Last week, a US Federal Court ruled that AstraZeneca Plc’s payment to Ranbaxy Laboratories Ltd. to delay a generic version of heartburn medication Nexium was not unreasonably anticompetitive.

The decision confirmed the approach taken by the US Supreme Court in FTC v. Actavis, Inc. that reverse-payment settlements (also known as “pay-for-delay” agreements) are subject to a “rule of reason” analysis (as opposed to being per se conspiracies). This is in contrast to the Canadian enforcement approach recently outlined by the Commissioner of Competition (the “Commissioner”), which left the door open to the application of the per se criminal conspiracy provision of the Competition Act of reverse-payment settlements.

A Distinctly Canadian Approach

Earlier this fall, the Commissioner released a white paper titled “Patent Litigation Settlement Agreements: A Canadian Perspective” and concurrently delivered a speech in which he outlined the Competition Bureau’s (the “Bureau”) position regarding the application of the Competition Act to reverse-payment settlements. In short, the Bureau’s stated enforcement position is that a reverse-payment settlement could be reviewed under either the criminal or civil provisions of the Competition Act.

Specifically, the Commissioner indicated that the Bureau would review reverse-payment settlements under the criminal conspiracy provisions of the Competition Act where they created “naked restraints” on competition. The Commissioner’s remarks were limited to providing only a high-level overview of when the Bureau would review a reverse-payment agreement under the criminal provisions of the Competition Act:

  1. where the settlement includes conduct with respect to markets or products that are not the focus of the patent litigation or the conduct goes beyond the scope of the patent;
  2. where there is direct or circumstantial evidence that indicates that the settlement is a vehicle for a “naked restraint” on competition that is not implemented in furtherance of a legitimate collaboration or was motivated by factors beyond the issues associated with litigation.

The Commissioner indicated that the Bureau’s views are “preliminary” and that it would consult stakeholders before arriving at any permanent view on how it will review reverse-payment settlements.  However, he has clearly signalled the Bureau’s willingness to closely scrutinize reverse-payment settlements. More important, as iterated, the Commissioner’s stated enforcement position provides little guidance to pharmaceutical companies contemplating a reverse payment settlement. The Bureau’s position is also problematic given the Section 8 damages regime under the Competition Act, which specifically contemplates damages as a remedy in pharmaceutical cases.

Summary

It is unclear what prompted the Commissioner to outline such a bold position that breaks from the approach historically taken by the Bureau, especially given Canadian laws governing IP in the pharmaceutical sector. In this regard, the AstraZeneca case highlights the difference between Canada and the United States on this issue and may make it more difficult for pharmaceutical companies to manage their cross-border IP strategies. In addition, given that reverse-payment settlements generally result in generic products coming to market before the expiry of the relevant patents, to the extent that the Bureau’s enforcement policy chills or delays these types of settlements, Canadians may have to purchase more expensive branded products for longer than would otherwise be the case.

Click for a copy of the Commissioner’s speech and the white paper.