Canada’s Intellectual Property Firm

Competition considerations in IP settlement agreements

Authored byThis article was originally authored by Colin Ingram.

Historically, anti-trust issues associated with the exercise of intellectual property rights have been of lesser concern in Canada than in other jurisdictions, most notably the United States and Europe. Although the Canadian Competition Bureau published the Intellectual Property Enforcement Guidelines (IPEGs) in September 2000 – following the lead of the U.S. and Europe – there has since been relatively limited government enforcement of the Competition Act against conduct involving intellectual property rights.

Recently, the Bureau has published further guidance regarding the interaction between competition law and intellectual property rights. On September 18, 2014, it published an update to the IPEGs. Shortly thereafter, on September 23, 2014, it released a white paper entitled “Patent Litigation Settlement Agreements: A Canadian Perspective”.

As reported in our October 2014 edition of Rx IP Update, the white paper stems from the Bureau’s stated interest in “pay-for-delay” or “reverse payment” settlements that arise in the context of pharmaceutical patent litigation and provides the Bureau’s preliminary views on how Canadian competition laws could apply to such settlements.

More generally, however, the release of the updated IPEGs and white paper should serve as a warning that Canadian intellectual property owners must be alert to potential anti-trust issues when exercising their intellectual property rights and entering into transactions involving those rights, such as settlement agreements. The sections that follow review the relevant provisions of the Canadian Competition Act and how they may be applied to intellectual property settlement agreements.

Special remedies and general provisions

The enforcement provisions of the Competition Act distinguish between anti-competitive conduct involving (a) the “mere” exercise of an intellectual property right and (b) something more than the mere exercise of an intellectual property right. The former is subject to the “special remedies” provision (section 32) of the Act, which the Bureau applies infrequently in a relatively narrow range of circumstances. The latter is more routinely addressed, under the general criminal and civil provisions of the Act, which are briefly reviewed below.

Criminal conspiracies, agreements or arrangements: Section 45 of the Competition Act

  • Section 45 of the Act prohibits criminal conspiracies, agreements or arrangements between actual or potential competitors that constitute “naked” restraints on competition not implemented in furtherance of legitimate collaboration (e.g., price-fixing, allocating markets/customers, restricting production output).
  • Violations are pursued in court and may be met with imprisonment and/or fines.

Civil provisions: Part VIII of the Competition Act

  • Part VIII of the Act addresses arrangements between actual or potential competitors falling short of criminal conspiracies but which are nevertheless likely to substantially lessen competition in a relevant market.
  • With respect to settlement agreements, the most relevant provisions are those relating to civil agreements generally (section 90.1), abuse of dominance (section 79) and, to a lesser extent, exclusive dealing and tied selling (section 77).
  • Violations of the civil provisions are addressed before the Competition Tribunal and may be met with orders prohibiting the implementation of the agreement or its specific anti-competitive terms, among other remedies.

Potential competition issues for litigation settlement agreements

With this review of the Act in mind, the following is a brief list of representative terms of litigation settlement agreements that could raise competition issues:

  • terms that tie conduct of the defendant to matters beyond the intellectual property rights in issue in the litigation (e.g., a term requiring a defendant to purchase all of its products, including both patented and unrelated unpatented products, from the plaintiff);
  • terms that extend the exclusivity granted by an intellectual property right beyond its expiry date (e.g., a term requiring a defendant to refrain from manufacture and sale of a patented product even after the patent expires);
  • terms that extend the exclusivity granted by an intellectual property right beyond its scope (e.g., a term requiring a defendant to refrain from manufacture or sale of a product in jurisdictions where the litigation did not occur and where equivalent intellectual property rights do not exist; or a term requiring a defendant to refrain from manufacture or sale of a product not covered by the plaintiff’s intellectual property rights);
  • terms that provide for payment from the plaintiff to the defendant in return for certain conduct by the defendant (e.g., agreements akin to “pay-for-delay” arrangements in pharmaceutical litigation in which the plaintiff pays the defendant to delay its market entry); or
  • terms in which a party acquires additional market power as a result of the licensing or transfer of intellectual property rights (e.g., the acquisition by the plaintiff of intellectual property rights from the defendant, which permits the plaintiff to increase its market share by preventing the sale of competitive products).

Note that competition issues are highly fact-dependent and often complex. In the context of intellectual property settlement agreements, careful consideration must be given to the parties, the nature of the market and the actual or potential effect of the agreement in issue.  

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.