Background

The Competition Bureau released draft and updated Intellectual Property Enforcement Guidelines (IPEGs) for public consultation, and is seeking comments on the IPEGs by August 10, 2015.

The analytical framework in this draft is similar to the September 2014 version, although this version includes many more examples on patent settlements and standard essential patents. The Bureau has also stepped back from its earlier position and has clarified that settlement agreements will be reviewed civilly, absent evidence of intent to fix prices, allocate markets, or restrict output.

In September 2014, the Bureau issued a white paper that provides background information on the pharmaceutical industry in Canada, the regulatory regime in Canada, the provisions of the Competition Act(Act) that may apply to reverse-payment settlement agreements, and the Bureau’s preliminary views as to how the Act could apply to such settlements. As part of the white paper, the Bureau calls for a notification regime similar to that which exists in the United States.

The Bureau has maintained its position that the circumstances in which the Bureau may apply the Act to conduct involving IP or IP rights fall into two broad categories:

  • conduct involving something more than the mere exercise of the IP right, where general provisions of the Act will be applied; and
  • conduct involving the mere exercise of the IP right and nothing else, where section 32 (special remedies) of the Act will be applied.

The Bureau’s general approach

The Bureau generally takes a five-step approach to determining competitive harm. The approach will also be applied, according to the draft IPEGs, when determining whether IP rights or agreements cause competitive harm. The five steps are as follows:

  1. identifying the conduct;
  2. defining the relevant market;
  3. determining if the company(ies) possess market power by examining market concentration, conditions for a new entrant, as well as other factors;
  4. determining if the conduct would substantially lessen or prevent competition in the relevant market(s); and
  5. considering relevant efficiency rationales or business justifications.

Settlements of proceedings under the PMNOC Regulations

The Bureau has provided guidance on how it will approach settlement agreements reached as part of proceedings under the Patented Medicines (Notice of Compliance) Regulations (PMNOC Regulations). Under the PMNOC Regulations, brand pharmaceutical companies apply to the courts to prohibit generic pharmaceutical companies from receiving marketing approval to sell patented medicines. The Bureau’s enforcement approach to settlements under the PMNOC Regulations:

  1. An entry split settlement (i.e., which does not involve the brand name company providing consideration to a generic other than allowing the generic to enter the market before patent expiry) will not pose an issue under the Act;
  2. A settlement with a payment (i.e., the brand name company provides compensation to a generic in addition to allowing the generic market entry before patent expiry) will be reviewed under section 90.1 (civil agreements lessening competition), or section 79 (abuse of dominance);
  3. A settlement may be reviewed under section 45 (criminal cartel agreements) only where there is evidence that the intent of the payment was to fix prices, allocate markets or restrict output.

Pharma examples of conduct that may trigger an investigation

The draft IPEGs contain several examples of the types of conduct that would garner the Bureau’s attention. The following are examples of particular interest to the pharmaceutical sector:

Example 9 involves product switching, whereby an innovator that is approaching imminent patent expiry on drug A and the impending entry of generic versions of drug A, pulls drug A from the market and begins marketing drug B. Drug B treats the same affliction as drug A but has a much longer period of exclusivity. Since drug A is the reference product for a generic counterpart, pharmacies cannot substitute generic drug A for drug B. If such conduct was for the purpose of excluding generic drug A, the Bureau may investigate the innovator under section 79 of the Act as it may be an abuse of dominant position.

In Example 12, a brand provides a monetary payment to a generic and the generic comes to market five years before patent expiry. The Bureau would first determine if competitive harm occurred and then determine whether the payment was commensurate with the services provided and if the payment was for the purpose of delaying a generic’s entry. Where an efficiency exception is not established, the Bureau may seek a remedy from the Competition Tribunal to prohibit the settlement.

In Example 13A, a brand provides a monetary payment to a generic and the generic comes to market afterpatent expiry. The Bureau believes this type of settlement would contravene subsection 45(1) as it is intended to be a market allocation agreement. The Bureau may refer the matter to the Director of Public Prosecutions (DPP). If the DPP elects not to pursue prosecution, the Bureau may re-evaluate whether the settlement should be subject to a remedy under the reviewable matters provisions of the Act.

Comment period

It is important for stakeholders to provide their views on the proposals the Bureau has put forward in its revised approach to intellectual property issues, as well as indicate if there are other competition or IP issues that they believe the Bureau should address. The Bureau is accepting comments until August 10, 2015.

We have extensive experience in dealing with competition law issues in the pharmaceutical and life sciences sector. Please contact us directly if you have any questions or comments about the public consultation process or the potential impact that the changes to the IPEGs may have on your business.

Links:

The draft consultation Intellectual Property Enforcement Guidelines

The Bureau’s White Paper, Patent Litigation Settlement Agreements: A Canadian Perspective