IP licensing between competitors

The Australian Competition and Consumer Commission (ACCC) recently highlighted the risks involved when competitors enter into IP licence agreements.

Background

Celgene, a pharmaceutical company, commenced patent infringement proceedings against two manufacturers of generic drugs. The proceedings were settled on the basis that the generic manufacturers would be licensed to launch their products before the expiry of Celgene’s patents, and in the meantime would stay out of the market.

Is this arrangement anti-competitive?

On the face of it, absolutely.  The settlement agreement involves competitors agreeing not to compete for a period of time, which is a clear breach of the cartel provisions of the Competition and Consumer Act.

On the other hand, if Celgene’s patents are valid and enforceable, it has the right to prevent the generic manufacturers from supplying their products for the full term of the patent.  Viewed through that lens, a licence that permits the generics to enter the market before expiry of the patents is pro-competitive because it creates competition that would otherwise not exist.

The ACCC’s view

The ACCC was unimpressed. It has indicated that it will not authorise (grant immunity to) the agreement. It stated that the settlement is likely to result in public detriment by reducing competitive tension in relation to the generic supply of the relevant drugs. The agreement provides Celgene with “greater control and certainty over the timing of generic entry”, and by giving the two generic manufacturers “first mover” advantage may deter other generic entrants.   The ACCC notes that its decision does not prevent Celgene from settling the litigation, but it means the parties are not authorised to engage in cartel or other anti-competitive conduct.

What does this mean for IP licensors?

The ACCC’s decision is a stark reminder that, following the repeal of s. 51(3) of the Act in 2019, competition laws apply to IP licences like any other agreements.  IP licences between competitors that involve restrictions on the supply or acquisition of goods or services are likely to constitute unlawful cartel conduct.  Authorisation will only be granted by the ACCC where the public benefit outweighs the likely public detriment from the relevant conduct.  If  the parties cannot provide clear evidence in support the alleged benefits, it will be difficult to obtain authorisation.

The ACCC’s draft ruling may be found here.  A final determination is expected within the next month or two.