In Canada, the Competition Act largely defers to the Patent Act. For example, the Act’s abuse of dominance provision (s. 79 — Canada’s equivalent to s. 2 of the Sherman Act and Article 102 of the Treaty of Rome), establishes a complete defence for a practice that is engaged in only (more on this term later) pursuant to the exercise of a right conferred by the Patent Act.

Nonetheless, there are a number of issues that arise frequently in the context of patents held by life sciences businesses. This article briefly highlights five issues:

Licensing terms;

Bundling;

Differential patent expiry dates;

Strategies for the patent expiry period; and

Settling patent challenges.

Licensing Terms

When a patent holder considers licensing a patented product, one question that often arises is: “what terms can we include in the license?” The short answer is that a patent holder may include any term that would be considered to be a “normal” term of patent licence (this is when the term “only” described above, comes into play). At this point, the patent lawyer’s input to the competition team is helpful. Patent lawyers see many licensing agreements and assist in determining whether a provision is the normal exercise of a patent right or is an attempt to leverage the patent to gain an advantage outside of, or in addition to, the rights conferred by the Patent Act. Terms that would require careful scrutiny before being adopted include:

  • terms that impose resale restrictions;
  • terms that require additional purchases of other products (see below); and
  • terms that extend the contract beyond the life of the patent (see below).

Bundling

Competition lawyers are often asked about bundling products. The bundle could consist of a patented and a non-patented product, or it could consist of two patented products.

Normally, the offering of product bundles is unobjectionable. Bundles can raise issues, however, when the pricing of the bundles forecloses competition for one of the products (most often the unpatented product in the bundle). This typically happens in one of two ways: either the products are only offered in a bundle in the territory, or all of the profit is loaded into the patented product in the bundle and the unpatented product is priced at or below cost. The simplest solution in this case is to ensure that the bundled products are available individually and that the pricing of each product in the bundle exceeds the cost of the product. Sometimes these simple solutions are not feasible; in those circumstances, a bundling strategy should be carefully reviewed for possible competition law risk.

Differential Patent Expiry Dates

On occasion, a U.S. patent on a product will be extended while the Canadian patent will not. It is an anti-competitive practice in that situation for the patent holder to use the negotiating leverage afforded by the U.S. patent to secure a competitive advantage in Canada (this was the essence of the first abuse of dominance case, NutraSweet). In this scenario, the Canadian business must recognize that its patent protection has expired and plan accordingly.

Strategies for Patent Expiry

Patent holders are understandably concerned about retaining as much profitability in their products as possible after their patents expire. NutraSweet made it clear that a patent holder cannot artificially extend the life of its patent by entering into long-term exclusive contracts. This doesn’t necessarily mean, however, that the patent holder cannot enter into any exclusive contracts; it means that a careful analysis of the market should be undertaken. Depending on the structure of the market and the nature of emerging competition in that market, exclusive contracts may be entered into with some customers without materially lessening or preventing competition. In addition, the analysis may differ if the exclusive supply is the product of a tender.

Settling Patent Challenges

Reverse payments made by patent holders to generic manufacturers remain a hot topic in U.S. antitrust law. A detailed discussion of the topic requires much more space than is available in this note. Suffice it to say that the author has experience in designing a monetary settlement of a patent challenge to a patented drug, where the settlement was acceptable to the Competition Bureau. The structure of such a settlement must be carefully crafted in light of the particular market and the nature of the patent challenger.