Application of competition law

Anti-competitive conduct

24.38 A patent holder, or its licensee, could engage in various forms of anti-competitive conduct in relation to its patent (or other intellectual property right) over genetic material or technologies.

Licences and assignments

24.39 Chapter 22 discusses licensing practices in relation to patented genetic materials and technologies. A patent holder could choose to enter into an exclusive licence for a patented invention; or a non-exclusive licence, which permits several licensees to exploit the invention. A licence for a patented genetic invention could contain conditions that have a beneficial or detrimental effect on competition within a market.

24.40 Intellectual property licences could be anti-competitive where: competitors enter into a licence to divide markets, fix prices or limit output; the licence has an exclusionary effect, for example where it involves a ‘tie-out’ arrangement that excludes other potential licensors of substitutable intellectual property; or facilitates the licensee’s accumulation of market power in competing technologies.^[60]

24.41 Other examples of potentially anti-competitive licence conditions are: grant-back provisions, which require the licensee to license back improvements that it makes to the licensed intellectual property; price or quantity restrictions on the licensee; reach-through provisions, which are claims by the licensor to intellectual property rights in new products that might be produced through use of the licensed invention; and tying conditions, where the patent holder includes non-patented products in the licence.^[61]

Refusal to license

24.42 A patent holder could seek to protect its monopoly by refusing to license its patented genetic invention. Alternatively, it could charge prohibitive licence fees, constituting a constructive refusal to licence. For example, the owner of a broad patent over an upstream genetic research tool, such as a DNA sequence, could refuse to license the tool to other researchers. This refusal to license could affect competition within the relevant market for the research tool, or within downstream markets for goods and services developed using the tool.

24.43 The holder of a patent for a genetic diagnostic test could refuse to license the test to other laboratories. For example, in 2002 Myriad Genetics Inc (Myriad) declared that it would not license its patent over testing for BRCA1–linked predisposition to breast and ovarian cancer. As a result, laboratories in Canada and Europe that previously had tested for BRCA1 were informed they would be required to forward all samples to Myriad for testing.^[62]

Infringement actions

24.44 A patent holder could use the threat of infringement proceedings to protect its monopoly rights in the patented invention. The Cancer Council Victoria suggested that:

the disparity between the cost of performing genetic tests and the cost of a legal challenge means that the mere threat of receiving an infringement notice is sufficient to force the vast majority of diagnostic laboratories to immediately stop testing, even if the laboratory believes the patents are not being infringed, are being misrepresented or are of dubious validity or scope. It is simply cheaper and less risky to cease providing the test.^[63]

24.45 Section 128 of the Patents Act provides a mechanism for obtaining relief from unjustified threats of patent infringement. Where a person threatens infringement proceedings, an aggrieved person may apply to a court for a declaration that the threats are unjustifiable; an injunction against continuance of the threats; and the recovery of any damages sustained by the applicant as a result of the threats.^[64]

Patent pools and cross-licensing

24.46 A ‘patent pool’ is an aggregation of patent rights held by an individual or organisation for the purpose of licensing the patents as a joint package.^[65] ‘Cross-licences’ are mutual arrangements between rights holders granting rights to use the intellectual property owned by each party to the other parties.^[66]

24.47 Depending on their nature, patent pools and cross-licensing arrangements could have either positive or negative implications for competition. The US Licensing Guidelines state that pooling may be pro-competitive when it: integrates complementary technologies; reduces transaction costs; clears blocking positions; avoids costly infringement litigation; and promotes the dissemination of technology.^[67]

24.48 By contrast, pooling and cross-licensing may be anti-competitive if: the excluded firms cannot compete effectively in the relevant market for the goods or services that incorporate the licensed technologies; the pool participants collectively possess market power in the relevant market; and the limitations on participation are not reasonably related to the efficient development and exploitation of the pooled technologies. A patent pool could also be anti-competitive if it deters participants from engaging in research and development, thus retarding innovation.^[68]

24.49 The ACCC noted the potential for price fixing, market sharing, or agreements among competitors without any possible pro-competitive justification. It suggested that patent pools would be less likely to raise competition concerns if:

• they combine complementary patents;

• licensing arrangements do not restrict access to the pool’s technology by competitors, potential entrants, or third parties; and

• pooling arrangements do not facilitate sharing or access to competitors’ commercially sensitive information in the relevant or downstream markets.^[69]

Application of the Trade Practices Act

Anti-competitive conduct

24.50 The exploitation of a patent (or other intellectual property right) in a genetic invention could raise various competition concerns. The anti-competitive licensing of a patented genetic research tool or patented medical genetic test could inhibit innovation, or effectively extend the scope of the monopoly granted.^[70]

24.51 For example, s 45 of the TPA could apply where a patent holder licenses a patented genetic research tool to a licensee who has the potential to develop an improvement that would compete with the licensed tool. If the licence provides the licensor with rights to any improvements in the invention, this could substantially lessen competition in the market. Section 47 of the TPA could apply where a patent holder licenses a patented medical genetic test to a licensee on the condition that the licensee also accepts unrelated goods, and this has the purpose or effect of substantially lessening competition in the market for the tied goods.

