Existing provisions

Trade Practices Act

24.6 The purpose of the TPA is ‘to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection’.^[7]

Anti-competitive conduct

24.7 Part IV of the TPA regulates restrictive dealings affecting competition within a market. Part IV prohibits certain anti-competitive conduct, including:

• contracts, arrangements or understandings which have the purpose or effect of substantially lessening competition, or contain ‘exclusionary provisions’;^[8]

• exclusive dealing and resale price maintenance;^[9]

• the misuse of market power;^[10] and

• anti-competitive mergers or acquisitions.^[11]

24.8 Certain conduct is prohibited if it has the purpose or effect of ‘substantially lessening competition’ in a market, while other conduct is prohibited on a per se basis. Per se breaches do not involve an analysis of the impact of the conduct on competition because the conduct is presumed, by its nature, to substantially lessen competition.

24.9 Section 51(3) of the TPA exempts conditions in intellectual property licences and assignments from Part IV to the extent that they ‘relate to’ the subject matter of an intellectual property right. However, this exemption does not extend to the misuse of market power (ss 46, 46A) or prohibitions against resale price maintenance (s 48).

24.10 In addition, conduct that would otherwise breach Part IV of the TPA may, in certain circumstances, be permitted though authorisation or notification. The ACCC may authorise conduct—other than a misuse of market power—if it is satisfied that the proposed agreement or arrangement would be likely to result in a public benefit that outweighs the detriment to the public caused by any lessening of competition.^[12]

24.11 A firm may notify the ACCC of conduct, or proposed conduct, constituting exclusive dealing (s 47) under Part IV of the TPA. Generally, the notified conduct will be permitted until the notification is cancelled.^[13] The ACCC may withdraw this protection if it is satisfied that the conduct is likely to substantially lessen competition and that no public benefit will result from the conduct, or that the likely public benefit would not outweigh the public detriment constituted by the lessening of competition.^[14]

Misuse of market power

24.12 Section 46(1) of the TPA provides that a firm with a substantial degree of power in a market must not take advantage of that power for the purpose of:

• eliminating or substantially damaging a competitor;

• preventing entry into that market or into any other market; or

• deterring or preventing a person from engaging in competitive conduct in that or any other market.^[15]

24.13 In order to determine whether a firm has misused its market power, a court first identifies the relevant market in which it is operating. Section 4E of the TPA defines a ‘market’ as a market in Australia, including ‘a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services’. A market has been described as ‘an area of potential close competition in particular goods and/or services and their substitutes’.^[16] Markets generally have several dimensions, including product, function, geographic scope and time.^[17]

24.14 To determine the degree of power a firm has in a market, a court considers the extent to which its conduct is constrained by the conduct of competitors (or potential competitors), suppliers or customers.^[18] The traditional test of market power is a firm’s ability ‘to raise prices above supply cost without rivals taking away customers in due time, supply cost being the minimum cost an efficient firm would incur in producing the product’.^[19] In Boral Besser Masonry Limited v ACCC, Gleeson CJ and Callinan J stated that market power is the capacity to act without constraint.^[20]

24.15 One indicator of market power is the existence of barriers to entry into the relevant market.^[21] Barriers can arise in several forms, including restrictions on access, economies of scale, product differentiation and legal restrictions.^[22] In certain circumstances, intellectual property rights could create significant barriers to entry into a market. For example, a biotechnology invention may be so advanced that competitors must develop new technologies in order to achieve similar results and compete. In addition, a patent holder could aggregate a sufficient number of patents to cover the field in a particular market for a product.^[23]

24.16 The ACCC has suggested that the High Court’s decision in Boral Besser Masonry Limited v ACCC may have limited the application of s 46 because the majority appeared to indicate that an absolute freedom from competitive constraint would be required to establish a substantial degree of market power.^[24]

