Intellectual property (IP) 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 IP 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 IP laws. However, Section 51(3) of the CCA, until recently, provided an exemption from certain provisions of Part IV of the CCA (other than Section 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The Section 51(3) exception was repealed by the Treasury Laws Amendment (2018 Measures No. 5) Act 2019 (Cth) and will cease to have effect on 13 September 2019. Prior to its repeal, the scope of the section was unclear and had been the subject of relatively little judicial comment. What is now clear is that arrangements involving the assignment or licensing of IP will no longer enjoy special protections under Australian competition law and will be viewed in the same light as other commercial arrangements. Practically, licensors now have until September 2019 to ensure that their licence arrangements comply with the exclusive dealing provisions of Section 47 of the CCA. This change will bring Australia into line with other jurisdictions, including the United States and Canada.
On 9 April 2019, the Australian Competition and Consumer Commission (ACCC), which is the regulatory body that oversees the CCA, announced that it will be releasing draft guidelines on the application of Part IV of the CCA to IP for public comment in mid-2019, and will publish a final version before the repeal commences on 13 September 2019.
These guidelines are keenly awaited.
In a similar move, on 11 April 2019, the ACCC published its Copyright Guidelines, which are intended to provide guidance for the Copyright Tribunal, a tribunal created under the Copyright Act 1968 (Cth) to set remuneration for statutory and voluntary licences. The Copyright Guidelines provide the economic principles the ACCC considers relevant for the Copyright Tribunal to determine pricing under these licences. The Copyright Guidelines are not binding and given their recent release, the Copyright Tribunal has not yet had occasion to consider their application.
II YEAR IN REVIEW
The repeal of Section 51(3) of the CCA followed the recommendations of the Australian Productivity Commission in its report on its inquiry into IP arrangements in Australia: Intellectual Property Arrangements: Productivity Commission Inquiry Report: Overview & Recommendations.2 The report, which was released on 20 December 2016, 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'. It also recommended that ACCC guidance on the application of competition law to IP transactions be developed to overcome uncertainties for rights holders and licensees.3 The Australian government, in its response to the report, supported the repeal of Section 51(3), reasoning that 'it is now generally agreed that there is no fundamental conflict between IP rights and competition policy' and that 'where there is evidence of anticompetitive conduct associated with IP licensing arrangements, it is important that such conduct is appropriately regulated.'
In terms of cases concerning the interplay between IP and competition laws, the most significant event in recent years is the still-pending court proceeding between Motorola Solutions Inc and Hytera Communications Corporation Ltd4 concerning allegations of infringement of three standard-essential patents (SEPs) that was issued in the Federal Court in mid-2017. The case has been widened to include copyright infringement claims, and is now set for hearings in mid-2019 and mid-2020. Another significant 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 5 has been delivered. The ACCC appealed the findings at first instance that Pfizer had not misused its market power in breach of the former 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. The full Federal Court dismissed the ACCC's appeal and confirmed that Pfizer did not act with an anticompetitive purpose when seeking to protect its market position in the period leading up to expiry of its patent. The Full Federal Court determined that, while Pfizer held a substantial degree of market power within the atorvastatin market, and took advantage of that substantial market power, it was not for the purpose of substantially lessening competition. Rather, the Court found that Pfizer's conduct was for the legitimate purpose of ensuring it remained competitive in the atorvastatin market after the patent expiry.
Although the case was brought under the old misuse of market power provisions (and therefore does not consider the newly introduced effects test), it confirms that protecting a market position in the context of fierce competition is not an anticompetitive purpose.
Following the Full Court judgment, the ACCC sought leave to appeal to the High Court but that application was dismissed on 18 October 2018.
III LICENSING AND ANTITRUST
i Anticompetitive restraints
The imposition of terms of IP 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:
- the prohibition on the making or giving effect to agreements, arrangements or understandings, or engaging with one or more persons in a concerted practice, that have the purpose, effect or likely effect of substantially lessening competition in a market (Section 45 of the CCA);
- the prohibition on exclusive dealing in Section 47 of the CCA (by, for example, the holder of an IP right making the licensing of the right conditional on the acquirer accepting a restriction on its rights to deal with competitors); or
- the prohibition on misuse of market power in Section 46 of the CCA.
