Monopoly vs. Market Power

New Zealand Government considers following Australian Government in repealing IP exemptions for anti-competitive behaviour

The Australian Government recently enacted legislation to repeal section 51(3) of the Australian Competition and Consumer Act 2010, which exempted conditions in the licensing or assignment of intellectual property (IP) rights from being subject to competition law.

In Australia the amendment was made following a Competition Policy Review in 2015 and the Productivity Commission review of intellectual property arrangements in 2016. A decision was made to align Australia's policy position with important comparable jurisdictions such as the U.S.A., the E.U. and Canada. The New Zealand Government is proposing to follow suit.

As part of a review of the Commerce Act 1986, the Minister of Commerce and Consumer Affairs proposes to repeal the IP-related provisions of the Act (sections 45, 36(3), 7(2) and 7(3)). As outlined in the related Discussion Document, other proposed changes to that Act including revising the wording in section 36 which relates to "taking advantage of market power", and to reinstate provisions relating to covenants which were inadvertently removed by the 2017 Commerce (Cartels and Other Matters) Amendment Act.

The rationale for repealing the IP-related provisions is that they were previously introduced because competition law, which limits anti-competitive behaviour, was seen as incompatible with IP rights which are in effect a limited monopoly. The Discussion Document suggests that in fact, the monopolies granted by IP rights are much narrower than the markets considered under competition law, and that IP rights are similar to other property rights, and should be subject to competition laws in the same manner as transactions involving other property and assets.

If the provisions are repealed, it is recommended that the Commerce Commission produce guidelines about its approach to enforcing the Act in respect of IP-related conduct.

The repeal of the IP-related provisions is characterized as a "minor issue" in the summary document, perhaps because there is no case law which elucidates them, with the stated exception of a single ruling regarding filing of proceedings.1 The Discussion Document states that "IP-related conduct is unlikely to be anti-competitive in most instances".

What types of conduct relating to IP rights could potentially be anti-competitive?

The examples given in the discussion document of behaviour which could potentially be anti-competitive are:

  • Tying or bundling IP with another product (which might also be protected IP), so as to extend a firm's market power in one market to another.
  • Firms agreeing not to challenge the validity of each other's IP.
  • 'Pay for delay', where, upon expiry of a patent, a firm pays a potential competitor to not introduce a generic version of a product.
  • 'Patent pooling', in which a group of patent owners with collective market power form a patent pool where they agree to license their patents to everyone else in the pool, but not to outsiders.
  • Grant-back obligations, in which licensees are required to license any improvements made to the technology back to the licensor, can reduce a licensee's incentives to engage in research and development.
  • 'Hold-up', where patent holders license a patented technology to a licensee, then increase the license fees to the licensee after they have made up-front investments that rely on the patented technology. Potential licensees may anticipate this tactic, discouraging them from making the initial investment in the first place (and thus holding up the adoption of new inventions).

While some of this behaviour may not qualify for the existing exemptions, repealing the IP-related provisions will mean that there is no "carve-out" for conduct relating to enforcing an IP right which would otherwise be anti-competitive.

The Minister's preferred option is to repeal the IP-related provisions rather than retain the status quo. Finding an economically and legally sensible way to amend the existing IP-related provisions was considered significantly difficult. Consequently, amendment of the provisions has not been considered, but further discussion on this point is invited.

Once the Government's course of action is confirmed, we recommend reviewing your existing IP licences and other arrangements relating to IP, to ensure they will be consistent with the amendments to the Act. We will keep you informed of developments.

Penny Walsh - March 2019

1.Telecom Corp of New Zealand Ltd v Clear Communications Ltd [1992] 3 NZLR 247.

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