Review Public Support for Science and Innovation 
Productivity Commission 
PO Box 80 
Belconnen ACT 2616 

Dear Commissioners, 

Re Economic, Social and Environmental Returns on Public Support for Science and Innovation in Australia 

Your Terms of Reference set out that you are to ‘[i]dentify impediments to the effective functioning of Australia’s innovation system including knowledge transfer, technology acquisition and transfer, skills development, commercialisation, collaboration between research organisations and industry, and the creation and use of intellectual property, and identify any scope for improvements’. In assessing ‘the creation and use of intellectual property’ it is essential that the market failure for invention and creation through the existing intellectual property schemes (such as the Patents Act 1990 (Cth), Copyright Act 1968 (Cth), and so on) be balanced against the likely anti-competitive effects of exempting intellectual property holders from some competition. This is vital as these statutory privileges can be an impediment to knowledge transfer, technology acquisition and transfer, skills development, commercialisation, collaboration between research organisations and industry, and so on. 

It is my submission (comprising this letter and the attachment) that the place of intellectual property in Australia’s existing competition framework fails to acknowledge that the existing intellectual property schemes, except perhaps the parallel import restrictions under the Copyright Act 1968 (Cth), have not been subjected to a rigorous assessment according to the requirements of the Competition Principles Agreement. Intellectual property is just another regulatory measure to promote economic development. As such, the regulation of intellectual property should be subjected to the same standards as other legislation with potential anti-competitive effects. This requires those seeking to justify the restriction remain in place or be imposed demonstrate that the benefits of restricting competition to the community as a whole outweigh the costs, and that the objectives of the statutory intellectual property privileges can only be achieved by restricting competition. Those advocating intellectual property have not been required, except for parallel import restrictions under the Copyright Act 1968 (Cth), to demonstrate the assumed and asserted benefits from restricting competition in favour of intellectual property holders. Further, the threshold standards have not been assessed to determine the appropriate balance that delivers the most efficient and effective regulatory scheme. 

Unfortunately, intellectual property is by its very nature complex and often depends on the arcane details of the evolved statutory schemes. Further, intellectual property is almost always part of a broader consideration and not an issue that can be addressed in isolation. These considerations should not, however, limit the rigorous assessment of intellectual property according to the Competition Principles Agreement. 

My concerns are predominantly about patent privileges under the Patents Act 1990 (Cth) and the role of patent privileges as a non-tariff barrier to trade, and a potentially excessive exemption from workable and effective competition to the detriment of consumers’ interests. With respect, the National Competition Council’s Review of Sections 51(2) and 51(3) of the Trade Practices Act 1974 and the Intellectual Property and Competition Review Committee’s Review of Intellectual Property Legislation under the Competition Principles Agreement failed to subject the Patents Act 1990 (Cth) and the relevant parts of the Trade Practices Act 1974 (Cth) to a rigorous assessment according to the requirements of the Competition Principles Agreement. The consequence has been that key controversies about patent scope and allocation were not addressed. Further, the existing threshold standards have not been assessed to determine whether they are suitable and appropriate in implementing the intended policy objectives of patents, or ensuring that the existing scheme is efficient and effective. For example, the Intellectual Property and Competition Review Committee made no assessment of the non-obviousness requirement despite this being a key concern in the different theories about the most appropriate threshold for patent privileges. With respect, their assessment of the prior art was welcome but failed to deal with the apparently very low threshold standard of non-obviousness. 

These matters are particularly concerning as Australia has adopted significantly higher standards (more beneficial to patent holders) for patent privileges under the Patents Act 1990 (Cth) than required by Australia’s commitments to international agreements, such as the World Trade Organisation Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs). These ‘TRIPs-plus’ standards appear to be being entrenched through the recent Australia-United States Free Trade Agreement. The justification for this policy position has never been articulated or demonstrated, other than in vague terms of ‘business certainty’ and ‘promoting a more favourable investment climate’. Significantly, these are arguments that are often rejected in other forums seeking a restriction on competition (for example, parallel import restrictions under the Copyright Act 1968 (Cth)). Further, most investors (including governments) would undoubtedly prefer a safe harbour from competition to protect their investment, but this is the anti-thesis of competition and the objective of competition in promoting benefits for consumers. There is no doubt that the best balance between intellectual property privileges and competition is difficult to determine, but this is not a reason or justification for avoiding the analysis. As the Industry Commission once put it, it is undertaking the process of analysis proposed by the Competition Principles Agreement that delivers better regulation by ‘questioning, understanding real world impacts, [and] exploring assumptions’. 

In an attempt to assist your further consideration of these matters, I have attached a manuscript addressing Australia’s current preference for a Trade Practices Act 1974 (Cth) scheme that, in my view, fails to answered vital issues about the role of competition law in exploiting Patents Act 1990 (Cth) patents, and illustrates the failure to apply the procedural obligations set out in the Competition Principles Agreement. 

Yours sincerely,

Dr Charles Lawson 
Australian Centre for Intellectual Property in Agriculture 
University of Queensland 
St Lucia  Queensland  4072 

	June 2006 

Rethinking The Exemption Of Some Patent License And Assignment Conditions From The Trade Practices Act 1974 (Cth) Competition Laws

This article examines the evolution and application of the existing competition laws in the Trade Practices Act 1974 (Cth) in dealing with licensing and assigning Patents Act 1990 (Cth) patents. After considering the interpretation and various reviews of the Trade Practices Act 1974 (Cth) provisions, the article concludes that the reviews and the Australian Government’s responses have left unanswered vital issues about the role of competition law in exploiting patents. Further, the important justification for why patents require special treatment in applying the Trade Practices Act 1974 (Cth) competition laws still remains unclear.

I	Introduction
Modern statutory competition laws such as the Trade Practices Act 1974 (Cth) evolved out of the common law, probably because of a failure of the private right of action to sustain the broader public interests in vibrant competition and free trade. Together with this evolution has been the development of the idea that markets, and the competitive forces operating independently in those markets, are best placed to make decisions about how societies scarce resources might best be allocated for the benefit and desires of the majority of consumers. As a cornerstone of modern market economies, competition laws are now considered necessary to drive innovation delivering better quality products and services to consumers at lower prices by improving productivity and economic efficiency. The rationale of government regulation in implementing (and enforcing) competition laws is to keep the economy open for competition by limiting conduct that is detrimental to competition. Importantly though, these regulations should be directed to protecting the competitive process rather than favouring particular sectors of the economy. 

However, a tension remains in some dealings with patents under the Patents Act 1990 (Cth) where the statutory patent privilege results in monopoly pricing or restricts access to the patent protected product or process more than the social advantage secured by the property right. Significantly, the privileges granted by patents under the Patents Act 1990 (Cth) are of a different character to other forms of property, essentially being a right to the sale of the idea in the patent protected product or process, together with a statutory privilege to control how the patent protected product or process is used. It is this control of downstream uses of the patent protected product or process, and its leverage to achieve other business purposes that is the concern of competition law, recognising that it is only when a dealing (or a refusal to deal) with the patent protected product or process lessens competition in the ‘market’ that competition laws become relevant. 

The current Australian consensus appears to be that the purposes of patents and competition laws are ‘largely complementary’ with patents promoting innovation, and competition laws ‘keeping markets open and effective’ in order to ‘preserves the primary source of the pressure to innovate and to diffuse innovations’. However, the actual boundaries between patents and competition law are a lot more problematic reflecting the different ways they seek to achieve their purposes – there are ‘serious problems of assessing effects, but not conflicting purposes’. The Trade Practices Act 1974 (Cth) seeks to promote competition as ‘a process rather than a situation’ through ‘deliberate and ruthless’ rivalry between competitors for the custom of consumers, theoretically increasing consumer access to goods and services and reducing prices. In contrast, patents under the Patents Act 1990 (Cth) limit this competitive process by granting exclusivity to only some innovative ideas that satisfy the minimum legislated requirements for patentability. While the optimal scope and duration of statutory patent privileges is unknown (and unknowable), the current Patents Act 1990 (Cth) reflects: 

(a)	Australia’s commitments to international minimum patent standards as part of the World Trade Organisation’s Agreement on Trade Related Aspects of Intellectual Property Rights; 

(b)	The Australian Government’s standards set out in the Patents Act 1990 (Cth) and Trade Practices Act 1974 (Cth), the way the standards are applied by IP Australia and the courts, and a general policy imperative for productivity and economic growth; and 

(c)	The application and exercise of patent privileges within the boundaries of other statutory regulation schemes, such as the requirement for ‘the quality, safety, efficacy and timely availability of therapeutic goods’ under the Therapeutic Goods Act 1989 (Cth) before a patent protected therapeutic agent may be marketed. 

