Treasury Laws Amendment (2018 Measures No. 5) Act 2019
Act 15 of 2019
Introduction and status of the bill
The bill was introduced by for the Government on 20 September 2018. It passed both Houses on 18 February 2019. It received Assent on 12 March 2019.
The summary on the Parliamentary webiste states: 'Amends: ... the Competition and Consumer Act 2010 to remove the exemption for conditional licensing or assignment of IP rights such as patents, registered designs, copyright or eligible circuit layout rights from prohibitions on restrictive trade practices.'
Content of bill
See bill homepage
Removal of IP exemption
Schedule 4 contains the relevant amendments:
Competition and Consumer Act 2010
1 Subsection 51(3)
Repeal the subsection.
2 In the appropriate position in Part XIII
Insert:
Division 4 - Application of amendment made by the Treasury Laws Amendment (2018 Measures No. 5) Act 2018
186 Application of repeal of subsection 51(3)
(1) The amendment made by item 1 of Schedule 4 to the Treasury Laws Amendment (2018 Measures No. 5) Act 2018 applies in relation to a licence granted, an assignment made, or a contract, arrangement or understanding entered into, on or after the commencement of that Schedule.
(2) The amendment also applies to a licence granted, an assignment made, or a contract, arrangement or understanding entered into, before the commencement of that Schedule in relation to:
(a) conditions imposed, or provisions included, on or after that commencement; and
(b) conditions imposed, or provisions included, before that commencement.
(3) Despite subsections (1) and (2), the amendment does not apply to the extent (if any) to which its operation would result in an acquisition of property (within the meaning of paragraph 51(xxxi) of the Constitution) from a person otherwise than on just terms (within the meaning of that paragraph)
No adverse cost orders
During the course of its passage several amendments were proposed by the Senate, including opposition amendment 8552 which added small business access to justice provisions. The amendment provides for assistance by the Ombudsman in relation to Part IV actions involving small business or family enterprises (via amendments to the Australian Small Business and Family Enterprise Ombudsman Act 2015) and provides for 'no adverse costs orders' in relation to Part IV actions affecting small business or family enterprises.
To facilitate the no adverse costs orders change, s 82 will be amended to allow the court to order that an applicant is not liable for the costs of the respondent, regardless of the outcome. Certain criteria must be satisfied before the court can make such an order (including that the action raises a reasonable issue for trial). The change will apply to actions brought on or after 1 July 2019.
See Hansard extract of Andrew Leigh MP discussing this amendment, including the following:
Labor's small business access to justice policy allows a small business to request a no adverse cost order when bringing on a court action for a breach of competition law. If the judge decides the case is in the public interest, the small business won't risk paying the big business's costs if they lose. As the Harper competition review concluded, 'there are significant barriers to small business taking private action to enforce competition laws.' Many commentators have noted that small business isn't scared so much of their own legal costs, but of being bankrupted by the legal costs of the other side.
Explanatory memorandum
An explanatory memorandum acommpanied the bill and can be found on the bill homepage homepage.
General outline and financial impact
...
Repeal of subsection 51(3) of the Competition and Consumer Act 2010
Schedule 4 repeals subsection 51(3) of the Competition and Consumer Act 2010 (CCA) and subsection 51(3) of Schedule 1 to the CCA (the Competition Code). The amendments remove the exemption for conditional licensing or assignment of IP rights such as patents, registered designs, copyright or eligible circuit layout rights from prohibitions on restrictive trade practices.
Date of effect: The day after the end of the period of six months beginning on the day this Bill receives the Royal Assent.
Proposal announced: This measure implements the Government’s response to recommendation 15.1 of the Productivity Commission’s Intellectual Property Arrangements Inquiry Report (December 2016) (the Report). The Government’s response was released on 25 August 2017 and is available on the Department of Industry, Innovation and Science website.
Financial impact: Nil.
Human rights implications: This Schedule is compatible with human rights, and to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate. See Statement of Compatibility with Human Rights — Chapter 5, paragraphs 5.16 to 5.31.
Compliance cost impact: Expected to be low.
The Productivity Commission’s Report was certified by the Office of Best Practice Regulation as a Regulatory Impact Statement-like process: OBPR ID number 21654.
