Australian Competition Regulator Conducting Public Review of Proposed Merger of Listed IP Groups

On 10 January 2019, the Australian Competition and Consumer Commission (ACCC) commenced a public review of the proposed merger of QANTM IP Limited (ASX:QIP) and Xenith IP Group Limited (ASX:XIP).  As I wrote back in December, the proposed merger was announced on 27 November 2018 and, should it proceed, would see each Xenith share exchanged for 1.22 QANTM shares, with existing QANTM and Xenith shareholders ultimately owning 55% and 45%, respectively, of the merged group.  The group would bring together five Australian specialist IP firms (Davies Collison Cave, FPA Patent Attorneys, Griffith Hack, Shelston IP and Watermark), along with IP valuation, innovation and advisory service provider Glasshouse Advisory (currently owned by Xenith IP) and Malaysian IP firm Advanz Fidelis (which was acquired by QANTM IP in June 2018).

Section 50 of the Australian Competition and Consumer Act 2010 (‘CCA’) prohibits those mergers that ‘would have the effect, or be likely to have the effect, of substantially lessening competition in any market.’  The ACCC thus has a role to play in conducting ‘informal’ reviews of proposed mergers, providing authorisation for proposed mergers, and acting to block mergers from proceeding where it considers that the merger would breach the ‘substantial lessening of competition’ test.  Although merger parties are not legally required to notify the ACCC of a merger, and may proceed without seeking any regulatory consideration, this does not prevent the ACCC from investigating the merger, making public inquiries and/or taking legal action.

The fact that the ACCC is undertaking a public review of the proposed QANTM/Xenith merger does not imply that it has any particular competition concerns.  Over the five years between 2014 and 2018, inclusive, an average of 34 such reviews were commenced each year, and in the overwhelming majority of cases the ACCC concluded that it was not opposed to the mergers proceeding.  As noted by the ACCC: ‘Mergers and acquisitions are important for the efficient functioning of the economy.  They allow firms to achieve efficiencies and diversify risk across a range of activities.’

The ACCC is seeking public input, and information on the review of the proposed QANTM/Xenith merger can be found on the ACCC web site.  A ‘market inquiries letter’ sets out the focus of the review, along with a range of issues that respondents may wish to address in their submissions.  In particular, the letter explains that:

The ACCC’s investigation is focused on the impact on competition in the supply of services relating to Australian IP rights including patents, trade marks, designs and plant breeder’s rights (Australian IP related services). In particular, we are seeking your views on:

• the extent of competition between QANTM and Xenith
• the likely impact of the proposed merger on prices and quality of Australian IP related services
• the extent of future competitive constraints (such as other competitors or new entrant competitors) for the supply of Australian IP related services.

Submissions are due by no later than 5 pm on 31 January 2019.

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Tags: Australia, Competition law, Patent attorney profession

Regulator’s Action Against Pfizer is a Fizzer

Australia’s competition watchdog has failed to convince a Federal Court judge that a strategy employed by pharmaceutical company Pfizer, to enter the market for generic products upon expiry of its patent covering blockbuster cholesterol-lowering drug LIPITOR, constituted an illegal misuse of market power, or ‘exclusive dealing’: Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd [2015] FCA 113.

From the year 2000, when it acquired Warner Lambert LLC, Pfizer was the owner of an Australian patent protecting the drug atorvastatin, and the exclusive supplier of the drug to the Australian market under the brand name LIPITOR.  The patent expired on 18 May 2012.  However, Pfizer faced initial limited generic competition from 19 February 2012, from which date Ranbaxy Australia Pty Ltd was able to supply atorvastatin to the Australian market under the terms of a settlement agreement reached with Pfizer in earlier proceedings.

Pfizer’s internal modelling indicated that the expiry of the patent, and the consequent entry of generic competition to the market, would have a significant impact on revenues.  A 2009 estimate suggested that the value of sales of LIPITOR would fall from $771 million in 2011 (i.e. that last full year before patent expiry) to just $70 million in 2015.

Pfizer therefore devised a strategy according to which it would produce its own generic (i.e. ‘unbranded’) atorvastatin, and that would enable it to leverage the final year or so of the market exclusivity, which it enjoyed as a result of its patent rights, into a form of ‘loyalty scheme’ that would encourage pharmacies to stock the Pfizer generic product in preference to the products of other generic suppliers.

The Australian Competition & Consumer Commission (ACCC) alleged that Pfizer’s scheme involved a misuse of the market power it enjoyed during the term of its patent, contrary to section 46 of the Competition and Consumer Act 2010 (‘CCA’), as well as exclusive dealing contrary to section 47 of the CCA, and commenced proceedings against Pfizer in the Federal Court of Australia.

