How Will the Changes to the Competition and Consumer Act Affect my Service Agreements and Intellectual Property Agreements?

Last revision: Last revision:28th August 2019

The Competition and Consumer Act 2010 (Cth) ("the CCA") is being amended, with effect from 13 September 2019.

These changes could have wide ranging implications for various agreements that deal with intellectual property ("IP"). This may be the case particularly for Intellectual Property Licence Agreements (which are documents used by an owner of some form of IP, to give permission to some other individual to use that IP) and Intellectual Property Assignment Agreements (which are documents used by an owner of IP, to fully release that IP and to transfer ownership of it to someone else). If Service Agreements are dealing with IP (for example, if a service provider is being hired under a Service Agreement to write some software or design a logo) then these changes may also affect Service Agreements. Various other contracts or agreements may also be affected, if they are dealing with IP, such as Agent Agreements or Employment Agreements.

Furthermore the changes may be applied to agreements that were created prior to 13 September 2019.

Throughout this guide, we may use the term "IP Agreements" to refer to contracts or agreements which deal with IP and which may be affected by these laws.

As a consequence of the amended laws, businesses that are dealing IP may need to consider the CCA. Some arrangements which might have been commonplace under traditional IP Agreements, could amount to a breach of the CCA, and could expose the businesses to significant penalties.

What is the CCA?

This refers to the Competition and Consumer Act 2010 (Cth). This is Australian legislation covering the relationships between suppliers, wholesalers, retailers, and consumers. The CCA is designed to enhance the welfare of Australians by promoting fair trading and competition, and through the provision of consumer protections.

What are the changes?

Section 51(3) of the CCA has been repealed by the Treasury Laws Amendment (2018 Measures No. 5) Act 2019 (Cth).

What is section 51(3) of the CCA?

The CCA deals with various anti competitive practices and cartel conduct in Australia. This includes such things as price fixing, output restrictions, market sharing, bid rigging, exclusive dealing and various other actions and agreements in which competing businesses may engage, in order to reduce competition in their market. The CCA prohibits much of this conduct, and imposes significant penalties on businesses that engage in it.

Section 51(3) of the CCA has historically provided exceptions for some of these sorts of restrictions if they are imposed in IP Agreements. As a result, many owners of IP in the past have been able to restrict the ways that their IP can be used, in ways that might normally be considered "anti-competitive". The behaviour might have been of an anti-competitive nature, but the exceptions in section 51(3) of the CCA meant that it was not a breach of the CCA.

This has meant that IP owners have been able to exercise a lot of control over how their IP has been used by other parties.

For example, an arrangement to licence some IP from party A to party B, with a condition in the licence saying that party B can only produce a certain number of products throughout the term of the licence, might be considered an "Output Restriction" and a breach of the CCA. However, prior to 13 September 2019, this sort of arrangement might have been exempted by section 51(3) of the CCA.

What do we mean by price fixing, output restrictions, market sharing, bid rigging or exclusive dealing or lessening competition?

"Price fixing", for example, may occur if the parties are making some kind of secret agreement to fix their prices (ie to keep them artificially high) rather than competing openly against each other.

"Output restrictions" may occur when competitors agree to prevent, restrict or limit the volume or type of particular goods or services available to consumers. This may be intended to reduce the available supply of particular goods or services, in order to increase the price of those goods or services on the market.

"Market sharing" may occur when competitors agree to divide or allocate customers, suppliers, or territories among themselves rather than allowing competitive market forces to work. Market sharing restricts competition, forces prices up, and reduces choice in relation to price and quality for consumers and other businesses.

"Bid rigging", which may also be referred to as "collusive tendering" may occur when two or more competitors agree they will not compete genuinely with each other for tenders. Instead, they choose to allow one of the parties to "win" the tender. They may take turns to be the "winner" by agreeing the manner in which they submit tenders, including by some competitors agreeing not to tender. Bid rigging leads to uncompetitive tender processes that can result in organisations paying higher prices for goods or services, or receiving lower quality goods or services.

