On April 2, 2014, the Competition Bureau (“Bureau”) released a draft update of its Intellectual Property Enforcement Guidelines (“IPEGs”), which sets out the Bureau’s views concerning the manner in which the provisions of the Competition Act would be applied to conduct involving intellectual property rights. On the same day, the Bureau and the Canadian Intellectual Property Office announced that they have signed a Memorandum of Understanding (MOU) calling for closer cooperation between the two agencies.
The IPEGs were first released in 2000. The update includes revisions to reflect amendments made to the Competition Act in March 2009 and in March 2010 and to bring the IPEGs in line with other Bureau enforcement guidelines released since 2000. The update does not, however, represent a significant departure with respect to how the Bureau approaches the interface between competition policy and intellectual property rights, and the circumstances in which the Bureau may apply the Competition Act to conduct involving intellectual property rights remain substantially the same. Indeed, the only substantive changes to the IPEGs presented in the update address the amendments to the Competition Act made in March 2009 and in March 2010, including the restructuring of certain provisions of the Competition Act implemented by those amendments.
The circumstances in which the Bureau may apply the Competition Act continue to fall into two broad categories: (i) those involving something more than the mere exercise of an intellectual property right, which are addressed in the general provisions of the Act, and (ii) those involving the mere exercise of an intellectual property right and nothing more, which are addressed in a “special remedies” provision of the Act. For those readers who may be unfamiliar with the Bureau’s approach, these two categories, and the respective provisions of the Act, are briefly reviewed below.
i. Something more than the mere exercise of an intellectual property right
According to the IPEGs, the mere exercise of an IP right is not cause for concern under the general provisions of the Competition Act. The Bureau defines the mere exercise of an intellectual property right as the exercise of the owner's right to unilaterally exclude others from using the intellectual property. The Bureau views an intellectual property owner's use of the intellectual property also as being the mere exercise of an intellectual property right.
The Bureau considers that “something more” will occur when intellectual property rights form the basis of arrangements between independent entities, whether in the form of a transfer, licensing arrangement or agreement to use or enforce intellectual property rights, and when the alleged competitive harm stems from such an arrangement and not just from the mere exercise of an intellectual property right and nothing else. As an example, the Bureau describes the situation of a firm acquiring market power by systematically purchasing a controlling collection of intellectual property rights and then refuses to license the rights to others. In such a situation, the Bureau could view the acquisition of such rights as anti-competitive, since the refusal to license others would substantially lessen or prevent competition in markets associated with the intellectual property rights.
In situations involving “something more” than the mere exercise of an intellectual property right, the Bureau will rely on the general provisions of the Competition Act to address the situation.
The most relevant general provisions include those relating to criminal conspiracy, refusal to deal, resale price maintenance, exclusive dealing, market restriction and tied selling, abuse of dominant position, anti-competitive agreements or arrangements and mergers.
ii. The mere exercise of an intellectual property right
Section 32 of the Competition Act provides special remedies specifically directed to the anti-competitive exercise of intellectual property rights. Such remedies are obtained on application to the Federal Court by the Attorney General (on recommendation from the Bureau), and include: declaring any agreement or licence relating to the challenged right void, ordering licensing of the right (except in the case of trade-marks), revoking a patent, expunging or amending a trade-mark, or directing that other such acts be done or omitted as deemed necessary to prevent the conduct at issue.
Section 32 applies where the mere exercise of an intellectual property right unduly limits or restrains trade or lessens competition. The Bureau indicates that conduct will meet this threshold where:
- the holder of the intellectual property is dominant in the relevant market;
- the intellectual property is an essential input or resource for firms participating in the relevant market - that is, the refusal to allow others to use the IP prevents other firms from effectively competing in the relevant market; and
- invoking a special remedy against the IP right holder would not adversely alter the incentives to invest in research and development in the economy, i.e. where the refusal to license the IP is stifling further innovation.
In the draft updated IPEGs, the Bureau states (as it had in the original IPEGs) that only in very rare circumstances would all three factors be satisfied. As an illustrative example, the Bureau notes that all three factors may be present where the intellectual property at issue has become an industry standard (i.e. the intellectual property at issue is indispensable input for competitor's products to be viable alternatives). In such a case, the refusal to grant competitors access to the industry standard, for example, by refusing to license the intellectual property rights to competitors, would prohibit others from making viable alternatives, lessening competition.
Impact on the exercise of intellectual property rights
To date, intervention by the Bureau in intellectual property matters has been relatively rare. Indeed, the first release of the IPEGs in 2000 was not followed by increased enforcement activity by the Bureau in relation to intellectual property. The relatively modest amendments presented in the draft updated IPEGs might suggest that the updating of the IPEGs alone should not be taken as signaling greater interest on the part of the Bureau with respect to enforcement in this area. However, this remains to be seen.
Furthermore, it should be noted that the Bureau acknowledges in the IPEGs that in some cases, “anti-competitive” conduct involving intellectual property rights is more aptly addressed by the appropriate intellectual property authority under the appropriate intellectual property statute, such as, for example, where a patent holder indiscriminately asserts the patent over products that do not all fall within the scope of the patent claims. To this end, it is notable that the Bureau and the Canadian Intellectual Property Office have announced that they have signed a Memorandum of Understanding (MOU) calling for closer cooperation between the two agencies.
The Bureau has invited interested parties to provide their views on the draft updated IPEGs by June 2, 2014. We will continue to monitor and report on this topic as it develops.