Canada’s Competition Bureau Releases Updated IP Enforcement Guidelines And White Paper On Patent Litigation Settlement Agreements

In September, 2014, the Competition Bureau (Bureau) released two important documents worthy of attention for players in the pharmaceutical and life science sectors. On September 18, 2014, the Bureau released an update of its Intellectual Property Enforcement Guidelines (IPEGs) (Announcement), which articulate how the Bureau approaches the interface between competition policy and intellectual property (IP) rights. In the following week, on September 23, 2014, the Bureau released a white paper entitled Patent Litigation Settlement Agreements: A Canadian Perspective (White Paper), which outlines the Bureau’s position on how it may treat reverse-payment settlement agreements, also known as “pay-for-delay” agreements, under the Competition Act (Act). IPEGs The release of the updated IPEGs followed public consultations on the draft update released earlier this year (previously reported by E-Tips®) and marked the completion of the first stage of the Bureau’s revisions to the original IPEGs released in 2000. The most significant revisions include “clarifications on the circumstances when the non-use of an IP right could create a competition issue and the Bureau’s enforcement approach to patent pooling arrangements, a particular type of business agreements among firms”. In addition to providing the hypothetical examples demonstrating the application of competition law to IP that were included in the draft update, the September 2014 version includes a new example of pharmaceutical drug product switching. The Bureau identifies that the second stage of the revisions will include a further update on the Bureau’s enforcement position with respect to new competition policy/IP issues such as patent litigation settlement agreements, the conduct of patent assertion entities, and activity related to standard essential patents. White Paper on Patent Litigation Settlements The Bureau released the White Paper in conjunction with a keynote address by the Commissioner of Competition John Pecman at a conference on Global Antitrust Challenges for the Pharmaceutical Industry at George Mason University (Announcement). The White Paper provides “background information on the regulatory system that governs the entry of generic drugs in Canada, the role of competition legislation in Canada, and the Bureau’s preliminary views on how Canadian competition law could be applied to potentially anti-competitive patent litigation settlement agreements in Canada”. The White Paper notes that the unique features of Canada’s pharmaceutical regulatory regime neither merit reduced concern over the possible impacts of the reverse-payment settlement agreements nor call for a less vigorous enforcement approach than that adopted in the US or Europe. Most significantly, the White Paper notes that the Bureau will examine reverse-payment settlement agreements under both the criminal and civil provisions of the Act, and also calls for a notification regime similar to that of the US (see Medicare Modernization Amendments Act of 2003, Section 1112 – Notification of Agreements). According to the White Paper, the Bureau will evaluate settlements allowing entry before patent expiry (entry-date settlements) and reverse-payment settlements under the criminal conspiracy provision, or the civil agreements or abuse of dominance provisions of the Act. It is different in the US, where entry-date settlements are viewed not to violate the antitrust laws and reverse-payment settlements are subject to a “rule of reason” analysis as mandated by the US Supreme Court in Federal Trade Commission v Actavis (previously reported in E-TIPS®). As explained by Commissioner Pecman in his address, the following settlements would likely attract the Bureau’s scrutiny under the criminal provisions of the Act:

• “If a settlement is between competitors and includes conduct with respect to markets or products that are not the focus of the patent litigation or the conduct is beyond the scope of the patent, such as fixing a generic entry date beyond the term of the patent, provided that the conduct is of the type prohibited by this provision.”
• “If there is direct or circumstantial evidence that indicates that the settlement is a vehicle for a ‘naked restraint’ on competition that is not implemented in furtherance of a legitimate collaboration or was motivated by factors beyond the issues associated with the litigation.”

Such examples include where there is a payment for a delayed generic entry beyond the patent expiry date or where it is clear that a payment is strictly to delay or prevent entry. By contrast, where there is no evidence of a “naked constraint”, the Bureau would most likely review the matter under the civil provisions of the Act. However, in cases where the parties are believed to be abusing a dominant position in the marketplace, the Bureau may also consider an investigation under the abuse of dominance provision. In either case, the Bureau must demonstrate that the settlement agreement would likely cause a substantial prevention or lessening of competition. Summary by: Junyi Chen