Intellectual property exemption

24.52 Section 51(3) of the TPA exempts conditions in licences and assignments from Part IV to the extent that they ‘relate to’ the subject matter of an intellectual property right. As noted above, this exemption does not extend to the misuse of market power or resale price maintenance.

24.53 There is some uncertainty as to the scope of the s 51(3) exemption, due to ambiguity regarding the term ‘relates to’. The National Competition Council (NCC) has noted that there are three possible interpretations of the section:

• narrow interpretation—a condition relates to intellectual property or the goods produced using it if it relates directly to those goods produced;

• intermediate interpretation—a condition relates to intellectual property or the goods produced using it if the condition seeks to protect and exploit the intellectual property owner’s exclusive rights, or to secure an advantage that is not collateral to those rights; or

• broad interpretation—a condition relates to intellectual property or the goods produced using it unless it seeks to apply to an almost entirely unrelated transaction or arrangement.^[71]

24.54 Section 51(3) has been subject to little judicial consideration. In Transfield Pty Ltd v Arlo International Ltd, Mason J stated that the exemption would not apply where a licence term seeks to obtain an advantage collateral to the subject matter of the invention.^[72] In a 1991 background paper, the Trade Practices Commission stated that, where there is any doubt about whether a condition ‘relates to’ the subject matter of a licence, it would consider the purpose and scope of the exclusive rights granted by the intellectual property regime to determine whether the licence condition provides an advantage outside the scope of these rights.^[73]

24.55 Section 51(3) of the TPA has been subject to a number of reviews.^[74] The Intellectual Property and Competition Review Committee (IPCRC) concluded that the current section is inappropriate, due to the uncertainty surrounding its scope, and the possibility that it might exempt from relevant sections of the TPA virtually all agreements that touch on intellectual property. The IPCRC also stated that it could not see a clear policy reason for the uneven coverage of the exemption.^[75]

24.56 The IPCRC concluded that the exemption should be reframed in order to achieve an appropriate balance between the needs of the intellectual property system and the wider goals of competition policy. It recommended that s 51(1)(a)(i) be amended to list all the relevant intellectual property statutes; and that s 51(3) and related provisions be repealed. In addition, it recommended that new provisions be inserted to provide that a breach of Part IV or s 4D of the TPA does not occur by reason of the inclusion of conditions in a licence, contract, arrangement or understanding, that relate to the subject matter of an intellectual property statute, so long as those conditions do not result, or are not likely to result, in a substantial lessening of competition.^[76]

24.57 The Australian Government accepted this recommendation in part. In its response to the IPCRC Report, the Government stated that intellectual property rights would continue to be accorded distinctive treatment under the TPA, and ss 46, 46A and 48 would continue to be excluded from the scope of the exemption. Intellectual property licence conditions would be subject to the provisions of Part IV, but a contravention of the per se prohibitions of ss 4D, 45, 45A and 47 would instead be subject to a substantial lessening of competition test.^[77] The Australian Government has not yet implemented this amendment, but has indicated that it intends to introduce it into Parliament later this year.

24.58 Geoff Adams and Dan McLennan have suggested that very few intellectual property licence terms will be likely to lead to a substantial lessening of competition. In their view, intellectual property owners will usually be incapable of influencing competition in a market. In any case, the pro-competitive aspects of a licence restriction will often outweigh any anti-competitive aspects.^[78]

Misuse of market power

24.59 Possible conduct that could amount to a misuse of market power includes the refusal to license an intellectual property right, the use of restrictive licensing conditions, and abusive infringement suits.^[79]

24.60 In many cases, a patent will not confer market power on the patent holder because there will be numerous substitutes available for the patented invention. However, as some biotechnology inventions may be so unique that they cannot be substituted for other products, the grant of a patent may confer market power. Where this is the case, it would be necessary to establish that the conduct in question constituted taking advantage of that market power for a proscribed purpose under the TPA. However, if the firm has acted in a manner that is consistent with the way it would have acted in a competitive market, it would not have taken advantage of this market power.^[80]

24.61 Adams and McLennan argue that a unilateral refusal to license an intellectual property right generally will not constitute a breach of s 46, on the basis that:

To hold otherwise could weaken or remove the economic benefits created by IPRs [intellectual property rights], could completely nullify what would otherwise be a right available under an IP regime, and would be inconsistent with the now widely accepted view that IP and competition laws are generally complementary.^[81]

24.62 They argue that there may be limited exceptions to this general rule, including where the refusal to license intellectual property adversely affects other markets; or the intellectual property owner refuses to license its intellectual property because the proposed licensee would not accept terms that were unreasonably restrictive of competition.^[82] Jane Nielsen has commented similarly that, on the basis of current case law, a refusal to license would breach s 46 only where it stifles competition in a downstream or secondary market, preventing a competitor from exploiting a new product in that market.^[83]

24.63 In any case, few cases brought under s 46 have been successful. In the Senate Economics References Committee’s report, The Effectiveness of the Trade Practices Act 1974 in Protecting Small Business, the Government Senators stated:

It would, in Government Senators’ view, be naïve to think that the striking lack of success of s 46 cases demonstrates that anticompetitive behaviour is seldom, if ever engaged in the Australian economy … A more realistic explanation is that it reflects the formidable difficulties of proof, the expense and complexity of such proceedings, and the high hurdles which this section, as currently drafted, raises.^[84]