While previously, arrangements of this type may have been subject to the exemption in Section 51(3), they will no longer be exempt from 13 September 2019 and will be subject to the same laws as other commercial arrangements.
The maximum penalty per contravention of these provisions for corporations is significant, being the greater of:
- A$10 million;
- three times the value of the benefit received from the contravening conduct; or
- where the benefit cannot be calculated, 10 per cent of the company's annual turnover in the 12 months prior to when the conduct occurred.
The maximum penalty for a contravention by an individual is A$500,000.
ii Refusals to license
Australian competition law does not oblige a party to license its IP rights. A refusal to license by a party that has a substantial degree of market power does not mean that a breach of Section 46 has occurred. For Section 46 to be engaged, the refusal must be for the purpose or have the effect or likely effect of substantially lessening competition in a relevant market. Under the former Section 46 of the CCA, the Australian High Court in Melway Publishing Pty Ltd v. Robert Hicks Pty Ltd 6 recognised that, where a party is otherwise entitled to refuse to licence its IP rights without contravention of the CCA, it is not the purpose of Section 46 to dictate how that party should choose its licensees.7 Whether this reasoning will continue to be relevant under the current Section 46, which replaced the former anticompetitive 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:
- the prohibition on misuse of market power in Section 46 of the CCA, if conduct engaged in by a company with a substantial degree of market power has the purpose, or has or is likely to have the effect, of substantially lessening competition in a relevant market;
- 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
- 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 IP, at a particular price, this may amount to resale price maintenance, which is prohibited by Section 48 of the CCA.
Penalties under the Australian Consumer Law, including for unconscionable conduct, are also significant and were increased in August 2018 to align with those for competition law contraventions.
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.8 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.
However, the repeal of Section 51(3) may cause licensees of patent pools to consider whether patent pool licensing is a contravention of Section 47, in circumstances where the patentor insists upon a licence to a pool of patents for one royalty rate, without reference to which patents are applicable to the licensee's activities. In this regard, the decision in Regency Media Pty Ltd v. MPEG LA, LLC,9 in which the Full Federal Court affirmed that a licensee could not exercise a statutory right to terminate a patent pool licence under Section 145 of the Patents Act 1990 where one or more of the licensed patents had expired (but other licensed patents had not), may also focus attention on the antitrust remedies.
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 Australian Consumer Law, meaning that software licences are subject to the consumer guarantee provisions of the Australian Consumer Law.
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 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 of 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, hours before the judgment was due to be handed down by the Federal Court. Some judicial guidance on SEPs may be forthcoming in due course with Motorola Solutions Inc bringing proceedings against Hytera Communications Corporation Ltd in mid-2017. The matter is listed for trial commencing on 22 July 2019 but with further listing days now allocated in mid-2020. If not settled beforehand, this case could provide seminal Australian jurisprudence on when a patent might be regarded as essential, the role of standard-making bodies and the applicability of fair, reasonable, and non-discriminatory (FRAND) terms.
Until Australian courts deliver a judgment in this area, 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 FRAND terms undertaking of a patentee. In this regard, the recent decision of Birss J of the High Court of Justice in Unwired Planet14 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.
Under Section 46 of the CCA, misuse of market power is prohibited. The prohibition was amended in November 2017, and this replaced the anticompetitive purpose test with a new purpose and effects test, which prohibits a company with a substantial degree of market power from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition in a relevant market in Australia.
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 the former 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 IP 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, particularly given the recent amendments to the test.
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 the purpose, effect or likely effect of substantially lessening competition.
