The Competition Bureau has released its updated draft Intellectual Property Enforcement Guidelines for public consultation and is seeking comments by August 10 2015.

The analytical framework in this draft is similar to the September 2014 version, although this version includes many more examples concerning patent settlements and standard-essential patents. The Competition Bureau has also stepped back from its earlier position and clarified that settlement agreements will be reviewed civilly, absent evidence of intent to fix prices, allocate markets or restrict output.

In September 2014 the Competition Bureau issued a white paper that provided background information on the pharmaceutical industry and regulatory regime in Canada, the provisions of the Competition Act that may apply to reverse-payment settlement agreements and its preliminary views as to how the act could apply to such settlements. As part of the white paper, the Competition Bureau called for a notification regime similar to that which exists in the United States.

The Competition Bureau has maintained its position that the circumstances in which it may apply the Competition Act to conduct involving intellectual property or IP rights fall into two broad categories:

  • conduct involving something more than the mere exercise of the IP right, where general provisions of the Competition Act will be applied; and
  • conduct involving the mere exercise of the IP right and nothing else, where Section 32 (special remedies) of the Competition Act will be applied.

General approach

The Competition Bureau generally takes a five-step approach to determining competitive harm. The approach will also be applied, according to the draft guidelines, when determining whether IP rights or agreements cause competitive harm. The five steps are as follows:

  • identifying the conduct;
  • defining the relevant market;
  • determining whether the companies involved possess market power by examining market concentration, conditions for new entrants and other factors;
  • determining whether the conduct would substantially lessen or prevent competition in the relevant markets; and
  • considering relevant efficiency rationales or business justifications.

Patented Medicines (Notice of Compliance) Regulations

The Competition Bureau has provided guidance on how it will approach settlement agreements reached as part of proceedings under the Patented Medicines (Notice of Compliance) Regulations.

Generally, where a payment is made to a generic pharmaceutical company, the Competition Bureau views the payment as creating competitive harm if it is compensation in return for a product not entering the market as early as it would have otherwise entered. The Competition Bureau will investigate the settlement agreement civilly under Section 90.1 (civil agreements lessening competition) or 79 (abuse of dominance), unless there is evidence that the intent of the payment was to fix prices, allocate markets or restrict output, in which case the Competition Bureau will criminally investigate the agreement under Section 45 (criminal cartel agreements).

Standard-essential patents

Standards can be created through standard development organisations, and the Competition Bureau notes that while technical standards can provide pro-competitive benefits, they also raise competition concerns. Patented technology can be included in standards, which creates the potential for patent 'hold-up' where a patent owner has market power derived from its technology being necessary to meet a standard.

The Competition Bureau indicates in the draft guidelines that, generally, it will not investigate standard development organisations that require members to disclose patents that are essential to a standard and do not facilitate discussions among members under the Competition Act's criminal provisions. Rather, it may investigate the agreement under the civil provisions. Actions that could be viewed as patent hold-up will be reviewed by the Competition Bureau under the abuse of dominance provisions.

Investigation triggers

The draft guidelines contain several examples of conduct that would attract the Competition Bureau's attention. The following are examples of particular interest to the creative and technology sectors:

  • In Example 2, three firms market competing surgical procedures and decide among themselves on a minimum price that each will charge for the procedure. The Competition Bureau believes that this type of agreement would likely contravene Section 45(1), as it aims to fix prices for the supply of a product. Accordingly, it would refer the matter to the director of public prosecutions.
  • Example 6 refers to a patent pooling arrangement for an international standard whereby five firms license their patents on a non-exclusive basis to the pool. Such an agreement may be pro-competitive, especially if only essential patents are in the pool and licences are distributed on a non-discriminatory basis.
  • Example 15 involves what is called 'patent ambush', where a firm fails to disclose certain patents to a standard development organisation and then litigates against companies that use the standard under the undisclosed patents. Such conduct may be reviewed under Section 79, as it may be an abuse of dominant position.

Comment period

It is important for stakeholders to provide their views on the proposals the Commission Bureau has put forward in its revised approach to IP issues, and indicate whether there are other competition or IP issues that they believe it should consider. The Competition Bureau is accepting comments until August 10 2015.

Stephen Nattrass

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.