The case was heard over 14 days in October 2014.  The court (Justice Flick, who also decided the MPEG LA v Regency Media case at first instance, in which he was soundly rolled on appeal) has now handed down its decision, finding that the ACCC failed to establish that Pfizer had acted contrary to section 46 or 47 of the CCA, and thus that Pfizer’s strategy is not contrary to Australian competition law.

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Tags: Australia, Competition law, Pharmaceuticals

Competition Law, Globalisation, Standards and Patent Pools

The Australian government is currently conducting a review of competition policy, which was announced on 4 December 2014.  The Terms of Reference describe it as ‘an independent “root and branch” review of Australia's competition laws and policy in recognition of the fact that the Australian economy has changed markedly since the last major review of competition policy in 1993’, and are broad in scope.

An ‘Issues Paper’ was released on 14 April 2014, which states that the ‘overarching objective of this Review is to identify competition-enhancing microeconomic reforms to drive ongoing productivity growth and improvements in the living standards of all Australians’, and which poses a number of questions for public comment.  Written submissions in response to the Issues Paper are due by 10 June 2014.

Under the heading ‘Intellectual Property’, the Issues Paper states:

The underlying rationale for governments to grant intellectual property (IP) rights (such as patents, trademarks and copyrights) is that creations and ideas, once known, may otherwise be copied at little cost, leading to under-investment in intellectual goods and services.  However, providing too much protection for IP can deter competition and limit choice for consumers.

It goes on to ask the questions:

Are there restrictions arising from IP laws that have an unduly adverse impact on competition? Can the objectives of these IP laws be achieved in a manner more conducive to competition?

I am not sure that I agree completely with the characterisation of, and rationale for, IP rights as expressed in the Issues Paper, but it is certainly true that there is an inherent tension between competition law and IP laws.  This is no more true than in the case of patents, the purpose of which is to provide an exclusive right to practice a commercially valuable invention for up to 20 years.

I would argue that, for the most part, patent law and competition law have coexisted in relative harmony in Australia.  I am concerned, however, that this harmonious relationship is under threat from the globalisation of technology – and particularly technology standards – along with the associated IP.   I refer particularly to patents protecting essential aspects of standards, such as those governing widespread consumer electronics and international wireless communications networks, and the global “patent pool” arrangements that have emerged to facilitate access to those patents.  However, similar concerns are likely to arise in relation to other emerging business models involving the aggregation and licensing of patent and other IP rights.

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Tags: Competition law, Law reform, Patent law, Public policy, Reviews

Patents, Competition and Anticompetitive Conduct

Australia’s competition regulator, the Australian Competition and Consumer Commission (ACCC), has instituted Federal Court proceedings against Pfizer Australia Pty Ltd (Pfizer) for alleged anticompetitive conduct (misuse of market power and exclusive dealing) in relation to its supply to pharmacies of blockbuster cholesterol drug atorvastatin.

Until May 2012, Pfizer held an Australian patent on atorvastatin, and was therefore the sole supplier of the drug to the Australian market, under the brand name Lipitor.  The drug was prescribed to over a million Australians, and had annual sales exceeding A$700 million.  Put simply, the ACCC alleges that Pfizer misused the market power it held during the term of its patent to restrict competition from generic substitutes after the patent expired.

A patent is, of course, inherently ‘anticompetitive’, in that it provides the patentee with exclusive rights to exploit the claimed invention commercially.  The intervention in the free market represented by a patent is justified on the basis that providing a limited-term monopoly-style right is an incentive for people and companies to invest in research, development and commercialisation of innovative new products and services.

However, once the patent expires, other suppliers are free to enter the market with competing products or services based on the formerly-patented invention.

The rights grated by a patent do not, however, permit a patent-owner to do anything they like during the term of the patent.  The term ‘exclusive right’ means a right to exclude others from exploiting the invention.  A patent does not grant the patentee the right to use the invention in ways that are contrary to the law, or that infringe upon the rights of others.

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Tags: Australia, Competition law, Licensing, Pharmaceuticals

What’s Up Down Under With Apple and Samsung?

Last week, the Federal Court of Australia quietly published a further interim judgment in the ongoing litigation between Apple and Samsung.  Samsung Electronics Co. Limited v Apple Inc. [2013] FCA 1142 was officially decided in 4 November 2013, however publication was delayed to give the parties an opportunity to review the judgment and request that any confidential information be redacted. 

The new judgment is, I am afraid, not very exciting reading, particularly for the lay-person.  It is a decision on the rather dry subject of whether or not Samsung should be allowed to submit further evidence relating to ongoing negotiations conducted with Apple since the commencement of the litigation.  Any content in the judgment which would have made for interesting reading – such as, for example, the terms of proposed licensing arrangements between Apple and Samsung – has been blacked out.

The answer that the court gave to Samsung, incidentally, is ‘no’.  Samsung has already filed an application for leave to appeal the decision, and a hearing on this application will take place on 21 November 2013.

