Earlier this year, the Competition Bureau released its updated Intellectual Property Enforcement Guidelines. The Guidelines explain how the Bureau approaches the interface between competition policy and intellectual property (IP) rights, how the Bureau will determine whether conduct involving IP raises an issue under the Competition Act, and how such conduct will be addressed in accordance with the Act.
The Bureau recognizes that IP plays an important role in stimulating new technology development, artistic expression and knowledge dissemination, which are all vital to a knowledge-based economy. However, the Bureau points out that there has been interest in how it will deal with competition issues involving IP. Accordingly, the Bureau has made it a priority to provide increased clarity on this subject.
While the Guidelines are technical, and directed at intellectual property and competition law practitioners, we have outlined in this article the key aspects of the Bureau’s approach and various scenarios involving competition and IP that could arise for consideration.
To begin, we look at how the Bureau has defined its overall approach to determining the circumstances in which it may apply the Act to IP or IP rights:
1. Any application of the Act will fall into one of two broad categories:
a. “Mere exercise” of the IP right
The Bureau defines the “mere exercise” of an IP right as the exercise of the owner’s right to unilaterally exclude others from using the IP, or the IP owner’s use or non-use of an IP right. Where there is a “mere exercise” of the IP right and nothing else, the Bureau can use “Special Remedies ” provided for under Part IV the Act, but indicates that it will do so only in very rare circumstances where the relevant IP statute does not provide a suitable remedy for any impugned conduct. The “special remedies” under the Act allow the Federal Court, for example, to declare void or limit any agreement, arrangement or license in respect of an IP right; to order the grant of licenses relating to an IP right; and to expunge or amend a registered IP right .
b. “Something more”
Where there is “something more” than the mere exercise of an IP right, the Bureau will consider using the general provisions of the Act, including the criminal provisions. “Something more” is, for example, when an IP licensor ties a non-proprietary product to a product covered by its IP right, or when a firm extends its market power beyond the term of its patent through an exclusive contract. In such instances, if the conduct leads to the creation, enhancement or maintenance of market power that substantially lessens or prevents competition, the Bureau may intervene under the general provisions.
2. In either case, the Bureau will not presume a violation of the Act.
3. The Bureau views its standard analytical approach to other non-IP forms of property as sufficiently flexible to accommodate the important characteristics that distinguish IP.
Considerations in Practice
While the Act and Guidelines should be considered carefully when determining whether activities involving an IP right may attract the Bureau’s attention, the Bureau has highlighted certain hypothetical activities in the Guidelines that provide a better picture of when it might investigate or pursue enforcement.
For example, the Bureau may investigate a price-fixing agreement between parties that have independently developed and patented techniques relating to a product, so as to limit competition between them in the market.
Abuse of Dominance
The Bureau might also investigate conduct under the abuse of dominance provision at section 79 of the Act where:
- A patentee grants licenses exclusively to select large firms that make up a significant portion of the market relating to the patented technology.
- A large firm uses its dominant position in the market to obtain exclusive licenses to various patented technologies, foreclosing its competitors from the market.
- A manufacturing firm with a soon-to-expire Canadian patent begins negotiating new licenses extending beyond the term of the patent, and/or where the licensee is required to pay a royalty whether or not the patented technology is included in the product, or
- Several major firms that typically compete with each other agree not to release copyrighted materials other than in the proprietary format of those firms, in order to foreclose from the market a competitor who uses a different format.
In the above instances, in deciding whether to move forward with enforcement, the Bureau would determine whether the acts would substantially lessen or prevent competition.
The Bureau also recognizes that patent pools, where a number of firms cross-license patents relating to one product, may serve a pro-competitive purpose by integrating complementary technologies, reducing transaction costs and clearing blocking patents. However, the Bureau notes that a patent pool may be subject to review where there is evidence that the pool is an agreement between competitors or potential competitors.
Refusal to License
In circumstances where a firm simply refuses to license an IP right, the conduct would constitute only a “mere exercise” of an IP right, and would therefore be subject to review only under the special remedies as described above. To determine if action is warranted, the Bureau would consider whether the refusal created an undue restraint of trade or unduly lessened competition, first by determining whether the refusal adversely affected competition in a relevant market that was different or significantly larger than the subject matter of the IP right, and then by determining whether the refusal would adversely alter other firms’ incentives to invest in research and development in the economy.
The Bureau distinguishes between two different types of product switching:
- “Hard” switching — where 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 more years of patent protection remaining —may be investigated under the abuse of dominant position provision of the Act.
- “Soft” switching — where a patentee does not withdraw its patented product “A” from the market, but merely stops promoting product “A” in favour of product “B”, the latter of which has more years of patent protection remaining — is unlikely to raise concerns under the Act, provided the new marketing campaign does not involve false or misleading representations about the original product.
Patent Assertion Entities
Patent assertion entities (PAEs) are businesses that acquire patents from innovators for the sole purpose of asserting them against firms allegedly infringing the patented technology, and do not sell or manufacture products or services related to such patents (these are sometimes referred to as Non-practicing entities (NPEs)).
The Bureau acknowledges that the role of competition law enforcement with respect to PAEs is rapidly evolving, and states that it will continue to refine its approach and may revisit its guidance in this area. For the time being, the Guidelines provide some examples of the Bureau’s current approach to PAEs:
- Where a PAE sends out a patent infringement notice to potential infringers seeking a license fee and threatening legal action, statements found to be false, such as a false claim that many businesses have already paid a license fee or a false intention of commencing legal proceedings, may be reviewable under the misleading advertising and deceptive marketing provisions of the Act.
- The assignment of a patent right to a PAE, simply for the purpose of more effective enforcement, does not raise issues under the Act.
Largely motivated by perceived issues with the practices of PAEs, the Patent Act has also recently been amended to provide regulation-making authority for the establishment of requirements for written demands relating to patents (i.e. cease and desist letters). For more information, please consult our previous article on the subject.
When to Seek Advice
It is worth noting that the Bureau itself acknowledges that the Guidelines are necessarily technical in nature and are accordingly primarily targeted to intellectual property and competition law practitioners. With this in mind, when issues relating to IP and competition law arise, including when deciding whether to pursue the licensing or enforcement of your IP rights, do not hesitate to reach out to a member of our Litigation practice team.
The preceding is intended as a timely update on Canadian intellectual property and technology law. The content is informational only and does not constitute legal or professional advice. To obtain such advice, please communicate with our offices directly.