However, there remains ongoing debate in Australia about the most appropriate form of competition regulation that balances the objectives of competition law against the necessary incentive for innovation addressed by the patent. A central question in this debate is the nature and scope of exemption that s 51(3) of the Trade Practices Act 1974 (Cth) should allow for license and assignment dealings with patent protected products and processes. In other words, how should patent license and assignment conditions be exempt from the Part IV of the Trade Practices Act 1974 (Cth) that is generally concerned to restrict contractual practices that involve fixing or controlling prices, exclusionary provisions, exclusive dealings and mergers and acquisitions that might restrict competition. As a generalisation these restrictions are against contractual practices that adversely affect prices, quantities, and qualities of presently or potentially available varieties of goods and services. 

This article examines the evolution and application of the existing pro-competition measures in s 51(3) of the Trade Practices Act 1990 (Cth): 
•	Part 2 provides an overview of the current s 51(3) of the Trade Practices Act 1990 (Cth) measures including their early development, their place in the current Part IV of the Trade Practices Act 1990 (Cth)’s pro-competition scheme, and how they might be interpreted. This analysis then provides a context for the following analysis; 
•	Part 3 provides an overview of the various reviews of s 51(3) of the Trade Practices Act 1990 (Cth) including the reviews by the Independent Committee of Inquiry into Competition Policy (Hilmer Committee), the National Competition Council (Samuel Committee), the Intellectual Property and Competition Review Committee (Ergas Committee), the Trade Practices Act Review Committee (Dawson Committee), the Australian Law Reform Commission (Weisbrot Committee), and the Productivity Commission. The remaining analysis sets out a summary of the Australian Government’s responses to these reviews as they relate to s 51(3) of the Trade Practices Act 1974 (Cth); and 
•	Part 4 then sets out a discussion, examining the actual effects of the various review recommendations and the Australian Government’s responses. The article concludes that the recent flurry of reviews and the Australian Government responses have left vital questions unanswered and achieved very little in clarifying the interface between patents and competition laws. 

II	Overview of Current TPA Pro-Competition Measures
Early enthusiasm in Australia for the United States’ approach to regulating monopolies and other business practices that were detrimental to competition resulted in the Australian Industry Preservation Act 1906 (Cth). Unfortunately the Australian High Court emasculated this early legislative intervention through limiting the Federal Parliament’s constitutional authority leaving little enthusiasm for regulating restrictive trade practices in Australia for almost 50 years. This, however, changed in the 1960s with the revival of competition fervour reflecting the then Australian Government’s concern about the likely inflationary effects of restrictive trade practices on the Australian economy. The Trade Practices Act 1965 (Cth) was a fresh attempt to regulate competition: 

In Australia there has been a tendency for some years for business to be conducted on a non-competitive basis in a number of important respects. This non-competitive form of trading is commonly referred to as ‘orderly marketing’, under which the terms and conditions on which business is conducted in an industry are determined by anti-competitive arrangements or practices, designed to serve the interests of members of the industry itself, or some of its members, without necessarily having regard to what is, or what is not, desirable in the interests of the community as a whole. 

The Trade Practices Act 1965 (Cth) suffered a similar constitutional fate to earlier attempts to regulate restrictive trade practices. The Restrictive Trade Practices Act 1971 (Cth) substantially re-enact the Trade Practices Act 1965 (Cth) relying on a different constitutional power. These schemes were modelled on the United Kingdom Restrictive Trade Practices Act 1956 (UK), articulating a ‘prescriptive formula’ approach requiring lengthy inquiries into the likely competition effects and followed by ad hoc restraining orders made by the Trade Practices Tribunal. 

The replacement Trade Practices Act 1974 (Cth) articulated a number of general rules and some detailed prohibitions generally modelled on the United States experience from the Sherman Act 1890 (US) and the Clayton Act 1914 (US) as they had been implemented and interpreted by the United States courts. This contrasted with the approach in the Australian Industry Preservation Act 1906 (Cth) that had merely articulated ‘open textured’ general principles consistent with the Sherman Act 1890 (US), and the highly prescriptive formula approach in the Restrictive Trade Practices Act 1971 (Cth). The Trade Practices Act 1974 (Cth) was thus a ‘generally prescriptive approach’, codifying much of the United States experience from its broad expression of principle that had been implemented through various per se prohibitions and the ‘rule of reason’ for conduct that was considered to be unacceptably anti-competitive. The most significant detriment for codification through a generally prescriptive approach has been the possible constraints on the Trade Practices Act 1974 (Cth) evolving to meet new industry developments (particularly the ‘new economy’ industries) and the developing conceptions of what is, and is not, anti-competitive without ongoing amendment. 

A  The Current Trade Practices Act 1974 (Cth)
The objective of the current Trade Practices Act 1974 (Cth) is to ‘enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection’. This is achieved by restricting some forms of market conduct and market structures considered to be anti-competitive, while allowing that prohibited conduct and structure if it can be justified to be in the ‘public interest’. This balances competition as an important means to achieving economic efficiency, rather than competition as an end in itself, and targets particular horizontal, vertical and economic monopolisation practices that are likely to undermine that efficiency. Thus, the Trade Practices Act 1974 (Cth) ‘is conducive to greater economic efficiency by the prohibition of anti-competitive conduct, but it is not creative of it’. 

The Trade Practices Act 1974 (Cth), however, does not generally define ‘competition’. Instead relying either on prohibiting some conduct considered to be anti-competitive (per se prohibitions), or prohibiting some other conduct and some market structures only when it has passed a threshold of ‘substantially lessening competition’ or a ‘substantial degree of power in a market’. Put another way, the Trade Practices Act 1974 (Cth) only prohibits some conduct involving some contracts, arrangements and understandings restricting dealings or affecting competition, some forms of monopolisation, exclusive dealings, and resale price maintenance, and some market structure consolidations in some mergers and acquisitions. These prohibitions are then relaxed for some dealings with patent protected products and processes, or the prohibitions are avoided by seeking an authorisation or notification. The Trade Practices Act 1974 (Cth) also deals with some conduct and market structures, including patent related products and processes that are an integral but subsidiary service or facility in access to essential facilities and the telecommunications market, but these are not addressed in this article. 

The Trade Practices Act 1974 (Cth) has been subjected to considerable amendment. The measures specifically addressing intellectual property have only been subjected to limited very change (see Table 1). The effect of the current s 51 of the Trade Practices Act 1974 (Cth) provision is to provide an exemption from Part IV of the Trade Practices Act 1974 (Cth) for certain conditions in a license or assignment contract that ‘relates to’ the patent protected product or process, except misuse of market power and resale price maintenance. Thus, the current s 51 of the Trade Practices Act 1974 (Cth) provides, in part: 

(1)	In deciding whether a person has contravened this Part [IV], the following must be disregarded: 
(a)	anything specified in, and specifically authorised by: 
(i)	an Act (not including an Act relating to patents, …); or 
(ii)	regulations made under such an Act. 
…

(3)	A contravention of a provision of this Part [IV] other than section 46, 46A or 48 shall not be taken to have been committed by reason of: 
(a)	the imposing of, or giving effect to, a condition of: 
(i)	a licence granted by the proprietor, licensee or owner of a patent, … or by a person who has applied for a patent …; or 
(ii)	an assignment of a patent, … or of the right to apply for a patent …; 
to the extent that the condition relates to: 
(iii)	the invention to which the patent or application for a patent relates or articles made by the use of that invention. 

