australian and European laws.

i Dominance

Under Section 46 of the CCA, misuse of market power is prohibited. The prohibition is not on abuse of dominance but rather on a company with a substantial degree of power in an Australian market using or taking advantage of that power for the purpose of eliminating or substantially damaging a competitor, preventing the entry of a person into a market or deterring or preventing a person from competing in a market. At the time of writing, proposed amendments to the Section are currently before the Australian Parliament. The amendments would replace the current purpose test with a test of having the purpose, effect or likely effect of substantially lessening competition in a market.

While there has been no decision of any Australian court on the question, the role of SEPs and their relationship with misuse of market power was considered in the Apple v. Samsung case. In that case Apple claimed that Samsung's commencement of proceedings for injunctive relief against it, alleging infringement of three of its SEPs and its making of a non-FRAND licensing offer constituted a misuse of market power in breach of Section 46 of the CCA. Unfortunately (for jurisprudence in the area, at least), the case was settled before judgment was delivered and no indication has been given of the court's likely attitude to the claim.

Notwithstanding the lack of judicial pronouncement on the issue, and the fact that the High Court in the Melway Publishing case held that the fact that a company possesses a substantial degree of market power arising from its intellectual property rights does not, of itself, mean that the company will misuse that power merely by enforcing those rights, because it could, and probably would, have enforced those rights in the same way if it did not have a substantial degree of market power, the prospect of conduct involving SEPs giving rise to a claim of misuse of market power in breach of Section 46 of the CCA remains a real one.

Where SEPs are truly essential to a relevant standard and allow the holder to act in a manner unconstrained by its competitors,16 it is likely that an Australian court would conclude the holder of the SEP had the requisite substantial degree of market power to attract the prohibition in Section 46 of the CCA. It would then fall to be determined whether the holder had exercised that power for one of the proscribed purposes, or, if, as expected, the amendment referred to above passes into law, for the purpose, effect or likely effect of substantially lessening competition.

ii Injunctions

As the Australian courts have not had to decide whether an injunction is an available remedy in relation to the assertion of an SEP, guidance can be gleaned from the application of general principles of Australian patent law.

In this respect, a patentee is granted exclusive rights to exploit the patent.17 The Australian courts have invariably ordered that conduct infringing a patent be restrained by issuing an injunction. In two recent cases in the pharmaceutical area, judges of the Federal Court have expressed, obiter dicta, support for a view that the scope of an injunction may not be absolute in all circumstances of a finding of patent infringement.18 This was on the basis of some uses of alleged infringing products constituting infringing conduct or not: ‘It seems to us that, all other things being equal, the more difficult it is for the patentee to establish that there is a likelihood of widespread infringing use, the more difficult it should be for the patentee to obtain injunctive relief in the broad terms restraining any supply of the relevant product.'19

Given this position, Australian courts would start with the position that the patentee is entitled to injunctive relief on the infringement finding and the only question for consideration may be scope of the injunction.

It remains to be seen whether an Australian court would be persuaded to follow the Huawei approach to determining if a misuse of market power has occurred in the course of seeking injunctions by way of enforcement of SEPs. Currently, the mere enforcement of an SEP and the seeking of an injunction would not of itself give rise to a claim of misuse of market power unless it was found to be undertaken for one of the proscribed purposes in Section 46. Thus, if a patentee who has sought and failed to negotiate a licence under FRAND terms, subsequently seeks damages and injunctive relief in the course of an enforcement action, the action is not likely to be found to be a misuse of market power in breach of Section 46. However, the result may be different under the current law where the patentee has not offered FRAND terms and holds one of the proscribed purposes, as was the case Apple alleged against Samsung, or under the proposed amendments, where all that is required would be an effect or likely effect of substantially lessening competition in a market.

iii Licensing under FRAND terms

The question of whether an offer to license SEPs on non-FRAND terms was a breach of Section 46 of the CCA was raised, but not determined in the Apple v. Samsung case. Indeed, Australian courts have not been faced with determination of issues related to licensing on FRAND terms, generally. While not binding, judicial determination in other jurisdictions as to the determination of FRAND terms is likely to be persuasive in Australian courts.

However, offers to license on non-FRAND terms may give rise to a number of potential breaches of Australian competition law including misuse of market power (discussed above), unconscionable conduct and the prohibition on the making and giving effect to agreements that substantially lessen competition. In its November 2015 Submission to the Productivity Commission Inquiry into Intellectual Property Arrangements in Australia, the ACCC recognised the potential for such offers to be anticompetitive, stating: ‘if there are inadequate avenues to access patents on reasonable terms and conditions, then this has the potential to seriously undermine sequential innovation and thus reduce dynamic efficiency'.20

iv Anticompetitive or exclusionary royalties

The imposition of royalties payments that are anticompetitive or exclusionary may breach:

  • a the prohibition on misuse of market power in the current Section 46 of the CCA, if engaged in by a company with a substantial degree of market power for the purpose of substantially damaging or eliminating a competitor or preventing or hindering a person from entering or competing in a market;
  • b the prohibition on unconscionable conduct contained in Section 21 of the Australian Consumer Law, which is Schedule 2 to the CCA, particularly where the party imposing the royalties is in a stronger bargaining position than the payee or where undue influence or pressure is brought to bear; and
  • c the prohibition on unfair contract terms in standard form consumer contracts or small business contracts contained in Section 25 of the Australian Consumer Law.

