House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer, the Hon Stuart Robert MP)

Chapter 4 Repeal of subsection 51(3) of the Competition and Consumer Act 2010

Context of amendments

4.1 The Competition and Consumer Act 2010 (CCA) prohibits companies and other persons from engaging in certain types of conduct that reduce competition, such as cartel behaviour and exclusive dealing. Subsection 51(3) provides an exemption from certain prohibitions in the CCA for conditional licensing or assignment of intellectual property (IP) rights such as patents, registered designs, copyright or eligible circuit layout rights.

4.2 The exemption does not apply to the provisions prohibiting misuse of market power, misuse of market power in a Trans-Tasman market or resale price maintenance of the CCA.

4.3 The Productivity Commission's (Commission) Intellectual Property Arrangements Inquiry Report (December 2016) and the Competition Policy Review (March 2015) recommended subsection 51(3) of the CCA be repealed because the rationale for the exemption has largely fallen away. The Report notes that the number of arrangements that are affected by removal of the exemption is likely to be small.

4.4 IP rights and competition are no longer thought to be in 'fundamental conflict'. IP rights do not, in and of themselves, have significant competition implications. Rather, competition implications arise in those cases where there are few substitutes or where the aggregation of IP rights may create market power.

4.5 The Commission considered that commercial transactions involving IP rights, including the assignment and licensing of such rights, should be subject to the CCA in the same manner as transactions involving other property and assets.

4.6 The Commission was of the view that at present, the immediate costs and benefits of removing the exemption under subsection 51(3) are finely balanced. However looking ahead, the benefits could rise as the level of licensing and cross licensing increases, especially in pharmaceutical and communications markets.

4.7 The repeal of subsection 51(3) brings Australia into line with other comparable jurisdictions. As noted by the Competition Policy Review, the United States, Canada and Europe do not provide an exemption from competition laws for conditions of IP transactions. In those jurisdictions, IP assignments and licences and their conditions are assessed under competition laws in the same manner as all other commercial transactions.

Detailed explanation of new law

4.8 Schedule 4 to the Bill repeals subsection 51(3) of the CCA and subsection 51(3) of Schedule 1 to the CCA (the Competition Code). The Competition Code is applied as a law by the states and territories. The amendments remove the exemption for conditional licensing or assignment of IP rights such as patents, registered designs, copyright or eligible circuit layout rights, from Part IV of the CCA (about prohibiting restrictive trade practices). [Schedule 4, items 1 and 3, subsection 51(3) of the CCA and subsection 51(3) of Schedule 1 of the CCA]

4.9 The Schedule commences the day after the end of the period of six months beginning on the day the bill receives the Royal Assent. [Clause 2]

4.10 The amendments apply to a licence granted, an assignment made, or a contract, arrangement or understanding entered into, including any conditions imposed or provisions included in such, on, after or before commencement of the Schedule. [Schedule 4, item 2, Division 4 of Part XIII of the CCA]

4.11 The delayed commencement will give individuals and businesses time to review existing arrangements to ensure they comply with the competition provisions of the CCA. If necessary, they can apply to the Australian Competition and Consumer Commission for authorisation of their existing arrangements under Part VII of the CCA.

4.12 Section 51(xxxi) of the Commonwealth of Australia Constitution Act (the Constitution) provides that the Commonwealth Parliament may only legislate with respect to the acquisition of property by the Commonwealth upon just terms. This item ensures that the amendment does not apply to the extent that it would result in the acquisition of property on unjust terms contrary to section 51(xxxi) of the Constitution. [Schedule 4, item 2, Division 4 of Part XIII of the CCA]