The exemption of some patent license and assignment contract conditions was reflected in earlier incarnations in the Trade Practices Act 1965 (Cth) and Restrictive Trade Practices Act 1971 (Cth), that in turn trace their origins to the Restrictive Trade Practices Act 1956 (UK). The purpose of retaining a specific exemptions for some patent license and assignment conditions in the Trade Practices Act 1974 (Cth) is uncertain, other than it ‘removes doubts that the exemptions provided in relation to patents and other forms of industrial property are those provided in clause 51(3) and are not to be found under clause 51(1)(a)’. Perhaps the provision was ‘to prevent a perceived clash between the interests of intellectual property owners and competition law’ because at the time of the Trade Practices Act 1974 (Cth) enactment ‘intellectual property laws were widely believed to confer on the owners of intellectual property a limited economic monopoly’. It’s present purpose, however, appears to be: 

… providing businesses with greater certainty when engaging in licensing and assignment activity. This greater certainty can help reduce the costs associated with compliance with trade practices law and encourage more licensing [and assignment] activity. 

The Trade Practices Act 1974 (Cth) also makes express provision for ‘joint ventures’, exempting only some conduct so long as it does not have the purpose, effect or likely effect of substantially lessening competition. Joint ventures that pass this threshold are also open to authorisation if they can be justified in the public interest. 

B  Interpreting s 51(3) of the Trade Practices Act 1974 (Cth)
Unfortunately, the application ss 51(1) and (3) of the Trade Practices Act 1974 (Cth) remains uncertain. This in part reflects its complex construction and the paucity of extrinsic materials and court decisions examining its possible meanings. Perhaps significantly, a literal construction means that: 

(a)	The parenthesis in s 51(1)(a) clarifies that ‘there is no general exemption to the operation of pt IV for things specified in, and authorised by, Commonwealth laws relating to patents’; 

(b)	Section 51(3) does not apply to conduct that is a misuse of market power (ss 46 and 46A) and resale price maintenance (s 48); 

(c)	Section 51(3) does not include the license or assignment of future rights; 

(d)	Section 51(3) does not deal with know how and confidential information relating to patent protected products and processes; 

(e)	It is not clear whether s 51(3) applies to an entire assignment or a part only of the assignment; and 

(f)	The s 51(3) exemption ‘probably does not apply in respect of the intellectual property rights but it applies to the subject of the rights’ so that it is the patent protected product or process that is being exempted by the provision. 

The High Court’s interpretation of this provision clarifies that some license and assignment activity is exempted from Part IV of the Trade Practices Act 1974 (Cth), although the scope of the exemption remains uncertain. In Transfield Pty Ltd v Arlo International Ltd the High Court considered a ‘best endeavours’ clause that provided: 

The Licensee covenants during the period of the Power Transmission Line Licence at all times to use its best endeavours in and towards the design fabrication installation and selling of the ARLO PTL pole throughout the licensed territory and to energetically promote and develop the greatest possible market for the ARLO PTL pole. 

The license agreement concerned the use of a patent protected process for the manufacture and erection of steel poles. Following Transfield Pty Ltd’s (Transfield) contract with Arlo International Ltd (Arlo), Transfield had used Arlo’s pole to construct a transmission line and encountered some technical difficulties. In a subsequent tender for a transmission line Transfield had calculated its costs based on the using the Arlo pole, but had not expressly provided that it would use those poles. During the tender discussions some doubts were expressed about the suitability of the Arlo pole and Transfield had ‘overcome the apprehensions’ by not pressing the use of the Arlo pole, but rather offering its own pole developed in reliance on some information provided by Arlo about its pole. The tender was finally awarded to Transfield on the basis of using Transfield’s pole. 

Arlo subsequently brought an action against Transfield claiming that it had not used its ‘best endeavours’ to promote the Arlo pole as required by the contract. It was common ground that ‘as the result of the use of the Transfield pole, the potential market for the Arlo pole in Australia was effectively destroyed’. The issue before the High Court was whether the ‘best endeavours’ clause confined Transfield to using only Arlo’s pole, and in its defence Transfield argued the clause was either unlawful because s 45(1) of the Trade Practices Act 1974 (Cth) prohibited a clause with the purpose, effect or likely effect of substantially lessening competition, or a prohibited term under s 112 of the Patents Act 1952 (Cth). The trial judge and Court of Appeal had found that Transfield had not used its best endeavours as it was required to do according to the contract, and that Arlo had lost a substantial share of market as a result of its pole not being used as it had intended by its contract. 

In essence, the decision probably reflects difficult facts and circumstances, and the judges’ preference that Transfield should not escape its contractual obligations with significant consequences for Arlo by taking advantage of a defence based on the legalistic construction and application of a statute. Put another way, Transfield argued that the ‘best endeavours’ clause was unenforceable because it was outside the patent exemption in the Trade Practices Act 1974 (Cth) with the effect that the exemption would allowed Transfield to escape its earlier contractual obligations: 

In our opinion there is no warrant for the introduction of words of the kind contended for by the appellant to the plain unambiguous words of cl 7. It would be destructive of the whole purpose of the licensing agreement if the licensee were at liberty to promote some other pole, if it or somebody else formed the opinion that the other pole was more suitable for a projected use. 

In the High Court’s decision, Justice Mason supported a wide construction of the term ‘relates to’ in s 51(3) of the Trade Practices Act 1974 (Cth) recognising the provision allowed a patentee to impose conditions on the license or assignment of the patent ‘to protect the patentee’s legal monopoly’, but then said, ‘conditions which seek to gain advantages collateral to the patent are not covered by s 51(3)’ of the Trade Practices Act 1974 (Cth). Chief Justice Barwick considered the condition in question was entirely within s 51(1) of the Trade Practices Act 1974 (Cth) and attracted the exemption but did not give detailed reasons for this conclusion. Justice Wilson considered the clause fell ‘squarely within’ s 51(3) of the Trade Practices Act 1974 (Cth) exemption but did not give detailed reasons for this conclusion. Justice Stephen considered there was no evidence the condition, read either alone or in combination with other provisions of the license, had either the purpose or effect of substantially lessening competition, and Justice Murphy decided the matter on the basis of the Patents Act 1952 (Cth). 

The key question in considering s 51(3) of the Trade Practices Act 1974 (Cth) is if the limited patent exemption was repealed, what conduct would be subject to Part IV of the Trade Practices Act 1974 (Cth) that was previously exempted? This in part will depend on the interpretation given to the term ‘relates to’ as it appears in the Trade Practices Act 1974 (Cth): 

(a)	Narrow view – a license or assignment condition relates to the patent protected product if it relates directly to the goods produced; 

(b)	Intermediate view – a license or assignment condition relates to the patent protected product if it seeks to protect the patentee’s exclusive rights or secure an advantage that is not collateral to the patentee’s exclusive rights; or 

(c)	Broad view – a license or assignment condition relates to the patent protected product unless it seeks to apply to an almost entirely unrelated transaction or arrangement. 

The remaining parts of this article examine the contention that the various reviews of the patent related provisions of the Trade Practices Act 1974 (Cth) and Australian Government’s responses have essentially failed to clearly justify and articulate a purpose for exempting some conditions in patent licenses and assignments from the general contract, arrangement and understanding prohibitions set out in Part IV of the Trade Practices Act 1974 (Cth). 

III	Reviews of the TPA Pro-Competition Provisions
Despite the broad ranging reviews of the Trade Practices Act 1974 (Cth), only very few reviews have examined the operation of s 51(3) of the Trade Practices Act 1974 (Cth). A number of recent reviews dealing with intellectual property and competition and the Australian Government’s responses are considered. 

A  The Hilmer Committee
The Hilmer Committee undertook a broad ranging policy review of the restrictions on competition in Australia and identified the exemption in s 51(3) of the Trade Practices Act 1974 (Cth) as requiring further review: 

The Committee was not presented with any persuasive arguments as to why intellectual property rights should receive protection beyond that available under the authorization process [in the Trade Practices Act 1974 (Cth)]. 

The Hilmer Committee ‘saw force’ in arguments suggesting the exemptions be reformed but concluded it was not placed to make ‘expert recommendations’ and suggested that the matter should be examined further to ‘assess whether the policy reflected by the exemption is appropriate’. 