V INTELLECTUAL PROPERTY AND MERGERS

i Transfer of IP rights constituting a merger

Section 50 of the CCA prohibits the acquisition of shares or assets of a company where the acquisition would have the effect, or be likely to have the effect of substantially lessening competition in any market. An acquisition involving the transfer of IP rights, whether alone or in conjunction with other assets may, therefore, amount to a ‘merger' and trigger Section 50, requiring an assessment of the impact of the transfer on competition in the relevant Australian market or markets.

There is no mandatory notification requirement for mergers in Australia. Where parties are concerned that the acquisition of shares or assets, including the transfer of IP rights, may trigger Section 50, they have the option of using one of two formal processes (authorisation and formal clearance) or making an informal clearance application to the ACCC. The two formal processes are rarely used, with the vast majority of parties using the informal clearance process. The ACCC has issued Informal Merger Review Process Guidelines,21 which set out the administrative steps relevant to an informal merger clearance review, and Merger Guidelines,22 which set out the steps the ACCC takes to analyse a merger.

ii Remedies involving divestitures of intellectual property

The ACCC has power to give its informal clearance to a merger where it is satisfied that the merger will not result in a substantial lessening of competition in any market. On occasions this requires the parties to agree to divest certain assets including, but not limited to, intellectual property. The agreement to do so usually takes the form of the provision of a court enforceable undertaking to the ACCC pursuant to Section 87B of the CCA. Two recent merger clearances that have involved the divestiture of intellectual property include:

  • a DowDuPont Inc's proposed acquisition of EI du Pont de Nemours and Company and The Dow Chemical Company - in this matter the ACCC raised concerns that ‘a potential effect of a merger between two originators (such as Dow and DuPont) is to reduce the rate of innovation by lessening competition between originator companies',23 but concluded that DowDuPont Inc's divestiture commitments to the European Commission, which included divestiture of certain businesses including intellectual property, would address any competition concerns in Australia.24
  • b Iron Mountain Incorporated's proposed acquisition of Recall Holdings Limited (2016) - in this matter Iron Mountain undertook to divest most of its Australian business including, relevantly, ownership of, or licences to use, operational, invoice, human resources and finance systems necessary for its business, and all permits and licences granted to it to carry on a physical document management service and a digital document management service in Australia.25

VI OTHER ABUSES

i Sham or vexatious IP litigation

There exist a number of legislative mechanisms in Australia to deter the issue of sham or vexatious litigation. The introduction of the Civil Dispute Resolution Act 2011 (Cth) was one such measure, specifically requiring legal practitioners to file upon commencement of proceedings a statement of genuine steps undertaken to resolve a dispute prior to the issue of proceedings. Failure to undertake such genuine steps, by a client or a lawyer, may result in unfavourable costs orders being made against clients or personally against lawyers.26

In the particular context of IP disputes, the availability of remedies for unjustified threats of infringement is a useful foil for sham or vexatious litigation by a patentee (or copyright owner). In 2016, the Australian Federal Court delivered a decision that reinforces its willingness to find that a patentee who does not establish patent infringement and has undertaken a course of correspondence with the putative infringer's customers may have engaged in unjustified threats of infringement contrary to Section 128 of the Patents Act. In CQMS Pty Ltd v. Bradken Resources Pty Limited 27 Drummond J found that issue by the patentee of ‘Notice of Federal Court Proceedings' to the alleged infringer's customers that said that its ‘claim of patent infringement [. . .] is in part, based on supplying product to their customers whereby those customers' use of that product results in [. . .] customers infringing'28 was an unjustified threat that entitled the respondent to an injunction and damages.

Notably, the mere commencement and prosecution of patent infringement proceedings subsequent to the issue of a threat does not render earlier threats of infringement justifiable.29 This is in contradistinction to the defence arising for unjustified threats of trademark infringement by the commencement of infringement proceedings.30

ii Misuse of the patent process

The ACCC has recognised that ‘Patents can be used to impose large costs on businesses that need access to licences or filed defensively to stall or exclude the entry of competitors or products. They can also impose costs on society by providing supernormal returns for patent holders, particularly if they are excessively long in duration' and that ‘if patent protections extend too broadly, and if there are inadequate avenues to access patents on reasonable terms and conditions, then this has the potential to seriously undermine sequential innovation and thus reduce dynamic efficiency'.31

iii Anticompetitive settlements of IP disputes

Australian courts have not adjudicated any disputes concerning anticompetitive settlement of IP disputes.

