As an independent federal law enforcement agency, the Competition Bureau (the “Bureau”) seeks to ensure that Canadian business and consumers prosper in a competitive and innovative marketplace. Keeping with its mandate, the Bureau released its updated Intellectual Property Enforcement Guidelines (“IPEGs”) on March 13, 2019. The IPEGs articulate how the Bureau approaches the interface between competition policy and intellectual property (“IP”) rights, including whether conduct involving IP raises an issue under the Competition Act.
In particular, businesses involved in the assertion and/or dealing of IP rights should be aware of both the general and special provisions of the Competition Act and how the Bureau will seek to apply the Competition Act to IP rights as illustrated in the IPEGs.
What follows is a brief overview of the 2019 IPEGs and more generally the intersection of competition law and IP law. Further publications will address specific issues including the Bureau‘s approach to settlements of litigation under the Patented Medicines (Notice of Compliance) Regulations, patent assertion entities and standard essential patents/FRAND licencing.
The Competition Act
The Competition Act is a federal statute administered and enforced by the Bureau. The provisions of the Competition Act seek to maintain and encourage competition in Canada by preventing anti-competitive behaviour in the marketplace. When warranted, the Competition Act sets out when the Bureau may intervene in relation to certain behaviours.
Conduct that warrants the intervention of the Bureau falls into two categories: (1) reviewable matters (i.e. conduct that is generally pro-competitive but that may, in certain circumstances, significantly constrain competition); and (2) criminal offenses (e.g. conspiracy and bid-rigging). For example, this may include misleading advertising and related deceptive marketing practices, exclusive dealing, refusal to deal, price maintenance, and abuse of a dominant position.
Generally, the Bureau‘s analysis for determining whether competitive harm would result from a particular type of business conduct comprises five steps:
- Identifying the conduct;
- Defining the relevant market;
- Determining if the firm or firms under scrutiny possess market power by examining the level of concentration and entry conditions in the relevant market(s) (as well as other factors);
- Determining if the conduct would substantially lessen or prevent competition in the relevant market(s); and
- Considering, when appropriate, any relevant business justifications.
The Competition Act & intellectual property
IP laws confer on an IP owner the right to unilaterally exclude others from using that property. While each IP-related statute grants this right to varying degrees, all of the statutes position the owners of the IP to maximize the IP’s value through trade and exchange in the marketplace
Since the right to exclude – the basis of private property rights – is necessary for efficient, competitive markets, the enforcement of the Competition Act rarely interferes with the exercise of this basic right. However, the Bureau may apply the Competition Act to anti-competitive conduct associated with IP which impedes the efficient production and diffusion of goods and technologies and the creation of new products.
The Bureau‘s overall approach to the application of the Competition Act to IP is outlined in the IPEGs following terms:
- The circumstances in which the Bureau may apply the Competition Act to conduct involving IP 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 general provisions (including the criminal provisions) of the Competition Act to address the former and section 32 (special remedies) to address the latter.
- In either case, the Bureau does not presume that the conduct violates the general provisions of the Competition Act or needs to be remedied under section 32.
- When conduct involving an IP right warrants a special remedy under section 32, the Bureau will act only in the very rare circumstances and when the conduct cannot be remedied by the relevant IP statute.
- The analytical framework that the Bureau uses to determine the presence of anti-competitive effects stemming from the exercise of rights to non-IP forms of property is sufficiently flexible to apply to conduct involving IP, even though IP has important characteristics that distinguish it from other forms of property.
Section 32 of the Competition Act
Section 32 of the Competition Act contemplates the possibility that the mere exercise of an IP right may cause concern and result in the Bureau seeking to have the Attorney General bring an application for a special remedy to the Federal Court.
The Bureau will seek a special remedy under section 32 only if the circumstances specified in that section are met and the alleged competitive harm stems directly from the refusal and nothing else. Section 32 has rarely been used and requires proof that competition has been unduly restrained, prevented or lessened. Further, the Bureau must establish that invoking a special remedy against the IP right holder would not materially alter the incentives of the right holder or others to engage in research and development.
In practice, seeking a special remedy under section 32 of the Competition Act is extremely rare.
The IPEGs provide several examples with respect to various IP rights and how the Bureau may apply the Competition Act. The subject-matter of these hypothetical examples includes: (1) general business conduct involving IP (i.e. infringement, price-fixing, exclusive licencing, foreclosure by purchaser, exclusive contracts, output royalties, patent pooling arrangements, agreements to foreclose complementary products, refusals to licence intellectual property, and product switching); (2) conduct involving Patent Assertion Entities (“PAEs”) (i.e. representations made in the context of asserting patents and patent assignment for enforcement); (3) settlements of proceedings under the Patented Medicines (Notice of Compliance) Regulations; and (4) collaborative standard setting and Standard Essential Patents (“SEPs”).
With respect to copyright infringement, the IPEGs indicate that the Bureau will use its enforcement discretion and not interfere where companies with competing software products in the marketplace engage in litigation under the Copyright Act. Specifically, the Bureau will not interfere even where a plaintiff company brings action for copyright infringement action against a defendant company started by a former employee selling a nearly identical product.
With respect to software licencing, the IPEGs indicate that the Bureau will not interfere where a company with the majority of the market share refuses to licence technology to smaller competitors, thereby limiting their ability to develop and market compatible products. In general, the Bureau would view such refusals as a “mere exercise” of a company’s IP rights. Such conduct would therefore only be subject to review under section 32 of the Competition Act (i.e. whether the refusal to licence created an undue restraint of trade or unduly lessened competition). If the facts of the case suggest enforcement under section 32, a recommendation would be made by the Bureau to the Attorney General to seek a special remedy allowing other companies to gain access to the desired software.
Implications for business
IP owners whose business is derived from dealing with IP rights should be cognizant of competition issues that may arise through their conduct. Most notably, the Bureau may investigate parties they suspect are reducing competition substantially through their dealings. Such conduct triggering an investigation may involve licensing agreements, price setting, assertion of IP rights and settlements from litigation. That said, the Bureau will not generally investigate the mere exercise of IP rights without something more.
By Cole Meagher and William Foster, Gowling WLG
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