However, this seems as good an opportunity as any to review the history of the Australian Apple/Samsung litigation, and provide an update on its current status. 

As matters stand right now, it does not seem likely that any judgments will be handed down on substantive issues, such as whether Samsung or Apple infringe any of each other’s patents, or whether those patents are valid, until at least the first half of 2014.  In one of the ongoing matters (to which the latest interim decision relates) there are hearing dates set down for a further 41 days, extending into April next year.  Any judgments that are issued will almost certainly be appealed by at least one of the parties, meaning that any final determination in any of the cases is unlikely until at least the second half of 2014, and possibly not until 2015.

It is worth bearing in mind that all of these cases relate to products which are already superseded.  Indeed, some of the allegedly infringing products – such as Samsung’s original Galaxy Tab 10.1, and Apple’s iPhone 3GS – are now two or more generations old.  And, contrary to what you may read in some sections of the media, no ruling in these cases will extend to newer products merely because they appear to include similar features.  A patentee always bears the burden of proving that infringement is occurring.  A court will not ‘infer’ infringement based on a different product, no matter how similar the two may appear.

Which leaves me wondering still, as I have done before, what exactly is the purpose of all this litigation – in Australia and elsewhere – and why do Apple and Samsung seem unable to reach any kind of workable settlement?

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Tags: Apple-v-Samsung, Australia, Competition law, FRAND, Infringement, Smartphone wars, Validity

Samsung’s European Proposal – Fair, Foul or Foolhardy?

It has been widely reported in the past few days that Samsung has made a proposal to the European Commission (EC) in the hope of avoiding a fine of up to $18.3 billion, following an EC investigation into the Korean company’s use of its standard-essential patents (SEPs) in ongoing litigation, particularly against Apple.

The EC opened the proceedings in January of 2012, based on Samsung’s applications for injunctive relief in various European countries against ‘competing mobile device makers’ (i.e. Apple).  While Apple has principally asserted non-standards-related patents, Samsung’s defensive strategy has been based substantially on alleged infringements of patents which it has declared as being essential to implement global mobile telephony standards.  The EC was concerned, in particular, that Samsung may have failed to honour its commitment to license any SEPs on fair, reasonable and non-discriminatory (FRAND) terms, and that such behaviour might amount to abuse of a dominant position.

Samsung is right to be concerned about the consequences of an adverse finding by the EC, which can levy fines of up to 10% of a company’s global turnover during the year preceding an investigation.  In 2004, for example, Microsoft was fined €497 million (US$794 million) over licensing, interoperability and software bundling practices.  In 2008, Microsoft was ordered to pay an additional €899 million (US$1.44 billion) for failure to comply with the 2004 decision.  And in 2009, the EC fined Intel €1.06 billion ($1.45 billion) for anti-competitive behaviour.  Samsung’s global turnover during 2011 was over $180 billion!

Samsung’s proposal has been published by the EC, which is seeking comments from ‘interested parties’.  The proposed commitment is simple enough.  As summarised in the EC press release:

Samsung has proposed to commit for a period of five years not to seek any injunctions on the basis of any of its SEPs, present and future, that relate to technologies implemented in smartphones and tablets ("Mobile SEPs") against any company that agrees to a particular licensing framework.

The licensing framework consists of: (i) a negotiation period of up to 12 months and (ii) if no agreement is reached, a third party determination of FRAND terms by either a court or an arbitrator, as agreed by the parties. If the parties cannot agree on either submitting to court or arbitration, the parties will have to submit to arbitration.

Personally, I think that this is a pretty fair compromise.  Certainly it lies somewhere between the two more extreme views expressed by IAM Magazine (that denying Samsung the ability to obtain injunctions will actually harm, rather than benefit, consumers) and by FOSS Patents’ Florian Müller (that ‘Samsung's proposals would make things worse, not better, and they would increase, not decrease, legal uncertainty’).  I do not agree with either of these positions.

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Tags: Apple-v-Samsung, Competition law, Europe, FRAND, Technology standards

The Fraught Issue of FRAND III: Antitrust and the Future of FRAND

In Part I of this series, we introduced a few background concepts, namely: FRAND licensing; royalty stacking; and patent pooling. In Part II we focussed on the recent political manoeuvrings of various interested parties, in particular Google, Apple and Microsoft. In this final part, we look at the tension between patents, FRAND licensing agreements and competition law, and what this might mean for the future of FRAND and the current disputes.

On 31 January 2012, the European Commission (EC) announced that it has opened a formal antitrust investigation into whether Samsung’s use of its standards-essential patents constitutes illegal anticompetitive behaviour.  It had been conducting a ‘preliminary investigation’ for some months, as part of which the EC had requested that both Samsung and Apple provide information regarding ‘the enforcement of “standards-essential” patents in the mobile telephony sector’.  Samsung’s response at the time was that it had ‘at all times remained committed to fair, reasonable and non-discriminatory (FRAND) licensing terms’ for its wireless standards-related patents,” and was cooperating fully with the EC.