24.17 A firm with substantial market power must not ‘take advantage’ of that power. The term ‘take advantage’ means ‘use’, and does not require a hostile intent.^[25] A firm takes advantage of its market power if there is a connection between the conduct at issue and its market power. Recent decisions indicate that where a firm acts in a manner that is consistent with the way it would have acted in a competitive market, its conduct is unlikely to constitute taking advantage of market power.^[26]

24.18 Finally, to breach s 46, the firm must have taken advantage of its market power for the purpose of eliminating or substantially damaging a competitor, preventing or deterring a person from entering a market, or engaging in competitive conduct in that or any other market.^[27] A firm’s purpose may be inferred from its or another person’s conduct, or from other relevant circumstances.^[28] The proscribed purpose must be a ‘substantial’ purpose of the conduct, but need not be the sole or dominant purpose.^[29]

24.19 The ACCC submitted that, in the absence of a ‘smoking gun’, it would be particularly difficult to prove that a firm has acted with a proscribed purpose in the intellectual property context.^[30]

24.20 According to a Trade Practices Commission^[31] background paper, a firm is most likely to misuse its market power in relation to an intellectual property right where it seeks to obtain an advantage greater than that conferred by the relevant statute, or seeks to extend the monopoly conferred into markets other than those protected by the statutory grant.^[32]

Access to services

24.21 Part IIIA of the TPA provides a regime to facilitate access to services provided by infrastructure facilities of national importance. This Part does not apply to a service that is the use of intellectual property, except to the extent that this is an integral, but subsidiary part of the service.^[33]

Penalties and remedies

24.22 Part VI of the TPA deals with penalties and remedies. Pecuniary penalties may be ordered for a breach of Part IV.^[34] Other remedies include divestiture, injunctive relief, damages, ancillary orders and declarations.^[35] Section 87 grants the court wide powers to make orders to compensate persons who have suffered, or are likely to suffer, loss or damage as a result of a breach of Part IV. This may include the power to grant a compulsory licence.^[36]

Other legislation

Patents Act

24.23 Several provisions of the Patents Act address competition concerns related to patented inventions. For example, s 144 makes void contractual conditions that require the purchaser, licensee or lessee to acquire a product from the patent holder which is not covered by the patent; or that prohibit or restrict the use of a product or process supplied or owned by a third party.^[37] In addition, ss 128–132 address unjustified threats of patent infringement proceedings; and ss 133–135 provide a scheme for compulsory licensing and forfeiture of patents.^[38]

24.24 Several submissions suggested that the ALRC should focus on the breadth of gene patents granted over genetic materials and technologies in addition to the potentially anti-competitive exploitation of such patents. In their view, the granting of narrower patents over upstream genetic inventions would lessen the scope of a patent holder’s monopoly and, therefore, the opportunity for anti-competitive exploitation of the patented invention.^[39] Dr Charles Lawson submitted that the breadth of the patent claim effectively sets the boundaries between patent and competition law. In his view, ‘the existing competition laws in the Trade Practices Act are unlikely to be found by a court to limit the patent holder’s conduct, unless the conduct is outside the “purpose and scope” of the “exclusive rights” granted by the patent’.^[40]

24.25 Chapter 6 of this Report discusses the patentability of genetic materials and technologies, and makes several recommendations in that area.

24.26 The ACCC emphasised the importance of ensuring that the scope of intellectual property rights is appropriately defined in the relevant intellectual property legislation. It noted that the scope of such rights could have a significant bearing on the structure of markets. As a general principle, it considered it more important to ensure that markets are structured properly than to engage in ongoing regulation of market conduct:

Where upstream or downstream markets, or future innovations, require access to a patented invention, there can be a substantial adverse effect on competition in those markets where access is refused, or refused on reasonable terms. There may also be adverse effects in the long run on innovation … The ACCC considers that the long term interests of end users should be the predominant consideration.^[41]

24.27 The United States Federal Trade Commission report, To Promote Innovation: the Proper Balance of Competition and Patent Law and Policy, recommended various amendments to the United States patent system to ensure a proper balance between competition and patent law and policy.^[42]