The Hilmer Committee had also identified the ‘temporary monopolies’ given to protect intellectual property as a regulatory barrier to market entry, and recommended, as part of its broader concerns about legislation that restricted competition, that ‘[a] mechanism to promote reform of regulation that unjustifiably restricts competition form a central plank of a national competition policy’. This was reduced by the Hilmer Committee to a series of principles that were later implemented as the inter-governmental Competition Principles Agreement. A significant part of the Competition Principles Agreement was that governments around Australia review the anti-competitive effects of their existing legislation and ensure those proposals for new legislation that restricts competition be consistent with the ‘guiding principle’: 

… that legislation (including Acts, enactments, Ordinances or regulations) should not restrict competition unless it can be demonstrated that: 

(a)	the benefits of the restriction to the community as a whole outweigh the costs; and 

(b)	the objectives of the legislation can only be achieved by restricting competition. 

The outcomes of the Hilmer Committee re-invigorated the assessment of the s 51(3) of the Trade Practices Act 1974 (Cth) exemption undertaken in most of the subsequent reviews. 

B  The Samuel Committee
The Samuel Committee undertook the review of the s 51(3) of the Trade Practices Act 1974 (Cth) exemption under the Competition Principles Agreement review program. According to its Terms of Reference the Samuel Committee was required to consider ‘the objectives of … s 51(3)’, ‘any restrictions on competition contained in … s 51(3)’, ‘the likely effect of these restrictions on competition and on the Australian economy generally’, ‘the costs and benefits of the restrictions’ and ‘whether there are alternative ways of achieving the objectives of … s 51(3)’. In approaching the Terms of Reference the Samuel Committee confined the scope of its review to be ‘whether, and if so, how [the imposed pro-competition regulation] of the Trade Practices Act [1974 (Cth)] should regulate licensing and assignment of intellectual property rights’. In pursuing this approach the Samuel Committee interpreted its Terms of Reference to take account of existing intellectual property laws so as to ‘assume that the [existing intellectual property laws] will continue to exist and provide a strong indication of the [Australian] Government’s preferred policy approach for the regulation of these areas’. 

The Samuel Committee accepted that general property and intellectual property privileges share similar attributes, so that intellectual property privileges were ‘neither particularly free from scrutiny under the antitrust laws, nor particularly suspect under them’. Similarly, the Samuel Committee considered the exercise of intellectual property privileges did not inherently conflict with pro-competition laws necessarily requiring an exemption from competition law. However, the Samuel Committee did identify that the existing s 51(3) of the Trade Practices Act 1974 (Cth) did ‘exempt’ some anti-competitive practices: 

Section 51(3) is likely to exempt horizontal licensing agreements (that is, arrangements between competitors), and price and quantity restrictions, which have significant potential to substantially lessen competition in the market. Other licensing conditions have some, but less, potential to substantially lessen competition. 

Referring to an earlier work of the Trade Practices Commission, the Samuel Committee considered there were five types of restrictive conditions that were exempted by s 51(3) of the Trade Practices Act 1974 (Cth). Other restrictive conditions, such as provisions specifying minimum standards and exclusive grant backs of any improvements, were considered unlikely to either breach Part IV of the Trade Practices Act 1974 (Cth) or ‘relate to’ the patent protected product or process. The five exempted restrictive conditions likely to affect competition were: 

•	exclusive licence grants (where the licensor agrees to grant a sole licence to the licensee over the whole of the intellectual property or within a particular territory, to the exclusion of any other licensee or the licensor); 
•	territorial restrictions (where the licensor restricts the licensee to selling goods produced under licence within a particular territory); 
•	best endeavours clauses (where the licensor requires the licensee to use its best endeavours to promote the licensed product, sometimes to the exclusion of competing products); and 
•	price restrictions (where the licensee is required to charge a particular price for the goods produced under license); and 
•	quantity restrictions (where the licensor restricts the number of goods that the licensee may produce under licence). 

The Samuel Committee acknowledged that other jurisdictions did not provide any form of exemptions for restrictive conditions in licenses and assignments. However, the Samuel Committee ‘accepted’ that the existing exemption ‘has some continuing relevance in terms of providing businesses with greater certainty when engaging in licensing and assignment activity’ with the benefit that ‘[t]his greater certainty can help reduce the costs associated with compliance with trade practices law and encourage more licensing activity’. This ‘acceptance’ then carried through to the analyses of the benefits and costs of the exemption, and then to its conclusion. 

The Samuel Committee concluded, against the criteria of reducing the potential for anti-competitive conduct, minimising uncertainty, minimising costs and practical implementation, that ‘the best option is to amend [the exemption] to remove price restrictions, quantity restrictions, and horizontal arrangements from the scope of the exemption’. In making this assessment the Samuel Committee considered the consequences of repealing the exemption, and accepted that there was no international treaty obligation constraining how competition law might be applied to intellectual property: 

Repealing [the exemption] would remove the potential that anti-competitive conduct could be exempted from the operation of the Trade Practices Act. However, the [Samuel Committee] accepts that repeal would impose some uncertainty and costs on parties in checking that their agreements do not breach [the pro-competition regulations in the Trade Practices Act], particularly in cases where it is difficult to assess the market potential of intellectual property rights or the boundaries of the markets in which the intellectual property rights might be commercialised at some future date. Guidelines may not be sufficient to fully alleviate this uncertainty, particularly in circumstances where investors need absolute certainty about the validity of licensing conditions before they may proceed to invest in research and development. 

The Samuel Committee recommended that the existing Trade Practices Act 1974 (Cth) exemption be retained, ‘but amended to remove protection from price and quantity restrictions and horizontal agreements’. The Samuel Committee also recommended that guidelines be formulated to assist in determining when intellectual property licenses and assignments might be exempt from the Trade Practices Act 1974 (Cth), and what breaching conduct might be authorised under the Trade Practices Act 1974 (Cth). 

Perhaps the most surprising aspect of the Samuel Committee’s report was that in its draft report it had recommended that s 51(3) of the Trade Practices Act 1974 (Cth) be repealed. Presumably, the submissions received in response to the Draft Report were sufficient to support the Final Draft’s conclusions based on the ‘acceptance’ and ‘consideration’ that, subject to price and quantity restrictions and horizontal agreements, restricting competition by patent privileges was desirable. At best the benefits were merely ‘greater business certainty’, while the costs in terms of anti-competitive conduct ranged across all conduct, but with most being confined to horizontal arrangements and vertical arrangements that facilitate horizontal agreements. Surprisingly, the Samuel Committee did undertake a process of identifying some of the benefits and costs of the exemption from competition, with the Final Report glossing over the key justifications for rejecting the need for exemption set out in the Draft Report. 

Interestingly, the Samuel Committee posed significant counter arguments to those put to it that were not then addressed in the Final Report. This included the residual uncertainty about the operation of the existing exemption, the absence of a similar exemption in other jurisdictions that does not appear to have harmed investment in research, the minor factor favourable competition law treatment would be in any decisions about investing in innovation, and the global nature of licensing intellectual property meaning that favourable treatment in one jurisdiction may not apply in another jurisdiction thus questioning the need for favourable treatment. 

The Australian Government is still considering its response to the Samuel Committee’s report, although this has been overtaken by the Ergas Committee’s review of the Samuel Committee’s conclusions and recommendations. 

C  The Ergas Committee
The Ergas Committee, as part of its broader assessment of the Patents Act 1990 (Cth) under the Competition Principles Agreement, examined the Samuel Committee report. The Terms of Reference only required the Ergas Committee to ‘have regard to … the conclusions and recommendations’ of the Samuel Committee’s report. In addressing the Terms of Reference the Ergas Committee carefully confined its comments to the existing legislative scheme ‘considering the effects that (given the [Trade Practices Act 1974 (Cth)] as it stands) would flow from different approaches to the coverage by the Act of conduct relating to the exercise of [intellectual property] rights’. Further, the Ergas Committee carefully noted that the Trade Practices Act 1974 (Cth) was fashioned in a different economic era and probably should be subjected to its own independent review, whereupon the place of patent privileges might be more certainly addressed. With these riders in place the Ergas Committee recommended that the Trade Practices Act 1974 (Cth) should be amended further narrowing the existing exemption by applying a test of whether the relevant conditions in licenses and assignments substantially lessened competition as it is applied in other parts of that Trade Practices Act 1974 (Cth). 