Since then, both Apple and Microsoft have filed official complaints about similar behaviour by Motorola Mobility (with Microsoft’s complaint also naming Google).

The main competition concern appears to be over holders of standards-essential patents seeking injunctions based on those patents, which they have pledged to make available on FRAND terms.  As discussed in our previous article in this series, we cannot see why a patentee should not be entitled to an injunction in appropriate circumstances, such as when another party has refused to take a license on identical terms to other licensees.  However, Europe’s competition regulator, and companies that do not have large portfolios of standards-essential patents, may well see things differently.

In this final article in our series on FRAND we look at the antitrust complaints, the effect these may have on the balance of power in the ongoing disputes, and what this may mean for future developments.

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Tags: Apple-v-Samsung, Competition law, Europe, FRAND, Google, Licensing, Microsoft, Motorola

The Fraught Issue of FRAND II: the Politics of FRAND

In Part I of this series, we introduced a few background concepts, namely: FRAND licensing; royalty stacking; and patent pooling. In this article we will focus more closely on the recent political manoeuvrings of various interested parties.  Part III looks at antitrust issues and how the current disputes over standards-essential patents might be resolved. 


In particular, recent actions by Apple, Microsoft, Google and the European Commission are of interest:

1. the reported ‘leaking’ of a letter from Apple to the European Telecommunications Standards Institute (ETSI), dated 11 November 2011, complaining about ‘a lack of consistent adherence to FRAND principles’;
2. Microsoft issuing a statement promising to make ‘essential patents’ available to competitors at fair and reasonable licensing rates, and promising not to seek injunctions or exclusion orders against unlicensed companies making products that infringe these patents;
3. reports that Google was informing standards setting organizations that Motorola Mobility's standards-essential patents will continue to be available on FRAND terms after its acquisition of the company, followed closely by a ‘leak’ of Google’s actual letter to the IEEE standards body; and
4. the decision of the European Commission (EC) to open a formal antitrust investigation into whether Samsung’s use of its standards-essential patents constitutes illegal anticompetitive behaviour.

Notably, all of the companies identified above – not to mention the EC – are large, powerful and well-heeled.  They do not need to make promises or issue complaints, or launch investigations, in order to resolve their differences.  If they wished to do so, they could settle everything amongst themselves behind closed doors. 

Failing this, all of the companies involved are perfectly capable of funding the litigation necessary to have the courts decide their disputes for them.  And we should not forget that this is the role of the court in civil litigation – to reach decisions, based on the law, about disputed matters coming before it, and to make orders as to how the parties are to settle their differences.  In short, parties go to court to get an adjudication because they could not – or would not – sort their issues out for themselves.

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Tags: Apple-v-Samsung, Competition law, Europe, FRAND, Google, Licensing, Microsoft

The Fraught Issue of FRAND I: A FRAND Primer

This is the first of a three part series of articles.  Part II looks at recent political manoeuvrings of various interested parties, in particular Google, Apple and Microsoft.  Part III covers antitrust issues and how the current disputes over standards-essential patents might be resolved.

Readers who have been following the various mobile device patent disputes over the last few weeks will almost certainly have encountered the term FRAND (‘Fair, Reasonable and Non-Discriminatory’) in relation to patent licensing, and the rights of patent-holders – such as Samsung and Motorola – to sue competitors – such as Apple – for injunctions barring sales of competing products.

However, those not involved in patent licensing might never have heard of FRAND until recently.  A few time-limited Google searches for the term ‘FRAND licensing’ reveals 345,000 results for the past year, with 160,000 for the past month.  Going back, however, there are 104,000 results for the previous 12 months, and only 74,000 for the 12 months prior to that.  Additionally, while the older results are largely legal texts, academic commentary and policy documents, recent results come primarily from the media, including traditional mainstream outlets, as well as online sources such as industry, trade and technology news sites and blogs.

Thanks to some highly-publicised actions by some high-profile entities, FRAND is now pretty much mainstream, at least within the technology media.

The tenor of much recent online commentary is to the effect that the use of FRAND, or ‘standards essential’, patents as weapons in the patent ‘wars’ is at least unethical, probably unconscionable, and possibly illegal.

But before you pick sides in the debate over FRAND, we think there are a few matters you need to mull over, which are not getting the airing they deserve.  And the first, and most important, of these is that most of the current fuss over FRAND is political, not legal, and its media profile is largely the result of carefully-executed PR work by the main players, including Apple, Google, Microsoft, and even the European Commission.

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Tags: Apple-v-Samsung, Competition law, Europe, FRAND, Google, Licensing, Microsoft