Commerce Act changes – stormy seas ahead for IP owners?

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On 5 April 2022, the Commerce Amendment Act 2022 received Royal Assent. The purpose of the Act is “to strengthen the prohibition [in the Commerce Act 1986] against misuse of market power and make other changes to improve the functioning of the Act”.

IP owners need to take note of the Amendment Act because as well as beefing up the current prohibition against taking advantage of market power in section 36 of the Commerce Act, the Amendment Act also removes significant benefits currently in place for IP rights holders.

The current legislation

The current Commerce Act contains three provisions which specifically benefit IP rights holders.

The first provision is section 7 – Section 7(2) provides that nothing in the Commerce Act “limits or affects any rule of law relating to breaches of confidence”, while section 7(3) provides that “no law relating to breaches of confidence affects the interpretation of any of the provisions of the Act”.

In other words, owners of confidential information are at liberty to pursue breaches of confidence without any regard as to whether their pursuit is or could be contrary to the Commerce Act.

The second provision is section 36 – Section 36 currently states that a person that has a substantial degree of power in a market must not take advantage of that power for the purpose of restricting the entry of a person into that or any other market, preventing or deterring a person from engaging in competitive conduct in that or any other market, or eliminating a person from that or any other market.

IP rights holders won’t be liable under section 36, however, if all they are doing is seeking to enforce a statutory IP right.

The third provision is section 45 – Section 45, broadly speaking, benefits IP rights holders by exempting the granting of IP licences (or, to use the statutory language, the entering into of a contract or arrangement or arriving at an understanding) from the provisions of the Commerce Act that relate to cartels and anti-competitive agreements.

The new legislation

The Commerce Amendment Act sweeps all of these benefits away.

No more will IP rights holders’ activities be shielded by the legislation, away from the prying eyes of competitors or the Commerce Commission.

There is no need for immediate panic. While many of the amendments to the Commerce Act will come into effect on 5 April 2023, there is a one-year transitional (or “grace”) period for the exemption of IP rights from provisions relating to cartels and anti-competitive agreements for arrangements entered into or arrived at before 5 April 2023.

This is not to say that businesses that may be affected by the changes to the Commerce Act should sit on their hands: on the contrary, they should seek to review their contracts, arrangements or understandings as soon as practically possible.

Who is most likely to be affected?

The commercial entities which are likely to be most affected (and concerned) by these changes are, of course, those who wield substantial power in their markets.

Businesses in this position may find themselves unable to enforce their patent or plant variety rights, for example, if doing so would have the likely effect of substantially lessening competition in their markets.

At the very least, such businesses are likely to be faced with allegations of anti-competitive behaviour.

When this occurs (and undoubtedly it will), IP rights holders may well ask their IP attorneys, “What was the point of obtaining IP protection in the first place? If I can’t enforce my IP rights, what incentive is there for me to continue to innovate?”

These are troubling questions and ones to which IP attorneys up and down New Zealand do not yet know the answers.

Related: It’s coming home… the return of NZ’s IP

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Ben Cain
Ben Cain
Ben Cain is a Senior Associate at James & Wells. He can be contacted at 07 928 4470 (Tauranga), 07 957 5660 (Hamilton), or email ben.cain@jamesandwells.com.

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