IPEGs
Patent litigation settlements
Applying the act to reverse settlement agreements
Notification system
The Competition Bureau made several significant announcements in September that affect the pharmaceutical and life sciences sectors.
On September 18 2014 the bureau released the final version of its updated Intellectual Property Enforcement Guidelines (IPEGs), which set out its approach to navigating the intersection of competition law and intellectual property. The following week the bureau released a white paper, "Patent Litigation Settlement Agreements: A Canadian Perspective", which provides the bureau's first in-depth statement on how it may analyse so-called 'pay for delay' settlements under the Competition Act.
The bureau's IPEG revisions are intended to occur in two phases. The first phase – now complete with publication of the September 2014 version – involved public consultations on a draft update released in April. This version does not represent a material departure from the approach adopted in 2000 when the IPEGs were first released. The bureau has maintained its position that the circumstances in which it may apply the act to conduct involving intellectual property or IP rights fall into two broad categories:
- those involving something more than the mere exercise of the IP right; and
- those involving the mere exercise of the IP right and nothing else.
The bureau will use the act's general provisions to address the former circumstances and Section 32 (special remedies) to address the latter.
New elements in the September 2014 version include a reworked discussion of patent pooling arrangements and a new discussion of product switching.
Phase two of the revisions is expected to seek further public comment on additional updates to the IPEGs that will include the bureau's approach to patent litigation settlements, patent assertion entities and activities related to standard-essential patents.
In conjunction with a keynote address by Commissioner of Competition John Pecman at a pharmaceutical industry conference, the bureau released a white paper that provides background information on the pharmaceutical industry, the regulatory regime, the Competition Act provisions that may apply to reverse-payment settlement agreements and the bureau's preliminary views as to how the act could apply to such settlements.
The commissioner (at least on paper) struck a defiant tone in announcing the bureau's approach to reverse-payment settlements, noting that he "completely disagreed" with commentators who have noted that Canada's different regulatory regime merits a "less vigorous" approach to these agreements than that taken in the United States or the European Union. He also acknowledged that many would find the bureau's approach "somewhat surprising, particularly in light of the US Supreme Court's recent decision in Actavis".
The white paper's most significant elements are:
- the acknowledgment that the bureau will examine reverse-payment settlement agreements under both the criminal and civil provisions of the act; and
- the bureau's call for a notification regime similar to that which exists in the United States.
Applying the act to reverse settlement agreements
When the US Supreme Court addressed reverse-payment settlements in Actavis, it found that they were subject to a 'rule of reason' analysis: they are not automatically considered anti-competitive, but instead one must examine the likely competitive effects of the agreement. The bureau has adopted a "decidedly different view", according to the commissioner. The white paper makes clear that the bureau will evaluate settlements under the per se 'criminal conspiracy' provision or the 'civil abuse of dominance' or 'civil agreements with competitors' provisions.
The commissioner said the following settlements will likely attract scrutiny under the criminal provisions:
- "If a settlement is between competitors and includes conduct with respect to markets or products that are not the focus of the patent litigation or the conduct is beyond the scope of the patent, such as fixing a generic entry date beyond the term of the patent, provided that the conduct is of the type prohibited by this provision."
- "If there is direct or circumstantial evidence that indicates that the settlement is a vehicle for a 'naked restraint' on competition that is not implemented in furtherance of a legitimate collaboration or was motivated by factors beyond the issues associated with the litigation."
Examples provided include where there is a payment for delayed entry by a generic, with the entry date after the patent's expiry date, or where it is clear that a payment is strictly to delay or prevent entry.
By contrast, where there is no evidence of a naked restraint, the bureau will most likely review the matter under the civil agreements between competitors provision. In certain circumstances, where it appears that the parties are abusing their dominant position in a market, the bureau will proceed under the abuse of dominance provisions. In both instances, the bureau must demonstrate that the settlement agreement is likely to cause a substantial lessening or prevention of competition.
The bureau attributes its lack of enforcement activity in this area in part to the absence of a notification regime in Canada by which settling parties must advise the government of the settlement. Such a system exists in the United States, where settling parties must file copies of the agreements and provide detailed descriptions of the terms of settlement. The white paper notes that the lack of such a system in Canada "could lead to potentially anticompetitive settlements evading review under the Act", while adopting such a system "would allow us to better protect consumers".
In his remarks, the commissioner said he will "advocate for better information on patent settlements and the need to explore approaches that could be adapted to Canada's regulatory framework". It remains to be seen whether, in light of the Harper government's stated priority of defending Canadian consumers, legislation to provide for a notification regime can be expected in the next budget bill, expected in Spring 2015. This government has shown a willingness to use omnibus budget legislation to make significant changes to the Competition Act.
If a notification regime is adopted, it could have a significant impact on how pharmaceutical companies approach patent litigation settlements in Canada. For companies operating in North America, its impact may be minimal if they already structure Canadian settlements in a manner similar to contemporaneous US settlements. However, given the differences in Canada's legal regime and the commissioner's remarks, it is important to continue to carefully analyse any Canadian settlement to ensure compliance with the Competition Act.
For further information on this topic please contact Kevin Ackhurst at Norton Rose Fulbright Canada LLP by telephone (+1 416 216 4000), fax (+1 416 216 3930) or email ([email protected]).The Norton Rose Fulbright Canada website can be accessed at www.nortonrosefulbright.com/ca.
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