On June 9, 2015, the Canadian Competition Bureau released updated draft Intellectual Property Enforcement Guidelines (IPEGs) for public comment. The comment period is open until August 10, 2015. It is the third publication of the IPEGs since early 2014, evincing the Bureau’s increased interest in the IP/competition interface.

What are IPEGs?

While competition law seeks to restrain behavior that would harm vigorous competition, intellectual property laws are designed to exclude competitors from the marketplace. The market exclusivity resulting from IP protection encourages innovation. Despite their inherent conflict, the Bureau views IP laws and competition laws as two “complementary instruments of government policy”.

The Bureau publishes the IPEGs to provide insight into and examples of how the Bureau determines whether conduct involving IP raises concerns under the competition laws. The original IPEGs were released in 2000. The Bureau released a preliminary version of the updated IPEGs in September 2014, which primarily addressed amendments to the Competition Act in 2009 and sought to ensure that the IPEGs were consistent with other Bureau guidelines released since the 2009 amendments. All versions of the IPEGs contain examples of how the Bureau might address situations that engage IP and competition laws.

New Analysis in the June 2015 Draft

The June 2015 Draft provides commentary and examples for three additional areas that could attract competition review: patent assertion entities (PAEs), patent litigation settlement agreements (primarily pharmaceutical) and standard essential patents (SEPs), which are patents that protect technology essential to an industry’s standardized technology, so that all manufacturers’ products meet certain performance and safety standards and can interoperate. Examples 1-9 were previously published.

The June 2015 Draft adds new Examples 10 – 18, which illustrate how the Bureau might address potentially anticompetitive behaviour in the three new areas identified above, as follows:

  • Example 10 addresses PAEs.
  • Examples 11, 12, 13A and 13B address pharmaceutical litigation settlements between brand and generic firms.
  • Examples 14 to 18 address SEPs.

Bureau Review of Patent Assertion Entity Behaviour

PAEs typically do not use patents they own for their own products or production, but instead assert the patents against other firms in litigation.

In Example 10, the entity sent thousands of notices to businesses stating that the PAE had proof that the recipient was infringing one or more of its patents, and demanding that each recipient pay a licensing fee to avoid litigation. Some businesses that received letters complained to the Bureau that the notices were false or misleading, as they had not infringed the patents.

The Bureau’s analysis considered whether the PAE made materially false or misleading representations. If the assertions were truthful, no further action would be required and the assertions would not attract further review. If the assertions were made indiscriminately or indifferently, the assertions could raise concerns under the reviewable matters sections (74.01(1)(a)) and the criminal provisions (section 52(1)) of the Competition Act.

Bureau Review of Pharmaceutical Settlements

A large proportion of Canadian patent litigation involves pharmaceutical companies, typically “brand” and “generic” companies, litigating the issues of whether the brand’s patent’s claims are invalid or infringed by the generic. Many of these cases are governed by the Patented Medicines (Notice of Compliance) (PM(NOC)) Regulations, and many PM(NOC) cases settle before a judge renders a decision that evaluates the non-infringement or invalidity allegations.

The Bureau has taken the general position that settlements that permit a generic to enter the market prior to patent expiration, assuming no payment is provided by the brand to the generic, do not lessen competition. These settlements will not attract Bureau review. The Bureau calls these “entry-split” settlements.

If a brand provides payment to a generic in a settlement, and also allows the generic to enter the market before patent expiration, the Bureau will review the settlement under the Competition Act. In the Bureau’s view, the payment could harm competition if the payment serves to delay generic market entry. The Bureau would generally review such a settlement under the arrangements-between-competitors provisions of the Competition Act (section 90.1). However, the Bureau may also review a settlement under the abuse-of-dominant-position provisions of the Competition Act (section 79), if (i) the parties are dominant or jointly dominant, (ii) the agreement results in or facilitates conduct that has a negative effect on competitors that is exclusionary, predatory or disciplinary, and (iii) the agreement would substantially lessen competition in a market. The Bureau could review a settlement under the conspiracy provisions of the Competition Act (section 45); indeed the Commissioner sparked concern from the business community in seeming to suggest in September 2014 that such an approach could be the norm. However, the Bureau has emphasized in the June 2015 Draft that the circumstances for a criminal investigation “would occur on a limited basis” and only when the intent was to fix prices, allocate markets or restrict output.

Bureau Review of Standard Essential Patents

The Bureau recognizes that industries typically develop technical standards, which can provide procompetitive benefits, such as decreasing production costs, increasing efficiency and consumer choice and fostering innovation. However, the Bureau is concerned that the development of such standards can pose competition concerns, by reducing price competition and firm competitiveness when other firms are denied access to the standard. Examples 14 to 18 address a number of possible situations, including a “patent ambush” by a patent owner that did not disclose the importance of its IP in a standard (Example 15), reneging on a licensing commitment (Example 16) and seeking an injunction after making a licensing commitment (Example 18).

How could the New Guidelines Affect You?

In the case of pharmaceutical patent litigation, the Bureau has signalled an increased interest in reviewing settlements by updating the IPEGs and publishing a white paper in September 2014 and in the Commissioner’s address at the Global Antitrust Institute conference on September 23, 2014. The Bureau is clearly considering ways to facilitate increased scrutiny.

Despite this interest in identifying and reviewing pharmaceutical settlements, the Bureau finds itself in a challenging position. In Canada, there is no legislative requirement for competition review of pharmaceutical settlements. The Bureau may review settlements or arrangements if they are submitted voluntarily or otherwise come to its attention. By contrast, in the United States, pharmaceutical patent settlements generally must be reported to the Federal Trade Commission (FTC) and all pharmaceutical patent settlements are subject to review by the FTC.

Notwithstanding legislative limitations, given the positions taken by the Bureau in recent publications, we expect the Bureau to become more aggressive in finding ways to access and review such settlements. Once aware of an agreement, the Bureau does have the ability to seek compulsory orders for parties to provide information to it (including, potentially, parties’ respective assessments as to the strength of the patent in issue), with a view to investigating, and potentially challenging, a particular settlement as violating the Competition Act.

In the case of PAEs and SEPs, the Bureau is unlikely to be aware of potentially anti-competitive activities absent complaint by affected firms. Accordingly, increased Bureau review is unlikely unless affected firms take steps to notify the Bureau.

Want to Weigh In?

The Bureau has invited interested parties to provide comments on the draft updated IPEGs, by August 10, 2015. See the Bureau’s release at http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03959.html.