Reform of the Trade Practices Act

24.64 The ALRC has not heard evidence that the exploitation of intellectual property rights in genetic materials and technologies has raised significant competition problems to date. Nevertheless, the ALRC notes the potential for such problems to arise in the future and the concerns expressed in other reviews about the lack of clarity in relation to intellectual property rights under the TPA.^[85] The ALRC considered several options to strengthen and clarify the TPA in addressing the anti-competitive exploitation of intellectual property rights in genetic materials and technologies.

Amend the intellectual property exemption

24.65 In a submission to this Inquiry, the ACCC commented that the IPCRC’s proposed amendment to the intellectual property exemption would significantly enhance its ability to deal with anti-competitive conduct resulting from the licensing and assignment of patent rights. It noted that licensing and assignment conditions that constitute anti-competitive agreements—including price fixing, exclusionary provisions or exclusive dealing—might breach Part IV if they substantially lessen competition. However, such agreements could be authorised or notified under Part VII.^[86]

24.66 DP 68 discussed the concerns arising in relation to the s 51(3) exemption. However, as the Australian Government had indicated that it would amend the provision, the ALRC did not make any reform proposal in this area.

24.67 There was considerable support for amendment of the exemption in submissions and consultations.^[87] The Queensland Government submitted that clarification of the relationship between Part IV of the TPA and intellectual property laws would assist industry, especially in relation to patented genetic materials and technologies.^[88] The Department of Health and Ageing submitted that the application of competition policy through the TPA could achieve clarity regarding the 1974 (Cth) appropriate use of licensing.^[89]

24.68 However, others argued that the proposed amendment might not adequately address existing concerns raised in relation to this exemption.^[90] For example, Dr Amanda McBratney and others submitted that, even after the proposed amendments, s 51(3) would remain unclear and unworkable. They argued that the section should be substantially redrafted to make it more clear and certain.^[91]

24.69 Lawson cautioned against the retention of the ‘relates to’ terminology in the s 51(3) exemption. He noted that the retention of this term would permit patent holders to construct their commercial arrangements so that their licence and assignment terms would retain protection from Part IV of the TPA. The breadth of the patent will delineate the ‘purpose and scope’ of the exclusive rights, which will impact on the boundaries of the exemption. In his view, broad gene patents could therefore have considerable exemption from competition law.^[92]

24.70 The Centre for Law and Genetics suggested that, in the light of the significant delay in amending s 51(3), the ALRC should recommend such amendment. The Centre suggested that the ALRC could:

• endorse the IPCRC’s recommendation (however, in the Centre’s view, the Australian Government’s response to this recommendation would significantly ameliorate its force, and should not be endorsed);
• give further consideration to the NCC’s recommendations;^[93] or
• recommend a new approach based on the US Licensing Guidelines, or at least recommend that this model be investigated by an appropriate body.^[94]

24.71 The European Union and the United States have taken a different approach to the application of competition law to intellectual property licensing. These jurisdictions have not provided direct legislative exemptions for intellectual property licence conditions, but have established a ‘safety zone’ or ‘safe harbour’ within which certain licence conditions will not normally be subject to competition analysis.^[95] As DP 68 noted, an amended s 51(3) of the TPA would appear to provide an effective ‘safety zone’ or ‘safe harbour’ for certain licence conditions that relate to intellectual property, but only to the extent that they do not substantially lessen competition within the market.^[96]

Intellectual property guidelines

24.72 DP 68 noted that several review bodies, including the IPCRC and the Trade Practices Act Review Committee, have recommended the development of guidelines to clarify the application of Part IV of the TPA to intellectual property.^[97]

24.73 The IPCRC recommended that the ACCC should issue guidelines as to the manner in which it will implement any enforcement activities relating to s 51(3) of the TPA. It stated that the guidelines should provide sufficient direction to holders of intellectual property rights to clarify the types of behaviour likely to result in a substantial lessening of competition. The guidelines should also provide for potential contractors to obtain written clearances from the ACCC as to whether proposed behaviour is likely to result in a substantial lessening of competition.^[98]

24.74 The Australian Government has asked the ACCC to issue such guidelines,^[99] and the ACCC has advised the ALRC that it intends to do so, once s 51(3) of the TPA has been amended.^[100] Adams and McLennan have commented that:

the development of regulatory guidelines by the ACCC will alleviate … concerns and assist in the development of a coherent approach to trade practices regulation of IP licensing. Such guidelines would address these concerns through the development of clear policies and assist in the identification of conditions that would or would not attract scrutiny from competition regulators.^[101]

24.75 As noted above, both the United States and the European Union have released guidelines on the application of antitrust and competition laws to licensing agreements and other collaborations involving intellectual property.^[102] These guidelines advise intellectual property rights holders and other market participants about the possible competition implications of certain licence arrangements. As a result, they provide greater certainty to the parties to these agreements about whether their arrangements are likely to comply with competition law.

