Anticompetitive unilateral conduct

Abuse of dominance

In what circumstances is conduct considered to be anticompetitive if carried out by a firm with monopoly or market power?

In Canada, abuse of dominance is a civil reviewable matter, meaning that there is no liability until the Tribunal actually makes a finding that abuse of dominance has occurred. The provision is for general application to all sectors of the economy, a fact underscored by the 2009 repeal of special provisions designed to address abuse of dominance by a domestic airline and other sector-specific guidance that has been removed from the Enforcement Guidelines on the Abuse of Dominance Provisions (2012 Guidelines).

The Commissioner must prove three elements on a balance of probabilities before the Tribunal may make an order proscribing the behaviour or imposing an administrative monetary penalty:

  • that one or more persons substantially or completely control, throughout Canada or any area thereof, a class or type of business;
  • that the person or persons have engaged in or are engaging in a practice of anticompetitive acts; and
  • that the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market.
De minimis thresholds

Is there any de minimis threshold for a conduct to be found abusive?

The first element of abuse of dominance in Canada is that a firm or firms must have a dominant market position (ie, substantially or completely controlling a class or type of business). However, there is no minimum size of the market that must be controlled or affected to raise concerns.

Market definition

Do antitrust authorities approach market definition in the context of unilateral conduct in the same way as in mergers? If not, what are the main differences and what justifies them?

Product and geographic market definition are similar in merger cases and in unilateral conduct cases.

Establishing dominance

When is a party likely to be considered dominant or jointly dominant? Can a patent owner be dominant simply on account of the patent that it owns?

There are three elements to the abuse of dominance provision, and holding market power is a key consideration. Canada’s abuse of dominance law looks to market share (among other factors) as an indicia of market power or dominance, and the Bureau acknowledges generally using market share as a preliminary screen when assessing dominance cases. To date, there is no specific market share threshold for prima facie market power. All of the contested abuse cases thus far have concerned market shares in excess of 80 per cent, where a prima facie case was relatively obvious. But Canadian cases have found that ‘no prima facie finding of dominance would arise’ with respect to a market share below 50 per cent, and a 25 per cent market share ‘falls well short of a level that might be considered to indicate market power’.

Notwithstanding these pronouncements by the Tribunal, from an enforcement perspective, the Bureau’s enforcement guidelines take a different approach. In the Bureau’s 2012 Abuse of Dominance Enforcement Guidelines, the Bureau’s general approach (to market share) is as follows:

  • a market share of less than 35 per cent will generally not prompt further examination;
  • a market share of between 35 and 50 per cent will generally only prompt further examination if it appears the firm is likely to increase its market share through the alleged anticompetitive conduct within a reasonable period of time;
  • a market share of 50 per cent or more will generally prompt further examination; and
  • in the case of a group of firms alleged to be jointly dominant, a combined market share equal to or exceeding 65 per cent will generally prompt further examination.

However, the Bureau released new Abuse of Dominance Enforcement Guidelines in March 2019 and the 35 per cent safe harbour was removed. The Bureau’s new general approach is as follows:

  • a market share below 50 per cent will generally only prompt further examination if other evidence indicates the firm possesses a substantial degree of market power, or that it appears the firm is likely to realise the ability to exercise a substantial degree of market power through the alleged anticompetitive conduct within a reasonable period while that conduct is ongoing;
  • a market share of 50 per cent or more will generally prompt further examination; and
  • in the case of a group of firms alleged to be jointly dominant, a combined market share equal to or exceeding 65 per cent will generally prompt further examination

The case law is clear that although market share is important to the dominance analysis, a finding of market power must be supported by findings other than market share, such as the existence of barriers to entry, the number and effectiveness of competitors, excess capacity and the state of the market.

Merely holding a patent does not confer dominance on its holder. If the product market were defined narrowly so as to include only the patented product, the holder may be dominant in that market. However, more than mere dominance is required. There must be some practice of anticompetitive acts. A patent holder would not likely be considered to be anticompetitive, though, if it faced no competitors as a result of its patent monopoly.

IP rights

To what extent can an application for the grant or enforcement of a patent or any other IP right (SPC, etc) expose the patent owner to liability for an antitrust violation?

If the application was made in good faith, there would be no exposure to liability for an antitrust violation in Canada. Where the conduct involves ‘something more’ than the mere exercise of patent rights, the general provisions of the Act may apply.

When would life-cycle management strategies expose a patent owner to antitrust liability?

The Bureau has noted that the abuse of dominance provisions are the provisions of the Act ‘most likely to apply to product-switching conduct’ because the conduct ‘involves anticompetitive acts by a single dominant company designed to exclude competitors and to create, maintain, or enhance its market power’ (paragraph 34 of the Bureau’s submission to the OECD Competition Committee round table on Competition Issues in the Distribution of Pharmaceuticals, 28 February 2014).

The Bureau investigated product switching by Alcon Canada under the abuse of dominance provisions, but in the end declined to refer the matter to the Tribunal after Alcon Canada reintroduced the product it had initially withdrawn from the market.

Communications

Can communications or recommendations aimed at the public, HCPs or health authorities trigger antitrust liability?

Advertising of prescription products to the general public is prohibited, except in respect of name, price and quantity. Advertising of prescription drugs to HCPs is permitted, as is advertising of non-prescription drugs; however, in all cases it must not be misleading, deceptive or likely to create an erroneous impression.

Authorised generics

Can a patent owner market or license its drug as an authorised generic, or allow a third party to do so, before the expiry of the patent protection on the drug concerned, to gain a head start on the competition?

A patent holder may market or license its drug as an authorised generic, or allow a third party to do so, before the expiry of the patent protection and, absent any other conduct or agreement, this should not raise concerns. The Bureau has stated that it may analyse such conduct in the context of other potentially anticompetitive conduct, such as pay-for delay settlements and brand switching strategies.

Restrictions on off-label use

Can actions taken by a patent owner to limit off-label use trigger antitrust liability?

As noted in question 1, the laws and regulations regarding pharmaceuticals in Canada prohibit the off-label promotion of drug products by drug manufacturers. To the extent drugs are discussed off label, it is only permissible at the HCP level (ie, in academic journals, continuing education, meetings, prescribing, etc.). If a patent claimed the off-label use, the patent holder could enforce its patent against anyone who ‘infringes’ that claim.

Generally, there is no expectation that patent owners take actions to limit off-label use. Prescribers are permitted to prescribe off-label and this would be regulated as the practice of medicine. Although it is unlikely that attempts to limit off-label use would trigger antitrust liability, it is possible under the right set of facts.

Pricing

When does pricing conduct raise antitrust risks? Can high prices be abusive?

Predatory pricing occurs when a company deliberately sets prices below cost for long enough to eliminate, discipline or deter entry by a competitor. This involves an expectation that the company will be able to recoup its losses later, by raising prices again. Predatory pricing is an anticompetitive act under the abuse of dominance provisions, described above.

Merely having high prices is not abusive - the other elements of abuse of dominance must also be present.

Sector-specific issues

To what extent can the specific features of the pharmaceutical sector provide an objective justification for conduct that would otherwise infringe antitrust rules?

Canadian common law includes a notion of a regulated conduct defence, which is an interpretative tool to deal with how to apply one statute to conduct that is authorised or required by a federal, provincial or other law. In one case, a generic manufacturer challenged an assignment of patent rights as contrary to section 45 of the Act dealing with anticompetitive agreements. The Federal Court held that a patent assignment could not lessen competition. Although the Federal Court of Appeal disagreed and held that it is possible that the assignment of a patent right ‘may, as a matter of law, unduly lessen competition’, the case was ultimately decided on other grounds