On April 2, 2014, the Competition Bureau (Bureau) released draft updated Intellectual Property Enforcement Guidelines (Revised IPEGs) for a 60-day consultation period. The Revised IPEGs principally reflect the amendments to the Competition Act (Act) that have been made since the IPEGs were released in 2000 (2000 IPEGs). With one exception, the Revised IPEGs maintain the same conceptual approach as the 2000 IPEGs regarding the interface between competition policy and intellectual property (IP) rights. However, the Revised IPEGs do not deal with some of the more recent challenges – most notably the application of competition law to pharmaceutical patent settlements, which have received extensive attention from the U.S. Federal Trade Commission in recent years and were the subject of a landmark decision of the U.S. Supreme Court in 2013.1 In this regard, the Bureau appears not to have closed the door on its willingness to elaborate on these thorny issues and, in fact, has invited commentators to “indicate if there are other competition/IP issues that they believe the Bureau should address”2 as part of the consultation process.
Competition Bureau’s Overall Approach
Consistent with the 2000 IPEGs, the Bureau’s approach to the IP-competition interface is “based on the premise that the Act generally applies to conduct involving IP as it applies to conduct involving other forms of property.”3 Also consistent with the 2000 IPEGs, the foundation of the Bureau’s enforcement approach is the determination of whether the conduct, transaction or arrangement in question involves either
the mere exercise of the IP right and nothing else (e.g., the exercise of the owner’s right to unilaterally exclude others from using the IP) to which the rarely used section 32 (special remedies) of the Act applies; or
something more than the mere exercise of the IP right (e.g., the licence, transfer or sale of IP to a firm or group of firms that would have been actual or potential competitors without the arrangement) to which the general provisions of the Act apply (e.g., section 90.1– civil agreements between competitors; section 79 – abuse of dominance).
The Revised IPEGs explain that when conduct or an arrangement is something more than the mere exercise of the IP right and that arrangement “creates, enhances or maintains market power, the Bureau may seek to challenge the arrangement under the appropriate section of the Act.”4
This distinction between “mere exercise” and “something more than mere exercise” is critical. In this respect the Revised IPEGs reflect a change in the Bureau’s interpretation of a “mere exercise” of the IP right. In the 2000 IPEGs, the Bureau identified an IP owner’s use or non-use of the IP as being the mere exercise of an IP right.5 Significantly, in the Revised IPEGs, the Bureau has indicated that it will analyze an IP owner’s non-use of IP under the general provisions of the Act, meaning that the Bureau considers the non-use of IP as something more than the mere exercise of an IP right.
The Bureau has suggested that product hopping (which involves an originator’s substituting an older product whose patent is about to expire with a newer innovation to avoid generic competition with the older product) is an example of an IP owner’s non-use of IP possibly raising concerns under the Act. In this regard, the Bureau is investigating Alcon under the abuse of dominance provisions of the Act.6
Section 32 and “Mere Exercise”
Section 32 of the Act contemplates a special remedy that endows the Federal Court with broad powers to prevent the use of IP rights to unduly restrain trade or lessen competition. In contrast with the general remedial provisions of the Act, even the mere exercise of an IP right may attract scrutiny under section 32. Although the Federal Court’s remedial powers under section 32 are quite broad,7 only the Attorney General of Canada may initiate a proceeding.
The special remedy provisions were originally enacted in 1910, but proceedings have only been initiated under section 32 on two occasions in well over 100 years and both resulted in settlements prior to a judicial determination. In the absence of judicial clarification of the application of section 32, the Commissioner of Competition’s enforcement position with regard to section 32 is highly relevant.
The discussion of section 32 in the Revised IPEGs is virtually identical to that contained in the 2000 IPEGs. The Bureau expects recourse to section 32 to be necessary “only in certain narrowly defined circumstances,”8 and identifies three factors that must each be satisfied for the Bureau to even recommend an application under section 32: (i) the IP holder must be dominant in the relevant market; (ii) the IP must be an essential input or resource for firms participating in the relevant market; and (iii) if the first two factors are satisfied, the Bureau must agree that invoking a special remedy would not adversely alter the incentives to invest in research and development in the economy (this is satisfied if the refusal to license the IP is stifling further innovation and not simply preventing the replication of existing products).
