Earlier in 2019 the Competition Bureau released its updated IP Enforcement Guidelines. The guidelines explain how:
- the bureau will approach the interface between competition policy and IP rights;
- the bureau will determine whether conduct involving intellectual property raises an issue under the Competition Act; and
- such conduct will be addressed in accordance with the act.
The bureau has recognised that intellectual property plays an important role in stimulating technology development, artistic expression and knowledge dissemination, which are all vital to a knowledge-based economy. However, the bureau has acknowledged the interest in how it will deal with competition issues involving intellectual property. Accordingly, it has made it a priority to provide increased clarity on this subject.
While the guidelines are technical and directed at IP and competition law practitioners, this article outlines the key aspects of the bureau's approach and various scenarios involving competition and intellectual property that could arise for consideration.
Any application of the act will fall into one of the two broad categories discussed below. In either case, the bureau will not presume a violation of the act.
The bureau views its standard analytical approach to other non-IP forms of property as sufficiently flexible to accommodate the important characteristics that distinguish intellectual property.
Mere exercise of IP rights The bureau defines the 'mere exercise' of an IP right as the exercise of the owner's right to unilaterally exclude others from using the intellectual property or the IP owner's use or non-use of an IP right. Where there is a mere exercise of an IP right and nothing else, the bureau can use the special remedies provided for under Part IV the act; however, it has indicated that it will do so only in rare circumstances, where the relevant IP statute provides no suitable remedy for any impugned conduct. The special remedies under the act allow the Federal Court to (for example):
- declare void or limit any agreement, arrangement or licence in respect of an IP right;
- order the grant of licences relating to an IP right; and
- expunge or amend a registered IP right.
Something more Where there is something more than the mere exercise of an IP right, the bureau will consider using the general provisions of the act, including the criminal provisions. 'Something more' is, for example, when an IP licensor ties a non-proprietary product to a product covered by its IP right or when a firm extends its market power beyond the term of its patent through an exclusive contract. In such instances, if the conduct leads to the creation, enhancement or maintenance of market power that substantially lessens or prevents competition, the bureau may intervene under the general provisions.
While the act and the guidelines should be carefully considered when determining whether activities involving an IP right may attract the bureau's attention, the bureau has highlighted certain hypothetical activities in the guidelines that provide a better picture of when it might investigate or pursue enforcement.
Price fixing The bureau may investigate a price-fixing agreement between parties that have independently developed and patented techniques relating to a product, in order to limit competition between them in the market.
Abuse of dominance The bureau might also investigate conduct under the abuse of dominance provision at Section 79 of the act where:
- a patentee grants licences exclusively to select large firms that make up a significant portion of the market relating to the patented technology;
- a large firm uses its dominant position in the market to obtain exclusive licences to various patented technologies, foreclosing its competitors from the market;
- a manufacturing firm with a soon-to-expire Canadian patent begins negotiating new licences extending beyond the term of the patent or where the licensee is required to pay a royalty whether or not the patented technology is included in the product; or
- several major firms that typically compete agree not to release copyrighted materials other than in the proprietary format of those firms in order to foreclose from the market a competitor that uses a different format.
In the above instances, in deciding whether to move forward with enforcement, the bureau would determine whether the acts would substantially lessen or prevent competition.
Patent pools The bureau also recognises that patent pools, where several firms cross-licence patents relating to one product, may serve a pro-competitive purpose by integrating complementary technologies, reducing transaction costs and clearing blocking patents. However, the bureau notes that a patent pool may be subject to review where there is evidence that the pool is an agreement between competitors or potential competitors.
Refusal to license In circumstances where a firm simply refuses to license an IP right, the conduct would constitute only a mere exercise of an IP right, and would therefore be subject to review only under the special remedies as described above. To determine whether action is warranted, the bureau would consider whether the refusal created an undue restraint of trade or unduly lessened competition, first by determining whether the refusal adversely affected competition in a relevant market that was different or significantly larger than the IP right's subject matter, and then by determining whether the refusal would adversely alter other firms' incentives to invest in research and development in the economy.
Product switching The bureau distinguishes between two different types of product switching:
- 'Hard' switching – where a patented product is removed from the market before the patent's expiry to force a market to switch to a similar product which has more years of patent protection remaining – may be investigated under the act's abuse of dominant position provision.
- 'Soft' switching – where a patentee does not withdraw its patented product A from the market but merely stops promoting product A in favour of product B, the latter of which has more years of patent protection remaining – is unlikely to raise concerns under the act, provided that the new marketing campaign involves no false or misleading representations about the original product.
Patent assertion entities are businesses that acquire patents from innovators for the sole purpose of asserting them against firms allegedly infringing the patented technology and do not sell or manufacture products or services relating to such patents (these are sometimes referred to as non-practicing entities).
The bureau has acknowledged that the role of competition law enforcement with respect to patent assertion entities is rapidly evolving and has stated that it will continue to refine its approach and may revisit its guidance in this area. For the time being, the guidelines provide some examples of the bureau's current approach:
- Where a patent assertion entity sends out a patent infringement notice to potential infringers seeking a licence fee and threatening legal action, statements found to be false (eg, a false claim that many businesses have already paid a licence fee or a false intention of commencing legal proceedings) may be reviewable under the act's misleading advertising and deceptive marketing provisions.
- The assignment of a patent right to a patent assertion entity simply for the purpose of more effective enforcement raises no issues under the act.
Largely motivated by perceived issues with the practices of patent assertion entities, the Patent Act has also been amended to provide regulation-making authority for the establishment of requirements for written demands relating to patents (ie, cease and desist letters) (for further details please see "Five important changes to Patent Act now in effect").
Notably, the bureau itself acknowledges that the guidelines are necessarily technical in nature and are accordingly primarily targeted to IP and competition law practitioners. With this in mind, when issues relating to IP and competition law arise, including when deciding whether to pursue the licensing or enforcement of IP rights, legal advice should be sought.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.