Chapter 4 Repeal of subsection 51(3) of the Competition and Consumer Act 2010
Context of amendments
4.1 The Competition and Consumer Act 2010 (CCA) prohibits companies and other persons from engaging in certain types of conduct that reduce competition, such as cartel behaviour and exclusive dealing. Subsection 51(3) provides an exemption from certain prohibitions in the CCA for conditional licensing or assignment of intellectual property (IP) rights such as patents, registered designs, copyright or eligible circuit layout rights.
4.2 The exemption does not apply to the provisions prohibiting misuse of market power, misuse of market power in a Trans-Tasman market or resale price maintenance of the CCA.
4.3 The Productivity Commission’s (Commission) Intellectual Property Arrangements Inquiry Report (December 2016) and the Competition Policy Review (March 2015) recommended subsection 51(3) of the CCA be repealed because the rationale for the exemption has largely fallen away. The Report notes that the number of arrangements that are affected by removal of the exemption is likely to be small.
4.4 IP rights and competition are no longer thought to be in ‘fundamental conflict’. IP rights do not, in and of themselves, have significant competition implications. Rather, competition implications arise in those cases where there are few substitutes or where the aggregation of IP rights may create market power.
4.5 The Commission considered that commercial transactions involving IP rights, including the assignment and licensing of such rights, should be subject to the CCA in the same manner as transactions involving other property and assets.
4.6 The Commission was of the view that at present, the immediate costs and benefits of removing the exemption under subsection 51(3) are finely balanced. However looking ahead, the benefits could rise as the level of licensing and cross licensing increases, especially in pharmaceutical and communications markets.
4.7 The repeal of subsection 51(3) brings Australia into line with other comparable jurisdictions. As noted by the Competition Policy Review, the United States, Canada and Europe do not provide an exemption from competition laws for conditions of IP transactions. In those jurisdictions, IP assignments and licences and their conditions are assessed under competition laws in the same manner as all other commercial transactions.
Detailed explanation of new law
4.8 Schedule 4 to the Bill repeals subsection 51(3) of the CCA and subsection 51(3) of Schedule 1 to the CCA (the Competition Code). The Competition Code is applied as a law by the states and territories. The amendments remove the exemption for conditional licensing or assignment of IP rights such as patents, registered designs, copyright or eligible circuit layout rights, from Part IV of the CCA (about prohibiting restrictive trade practices). [Schedule 4, items 1 and 3, subsection 51(3) of the CCA and subsection 51(3) of Schedule 1 of the CCA]
4.9 The Schedule commences the day after the end of the period of six months beginning on the day the bill receives the Royal Assent. [Clause 2]
4.10 The amendments apply to a licence granted, an assignment made, or a contract, arrangement or understanding entered into, including any conditions imposed or provisions included in such, on, after or before commencement of the Schedule. [Schedule 4, item 2, Division 4 of Part XIII of the CCA]
4.11 The delayed commencement will give individuals and businesses time to review existing arrangements to ensure they comply with the competition provisions of the CCA. If necessary, they can apply to the Australian Competition and Consumer Commission for authorisation of their existing arrangements under Part VII of the CCA.
4.12 Section 51(xxxi) of the Commonwealth of Australia Constitution Act (the Constitution) provides that the Commonwealth Parliament may only legislate with respect to the acquisition of property by the Commonwealth upon just terms. This item ensures that the amendment does not apply to the extent that it would result in the acquisition of property on unjust terms contrary to section 51(xxxi) of the Constitution. [Schedule 4, item 2, Division 4 of Part XIII of the CCA]
Chapter 5 Statement of Compatibility with Human Rights
Schedule 4 -Repeal of subsection 51(3) of the Competition and Consumer Act 2010
5.16 Schedule 4 to the bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
5.17 Schedule 4 provides for the repeal of subsection 51(3) of the Competition and Consumer Act 2010 (CCA) and subsection 51(3) of Schedule 1 to the CCA (the Competition Code). This will remove the exemption from Part IV of the CCA (restrictive trade practices) for conditional licensing or assignment of intellectual property (IP) rights such as patents, registered designs, copyright or eligible circuit layout rights. The intention of this amendment is to ensure anti-competitive conduct associated with IP is subject to appropriate regulation. This will promote innovation and competition, and enhance consumer welfare.