The Ergas Committee’s view appears to have been that the Trade Practices Act 1974 (Cth) ‘should come into play when intellectual property rights are used in ways that go beyond the scope of the right being granted’ – the so-called ‘scope of grant’ doctrine derived from the ‘inherency’ doctrine in the United States. The consequence of this view appears to have been that the exercise and transfer of patent privileges was therefore an acceptable restriction on competition so long as exercising the patent privileges was not ‘going beyond market power’: 

The Committee recognises that the IP legislation confers upon the intellectual property right holder a series of exclusive privileges designed to promote innovation. Given that these rights are conferred by legislation, they should be able to be effectively exercised even when this involves (as it generally must) the exclusion of others. However, these rights should not be capable of being used to go beyond the market power those rights directly confer. That is, the right holder should not be allowed to extend the statutory right into a wider right of exclusion with the effect of substantially lessening competition. (emphasis in original) 

The Ergas Committee received a number of submissions advocating that the existing Trade Practices Act 1974 (Cth) provision should be retained because of ‘the importance which Australian industry and research institutes attach to the operation of s 51(3)’ of the Trade Practices Act 1974 (Cth), ‘the need to protect exclusive licensing arrangements, such as those underpinning the operation of CRCs’ and ‘the need for certainty in intellectual property licensing’. Perhaps surprisingly, the Ergas Committee noted that ‘[s]omewhat paradoxically, submitters typically admitted that the precise meaning of s 51(3) [of the Trade Practices Act 1974 (Cth)] was highly uncertain, and yet they asserted that it had provided a firm basis for major investment decisions’. Despite this ‘paradox’, and the carefully riders about the Trade Practices Act 1974 (Cth) being a competition law reflecting the times of its origins, the Ergas Committee appeared to consider that transaction costs pose a special barrier to the ‘efficient use of intellectual property’ compared to ‘other property or assets’, and as a consequence: 

… this means that it is essential that firms have the scope to enter into efficient contracts that involve intellectual property rights, free of onerous and ultimately counter-productive regulatory burdens. Great caution is therefore needed in imposing on transactions in IP rights constraints that may be less costly when applied in other areas of property. 

Despite its reservations about the drafting of s 51(3) of the Trade Practices Act 1974 (Cth), the Ergas Committee rejected simply repealing the provision because of theoretical efficiency gains from some of the conduct prohibited by Part IV of the Trade Practices Act 1974 (Cth) and the uncertainty about the effects of a repeal on licensing and assignment decisions. The ‘central question’ for the Ergas Committee was ‘whether the current s 51(3) [of the Trade Practices Act 1974 (Cth)] strikes an appropriate balance in allowing the exercise of the rights but not their use in ways that go beyond the purposes underlying the rights?’. 

While the Ergas Committee was uncertain about ‘what content would be left in [s 51(3) of the Trade Practices Act 1974 (Cth)] if (in line with the [Samuel Committee’s] recommendations) all horizontal arrangements and all price and quantity restrictions were removed from its scope’, they ‘believ[ed] that adoption of the [Samuel Committee’s] proposal would amount to a repeal of the section’. The consequence was to ‘impose unnecessary costs on the innovation process’. The solution that balanced the needs of the intellectual property system and the wider goals of competition policy, in the Ergas Committee’s ‘view’, ‘requires a careful re-framing of the section’: 

… we believe this balance can best be addressed through the following changes: 

•	repealing s 51(3) and related provisions from the [Trade Practices Act 1974 (Cth)]; 
•	…; and 
•	including amendments in the [Trade Practices Act 1974 (Cth)] to ensure that a contravention of Part IV of the [Trade Practices Act 1974 (Cth)], or of s 4D of that Act, shall not be taken to have been committed by reason of the imposing of conditions in a licence, or the inclusion of conditions in a contract, arrangement or understanding, that relate to the subject matter of that intellectual property statute, so long as those conditions do not result, or are not likely to result, in a substantial lessening of competition. 

The Ergas Committee also considered that: 

The Committee also notes that the imposing of conditions in a licence, or the inclusion of conditions in a contract, arrangement or understanding, should also clearly mean the refusal by the owner of an [intellectual property] right to enter into a licence, contract, arrangement or understanding. This means that the intellectual property owner still has the benefit of the relevant provisions even in the absence of a contract. However, this will not over-ride separate provisions made in the IP legislation that bear on compulsory licensing. 

To assist ‘the users of the [intellectual property] system to better understand the proposed changes’ the Ergas Committee considered the Australian Competition and Consumer Commission (ACCC) should issue guidelines ‘on how it will implement enforcement activities related to the provision’. The purpose of these guidelines would be to ‘provide sufficient guidance to owners of intellectual property rights as to the types of behaviour likely to result in a substantial lessening of competition’ and ‘make provisions for potential contractors to seek written clearance from the ACCC on whether the proposed behaviour is likely to result in a substantial lessening of competition’. The results of these changes would: 

… ensure that conduct relating to the subject matter of IP rights, which does not result in a substantial lessening of competition, would be exempt from the relevant provisions of the [Trade Practices Act 1974 (Cth)]. It would accept that conduct from the Act’s per se prohibitions, thus minimising the range of instances in which administrative procedures such as authorisation or notification were required. 

The Ergas Committee apparent consideration that the Trade Practices Act 1974 (Cth) ‘should come into play when [patents] are used in ways that go beyond the scope of the right being granted’ failed to assess whether a patent privilege is an acceptable restriction on competition even though there has been no substantial lessening of competition (such as the per se prohibitions that do not have the purpose, effect or likely effect of substantially lessening competition). Their justification for this conclusion appears to be: 

… it seems reasonable to suppose that the per se prohibitions embodies in the [Trade Practices Act 1974 (Cth)], and the potentially burdensome requirements for administrative review, would catch many license conditions that are usually socially beneficial – for example, tying and exclusive dealing arrangements in patent licenses. Over the longer term, this could both reduce innovation and distort competition between those (typically smaller and more specialised) firms that depended on licenses and assignments and those that did not. 

The major criticism of this ‘scope of grant’ approach is that it resolves the interface between patents and competition law by favouring patents, with an inherent assumption that the welfare increases from patents will always outperform the welfare increases from enhanced competition. Unfortunately, the Ergas Committee provided no further analysis of what exempted per se prohibited conduct was socially detrimental (or its consequences), while assuming that any detrimental conduct would be outweighed by beneficial conduct because of the vulnerability of licensing practices to uncertainty and transaction costs. If, however, the Ergas Committee was really only concerned about certainty and transaction costs, then there are arguably better ways of addressing this than an exemption from competition laws, but these were not addressed. 

D  The Dawson Committee
The Terms of Reference of the Dawson Committee were ‘to review the operation of the competition and authorisation provisions of the [Trade Practices Act 1974 (Cth)], specifically Parts IV (and associated penalty provisions) and VII, to determine whether they … promote competitive trading which benefits consumers in terms of services and price’. The Terms of Reference also expressly provided that the Dawson Committee ‘is not to include in this review a direct consideration of … ss 51(2) and (3) of Part IV’ of the Trade Practices Act 1974 (Cth). The final report of the Dawson Committee made no specific assessment of the place and role of intellectual property in Part IV of the Trade Practices Act 1974 (Cth) matters except s 46, saying in part: 

The extent to which intellectual property confers market power on the owners for the purposes if s 46 of the Act is a question currently before the courts on appeal from the decision in Universal Music … Even if it were inclined to do so and it was within its terms of reference, the Committee considers that it would be premature to consider this matter before a final decision in Universal Music. 

The Dawson Committee considered that the ACCC should issue guidelines about the application of pt IV of the Trade Practices Act 1974 (Cth) to intellectual property believing that ‘it would be desirable for these guidelines to be issued as soon as possible, but appreciates that the ACCC may be awaiting the final decision in Universal Music’. 