"Exclusive dealing" refers generally to some kind of exclusive dealing between the parties, for the purpose, or with the effect or likely effect, of substantially lessening competition (whether competition between the parties, or competition more generally).

When we refer to "lessening competition", we are talking generally about practices in which businesses might engage, such as the making or giving effect to a contract, arrangement, or understanding, or some kind of concerted practice, for the purpose, or with the effect or likely effect, of substantially lessening competition. This might relate to the lessening of competition between the parties, or competition more generally. Competition in a market helps to increase the supply of goods or services in the market, and therefore reduces the price. If the parties do something which has the effect of "substantially lessening competition", this may increase the price.

What do the changes mean?

Following the repeal of section 51(3), parties dealing with IP will no longer have the benefit of the exceptions described above. Any IP Agreements that contain anti-competitive restrictions may be handled under the CCA just like any other anti-competitive conduct, and relevant penalties may be applied.

IP owners that used to be able to exercise significant control over the use of their IP, may find themselves in breach of the CCA. Following the repeal, any restrictions that they impose over the use of their IP will need to be assessed from an anti-competitive perspective.

What are the penalties?

The penalties for breach of the CCA are potentially very serious.

For corporations, courts may impose (1) fines of up to $10,000,000 for each contravention of an anti-competitive conduct prohibition in the CCA, or (2) three times the value of the benefit obtained by the corporation as a direct or indirect result of the contravention, or (3) 10% of the annual turnover of the corporation during the 12 month period following the contravention (whichever is the greatest).

For individuals, courts may impose fines of up to $500,000 for each contravention of an anti-competitive conduct prohibition in the CCA. Courts may impose a fine of up to $420,000 and/or up to 10 years in jail for each offence by individuals found guilty of a criminal cartel offence.

In addition, if a court finds that a person has contravened, or attempted to contravene, an anti-competitive conduct provision of the CCA, the court may make orders which but are not limited to:

  • that the person pays damages, refunds any money obtained through the contravention, or returns property obtained through the contravention;
  • that the person undertakes community service;
  • that the person is restrained from engaging in certain conduct;
  • declaring that the person has contravened the CCA; or
  • preventing the person from managing a corporation.

Even pre-existing IP Agreements may be affected

It is important to note that these changes will also affect pre-existing agreements.

As a consequence, any Service Agreements, IP Licence Agreements, IP Assignment Agreements, or other agreements dealing with IP, will need to comply with the new laws, even if they were signed prior to 13 September 2019. If they do not, then significant penalties may apply.

This means, for example, that the parties could have been using an IP Licence Agreement for the past few years with no problems. Their agreement could have complied with the law at the time. However, if the parties keep using that agreement after 13 September 2019, then they may suddenly find themselves in breach of the CCA and facing penalties.

What do I need to do?

If you have any agreements in place that are dealing with IP - whether they are Service Agreements, IP Licence Agreements, IP Assignment Agreements, or some other type of agreement, check them carefully to consider whether they might involve some sorts of anti competitive or cartel conduct under the CCA.

The Australian Competition and Consumer Commission provides some useful information about these changes, including some draft guidelines which provide various examples of what may and may not be captured by these laws.

Our Service Agreement, Intellectual Property Licence Agreement, and Intellectual Property Assignment Agreement have also been updated in response to these new laws. If you believe that your existing agreements are affected, then you may need to purchase new copies of these documents.

As always, if you have concerns about your situation, you should seek legal advice.

In conclusion

The repeal of section 51(3) of the CCA from 13 September 2019 could have significant implications for parties that are dealing with IP, either through Service Agreements, IP Licence Agreements, IP Assignment Agreements, or some other type of agreement.

Significant penalties may also be applied to parties that breach the CCA.

The changes will apply to pre-existing agreements, meaning that parties could be in compliance with the law on 12 September, and in breach of the law on 13 September.

As a consequence, any parties that suspect they may be affected by these new laws should review their relevant agreements and update them as required. They should also strongly consider obtaining legal advice.

Templates and examples to download in Word and PDF formats

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