Competition Bureau releases draft update of IP Enforcement Guidelines

Canada

On April 2 2014 the Competition Bureau released a draft update of its IP Enforcement Guidelines, which sets out the bureau's views concerning the manner in which the Competition Act will be applied to conduct involving IP rights. On the same day, the bureau and the Canadian Intellectual Property Office (CIPO) announced that they had signed a memorandum of understanding calling for closer cooperation between the two agencies.

The guidelines were first released in 2000. The update includes revisions to reflect amendments made to the Competition Act in March 2009 and March 2010, and brings the guidelines into line with other bureau enforcement guidelines released since 2000. However, the update does not represent a significant departure with respect to how the bureau approaches the interface between competition policy and IP rights. In addition, the circumstances in which the bureau may apply the Competition Act to conduct involving IP rights remain substantially the same. Indeed, the only substantive changes to the guidelines presented in the update address the amendments to the Competition Act made in March 2009 and March 2010, including the restructuring of certain provisions of the Competition Act implemented by those amendments.

The circumstances in which the bureau may apply the Competition Act continue to fall into two broad categories:

  • circumstances involving something more than the mere exercise of an IP right, which are addressed in the general provisions of the act; and
  • circumstances involving the mere exercise of an IP right and nothing more, which are addressed in a 'special remedies' provision of the act.

According to the guidelines, the mere exercise of an IP right is not cause for concern under the general provisions of the Competition Act. The bureau defines the 'mere exercise of an IP right' as the exercise of the owner's right to exclude unilaterally others from using the intellectual property. The bureau also views an IP owner's use of the intellectual property as being the mere exercise of an IP right.

The bureau considers that 'something more' will occur when IP rights form the basis of arrangements between independent entities, whether in the form of a transfer, licensing arrangement or agreement to use or enforce IP rights, and when the alleged competitive harm stems from such an arrangement and not just from the mere exercise of an IP right and nothing else. As an example, the bureau describes the situation of a firm acquiring market power by systematically purchasing a controlling collection of IP rights and then refusing to license the rights to others. In such a situation, the bureau could view the acquisition of such rights as anti-competitive, since the refusal to license others would substantially lessen or prevent competition in markets associated with the IP rights.

In situations involving 'something more' than the mere exercise of an IP right, the bureau will rely on the general provisions of the Competition Act to address the situation.

The most relevant general provisions include those relating to:

  • criminal conspiracy;
  • refusal to deal;
  • resale price maintenance;
  • exclusive dealing;
  • market restriction and tied selling;
  • abuse of dominant position;
  • anti-competitive agreements; or
  • arrangements and mergers.

Section 32 of the Competition Act provides special remedies specifically directed to the anti-competitive exercise of IP rights. Such remedies are obtained on application to the Federal Court by the attorney general (on recommendation from the bureau), and include:

  • declaring any agreement or licence relating to the challenged IP right void;
  • ordering licensing of the IP right (except in the case of trademarks);
  • revoking a patent;
  • expunging or amending a trademark; or
  • directing that other such acts be done or omitted as deemed necessary to prevent the conduct at issue.

Section 32 applies where the mere exercise of an IP right unduly limits or restrains trade or lessens competition. The bureau indicates that conduct will meet this threshold where:

  • the holder of the intellectual property is dominant in the relevant market;
  • the intellectual property is an essential input or resource for firms participating in the relevant market (ie, the refusal to allow others to use the intellectual property prevents other firms from effectively competing in the relevant market); and
  • invoking a special remedy against the rights holder would not adversely alter the incentives to invest in research and development in the economy (ie, where the refusal to license the intellectual property is stifling further innovation).

In the draft updated guidelines, the bureau states (as it did in the original guidelines) that only in very rare circumstances will all three factors be satisfied. As an illustrative example, the bureau notes that all three factors may be present where the intellectual property at issue has become an industry standard (ie, the intellectual property at issue is indispensable input for competitors' products to be viable alternatives). In such a case, the refusal to grant competitors access to the industry standard (eg, by refusing to license the IP rights to competitors) would prohibit others from making viable alternatives, thus lessening competition.

To date, intervention by the bureau in IP matters has been relatively rare. The first release of the guidelines in 2000 was not followed by increased enforcement activity by the bureau in relation to intellectual property. The relatively modest amendments presented in the draft updated guidelines might suggest that the updating of the guidelines alone should not be taken as signalling greater interest on the part of the bureau with respect to enforcement in this area. However, this remains to be seen.

Furthermore, the bureau acknowledges in the guidelines that, in some cases, 'anti-competitive' conduct involving IP rights is more aptly addressed by the appropriate IP authority under the appropriate IP statute (eg, where a patent holder indiscriminately asserts the patent over products that do not all fall within the scope of the patent claims). To this end, the bureau and the CIPO have announced that they have signed a memorandum of understanding calling for closer cooperation between the two agencies.

The bureau has invited interested parties to provide their views on the draft updated guidelines by June 2 2014.

Colin B Ingram and Andrea C Kroetch, Smart & Biggar/Fetherstonhaugh, Ottawa  

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