In addressing the Trade Practices Act 1974 (Cth) per se prohibitions, the Dawson Committee considered that a per se prohibition of price fixing was ‘justified because of its anti-competitive nature’, while exclusionary provisions were ‘generally anti-competitive because they involve the deliberate exclusion of a competitor from a market’, and that third-line forcing ‘may be beneficial and pro-competitive where efficiencies in production make it cheaper to produce and sell two or more products in combination’. In dealing with these issues the Dawson Committee considered that: 

(a)	Price fixing should remain a per se prohibition, subject to limited exemption for joint ventures, 

(b)	Exclusionary provisions should remain as a per se prohibition subject to a defence that ‘the conduct in question did not have the purpose, effect or likely effect of substantially lessening competition’, and that the reach of the provision should be reduced to ‘a competitor or competitors, whether potential or actual, of one or more of the parties to the collective boycott’; and 

(c)	Third-line forcing should not be prohibited per se, but rather treated in the same way as other forms of exclusive dealing and prohibited only when is has the purpose, effect or likely effect of substantially lessening competition. 

The Dawson Committee also dealt with joint ventures. The concern was that the existing arrangements were suited to some mining and manufacturing joint ventures, but not to others (in particular a ‘joint marketing of output produced by a separately constituted mineral exploration, development and production joint venture’) and the ‘“looser” collaborative arrangements’ important in innovative enterprises and in particular the ‘“network joint ventures” in the areas of both financial services and communications’. The Dawson Committee considered that joint ventures may be pro-competitive ‘when they are employed as a means of developing new products or services or producing existing products or services more efficiently’, but also anti-competitive when it is ‘designed as a cover for anti-competitive arrangements’. In providing a solution the Dawson Committee recommended that: 

(a)	The per se prohibition against price fixing should be limited in the case of joint venture arrangements by establishing a defence that the price fixing, or proposed price fixing, does not have the purpose, effect or likely effect of substantially lessening competition; 

(b)	The ACCC should develop and issue guidelines outlining its approach to joint ventures’ and 

(c)	The per se prohibition against exclusionary provisions should be limited in the case of joint venture arrangements by establishing a defence that the per se prohibited exclusionary provision, or proposed exclusionary provision, does not have the purpose, effect or likely effect of substantially lessening competition. 

In addressing a balance between certainty with clear rules prohibiting certain conduct and a flexible response recognising that some apparently prohibited conduct may be pro-competitive, the Dawson Committee considered the non-merger authorisation provisions of the Trade Practices Act 1974 (Cth). The concern was that the ACCC’s process took too long, was too expensive and did not provide sufficient certainty as the authorisation was only granted for a limited period and was subject to appeal by third parties. In addressing these concerns, the Dawson Committee recommended that the Trade Practices Act 1974 (Cth) be amended to include a time limit of six months for the consideration of non-merger applications for authorisation by the ACCC, a discretion for the ACCC ‘to waive, in whole or in part, the fee for filing a non-merger application for authorisation where it would impose an unduly onerous burden on an applicant’, and the development of ‘an informal system of consultation with non-merger applicants for authorisation’ to provide guidance about the authorisation process and its requirements. 

E  The Weisbrot Committee
The Weisbrot Committee’s Terms of Reference required an ‘inquiry and report’ on ‘the impact of current patenting laws and practices – including licensing – related to genes and genetic and related technologies’ in the context of ‘the conduct of research and its subsequent application and commercialisation’, ‘the Australian biotechnology sector’ and ‘the cost-effective provision of healthcare in Australia’. Further, this inquiry was to address the identified problems ‘with the aim of encouraging the creation and use of intellectual property to further the health and economic benefits of genetic research and genetic and related technologies’. A range of other considerations were also to be addressed, including the role of intellectual property in promoting technological innovation. 

The Weisbrot Committee reported that it had ‘not heard evidence that the exploitation of intellectual property rights in genetic materials and technologies has raised significant competition problems to date’, although accepted that there was the ‘potential’ for such problems. However, the Weisbrot Committee made no proposals to reform s 51(3) of the Trade Practices Act 1974 (Cth) ‘as the Australian Government had indicated that it would amend the provision’, but it did express the view that ‘the scope of exploitation of intellectual property rights should be more clearly defined’. This resulted in the recommendation that s 51(3) of the Trade Practices Act 1974 (Cth) should be amended and that the ACCC should develop guidelines ‘to clarify the relationship’ between pt IV of the Trade Practices Act 1974 (Cth) and the exercise of intellectual property privileges. Most significantly, these guidelines were to deal with specific issues involving the exploitation of intellectual property in genetic materials and technologies and, in particular, patent pools and cross-licensing. 

The chief criticism of the Weisbrot Committee’s inquiry was that it was asked to assess a particular area of patent law and practice in isolation from the broader debates, and provide recommendations to be applied in a non-discriminatory way with consequences for all patent law and practice. Further, the Weisbrot Committee took no account of the requirements of the Competition Principles Agreement, and in particular, the ‘guiding principle’ that legislated restrictions on competition should only be allowed if they have been demonstrated to be in the public interest. Without dealing with these matters, the persuasiveness of any recommendations of the Weisbrot Committee were always likely to be of limited value. 

F  The Productivity Commission
The Productivity Commission recently undertook a broad ranging review of the National Competition Policy and its implementation: 

… to consider the extent of the benefits the reform program has delivered to date and to inform an assessment of the most worthwhile competition related reforms that could be achieved in the future, including competition related reforms which could apply beyond current [National Competition Policy] arrangements. 

Included in its Terms of Reference was the requirement to report on: 

… areas offering opportunities for significant gains to the Australian economy from removing impediments to efficiency and enhancing competition, including through a possible further legislation review and reform programme, together with the scope and expected impact of these competition related reforms. 

In addressing intellectual property specifically, the Productivity Commission considered that ‘innovativeness will be a key requirement in sustaining and enhancing Australian living standards’. However, in setting the appropriate standards the Productivity Commission considered that intellectual property laws ‘continue to be scrutinised to ensure that they are not unduly restrictive’ through a legislation review (and re-review) program, and that adopting more than the internationally obligated minimum standards ‘may well be warranted’ to achieve beneficial trade and investment facilitation and the reduction of other trade barriers. However, the Productivity Commission cautioned: 

… as a net importer of intellectual property, there would clearly be downsides for Australia in being too compliant in this regard. It is therefore important that decisions regarding the scope and length of intellectual property protection in Australia are predicated on what is in the best interests of the community as a whole, rather than solely on what is required to secure a trade agreement. There may also be opportunities to minimise the risk of adverse outcomes associated with trade policy driven increases in the stringency of Australia’s intellectual property regime. For example, as noted above, the agreed but yet to be implemented changes to s 51(3) of the [Trade Practices Act 1974 (Cth)] would potentially provide for greater scrutiny of anti-competitive behaviour associated with intellectual property arrangements. 

The Productivity Commission’s general view about the National Competition Policy appears to have been that ‘while much has been achieved, the need to continue to pursue reform opportunities across the economy has not diminished’. In proposing a reform agenda (a microeconomic reform program) the place of ‘support for technological innovation’ was identified as an ‘important reform’ but was not otherwise addressed. However, a range of ‘[o]ther important areas for policy attention’ were identified, including ‘ensuring that there are cost-effective mechanisms in place to address market failures in technological innovation, including appropriate intellectual property protection’. The Productivity Commission asserted that ‘policy initiatives in these areas offer the prospect of significant gains for the community’, although exactly how this might require or be achieved with more ‘appropriate intellectual property protection’ was not addressed. 