The closest decision to determination of the anticompetitive effects of ‘pay-for-delay' launch of generic pharmaceuticals is the 2015 decision in the action brought by the ACCC against Pfizer for its commencement of an exclusive supply arrangement with pharmacies in relation to Lipitor, prior to patent expiry of its atorvastatin patent in 2012.32 The court found that this pre-patent expiry tie-up of pharmacies, together with the making of bundled offers and a special rebate fund available to pharmacists who entered into the exclusive arrangement was not a misuse of market power, as the conduct had been engaged in to improve the chances of pharmacies continuing to deal with Pfizer and its atorvastatin products rather than returning immediately to their usual generic supplier. The court's finding was that this was not conduct pursued by Pfizer for the purpose of deterring or preventing a person from engaging in competitive conduct, but for the purpose of Pfizer remaining competitive.33

In its report on its inquiry into intellectual property arrangements in Australia,34 the Productivity Commission raised pay-for-delay settlements as a potential issue in Australia and recommended introducing a new reporting and monitoring regime (administered by the ACCC) for pay-for-delay settlements. The introduction of such a regime would require pharmaceutical companies and the originator to lodge patent settlement agreements with the ACCC, giving the ACCC greater visibility of the extent to which pay-for-delay agreements are being entered into in Australia, and the details of those agreements, without having to rely or utilise its investigative powers to seek that information.

VII OUTLOOK AND CONCLUSIONS

The year ahead may see the repeal of Section 51(3) of the CCA and with it the removal of the exemption of certain intellectual property arrangements from the application of Australia's competition laws. This is a recommendation that has been made many times before and it remains to be seen whether the Australian Parliament has the appetite to enact the necessary legislation.

Seemingly more certain is the likelihood that the prohibition on misuse of market power in Section 46 of the CCA will be amended to prohibit corporations with substantial market power from engaging in conduct that has the purpose, or is likely to have the effect, of substantially lessening competition in any market. Whether such an amendment will result in an increase in cases in which holders of intellectual property rights are held to have misused market power also remains to be seen.

1 Kathryn Edghill and Jane Owen are partners at Bird & Bird.

2 (1980) 144 CLR 83.

3 [2015] FCA 113.

4 www.pc.gov.au/inquiries/completed/intellectual-property/report.

5 Australian Government Productivity Commission, Intellectual Property Arrangements: Productivity Commission Inquiry Report: Overview & Recommendations, op. cit., at pp. 2 and 23, respectively.

6 (2015) FCA 113.

7 (2001) 205 CLR 1.

8 Ibid.,at [17].

9 ACCC Submission to the Productivity Commission Inquiry into Intellectual Property Arrangements in Australia (November 2015), at p. 9.

10 [2016] FCA 196.

11 Vringo Infrastructure Inc v. ZTE (Australia) NSD1010/2013.

12 Apple Inc. & Anor v. Samsung Electronics Co. Limited & Anor NSD 1243/2011.

13 Huawei Technologies Co Ltd v. ZTE Corp ECLI:EU:C:2015:477.

14 Unwired Planet Ltd v. Huawei Technologies Co Ltd & Anor [2017] EWHC 711 (Pat).

15 Ibid., at [806].

16 e.g., Melway Publishing Pty Ltd v. Robert Hicks Pty Ltd, op. cit., at [67].

17 Section 13 Patents Act 1990 (Cth).

18 e.g., Otsuka Pharmaceutical Co., Ltd v. Generic Health Pty Ltd (No. 4) [2015] FCA 634 (29 June 2015) at 247.

19 AstraZeneca AB v. Apotex Pty Ltd [2014] FCFCA 99 at 444.

20 ACCC Submission to the Productivity Commission Inquiry into Intellectual Property Arrangements in Australia at https://www.accc.gov.au/system/files/ACCC%20Submission%20-%20PC%20inquiry%
20into%20IP%20arrangements%20in%20Australia%20-%2030%20November.pdf, p. 11.

21 Available at https://www.accc.gov.au/publications/informal-merger-review-process-guidelines-2013.

22 Available at https://www.accc.gov.au/publications/merger-guidelines.

23 ACCC Statement of Issues, dated 3 November 2016, on the proposed merger of The Dow Chemical Company and EI du Pont de Nemours and Company.

24 http://registers.accc.gov.au/content/index.phtml/itemId/1202487/fromItemId/751046.

25 http://registers.accc.gov.au/content/index.phtml/itemId/1194800/fromItemId/751046.

26 Sections 11 and 12 Civil Dispute Resolution Act 2011 (Cth).

27 CQMS Pty Ltd v. Bradken Resources Pty Limited [ 2016 ] FCA 847.

28 CQMS Pty Ltd v. Bradken Resources Pty Limited [ 2016 ] FCA 847At 171.

29 CQMS Pty Ltd v. Bradken Resources Pty Limited [2016] FCA 847At 177.

30 Section 129(5) Trade Marks Act 1995 (Cth).

31 ACCC Submission to the Productivity Commission Inquiry into Intellectual Property Arrangements in Australia at https://www.accc.gov.au/system/files/ACCC%20Submission%20-%20PC%20inquiry%
20into%20IP%20arrangements%20in%20Australia%20-%2030%20November.pdf, p. 11.

32 Australian Competition & Consumer Commission v. Pfizer Australia Pty Ltd, op. cit.

33 Australian Competition & Consumer Commission v. Pfizer Australia Pty Ltd, op. cit., at [464].

34 www.pc.gov.au/inquiries/completed/intellectual-property/report.