5.18 Removing the exemption will mean that offences and civil penalties in Division 1 of Part IV of the CCA will apply to these conditions in licences and assignments of IP. Division 1 of Part IV of the CCA and mirror provisions in the Competition Code contain offences and civil penalty provisions relating to cartel conduct. Under the provisions a person must not make, or give effect to, a contract, arrangement or understanding that contains a cartel provision. A cartel provision is a provision between two parties that are, or would otherwise be, in competition with each other where they partake in any of the following: price-fixing; restricting outputs in the production and supply chain; allocating customers, suppliers or territories; or bid-rigging.
Sections 45AF and 45AG provide that a person commits an offence if they enter into, or gives effect to, a cartel provision. The fault element is knowledge or belief, and the offence is an indictable offence. Subdivision C (sections 45AJ and 45AK) sets out the corresponding civil penalty provisions.
Human rights implications
5.20 This Schedule engages the following human rights and freedoms:
- a guarantee against retrospective criminal laws under article 15(1) of the International Covenant on Civil and Political Rights (ICCPR); and
- the right to be presumed innocent until proven guilty (evidential burden of proof) under article 14(2) of the ICCPR.
Assessment of civil penalties
5.21 The Parliamentary Joint Committee on Human Rights Guidance Note 2: Offence provisions, civil penalties and human rights (December 2014) observes that civil penalty provisions may engage criminal process rights under articles 14 and 15 of the ICCPR, regardless of the distinction between criminal and civil penalties in domestic law. This is because the word ‘criminal’ has an autonomous meaning in international human rights law. When a provision imposes a civil penalty, an assessment is therefore required as to whether it amounts to a ‘criminal’ penalty for the purposes of the articles 14 and 15 of the ICCPR.
5.22 The civil penalty provisions in Part IV of the CCA (which will apply more broadly following the repeal of section 51(3)) should not be considered ‘criminal’ for the purposes of international human rights law.
5.23 While the civil penalty provisions in Part IV are intended to deter people from non-compliance, none of the civil penalty provisions carry a penalty of imprisonment. The statement of compatibility therefore proceeds on the basis that the civil penalty provisions in Part IV of the CCA are not criminal offences for the purposes of articles 14 and 15 of the ICCPR.
Application of criminal offences
5.24 The repeal of subsection 51(3) will apply to a licence granted, an assignment made, or a contract, arrangement or understanding entered into, including conditions imposed, or provisions included in such, on, after or before the commencement of the Bill. This means offence and civil penalty provisions contained in Part IV of the CCA will apply to agreements made prior to the commencement of the Bill.
5.25 Generally, article 15 of the ICCPR prohibits retrospectively making an act or omission a criminal offence. In this instance the application of the offence provisions to existing contracts is appropriate given that the six month delayed commencement will enable entities time to review their arrangements, and apply to the ACCC for authorisation under Part VII of the CCA if they have concerns with application to existing contracts.
5.26 Further, the fault element of the offence requires knowledge or belief. On these grounds the application of the offence provisions to existing contracts are reasonable, necessary and proportionate, particularly given that they do not apply to the general public, but to a sector which should reasonably be aware of their obligations under the CCA (e.g. companies and directors of companies).
Reverse evidential burden of proof
5.27 Upon the repeal of section 51(3), Subdivision D of Part IV of the CCA will apply more broadly. Subdivision D provides the exceptions to the offences and civil penalty provisions set out in sections 45AF, 45AG, 45AJ and 45AK.
5.28 For example, under section 45AM of Subdivision D, a corporation may enter into, or give effect to, a cartel provision, if a provision in the contract provides that the cartel provision is subject to a condition that it will not come into force until a corporation is granted authorisation, and applies for the grant of the authorisation within 14 days after the contract is made. A person who wishes to rely on the exceptions contained in Subdivision D bears the evidential burden of proving the exception.
5.29 Under subsection 13.3(3) of the Criminal Code Act 1995 a defendant who wishes to rely on any exception, provided by the law creating an offence, bears an evidential burden in relation to that matter; the exception need not accompany the description of the offence. Accordingly, the reverse evidential burden of proof is acceptable in this instance as it is limited to reliance on the codified exception, and not the proving of innocence in and of itself.
Conclusion
5.30 Schedule 4 to the bill is compatible with human rights because:
- the application of offence provisions to existing contracts are largely consistent with article 15(1) ICCPR, and the delayed commencement allows sufficient time for compliance; and
- the reverse burden of proof is limited to the exception provisions and not the offence provisions, and therefore is consistent with article 14(2) of the ICCPR.