G  The Australian Government’s responses
Following these various reviews the Australian Government has responded. The responses, in dealing with the Trade Practices Act 1974 (Cth) exemptions for patents, are to: 

(a)	Continue to accorded distinctive treatment to patents (and some other forms of intellectual property) under the Trade Practices Act 1974 (Cth), but not know how, confidential information or data protection; 

(b)	Include transitional arrangements to preserve the effect of the existing licences and assignments entered into before the proposed amendments; 

(c)	Maintain the separate treatment of ss 46, 46A or 48 of the Trade Practices Act 1974 (Cth) in dealing with any exemptions to the Trade Practices Act 1974 (Cth); 

(d)	Limit patent license (and presumably assignment) so that ‘IP licensing would be subject to the provisions of Part IV [of the Trade Practices Act 1974 (Cth)], but a contravention of the per se prohibitions of ss 45, 45A and 47, or of s 4D, would instead be subject to a substantial lessening of competition test’; and 

(e)	Require the ACCC to issue guidelines ‘outlining its enforcement approach to these provisions’ so that the guidelines ‘outline when IP licensing and assignment conditions might be exempted under s 51(3) [of the Trade Practices Act 1974 (Cth)], when IP licences and assignments might breach Part IV …, and when conduct that is likely to breach Part IV … might be authorised’. 

In dealing with the Trade Practices Act 1974 (Cth) generally, the Australian Government proposes to: 

(a)	Support the development of guidelines by the ACCC about the application of Part IV of the Trade Practices Act 1974 (Cth) to intellectual property and joint ventures (often involving intellectual property); 

(b)	Restrict the per se prohibition against exclusionary provisions by establishing a competition defence that the provision does not have the purpose, effect or likely effect of substantially lessening competition, and confine the reach of the prohibition ‘to those agreements that target competitors, actual or potential, of the parties to the agreement’; 

(c)	Remove the prohibition per se against third-line forcing, and instead prohibit third-line forcing only if it has the purpose, effect or likely effect of substantially lessening competition; 

(d)	Modify by amendment the limits on exemptions for joint ventures from the per se prohibition against exclusionary provisions and price fixing; and 

(e)	Introduce by amendment a time limit of six months for the consideration of non-merger applications for authorisation by the ACCC, and include discretion to waive, in whole or in part, the fee for filing a non-merger application for authorisation. 

IV	Discussion
Generally patent licensing and assignment arrangements might be expected to be pro-competitive through exploiting the patent protected product or process and incorporating more economically efficient manufacturing and distribution facilities, workforces, other intellectual property, other transaction costs, other complementary factors of production, and so on, that might not be available to the patent privilege holder alone, or otherwise require expensive (and inefficient) duplication. However, not all licenses and assignments will achieve these desirable efficiency outcomes. The challenge for Part IV the Trade Practices Act 1974 (Cth) is to make these distinctions and provide ‘a set of rules intended to ensure the competitive process is not undermined by the anti-competitive behaviour of firms’. However, as the analysis in this article shows, there has been a failure to address in any detail the interface between patents and competition law, and whether license and assignment dealings with patent protected products and processes should be treated any differently to other contracts, arrangements or understandings under Part IV of the Trade Practices Act 1974 (Cth). This is important as the Hilmer Committee stated: 

There are compelling efficiency and equity arguments for ensuring that competitive conduct rules … are applied uniformly and universally throughout the economy, with exemptions or special treatment accorded only on demonstrated public interest grounds. 

Both the Samuel Committee and Ergas Committee were intended to examine the ‘public interest grounds’, and both accepted the need for the Trade Practices Act 1974 (Cth) to provide some exemptions for intellectual property. Unfortunately, neither in the end clearly articulated the ‘public interest’ justifying the recommended limited exemption for intellectual property. While the Samuel Committee raised a range of counter arguments to challenge the exemptions from the Trade Practices Act 1974 (Cth), the effect of the Samuel Committee’s recommendations were passed over by the Ergas Committee and its assessment that expressly rejected the earlier recommendations. 

The Ergas Committee did recommend a theoretically substantial reduction in the scope of the current exemption for some conditions in licenses and assignments from Part IV of the Trade Practices Act 1974 (Cth). However, the practical effect is uncertain as the ‘market’ definition required by the substantially lessens competition test is unlikely to ever capture many license and assignment conditions. The Ergas Committee did not, however, provide a detailed competition analysis or assessment of why exemption from the per se prohibitions in the Trade Practices Act 1974 (Cth) that did not have the purpose, effect or likely effect of substantially lessening competition were justified. This was a surprising result as their express task according to their Terms of Reference was to subject the existing statutory arrangements to the competition standard set out in the Competition Principles Agreement. In the present context, this is a requirement to demonstrate that the benefits of the legislated restriction on competition (the exemption from Part IV of the Trade Practices Act 1974 (Cth)) outweigh the costs and that the objectives of patent privileges can only be achieved by restricting competition. While there are practical difficulties in applying the Competition Principles Agreement in determining exactly what standard and threshold to apply in assessing costs and benefits, it is undertaking the process of analysis that is likely to deliver better regulation by ‘questioning, understanding real world impacts, [and] exploring assumptions’. 

Even if, as the Ergas Committee seems to have believed, transaction costs pose a special barrier to the ‘efficient use of intellectual property’ compared to ‘other property or assets’, there was merely an assertion that contracts involving intellectual property faced ‘counter-productive regulatory burdens’. There was no assessment of the costs and benefits of lowering the transaction costs by accepting likely anti-competitive licensing and assignment practices, or the potential for other arrangements to lower those transaction costs that did not involve restricting competition. Further, the Ergas Committee merely alluded to concerns about the role of Part IV of the Trade Practices Act 1974 (Cth) and its design in an ‘intellectual climate … [where] … most participants in the policy debate would have reasonably assumed that many practices that involved tying, bundling, price discrimination or resale price maintenance’ were anti-competitive without setting out its reasoned justification. This concern might explain the Ergas Committee’s reluctance to recommend amendment to the wider provisions of Part IV of the Trade Practices Act 1974 (Cth). However, important conclusions about the hotly contested theoretical preferences for balancing intellectual property, and patents in particular, and competition law were left un-stated, and then the recommendations retain the uncertain ‘relates to’ threshold perpetuating the potential for inefficiencies from business uncertainty and increased transaction costs in seeking some certainty that the exemption might apply. 

To assist in understanding its recommendations, the Ergas Committee assigned the task to the ACCC to issue guidelines about how it might enforce the proposed changes. Unfortunately this will not assist greatly as the proposed guidelines are merely ACCC administrative and enforcement guidelines that do not bind courts, and avoid the possibility of a regime of rules truly ‘nuanced’ to the special needs of intellectual property (if indeed those needs are special) that the Ergas Committee found so problematic with the 1970s era Part IV of the Trade Practices Act 1974 (Cth) prohibitions. For example, other creative solutions that the Ergas Committee might have considered was a bloc exemption for dealings involving intellectual property under modified authorisation and notification arrangements, or created under a modified s 172 of the Trade Practices Act 1974 (Cth) regulations power. The content of such a bloc exemption would undoubtedly have proved contentious and necessitated the Ergas Committee to commit to a perspective about the most efficient and effective way to regulate the interface between intellectual property and competition law. While this is no easy task, as the European experience demonstrates, it is a necessary step in a long road to better understanding and capturing the benefits from innovation through balancing the patents and competition law schemes. Further, such an approach might address the different needs of different industries and technologies that rely on patents for different purposes, and where patents and competition laws are likely to significantly affect levels of beneficial innovation particularly when comparing industries with low cost R&D (such as software developments), incremental or cumulative innovations (such as semiconductors) and high duplication costs (such as pharmaceuticals). Another vexed area that probably deserved further attention was the potential for anti-competitive settlements of patent disputes. 

Unfortunately the later Dawson Committee did not make any distinction between contracts, arrangements and understandings generally and intellectual property license and assignment in particular, or provide any hints about its views on the exemption of some intellectual property dealings from Part IV of the Trade Practices Act 1974 (Cth). Perhaps significantly, the Dawson Committee maintained the rationale for per se prohibitions against price fixing subject to limited exemption for joint ventures, and exclusionary provisions subject to a substantially lessening competition defence and a reduced scope of operation to competitors of a party to the transaction. This suggests that the Dawson Committee still considered such conduct was worthy of per se prohibition irrespective of its justification and that where it was justified the authorisation and notification process was appropriate. Unfortunately there was no comments made about the inference from the Ergas Committee that perhaps Part IV of the Trade Practices Act 1974 (Cth) required remodelling to modern times to accommodate new economic thinking. Perhaps the Dawson Committee’s conclusions are an indication that even in these modern times some forms of conduct are best prohibited per se and then authorised or notified if they can be justified in the specific circumstances. 