24.76 DP 68 proposed that the ACCC should develop guidelines regarding the relationship between Part IV of the TPA and intellectual property, with particular regard to patented genetic materials and technologies. The guidelines should extend to patent pools and cross-licensing involving patented genetic materials and technologies.^[103]

24.77 Many submissions supported this proposal.^[104] However, some submissions emphasised that these guidelines should address intellectual property rights broadly, rather than focusing on patented genetic materials and technologies.^[105] For example, the Centre for Law and Genetics suggested that the guidelines should be sufficiently general to ‘take into account the multitude of technologies that may come within their ambit’. The Centre also noted that many dealings in patented genetic technologies involve considerable complexity. Accordingly, while guidelines could assist industry in delineating the reach of competition law with respect to intellectual property dealings, ‘attempting to be too prescriptive might have an adverse effect on the operation of the industry’.^[106]

24.78 In a supplementary submission, the Centre for Law and Genetics suggested that the ACCC could sponsor codes of conduct within the technology industry, to regulate the licensing of biotechnology. The Centre suggested that the biotechnology industry could be persuaded to enter these codes of conduct by the threat of more punitive legislation.^[107]

24.79 The Department of Health and Ageing suggested that in developing the proposed guidelines, the ACCC could draw on the best practice guidelines for the licensing of genetic inventions that are currently being developed by the Organisation for Economic Co-operation and Development (OECD).^[108] In addition, the Queensland Government suggested that the US Licensing Guidelines might be of assistance.^[109] Another submission stated that full consultation with affected industries should take place before such guidelines are introduced.^[110]

24.80 In its submission, the ACCC confirmed that it would issue guidelines outlining the way it will approach the application of Part IV of the TPA to intellectual property in its enforcement work. The ACCC stated that such guidelines would assist intellectual property rights owners, license holders, potential assignees and their legal advisers to understand their obligations under Part IV. They would also seek to provide guidance as to the types of intellectual property rights licensing conditions on which the ACCC might focus in its enforcement of the TPA. The ACCC stated that the proposed guidelines would cover the circumstances in which licensing or assignment conditions might:

• be exempt under s 51(3) of the TPA;
• breach Part IV of the TPA; and
• be eligible for authorisation by the ACCC under Part VII of the TPA.^[111]

24.81 The ACCC noted that the process for developing the proposed guidelines would involve public consultation, and that this would provide the ideal opportunity for input on specific issues relating to intellectual property in genetic material and technologies—including licensing arrangements, patent pooling and cross-licensing.^[112]

ALRC’s views

24.82 The ALRC agrees with the IPCRC about the importance of maintaining an appropriate balance between intellectual property rights and competition principles, and agrees that the current wording of the TPA might not achieve that balance. In particular, the ALRC is concerned that the scope for exploitation of intellectual property rights should be more clearly defined.

24.83 DP 68 noted that the Australian Government has said that it will amend the intellectual property exemption under the TPA generally in accordance with the IPCRC’s recommendation. The ALRC received strong support for clarification of this exemption in submissions and consultations. While some submissions supported the IPCRC’s recommendation, others supported the Government’s approach, and several argued that the exemption should be completely redrafted.

24.84 The ALRC considers that clarification of the exemption would provide greater certainty for intellectual property right holders, and those seeking to license or acquire intellectual property rights in genetic materials and technologies. It would also provide greater transparency for market participants regarding the application of competition law to these dealings. Accordingly, the ALRC recommends that the Commonwealth should amend s 51(3) of the TPA to clarify the relationship between Part IV of the Act and intellectual property rights.

24.85 The ALRC believes the amendment is especially important because of its nexus with the development and release of the proposed ACCC guidelines on intellectual property licensing. The ALRC considers that such guidelines will provide the opportunity for much needed clarity as to the circumstances in which intellectual property licensing may be anti-competitive.

24.86 Accordingly, the ALRC also recommends that the ACCC should develop guidelines to clarify the relationship between Part IV of the TPA and intellectual property rights. This recommendation is broader than that proposed in DP 68, as it acknowledges the need for clarification of the relationship between Part IV of the TPA and intellectual property rights generally. However, the ALRC considers that there is also a need for the ACCC to address the specific issues raised in relation to the exploitation of intellectual property rights in genetic materials and technologies.

24.87 The guidelines should therefore address: when the licensing or assignment of intellectual property might be exempted under s 51(3) or might breach Part IV; and when conduct that would otherwise breach Part IV might be authorised under Part VII of the TPA. The guidelines should also deal with the exploitation of intellectual property rights in genetic materials and technologies, including by patent pools and cross-licensing.

24.88 These guidelines must be consistent with Part IV of the TPA and existing case law. While the final interpretation of the Act lies with the courts, the ALRC considers that a clear explanation of the ACCC’s approach in assessing whether the exploitation of a patented genetic invention would breach the TPA would be useful; and would provide greater certainty for market participants when entering into licences or assignments of intellectual property rights. As noted above, most submissions supported this approach, as have several other reviews.

24.89 The ALRC considers that the guidelines operating in the United States and the European Union would be a useful resource in developing the ACCC guidelines. In addition, the ALRC suggests that the guidelines being developed by the OECD in regard to the licensing of genetic inventions may provide further assistance in relation to particular problems in the licensing of genetic materials and technologies.