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06 June 2016
On March 31 2016 the Competition Bureau released the revised IP Enforcement Guidelines, following an extensive public consultation process held in 2015 based on previous drafts released in 2014 and 2015 (for further details please see "Competition Bureau releases updated IP Enforcement Guidelines").
The guidelines describe the bureau's approach to conducting investigations under the Competition Act in respect of anti-competitive activities that relate to intellectual property. The primary revisions to the 2016 revised IP Enforcement Guidelines (which represent the bureau's first major update since the guidelines' original release in 2000) include clarification on the bureau's position on patent settlements, product switching, the conduct of patent assertion entities and conduct involving standard-essential patent owners.
The 2016 revised IP Enforcement Guidelines provide additional guidance on the bureau's enforcement approach with respect to settlement agreements under the Patented Medicines (Notice of Compliance) Regulations (the PM(NOC) Regulations) by identifying factors which will be considered in determining whether a settlement could give rise to competition law concerns under the civil provisions of the act and by providing clarity as to when such agreements may be reviewed under the criminal provisions of the act.
Specifically, the bureau indicates that in reviewing settlements for potential competition law concerns, consideration must be given to the significant differences in the regulatory regimes governing pharmaceuticals in Canada relative to other jurisdictions which may have an impact on the terms and incentives related to settlements. Such factors include:
The bureau also articulates its enforcement approach with respect to settlements, in particular identifying the types of settlement which may give rise to prosecution under the criminal provisions of the act. A summary of the bureau's enforcement approach is set out below:
Under Canadian competition law, the mere exercise of an IP right is not cause for concern under the general provisions of the Competition Act.
In the original IP Enforcement Guidelines published in 2000, the 'mere exercise' of an IP right was defined as including an "IP owner's use or non-use of the IP". However, under the 2015 draft IP Enforcement Guidelines the bureau appeared to signal a change to this approach by removing the term 'non-use' from its definition of 'mere exercise' and by indicating that refusal to use intellectual property could be challenged under the abuse of dominance provisions. As an illustrative example of non-use abuse of dominance, the bureau provided the example of product switching, whereby a patentee removes a top-selling patented Product A that is about to lose patent protection and replaces it with a similar patented Product B that has several years of patent protection remaining so as to force the market to switch to its new Product B, thereby impeding market entry by other manufacturers after the expiry of the Product A patent.
In the 2016 revised IP Enforcement Guidelines the bureau reverts to its original position, in that the mere exercise of an IP right is defined once again as including an "IP owner's use or non-use of the IP right"; however, the bureau introduces a caveat, making clear that in some limited circumstances the non-use of an IP right could potentially raise issues under the general provisions of the act.
The bureau also expands on its discussion of patent switching by distinguishing between 'hard' switching (the situation discussed above in which a patented product is removed from the market before the expiry of the patent to force a market to switch to a similar product which has several years of patent protection remaining) and 'soft' switching (whereby a patentee does not withdraw a top-selling patented Product A from the market, but merely stops promoting Product A in favour of a similar patented Product B that has several years of patent protection remaining). While hard switching may be investigated under the act's abuse of dominance provisions, soft switching is unlikely to raise concerns under the act, provided that the patentee's new marketing campaign does not involve false or misleading statements about the original product.
Patent assertion entities (PAEs) are companies which acquire patents for the sole purpose of asserting them against firms that are allegedly infringing the patented technologies (ie, they do not manufacture or sell products or services related to such patents).
In the 2015 draft IP Enforcement Guidelines the bureau indicated that the conduct of such companies would most likely be examined under the false or misleading claims provisions of the act, which prohibit making a representation to the public that is false or misleading in a material respect, or is made knowingly and recklessly, respectively.
In the 2016 revised IP Enforcement Guidelines the bureau provides additional clarification as to when PAE conduct may trigger investigation under the act. Specifically, the bureau indicates that the assignment of a patent right to a PAE simply for the purpose of more effective enforcement (with an agreement to split revenues from enforcement of that patent) does not raise issues under the act. However, the bureau reminds parties that conduct relating to assignments is potentially subject to review under the general provisions of the act.
The bureau explicitly warns that the law with respect to PAEs is rapidly evolving and therefore it may revisit its guidance in this area in the future.
In the 2015 draft IP Enforcement Guidelines the bureau indicated that the development of standard-essential patents through standard development organisations or other means can pose competition concerns (eg, patent hold-up, patent ambush, reneging on a licence commitment or seeking an injunction against willing licensees after making a licensing commitment).
The 2016 revised IP Enforcement Guidelines clarify that the bureau's guidance with respect to standard-essential patents applies only in the context of standards developed through collaborative standard-setting activities – that is, where companies come together to agree industry standards that require the use of patented technology (ie, standard development organisations) and where holders of standard-essential patents have expressly committed to license those patents on fair, reasonable and non-discriminatory (FRAND) terms in return for their adoption in a standard. The bureau's guidance does not apply to 'differentiating patents' (ie, patents which have been widely adopted and are therefore de facto standards, but which have not been formally adopted as standardised technology).
The 2016 revised IP Enforcement Guidelines also clarify the bureau's enforcement approach with respect to conduct involving standard-essential patents. A summary of the bureau's enforcement approach is set out below:
As in the case with PAEs, the bureau explicitly warns that it "may revisit certain aspects of the guidance in this subsection in the future in light of experience, changing circumstances and court decisions".
The 2016 revised IP Enforcement Guidelines provide further clarity and guidance on the bureau's approach to conducting investigations under the act with respect to activities involving intellectual property, particularly in respect of the specific activities discussed above. Rights holders would therefore be well advised to review the 2016 revised IP Enforcement Guidelines to ensure compliance with Canadian competition law.
For further information on this topic please contact Andrea Kroetch at Smart & Biggar/Fetherstonhaugh by telephone (+1 613 232 2486) or email (firstname.lastname@example.org).The Smart & Biggar/Fetherstonhaugh website can be accessed at www.smart-biggar.ca.
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