IP SETTLEMENT AGREEMENTS AND CARTEL CONDUCT UNDER THE COMPETITION AND CONSUMER ACT
The Competition and Consumer Act 2010 (Cth) (“CCA”) is designed to enable businesses to compete equally based on their merits while at the same time, ensuring the fair treatment of consumers. However, in September 2019, an important section of the CCA was repealed, which many industry professionals believe may undermine the purpose of the CCA in the context of intellectual property (“IP”).
Section 51(3) is used to exempt certain conditions in IP licenses from competition law prohibitions. Following the repeal, any conduct relating to IP will now be treated the same as all other commercial conduct for the purpose of Part IV of the CCA. Part IV is aimed to mitigate cartel conduct. Section 51(3) was broadly understood to exempt a patentee who is imposing conditions on a license or assignment of a patent from Part IV of the CCA. Similarly, the exemption applied to settlement agreements entered into by parties during patent litigations, most of which would contain a conditional license agreement
Now, any agreement that restricts one party’s ability to compete must be carefully drafted and analyzed so as not to be flagged as cartel conduct under Part IV. A person guilty of cartel conduct may be imposed a prison sentence of up to 10 years and the Australian Competition and Consumer Commission(“ACCC”) may enforce further orders against the person.
Those who wish to enter into a license or assignment agreement but are concerned that they may fall prey to Part IV can seek authorization under Section 88(1) of the CCA from the ACCC. Considering the fact that authorization would provide a party with immunity from having Part IV enforced against them, it would be quite a big decision to grant authorization.
“The ACCC cannot grant an authorization unless it is satisfied, in all of the circumstances, that the conduct would result, or be likely to result, in a benefit to the public, and the benefit would outweigh any detriment to the public that would be likely to result (‘statutory test’).”
According to the Law Society Journal, although seeking authorization from the ACCC may seem like a straightforward solution, there are significant disadvantages to doing so:
- As authorization is a public process, determinations made by the ACCC will be published. This is of course subject to confidentiality claims in the application.
- It may take up to a year for the ACCC to make its final decision.
- It is essential that an application is property filed as the ACCC will only accept minor amendments to an application. This would require a large amount of work and hence incur a considerable amount of costs.
- If authorization is sought in relation to ongoing proceedings, parties must strive to stay in those proceedings before applying to the ACCC.
- Generally, authorization is hard to obtain.
So where do we go from here? Considering how rare cases get flagged for contravening Part IV of the CCA since the repeal, we have yet to witness a promising way forward for industry professionals looking to enter into settlement agreements. The current options are rather limited: Parties may enter into a settlement agreement with a license component and risk contravening Part IV, enter into such agreement and then seek authorization from the ACCC, proceed with litigation and risk an unsatisfactory outcome, or enter into a settlement agreement that does not involve a license, which is almost impossible considering the nature of IP transactions.