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 the purpose, or has the effect or likely effect, of substantially lessening competition in a relevant market. 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 where the patentee has not offered FRAND terms and does so for the purpose of substantially lessening competition, or where there is an effect or likely effect of substantially lessening competition in a relevant market.
iii Licensing under FRAND terms
The question of whether an offer to license SEPs on non-FRAND terms was a breach of the former 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 royalty payments that are anticompetitive or exclusionary may breach:
- the prohibition on misuse of market power in Section 46 of the CCA, if engaged in by a company with a substantial degree of market power for the purpose of substantially lessening competition in a relevant market or where the conduct has or is likely to have that effect;
- 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
- 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 seeking authorisation or informal clearance from the ACCC. Authorisation, which until November 2017 was sought from the Australian Competition Tribunal but is now sought from the ACCC, has rarely been used, with the vast majority of parties using the informal clearance process. The ACCC has issued Informal Merger Review Process Guidelines21 and Merger Authorisation Guidelines,22 which set out the administrative steps relevant to an informal merger clearance review and merger authorisations respectively, and Merger Guidelines,23 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, or, to authorise a merger where the merger will not result in a substantial lessening of competition in any market or the likely benefit from the proposed acquisition outweighs the likely public detriment. On occasions this requires the parties to agree to divest certain assets including, but not limited to, IP. 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 IP include:
- 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',24 but concluded that DowDuPont Inc's divestiture commitments to the European Commission, which included divestiture of certain businesses including IP, would address any competition concerns in Australia;25 and
- 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.26
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.27
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.28
However, the force of the CQMS decision has been watered down by the subsequent decision of the Full Court in Darmagold Pty Ltd v. Blindware Pty Ltd,29 in which the Court held that the mere fact that a finding of infringement was not ultimately sustained does not render threats made by letter unjustified.
Nonetheless, the mere commencement and prosecution of patent infringement proceedings subsequent to the issue of a threat does not render earlier threats of infringement justifiable.30 This is in contradistinction to the defence arising for unjustified threats of trademark infringement by the commencement of infringement proceedings.31
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'.32
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 expiry of its atorvastatin patent in 2012.33 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.34 However, it remains to be seen whether such conduct would now fall foul of the new Section 46 of the CCA.
In its report on its inquiry into IP arrangements in Australia,35 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 repeal of Section 51(3) of the CCA, which is due to come into effect on 13 September 2019, means that arrangements involving the assignment or licensing of IP rights will be treated like any other commercial arrangements and will no longer enjoy special protections from Australian competition laws. This is something that should definitely be borne in mind by licensors and licensees of IP rights going forward. Separately, the amended prohibition on misuse of market power in Section 46 of the CCA no doubt broadens the scope of the prohibition, but whether this amendment results in increased cases in which holders of IP rights are held to have misused market power remains to be seen.
1 Thomas Jones and Jane Owen are partners and Cicely Sylow is a senior associate at Bird & Bird. Acknowledgement is made to Kathryn Edghill who contributed to a previous edition of this chapter.
3 ibid. at pp. 2 and 23, respectively.
4 NSD 1283/2017.
5 (2015) FCA 113.
6 (2001) 205 CLR 1.
7 ibid. at .
8 ACCC submission to the Productivity Commission Inquiry into Intellectual Property Arrangements in Australia, at p. 9.
9  FCAFC 183.
10  FCA 196.
11 Vringo Infrastructure Inc v. ZTE (Australia) NSD 1010/2013.
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  EWHC 711 (Pat).
15 ibid. at .
16 E.g., Melway Publishing, footnote 6 at .
17 Section 13, Patents Act 1990 (Cth).
18 E.g., Otsuka Pharmaceutical Co, Ltd v. Generic Health Pty Ltd (No. 4)  FCA 634 (29 June 2015) at .
19 AstraZeneca AB v. Apotex Pty Ltd  FCAFC 99 at .
20 Footnote 8 at p. 11.
24 ACCC Statement of Issues, dated 3 November 2016, on the proposed merger of Dow Chemical Company and EI du Pont de Nemours and Company.
27 Sections 11 and 12, Civil Dispute Resolution Act 2011 (Cth).
28 CQMS Pty Ltd v. Bradken Resources Pty Limited  FCA 847.
29  FCA 1552.
30 Footnote 28 at .
31 Section 129(5), Trade Marks Act 1995 (Cth).
32 Footnote 8 at p. 11.
33 See footnote 5.
34 Footnote 5 at .
35 See footnote 2.