Copyright Act

24.28 Chapter 28 discusses whether copyright may subsist in the written representation of gene and protein sequences, and in compilations of genetic information. Copyright protects the copyright owner’s right to exclude others from reproducing, or otherwise exercising copyright in the work without authorisation. The Copyright Act 1968 (Cth) has several mechanisms to facilitate access to works that are protected by copyright, including fair dealing exceptions to copyright infringement; and statutory licensing schemes, which permit certain uses of copyright material in exchange for the payment of equitable remuneration.^[43]

Other jurisdictions

24.29 The Agreement on Trade-Related Aspects of Intellectual Property Rights 1994 (TRIPS Agreement) provides that members may adopt appropriate measures to prevent or control anti-competitive practices in relation to intellectual property licensing.^[44]

United States

24.30 The United States antitrust laws are set out in several statutes. Broadly, the Sherman Act 1890 (US) prohibits agreements between unrelated entities that unreasonably restrain trade, and the maintenance of monopolies.^[45] The Federal Trade Commission Act 1914 (US) provides that the Federal Trade Commission (FTC) may challenge unfair methods of competition.^[46] The United States Department of Justice and the FTC (the Agencies) have issued Antitrust Guidelines for the Licensing of Intellectual Property (US Licensing Guidelines), to assist those involved in intellectual property licensing.^[47]

24.31 The US Licensing Guidelinesprovide that licensing arrangements will raise antitrust concerns if they are likely to adversely affect the prices, quantities, qualities, or varieties of goods and services either currently or potentially available.^[48] While most intellectual property licensing conditions are assessed under the ‘rule of reason’;^[49] some arrangements are considered so anti-competitive that they are treated as unlawful per se.^[50] The US Licensing Guidelines provide a ‘safety zone’, in which the Agencies generally will not challenge a restraint in a licence arrangement if: (a) it is not facially anti-competitive;^[51] and (b) the licensor and its licensees collectively account for no more than 20% of each relevant market significantly affected by the restraint.^[52]

24.32 In addition, the Agencies generally will not challenge a restraint that may affect competition in a technology market if: (a) the restraint is not facially anti-competitive; and (b) there are four or more independently controlled technologies—in addition to those controlled by the parties—that may be substitutable for the licensed technology at a comparable cost to the user.^[53]

European Union

24.33 The European Community Rules of Competition are set out in Title VI of the European Community Treaty. Articles 81 and 82 are the primary treaty provisions dealing with competition law.

24.34 Article 81 prohibits restrictive agreements or concerted practices between firms that may affect trade between member States, and which have anti-competitive objects or effects.^[54] This is subject to individual exemptions, and block exemptions that are granted to certain categories of agreements.^[55]

24.35 In May 2004, a new technology transfer block exemption commenced operation. The block exemption provides a short list of restrictive licensing provisions that generally will be prohibited; and a ‘safe harbour’ below certain market share thresholds—20% for licensing agreements between competitors and 30% for agreements between non-competitors. The European Commission has published a new set of guidelines on the application of art 81 to licensing agreements.^[56]

24.36 Article 82 prohibits an abuse by one or more firms of a dominant position within the common market, or in a substantial part of it, to the extent that it may affect trade between members. The European Court of Justice (ECJ) has held that, in exceptional circumstances, the refusal to license an intellectual property right could constitute an abuse of a dominant position.^[57] In Radio Telefis Eireann v EC Commission (Magill), the ECJ held that a copyright owner’s refusal to license its copyright information in a derivative market constituted ‘exceptional circumstances’ because the refusal had prevented the emergence of a new product and monopolised a derivative market.^[58]

24.37 More recently, in IMS Health v NDC Health, the ECJ held that the refusal by a company with a dominant position in the market to grant a licence to use a copyright product could amount to an abuse of a dominant position within a market where:

• the company requesting a licence intends to offer new products or services not offered by the copyright right owner, where there is consumer demand;

• the refusal is not justified by objective considerations; and

• the refusal eliminates all competition by reserving to the copyright owner the entire relevant market.^[59]