Ask an IP litigator: intellectual property and competition

Nicole Mantini (00:05): Hi, and welcome to Ask an IP Litigator. Today we're going to run through some of the unique issues that arise when IP intersects with competition law. So Andy, to start us off, IP is all about giving some level of exclusivity to a market participant to permit it to exclude its competitors. While these are legally permitted forms of monopoly, it seems obvious that at times this could be at odds with competition law.

Is there a line between how one can enjoy and exploit these exclusive rights, and still run afoul of competition laws?

Andrew Shaughnessy (00:35): The short answer is: yes, Niki, especially when it comes to settling IP disputes. Let's start with the easy. You can't use your IP in such a way as to expand or extend your IP rights. Let me give you a simple example. I license your patent and you insist that I pay you royalties or fees past the patent’s expiry date.

That gives you more than your patent grant permits. So that's a foul. Now, there are ways in Canada of creating a revenue stream that extends beyond a particular patent’s expiry, but these usually involve licensing additional products or services that aren't necessarily tied to a patent. And this has actually happened, so I’ll give you an example. It's a 1984 case out of Saskatchewan called Culzean Inventions and Midwestern Broom.

A manufacturer of curling brooms had a patent on new, new curling brooms. Pretty good curling brooms it turns out, as another party wanted to sell them and took a license. The license agreement contained a provision that stated that royalties were to be payable monthly on all licensed brooms sold by the licensee in each month until termination of this agreement.

Now, the patent expired in 1975, but the licensing agreement expired much later, five years later, in 1980. The Court found that the obligation to pay royalties continued until the end of the agreement, because the royalty, the obligation to pay, came from the agreement itself and not the patent. It was, in effect, a supply agreement, and in this case the patent was incidental.

You also can't use your IP to improperly hinder others. For example, while you may choose to exclude others with the patent, and you can do a deal to share or bestow that exclusivity upon others, you can't use your IP to harm third parties. A classic example in pharma space is where a patentee permits one party, let's call it “Party B”, to enter the market before patent expiry.

Normally, this type of entry split agreement is seen to be pro-competitive, as it introduces competition earlier than would be permitted under the patent, so you’ve got exclusivity. However, the patentee in Party B cannot then conspire to keep others off the market in the absence of a bona fide licensing scheme. Niki, this leads to another important point. The Competition Bureau is the government agency that is tasked with enforcing competition laws in Canada.

What do they have to say about the lines between valid IP rights and anti-competitive conduct?

Nicole Mantini (02:47): So the Competition Bureau's overarching position is, in general, IP holders arranging their affairs so as to more effectively enforce their IP rights are not going to raise issues under the Competition Act, but conduct that is something more than the mere exercise of an IP right and creates, enhances or maintains market power, can be problematic. The Bureau has actually published intellectual property enforcement guidelines, sometimes referred to as the “IPEGs”, that list many examples of activities that may attract scrutiny.

Some of these include asserting IP in a way that involves making false or misleading allegations of infringement, settlement arrangements that preclude market entry past the expiry of an IP right, as you mentioned, patent pooling, where patents on common technology are pooled together and licensed as a block—while this can often yield pro-competitive results, the Bureau has hinted that these are the kinds of arrangements that might be investigated.

A refusal to license IP. Again, generally, this is going to be permitted as the valid exercise of your IP right, you get to choose when and if you would license it to others. But where your choices—or your exclusion is targeted at a particular third party, or is the result of an agreement between one or more participants to intentionally exclude others, it could be problematic.

And then the activities of patent assertion entities, sometimes “called non-practicing entities”, these are the kinds of activities that are in relation to the hope of extracting a nuisance settlement or license fee from people trying to enter the market. And the IPEGs discuss at length many other scenarios, including another important one in the context of a pharma patent settlement.

We often hear about the prohibition on reverse payments. Andy, can you explain what that concept is?

Andrew Shaughnessy (04:31): So in the main, Niki, reverse payments refers to an arrangement where a potentially infringing party receives some form of compensation from the patentee, from the patent holder, in exchange for agreeing to stay off the market. Sometimes this is colloquially referred to as “pay for delay”, and this is not a permitted practice in the United States. In Canada, things are a little bit different.

There are some scenarios where a patentee can make a payment to the other side, but those payments have to be reflective of the factors that you would see in a bona fide settlement. That is a compromise—a payment based on compromising litigation costs and Section 8 damages. It can't be a pure payment to stay off the market. Reverse payments have long been on the Competition Bureau's radar screen they’re in the IPEGs that one of the factors that may trigger a bureau review.

And these can be tricky issues, because settlements involving payments from the patent holder will tend to attract extra attention. They certainly do in the negotiation phase. And in our practice, we routinely bring in a competition lawyer to help us navigate these issues because they can be complex. Final question for viewers, Niki, is whether IP practitioner—or the IP practitioner—has to be careful knowing that a competition watchdog may be standing or looking over their shoulder.

How does that fit into the picture?

Nicole Mantini (05:44): We often think about IP rights, especially in the context of disputes, as really being between two private parties, but we have to be aware that there can be direct impacts on consumers or on the market in the broader sense, and it's in that way that we can understand the role of the Competition Bureau in enforcing competition laws. The Competition Bureau's role in this scenario is to make sure that businesses in Canada don't abuse their market power, protects consumers, and helps create a marketplace where businesses can compete fairly [inaudible] other.

We often look at these issues through the lens of our own clients’ needs and wishes, and when we're licensing or settling disputes, the counterparties, opponents, or adversaries are doing the same thing. But the Competition Bureau is acting as the third party that's looking at the broader interests in these types of transactions and ensuring that they don't have an impact on fair market practices.

Andy, any final word?

Andrew Shaughnessy (06:35): Good competition lawyers are able to give pretty quick, good spot advice on these issues when they arise without boiling the ocean or creating an 80-page memo. It's worth having a good one on speed dial.

Nicole Mantini (06:45): Indeed. Thanks for joining us.