The Act’s Application to “Something More”
The Revised IPEGs do not reflect any changes from the 2000 IPEGs’ framework for analyzing conduct, transactions and arrangements under the Act’s general provisions, other than making clear that arrangements between competitors involving IP (e.g., IP licensing arrangements) may be analyzed under section 90.1 in addition to the other general provisions of the Act, and removing references to “unduly” as they related to the former section 45.
While the Bureau reiterates its general view that “market conditions and the differential advantages IP provides should largely determine commercial rewards flowing from the exploitation of an IP right in the market to which it relates,”9 the Bureau may intervene in a use of IP rights to create, enhance or maintain market power. Unfortunately, subject to some minor modifications, the Revised IPEGs simply repeat (in the text and the hypotheticals) the same examples (with one deletion)10 that are in the 2000 IPEGs of conduct involving something more than the mere exercise of an IP right that the Bureau may challenge.
It is worth noting that unlike the 2000 IPEGs, which stated that disputes concerning illegitimate extensions of an IP right “are best resolved by”11 IP authorities, the Revised IPEGs state that the Bureau “will use its enforcement discretion and may choose to leave the matter to be resolved by the appropriate IP authority under the appropriate IP statute.”12 In this regard, on the same day the Bureau released the Revised IPEGs, it announced that it had signed a Memorandum of Understanding (MOU) with the Canadian Intellectual Property Office (CIPO).13 The MOU provides for collaboration between the Bureau and CIPO on policies that may affect each other’s mandates, in addition to referrals from CIPO to the Bureau concerning competition law concerns arising from IP rights. The Bureau and CIPO have also agreed to participate in “knowledge transfer sessions” and collaborative discussions on areas of mutual interest, in addition to various types of information sharing.
Since 2013, the Bureau has demonstrated a renewed willingness to discuss the complex issues in the IP-competition law interface. For example, in November 2013, the Bureau hosted a workshop on the competition issues in the pharmaceutical sector, which included sessions involving the Bureau, the bar, the United States Federal Trade Commission, Industry Canada, the PMPRB, Health Canada and the industry on international perspectives on competition policy in pharmaceuticals, patent settlements and pharmaceutical life-cycle management.
While it is reassuring that the Revised IPEGs do not represent a departure from the Bureau’s enforcement position as set out in the 2000 IPEGs, the Bureau should seize the opportunity to clarify in the Revised IPEGs its view on the application of the Act to recent matters that businesses and the Bureau are discussing.
In light of long-standing public and controversial debate in the United States on competition law implications of patent settlements14 and the significant increase of competition-based private actions (class or individual) in Canada, the Bureau’s current silence on this particular issue is almost deafening.
1 Federal Trade Commission v. Actavis, Inc., 570 U.S. ___ (June 17, 2013) (slip op.). See Osler Update here.
2 Competition Bureau, “Competition Bureau Seeks Input on the Updated Intellectual Property Enforcement Guidelines,” online: Competition Bureau.
3 Revised IPEGs, section 1.
4 Revised IPEGs, section 4.2.1.
5 2000 IPEGs, section 4.2.1.
6 The Commissioner is investigating whether Alcon intentionally disrupted the supply of Patanol in July 2012, prior to the commencement of generic supply of the product, to habituate physicians into prescribing its much newer Pataday product. The Bureau has sought an order under section 11 of the Act compelling Alcon to produce internal documents pertaining to the investigation, which remains ongoing (Federal Court File No. T-2223-12).
7 The Federal Court’s powers include declaring void any agreement, arrangement or licence relating to use of an IP right; restraining any person from exercising any term or provision of any agreement, arrangement or licence; directing the grant of licences to such persons as the Court may deem proper or revoking a patent; directing that the registration of a trade-mark be expunged or amended; and any other acts that the Court may deem necessary to prevent such use.
8 Revised IPEGs, section 4.2.2.
9 Revised IPEGs, section 4.2.1.
10 The only material change is the deletion of the hypothetical application of the conspiracy (section 45) and joint abuse of dominance provisions to joint foreclosure by a group of licensors through exclusive licensing arrangements with a dominant licensee.
11 2000 IPEGs, section 4.2.3.
12 Revised IPEGs, section 4.2.3.
13 Competition Bureau, “Memorandum of Understanding between the Commissioner of Patents, Registrar of Trade-marks and Chief Executive Officer of the Canadian Intellectual Property Office and the Commissioner of Competition of the Competition Bureau,” online: Competition Bureau.
14 See Osler Update here.