As previously reported, the Competition Bureau (“Bureau”) released a revised version of its Intellectual Property Enforcement Guidelines (“IPEGs”) on March 31, 2016, following an extensive public consultation process held in 2015 based on previous drafts released in 2014 and 2015.
The IPEGs describe the Bureau’s approach to conducting investigations under the Competition Act (“Act”) in respect of anti-competitive activities that relate to intellectual property. The primary revisions to the 2016 revised IPEGs (which represent the Bureau’s first major update since the IPEGs original release in 2000) include clarification on the Bureau’s position on patent settlements, product switching, the conduct of patent assertion entities, and conduct involving standard essential patent owners.
The 2016 revised IPEGs provide additional guidance on the Bureau’s enforcement approach with respect to settlement agreements under the Patented Medicines (Notice of Compliance) Regulations (PMNOC Regulations), by identifying factors which will be considered in determining whether a settlement could give rise to competition law concerns under the civil provisions of the Act and by providing clarity as to when such agreements may be reviewed under the criminal provisions of the Act.
Specifically, the Bureau indicates that in reviewing settlements for potential competition law concerns, consideration is to be had to the significant differences in the regulatory regimes governing pharmaceuticals in Canada relative to other jurisdictions which may have an impact on the terms and incentives related to settlements. Such factors include, for example, the availability of exclusivity for the first generic filer, the availability of section 8 damages (brand liability to generic) and the possibility of dual litigation (parallelPMNOC and infringement proceedings) under the PMNOC Regulations, and as well, the significant price restrictions that both brand and generic firms typically face in Canada in order to have products listed on provincial formularies.
The Bureau also articulates its enforcement approach with respect to settlements, in particular identifying the types of settlement which may give rise to prosecution under the criminal provisions of the Act. A summary of the Bureau’s enforcement approach is set out below:
- A settlement in which the only consideration is allowing a generic market entry on or prior to patent expiry (an “entry-split settlement”) will not pose an issue under the Act;
- A settlement with a payment to the generic pursuant to which the generic firm enters the market on or before patent expiry will be reviewed under the civil conspiracy provisions or the abuse of dominance provisions (an “entry-split with payment to generic settlement”); and
- The Bureau will review a settlement under the Act’s criminal conspiracy provisions only in three specific circumstances, namely, where:
- the parties agree that the generic will only enter the market after the date of patent expiry;
- the settlement restricts competition for products unrelated to the patent subject to thePMNOC proceeding; or,
- the settlement is a “sham” (e.g. where both parties knew the patent was invalid, but nevertheless reached a settlement to allocate monopoly profits by delaying generic entry).
Under Canadian competition law, the mere exercise of an IP right is not cause for concern under the general provisions of the Competition Act.
In the original IPEGs published in 2000, the “mere exercise” of an IP right was defined as including an “IP owner’s use or non-use of the IP”. However, under the 2015 draft IPEGs the Bureau appeared to signal a change to this approach by removing the term “non-use” from its definition of “mere exercise” and by indicating that refusal to use IP could be challenged under the abuse of dominance provisions. As an illustrative example of “non-use” abuse of dominance, the Bureau provided the example of “product switching” whereby a patentee removes a top-selling patented “Product A” that is about to lose patent protection, and replaces it with a similar patented “Product B” that has several years of patent protection remaining so as to force the market to switch to its new “Product B” thereby impeding market entry by other manufacturers after the expiry of the “Product A” patent.
In the 2016 revised IPEGs, the Bureau reverts back to its original position in that the “mere exercise” of an IP right once again is defined as including an “IP owner’s use or non-use of the IP right”; however, the Bureau introduces a caveat, making clear that in some limited circumstances the non-use of an IP right could potentially raise issues under the general provisions of the Act.
The Bureau also expands on its discussion of “patent switching” by creating a distinction between “hard” switching (the situation discussed above in which a patented product is removed from the market before the expiry of the patent to force a market to switch to a similar product which has several years of patent protection remaining) and “soft” switching (whereby a patentee does not withdraw a top-selling patented “Product A” from the market, but merely stops promoting “Product A” in favour of a similar patented “Product B” that has several years of patent protection remaining). While the “hard switching” may be investigated under the Act’s abuse of dominance provisions, “soft switching” is unlikely to raise concerns under the Act, provided that patentee’s new marketing campaign did not involve false or misleading statements about the original product.
Conduct of patent assertion entities
Patent assertion entities (“PAE”) are companies who acquire patents for the sole purpose of asserting them against firms allegedly infringing the patented technologies (i.e. they do not manufacture or sell products or services related to such patents).
In the 2015 draft IPEGs, the Bureau indicated that the conduct of such companies would most likely be examined under the “false or misleading claims” provisions of the Act, which prohibit making a representation to the public that is false or misleading in a material respect, or which is made knowingly and recklessly, respectively.
In the 2016 revised IPEGs, the Bureau provides additional clarification as to when PAE conduct may or may not trigger investigation under the Act. Specifically, the Bureau indicates that the assignment of a patent right to a PAE, simply for the purpose of more effective enforcement (with an agreement to split revenues from the enforcement of that patent), does not raise issues under the Act. However, the Bureau reminds readers that conduct relating to assignments is potentially subject to review under the general provisions of the Act.
It is prudent to note, however, that the Bureau explicitly warns that the law with respect to PAEs is rapidly evolving and therefore the Bureau may revisit its guidance in this area in the future.
Collaborative standard setting and standard essential patents
In the 2015 draft IPEGs the Bureau indicated that the development of standard essential patents through Standard Development Organizations or other means can pose competition concerns (e.g., patent hold up, patent ambush, reneging on a license commitment or seeking an injunction against willing licensees after making a licensing commitment).
The 2016 revised IPEGs, clarify that the Bureau’s guidance with respect to standard essential patents applies only in the context of standards developed through collaborative standards-setting activities. That is, where companies come together to agree on industry standards that require the use of patented technology (i.e. Standard Development Organizations) and where holders of standard-essential patents have expressly committed to license those patents on fair, reasonable, and non-discriminatory (“FRAND”) terms in return for their adoption in a standard. The Bureau’s guidance does not apply to “differentiating patents” (i.e. patents which have been widely adopted and are therefore “de facto” standards, but which have not been formally adopted as standardized technology).
The 2016 revised IPEGs also clarify the Bureau’s enforcement approach with respect to conduct involving standard essential patents. A summary of the Bureau’s enforcement approach is set out below:
- Conduct relating to the standard-setting process of a Standard Development Organization will be reviewed under the civil agreement between civil competitor provisions of the Act and not the criminal conspiracy provisions of the Act;
- Alleged anti-competitive conduct by the patentee of a standard essential patent (e.g. “patent ambush” and “patent hold-up” activities) will be reviewed under the abuse of dominance provision of the Act(rather than being treated only as a contractual dispute between the parties).
As in the case with PAEs (discussed above), the Bureau explicitly warns that it “may revisit certain aspects of the guidance in this subsection in the future in light of experience, changing circumstances and court decisions.”
The 2016 revised IPEGs provide further clarity and guidance on the Bureau’s approach to conducting investigations under the Act with respect to activities involving intellectual property, particularly in respect of the specific activities discussed above. Intellectual property owners are therefore well-advised to review the 2016 revised IPEGs to ensure compliance with Canadian competition law.