5.31 The Schedule is compatible with human rights because to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate.
Consideration of Senate message (House)
The Senate passed the bill with amendments (unrelated to s 51(3) and it was returned to the House; the amendments passed. Dr Leigh (Fenner), Ms King (Brand), Mr Joyce (New England), Mr Burke (Watson), Dr Gillespie (Lyne) all spoke, predominantly on changes to access to justice. For example, Dr Gillespie:
[page 129-130 Hansard Proof, 18 Feb 2019]
I rise to speak on this very significant piece of legislation, the Treasury Laws Amendment (2018 Measures No. 5) Bill 2018, which I support. There is a problem with the cost of taking action in the courts. There is an unfair playing field. Just the very nature of legal costs will prohibit many people in commerce from bringing an action when there's anticompetitive behaviour. Whether it's the abuse of market power, unconscionable conduct, unfair contract terms, the arbitrary changing of contract terms in the middle of contracts, summarily, with one party to the contract having undue power—all of these need to be challenged in the court, but, time and time again, we hear that the costs or risks of taking legal action are prohibitive. So, getting the Small Business and Family Enterprise Ombudsman to give fair and reasonable advice or suggest remedies and to ask for an exception so there are no adverse cost orders is a really great initiative. But the effects test and other things in the small business space need the courts to bring them to effect, and this will make it much more likely that small or even medium-sized businesses, who are taking on the giants in industry and commerce that have much deeper pockets, will have a more level playing field.
This bills [sic] is the start of many things we need to do with the Competition and Consumer Act. General divestment powers exist in Canada, the UK and America. They've existed for decades in some of these jurisdictions and almost a century in others, and commerce has flourished in all those jurisdictions. It's not the end of earth if we have divestment powers. As the member for New England mentioned, it is a longstanding National Party policy to bring in these divestment orders, but, unfortunately, the logistics mean that this is where we're starting.
Many of you have a legal background. You understand that there would be costs running into millions of dollars if you were to bring the sort of case that needs to be brought to establish some of the things that have been established about the effects test, reducing competition and restricting trade and unfair trade practices and acts. But the missing ingredient is making it available to those that are most aggrieved. Most of them are very successful small businesses—horticulture and agriculture businesses, dairy suppliers and all sorts of people in the small and family business space—who develop longstanding relationships, get bigger and more successful, expand and then have unfair practices occurring in their contracting or undue pressure to lower their prices below the cost of production. We could keep going all night about misbehaviour in the marketplace. When the market is broken, governments are meant to step up and fix it, and this is an initial salvo. We in the National Party will keep fighting for further improvements, particularly general divestment powers.
The lights went out in the House during the course of debate ... hopefully not a bad omen.
Second reading speech (Senate)
The second reading speech was delivered by Senator Cash Senator Cash (Minister for Small and Family Business, Skills and Vocational Education) on 18 October (Hansard, 18 October 2018)
[See bill homepage for other second reading speeches]
Relevant portions are reproduced below:
...
Schedule 4 to this Bill repeals subsection 51(3) of the Competition and Consumer Act 2010. The Productivity Commission recommended repealing subsection 51(3) in its 2016 Intellectual Property Arrangements Inquiry Report. The 2015 Competition Policy Review also recommended repealing subsection 51(3).
Subsection 51(3) exempts licensing or assignment of intellectual property from most of the prohibitions on anti-competitive conduct in the Competition and Consumer Act. The Productivity Commission found that the rationale for the exemption has largely fallen away, as intellectual property rights and competition are no longer thought to be in fundamental conflict. Intellectual property rights do not, in and of themselves, have significant competition implications.
The measure will ensure that commercial transactions involving intellectual property rights, including the assignment and licensing of such rights, will be subject to the prohibitions on anti-competitive conduct in the Competition and Consumer Act.
The Australian Competition and Consumer Commission will issue guidance on the application of the competition law to intellectual property rights, as recommended by the Productivity Commission.
State and territory approval for the measure was sought, as required by the 1995 Conduct Code Agreement. All jurisdictions support the measure.
