Important Developments in Canadian Merger Control and IP Matters

by Blake, Cassels & Graydon LLP
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KEY TAKEAWAYS

  • The Competition Bureau (Bureau) has obtained a significant remedy in a merger between non-Canadian companies that was not notifiable in Canada. Parties to non-Canadian transactions must keep in mind that the Bureau retains the ability to conduct a review of, and threaten to challenge non-notifiable transactions.
  • A merger the Bureau was challenging before the Competition Tribunal was settled by way of a mediation for the first time. Parties to contentious mergers that may end up being litigated before the Competition Tribunal should consider how the mediation process might affect their timing for closing and strategy.
  • The Bureau has published its updated Intellectual Property Enforcement Guidelines (IPEGs). This update includes new guidance on how the Competition Act will apply to the standard setting context and various practices that occur in the pharmaceutical industry, among other things, and takes account of many of the suggestions made by interested parties in a consultation process that has been ongoing since 2014.

IN DETAIL

Iron Mountain/Recall — Bureau Forces Large Canadian Divestiture in Global Deal Not Notifiable in Canada

On March 31, 2016, the Bureau announced that it had reached a consent agreement with document storage provider Iron Mountain Incorporated (Iron Mountain) in respect of its proposed acquisition of Recall Holdings Limited (Recall). The remedy requires Iron Mountain to divest itself of Recall’s business in every Canadian city where the parties both have operations.

Despite the transaction’s large size at a global level, it was not subject to mandatory notification under Canada’s Competition Act. However, the Bureau retains jurisdiction to review any merger, regardless of whether it is notifiable, for up to one year after closing. While the Bureau has reviewed (and even litigated) some non-notifiable Canadian transactions, the Iron Mountain case is an important reminder that the Bureau’s jurisdiction extends to mergers between non-Canadian companies.    

In announcing the consent agreement with Iron Mountain, the Bureau underscored its cooperation with other competition law authorities including the U.S. Department of Justice, the Australian Competition and Consumer Commission and the U.K.’s Competition and Markets Authority. An obligation to seek antitrust clearance in other jurisdictions can increase the likelihood of a non-notifiable merger attracting Bureau attention, and may inform the regulatory strategy adopted by merging parties in respect of Canada.

Parkland/Pioneer Bureau and Merging Parties Settle Litigated Merger in Mediation

On March 29, 2016, Parkland Fuel Corporation (Parkland) reached a consent agreement with the Bureau in relation to Parkland’s acquisition of Pioneer Energy’s gas stations and supply agreements in Ontario and Manitoba.

The Bureau had challenged aspects of the acquisition that it alleged would lessen or prevent competition substantially in certain local markets before the Competition Tribunal. The Competition Tribunal had permitted the parties to close while holding-separate six gas stations pending the outcome of the litigation.  

The Competition Tribunal has set an aggressive timetable for the litigation, with a hearing on the main application scheduled for May and June 2016. However, the Competition Tribunal also scheduled a mediation for mid-March, which was ultimately successful at resolving the case. The mediation process was overseen by Federal Court Chief Justice P. Crampton, who is also a judicial member of the Competition Tribunal. This is the first time such a mediation process has been used in a contested proceeding before the Tribunal.   

Under the consent agreement, Parkland will sell a station or exclusive supply agreement in six markets, and is restricted from increasing the margin earned on the wholesale supply of gasoline to certain dealers.

Parties to contentious mergers that may end up being litigated before the Competition Tribunal should consider how the mediation process might affect timing and strategy.

For background information, please see our June 2015 Blakes Bulletin: Important Implications for Merger Planning: Canadian Competition Tribunal Issues Decision on Interim Remedies and Use of Hold Separates.

IPEGs First Update Since 2000

On March 31, 2016, the Bureau published an update to its Intellectual Property Enforcement Guidelines.

This is the first update to the IPEGs since they were originally published in 2000. Interested observers know that knowledge about how competition law can apply to the use of intellectual property has advanced significantly in the past 16 years. This update takes accounts of many of these developments, in particular explaining how the Bureau intends to apply the Competition Act to (i) standard setting bodies and unilateral conduct concerning commitments made to those bodies, and (ii) the settlement of patent infringement litigation among pharmaceutical companies and product lifecycle management strategies employed by pharmaceutical companies.

The update comes after the Bureau published two drafts of the IPEGs for consultation in 2014 and 2015. For further information, please see our June 2015 Blakes Bulletin: Canadian Competition Bureau Releases New Draft IP Enforcement Guidelines for Comment. The Bureau’s update takes account of many of the suggestions that were made by interested parties in the consultation process. Importantly, the Bureau had initially indicated its intention to examine agreements in settlement of patent infringement litigation among pharmaceutical companies that involve the transfer of value from a generic company to an innovator company as a criminal matter on a primary basis. The update flips this paradigm and explains that such settlements will be examined as a civil matter unless a settlement involves an agreement to stay out of the market beyond the life of the patent or is a “sham”, which the Bureau says it anticipates “would rarely occur.”

The update also clarifies or further confirms a number of key principles, including the following:

  • Where conduct constitutes the “mere exercise” of intellectual property rights, the Bureau will only scrutinize conduct under a special section of the Competition Act if certain conditions are met; otherwise, it will not scrutinize the conduct
  • In most cases, the Bureau will leave disputes over the abuse of patents or trademarks to be dealt with by the appropriate intellectual property authorities under the appropriate statute
  • The Bureau may seek leave to intervene in cases where it believes bringing a competition perspective would be important or where the potential scope of intellectual property rights could inappropriately be defined, strengthened or extended

This update is an important reminder to companies operating in innovative industries that conduct related to the use of intellectual property can be subject to the Competition Act.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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