On 20 December 2022, the Commerce Commission (the Commission) released draft guidelines (the Draft Guidelines) on the application of competition law to intellectual property rights. The Commission is now seeking submissions from interested parties on this document, which can be accessed here.
The Draft Guidelines follow amendments to the Commerce Act 1986 (the Act) which were passed earlier this year. The Act currently exempts certain conduct relating to intellectual property rights from being anti-competitive and in breach of the Act. However, from 5 April 2023, these exemptions will be removed, and intellectual property arrangements will be subject to the anti-competitive provisions contained in the Act.
Summary of the Draft Guidelines
The Draft Guidelines look to assist parties with assessing whether their conduct complies with the requirements of the Act, by giving an indication as to how the Commission is likely to assess conduct relating to intellectual property under the Act.
The Draft Guidelines are split into three sections which we set out below with some key points:
1. How competition law applies to intellectual property generally:
The Commission has provided various indications on the general application of competition law to conduct involving intellectual property rights. These include:
The same general principles that are currently applied to conduct involving any other form of property will be adopted when assessing whether conduct relating to intellectual property may contravene the Act.
The Commission will consider the circumstances of each case when deciding whether and how to investigate particular matters.
As currently set out in the Act, parties can apply for authorisation from the Commission for conduct involving intellectual property rights that would otherwise breach the Act, if such conduct gives rise to sufficient public benefit.
The Commission may also grant clearance for parties proposing to enter into an agreement containing a cartel provision that is part of a ‘collaborative activity.’ If an agreement is cleared, the parties will have certainty that their conduct is lawful under the Act. However, clearance is not available for conduct that breaches (or may breach) sections 27, 36, 37 or 38.
2. Key concepts in assessing whether conduct may breach the Act:
The key concepts the Commission will use in assessing whether conduct may breach the Act include:
Substantial market power: Intellectual property rights do not necessarily confer substantial market power on a firm. However, they may be a key determinant of a firm’s market power in situations where there is a lack of competitive constraint from substitutable goods or services.
Substantial lessening of competition: when considering whether conduct involving intellectual property rights is likely to substantially lessen competition in a market, the Commission will consider barriers to entry or expansion, the proportion of the market(s) affected, the availability of substitutes to the intellectual property and the duration of the conduct.
In competition: the Commission will be most likely to consider firms to be ‘in competition with one another’ where the goods or services of one firm are substitutable for similar goods or services supplied by the other.
3. Types of conduct that may harm competition
The Commission has indicated that the question whether the exercise of intellectual property rights will harm competition will depend on the circumstances in each given case. The Commission has indicated, however, that issues may arise in relation to:
- Refusals to license intellectual property;
- Restrictive or exclusive licensing of intellectual property (including licenses limited to geographic territories, fields-of-use or customer groups, pricing arrangements and restraints on output, no-challenge provisions, grant-back provisions, aggregation of intellectual property rights, cross-licensing agreements and patent pooling, and collecting societies);
- Practices that extend the market power associated with patents beyond the expiry of the patent protection; and
- Settlements of intellectual property disputes.
Examples of what each of these types of conduct may look like in practice, and the factors the Commission would consider in relation to them are set out in the Draft Guidelines.
Submissions on Draft Guidelines
Special thanks to Senior Solicitor Lauren Gillies and summer clerk Molly Hurley for preparing this article. If you have any questions about the Draft Guidelines, the application of competition law to intellectual property matters, or if you would like assistance with making a submission to the Commission, please contact a member of our Competition & Antitrust or Intellectual Property teams.
Submission on the Draft Guidelines are due 5pm, 10 February 2023 and should be sent to firstname.lastname@example.org.
Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.