The Dawson Committee did however address the transaction costs of authorisation (and notification) leaving open the possibility that the transaction costs for patent licenses and assignments of concern to the Ergas Committee have now been addressed. Similarly, the Dawson Committee recommended the per se prohibition against third line forcing be changed to a substantial lessening of competition threshold, perhaps addressing some of the Ergas Committee’s concern about pro-competitive tying and exclusive dealing arrangements in licenses. Unfortunately, the latest review of National Competition Policy by the Productivity Commission merely commented that ‘the agreed but yet to be implemented changes to s 51(3) of the [Trade Practices Act 1974 (Cth)] would potentially provide for greater scrutiny of anti-competitive behaviour associated with intellectual property arrangements’. This does not address the role of intellectual property, even though the Productivity Commission considered ‘appropriate intellectual property protection’ one of the ‘important areas for policy attention’ in future. Again, there is no challenge that intellectual property has a role, the question is what role should it have so that its potentially anti-competitive effects are minimised. This is now a critical question as Australia commits to further (and stronger) intellectual property privileges in favour of the privilege holders and thereby increasing the potential for anti-competitive licensing (and assignment) activity. 

The various Australian Government responses indicate that the uncertain s 51(3) of the Trade Practices Act 1974 (Cth) exemption will be limited further, although the precise formulation of the exemption remains unclear. It appears that the exempted conduct that the s 51(3) of the Trade Practices Act 1974 (Cth) will allow will be conditions in licenses and assignments that ‘relates to’ the patent protected products and processes that would have been characterised as per se prohibitions that do not have the purpose, effect or likely effect of substantially lessening competition. These are conditions that do not have the purpose, effect or likely effect of substantially lessening competition dealing with price fixing, exclusionary conduct, and covenants that fix prices. That is: 

(a)	Price fixing – s 45A(1) of the Trade Practices Act 1974 (Cth) deems price fixing (price, discount, allowance, rebate or credit) contracts, arrangements or understandings to have the purpose, effect or likely effect of substantially lessening competition. The consequence is that price fixing is prohibited per se under ss 45(2)(a)(ii) and (2)(b)(ii) of the Trade Practices Act 1974 (Cth) that proscribe the making or giving effect to a provision in a contract, arrangement or understanding that has the purpose, effect or likely effect of substantially lessening competition; 

(b)	Exclusionary conduct – ss 45(2)(a)(i) and (2)(b)(i) of the Trade Practices Act 1974 (Cth) proscribe the making or giving effect to an exclusionary provision in a contract, arrangement or understanding, being defined in s 4D of the Trade Practices Act 1974 (Cth) as a contract, arrangement or understanding made between competitors which has the purpose of preventing, restricting or limiting the supply or acquisition of goods or services to or from particular persons or classes of persons either altogether or in particular circumstances or on particular conditions; and 

(c)	Covenants that fix prices – s 45C(1) of the Trade Practices Act 1974 (Cth) provides that in applying the restrictions on covenants (as defined in s 4) that fix prices in s 45B(1) of the Trade Practices Act 1974 (Cth), the substantially lessening competition requirement is ‘omitted’ so that a covenant is unenforceable ‘in so far as it confers rights or benefits or imposes duties or obligations on a corporation or on a person associated with a corporation’. 

These per se prohibitions will, however, be allowed where there is a joint venture that does not have the purpose, effect or likely effect of substantially lessening competition, or they have been authorised, or notified in the case of some exclusive dealings. 

The key question then, is why should per se prohibitions that do not have the purpose, effect or likely effect of substantially lessening competition be allowed for some patent licenses and assignments, but not other contracts (and arrangements and understandings)? This is particularly important as the rationale for per se prohibitions in the Trade Practices Act 1974 (Cth) is: 

… that the conduct prohibited is so likely to be detrimental to economic welfare, and so unlikely to be beneficial, that it should be proscribed without further inquiry about its impact on competition. 

There is no doubt that some licenses and assignments that include conditions that fall within the bounds of the Trade Practices Act 1974 (Cth)’s per se prohibitions that do not have the purpose, effect or likely effect of substantially lessening competition are pro-competitive. The challenge for the Trade Practices Act 1974 (Cth) remains to distinguish between pro-competitive and anti-competitive arrangements. Sadly, the recent flurry of reviews and the Australian Government responses have carefully avoided any in-depth analysis of the actual licensing and assigning practices that inhabit the per se interface between patents and competition laws and have achieved very little in clarifying this interface. Perhaps most disappointingly, the two key issues that require resolution remain unanswered: 
(a)	The so-called ‘paradox’; why the current s 51(3) of the Trade Practices Act 1974 (Cth) exemption remains so apparently important when its exact meaning remains so uncertain?; and 

(b)	Given the global nature of intellectual property licensing and assignments, and patent licensing and assignments in particular, why is there a need for favourable treatment in Australia when favourable treatment in one jurisdiction may not apply in another jurisdiction? 

This is a complex and compelling area of law and policy with potentially significant consequences for what the Productivity Commission asserted as an area of policy attention that ‘offer the prospect of significant gains for the community’. While there is unlikely to ever be a complete resolution to the tension between patents and competition law, the failure of recent reviews and proposed legislative activity has been another lost opportunity. 

Table 1: The original Trade Practices Act 1974 (Cth) s 51 dealing with patents and subsequent substitution and amendment

Trade Practices Act 1974 (Cth) s 51 (original)	After Trade Practices Amendment Act 1977 (Cth) s 28(d) that substituted s 51(3)	After Trade Practices (Misuse of Trans-Tasman Market Power) Act 1990 (Cth) s 9 and Competition Policy Reform Act 1995 (Cth) s 15 that inserted the terms ‘, 46A’ in s 51(3) and substituted s 51(1) respectively	
(1) In determining whether a contravention of a provision of this Part [IV] has been committed, regard shall not be had – 
(a) to any act or thing that is, or is of a kind, specifically authorised or approved by, or by regulation under, an Act other than an Act relating to patents …. 	(1) In determining whether a contravention of a provision of this Part [IV] has been committed, regard shall not be had – 
(a)  to any act or thing that is, or is of a kind, specifically authorised or approved by, or by regulation under, an Act other than an Act relating to patents …. 	(1) In deciding whether a person has contravened this Part [IV], the following must be disregarded: 
(a)  anything specified in, and specifically authorised by: 
(i)  an Act (not including an Act relating to patents, …); or 
(ii)  regulations made under such an Act. 	
(3)  In determining whether a contravention of a provision of this Part [IV] other than ss 46 and 48 has been committed, regard shall not be had – 
(a)  in the case of a contract for or in respect of – 
(i)  a license granted or to be granted by the proprietor, licensee or owner of a patent … or by a person who has applied for a patent …; or 
(ii)  an assignment of a patent … or of the right to apply for a patent …,
to any condition of the license or assignment relating exclusively to – 
(iii)  the invention to which the patent or the application for a patent relates or articles made by the use of that invention.	(3) A contravention of a provision of this Part [IV] other than section 46 or 48 shall not be taken to have been committed by reason of: 
(a)  the imposing of, or giving effect to, a condition of: 
(i)  a licence granted by the proprietor, licensee or owner of a patent, … or by a person who has applied for a patent …; or 
(ii)  an assignment of a patent, … or of the right to apply for a patent …; 
to the extent that the condition relates to: 
(iii)  the invention to which the patent or application for a patent relates or articles made by the use of that invention. 	(3)  A contravention of a provision of this Part [IV] other than section 46, 46A or 48 shall not be taken to have been committed by reason of: 
(a)  the imposing of, or giving effect to, a condition of: 
(i)  a licence granted by the proprietor, licensee or owner of a patent, … or by a person who has applied for a patent …; or 
(ii)  an assignment of a patent, … or of the right to apply for a patent …; 
to the extent that the condition relates to: 
(iii)  the invention to which the patent or application for a patent relates or articles made by the use of that invention.