The Canadian Competition Bureau is in the midst of a two-stage process to update its Intellectual Property Enforcement Guidelines (“IPEGs”). The IPEGs describe the Bureau’s approach to the interface between competition law and intellectual property rights, and its enforcement approach to conduct involving the exercise of IP rights.
In April of last year, in the first stage of the amendment process, the Bureau issued a draft “update” for public consultation. While that update consisted primarily of administrative revisions to reflect amendments to the Canadian Competition Act since the IPEGs were issued in September 2000, certain substantive changes were also proposed relating to, among other things, so-called “product switching” strategies by innovator pharmaceutical companies.
In September 2014, the Bureau announced that the first stage of the IPEG amendment process had come to an end, and it released an update of its IPEGs (a copy of which can be found here).
A second, more substantive update (the "Stage 2 Update") is expected to be issued for public consultation this Spring. The new update will centre on how Canadian competition law could be applied by the Bureau in several areas, including issues of particular importance to technology companies and firms in patent-intensive industries; namely, those relating to conduct involving standard essential patents ("SEPs") (i.e., a patent that claims an invention that must be used in order to conform to a standard adopted by a standard setting organization ("SSO")) and the activities of patent assertion entities ("PAEs") (i.e., companies whose business model is asserting patents although they do not manufacture or sell products or services related to such patents).
Conduct involving SEPs and PAEs, and technology-related patent issues, generally, have garnered antitrust attention in the U.S. and EU for some time. The Bureau's only recently announced interest in these issues is likely a reaction to, among other things, an explosion of PAE activity in the U.S. (which has in some cases targeted Canadian companies operating south of the border), the entry of some PAEs in Canada, and, in the case of SEPs, recognition of the importance of interoperability standards in certain industries.
Conduct Involving SEPs
Currently, there is no administrative guidance in Canada addressing potential competition concerns arising from and related to SSOs and the standard setting process. The issues to be addressed in the second stage of the IPEG amendment process will likely include: (i) the circumstances in which the activities of SSOs, including joint ex ante royalty discussions, could raise issues under the Competition Act; (ii) whether a failure to disclose patents essential to a standard or breaches by an SEP owner of a voluntary commitment to license on "F/RAND" (fair, reasonable and non-discriminatory) terms to those implementing the standard could properly attract antitrust liability; (iii) what royalty rates constitute F/RAND terms; and (iv) whether competition law imposes any limits on the right of owners of F/RAND-encumbered SEPs to seek injunctive relief when their patents are allegedly infringed by implementers.
Conduct Involving PAEs
Like in the United States, there is a debate in Canada over the effect of PAEs and whether competition law should be used to regulate PAE activity. The Stage 2 Update is expected to provide guidance on the circumstances in which conduct involving PAEs might trigger scrutiny by the Bureau and under what provisions of the Competition Act. In this regard, a key issue will likely be the appropriate enforcement approach to the practice by certain operating companies, known as "privateering", of transferring patents to PAEs to increase their rivals' costs through litigation and to evade F/RAND licensing commitments.
The Stage 2 Update expected later this Spring promises to raise a number of important and novel (at least in Canada) issues at the intersection of IP and competition law, and will define the Bureau's enforcement approach to these issues for many years to come. Companies that stand to be affected by the new enforcement guidelines (e.g., firms in patent-intensive industries, including computing, networking and communications) and other stakeholders should give serious consideration to participating in the ensuing public consultation process.