The measure will take effect the day after the end of the period of six months beginning on the day the Bill receives the Royal Assent. This transitional period will allow individuals and businesses time to review existing arrangements to ensure they comply with the competition law. If necessary, they will be able to apply to the ACCC for authorisation of existing arrangements. Authorisation removes the risk of legal action under the competition provisions and may be granted by the ACCC where conduct is likely to provide a net public benefit.
...
Second reading debate (House) (20 September and 17 October 2018)
Mr Robert (Fadden - Assistant Treasurer (LIB)) (20 September 2018)
... this bill makes changes to intellection property arrangements.
...
Subsection 51(3) exempts licensing or assignment of IP from most of the prohibitions on anticompetitive conduct in the Competition and Consumer Act. The Productivity Commission found that the rationale for the exemption has largely fallen away, as IP rights and competition are no longer thought to be in fundamental conflict. IP rights do not, in and of themselves, have significant competition implications.
The measure will ensure that commercial transactions involving IP rights, including the assignment and licensing of such rights, will be subject to the prohibitions on anticompetitive conduct in the Competition and Consumer Act.
The Australian Competition and Consumer Commission will issue guidance on the application of the competition law to IP rights, as recommended by the Productivity Commission.
State and territory approval for the measure was sought, as required by the 1995 Conduct Code Agreement, and all jurisdictions support the measure.
The measure will take effect the day after the end of the period of six months beginning on the day the bill receives the royal assent. This transition period will allow individuals and businesses time to review existing arrangements to ensure they comply with the competition law. If necessary, they will be able to apply to the ACCC for authorisation of existing arrangements. Authorisation removes the risk of legal action under the competition provisions and may be granted by the ACCC where conduct is likely to provide a net public benefit.
Full details of the measures are contained in the explanatory memorandum. I commend the bill to the House.
Dr Leigh (Fenner (ALP)) (17 October 2018)
... Labor will be supporting this bill in the House.
...
Schedule 4 makes changes to the Competition and Consumer Act, removing the exemption for conditional licensing or assignment of intellectual property rights, such as patents, registered designs, copyright and eligible circuit layout rights, from prohibitions on restrictive trade practices. The Productivity Commission's Intellectual Property Arrangements Inquiry Report and the Harper review recommended that this subsection be repealed, largely because the rationale for the exemption has fallen away. The number of arrangements that are affected by removal of the exemption is likely to be small. Intellectual property rights do not of themselves have significant competition implications, and indeed the repeal of subsection 51(3) brings Australia into line with jurisdictions such as the United States, Canada and Europe, which do not provide an exemption from competition law for conditions of intellectual property transactions. In those jurisdictions, and in ours following the passage of this bill, intellectual property assignments and licences and their conditions will be assessed under competition law in the same way as we assess other commercial transactions.
...
Mr Albanese (Grayndler (ALP)) (17 October 2018)
I am pleased to speak on the amendment to the motion for the second reading of the Treasury Laws Amendment (2018 Measures No. 5) Bill 2018 because I am very pleased to support the member for Fenner. One of the things that is happening in this parliament, as you might have noticed, Madam Deputy Speaker Bird - as we see when we look at the list every day, as with the next bill, the Maritime Legislation Amendment Bill 2018, which I am responsible for, and then the Shipping Registration Amendment Bill 2018 - is that there is no-one from the government prepared to defend their record, just as there is no-one from the government prepared to speak on this legislation ...
Mr Irons (Swan - Assistant Minister to the Prime Minister (LIB)) (17 October 2018)
Schedule 4 of the bill repeals subsection 51(3) of the Competition and Consumer Act 2010. The Productivity Commission recommended repealing subsection 51(3) in its 2016 intellectual property arrangements inquiry report. The 2015 Competition Policy Review also recommended repealing subsection 51(3). Subsection 51(3) of the Competition and Consumer Act 2010 exempts licencing or assignment of intellectual property from most of the prohibitions of anticompetitive conduct under the Competition and Consumer Act. The Productivity Commission found that the rationale for the exemption has largely fallen away, as intellectual property rights and competition are no longer thought to be the fundamental conflict. The measure will ensure that commercial transactions involving intellectual property rights, including the assignment and licensing of such rights, will be subject to the prohibitions on anticompetitive conduct in the Competition and Consumer Act.
The measure will take effect on the day after the end of the period of six months, beginning on the day the bill receives the royal assent. This transitional period will allow individuals and businesses time to review existing arrangements to ensure they comply with the competition law. I commend this bill to the House.
