Canada Canada Kanada. Report Q187. in the name of the Canadian Group by Steven B. GARLAND (Chairman) and Colin INGRAM

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1 Canada Canada Kanada Report Q187 in the name of the Canadian Group by Steven B. GARLAND (Chairman) and Colin INGRAM Limitations on exclusive IP Rights by competition law Questions I) STATE OF THE SUBSTANTIVE LAW 1) The Groups are requested to indicate if the law of their country knows rules governing in general the relationship between the rules of competition and the intellectual property rights. In Canada, the laws governing the control of competition are found primarily in the Federal Competition Act R.S.C. 1985, c. C-34. The Competition Act is administered by the Competition Bureau, which is a government agency within Industry Canada, a department of the Canadian Federal Government. Certain provisions of the Competition Act are enforced by administrative proceedings, directed by the Competition Bureau (for example, mergers and abuse of dominant position). Other provisions of the Competition Act are enforced by criminal proceedings, typically commenced on a recommendation of the Competition Bureau (for example, conspiracy and misleading advertising). While the provisions of the Competition Act may not in general be enforced by private civil litigants, pursuant to Section 36 private parties may seek to recover damages caused as a result of conduct contrary to the criminal provisions of the Competition Act, or which is contrary to an order granted by the Competition Tribunal in administrative proceedings taken under the Act. Additionally, pursuant to section 103.1, private parties may also apply to the Tribunal for certain orders under Part VIII of the Act pertaining to restrictive trade practices. The Competition Act has for many years contained a number of provisions that could apply to anti-competitive behaviour in relation to the exclusive rights granted by a number of the Canadian intellectual property statutes. In particular, pursuant to Section 32 of the Competition Act, if the exclusive rights of a patent, trade-mark, copyright, or integrated circuit topography right, are used in a manner to unduly limit or restrain trade in an article or commodity, the Federal Court of Canada can, among other things, declare void a licence agreement with respect to that intellectual property right or expunge the right itself. Other, general provisions of the Competition Act, such as price maintenance, misleading advertising, exclusive dealing, tied selling, abuse of dominant position, etc. may also apply as a result of improper use by a party of its exclusive intellectual property rights. In the past, the provisions of the Competition Act have been asserted by the Competition Bureau against intellectual property rights holders on only a handful of occasions. In 2000, following a series of public consultations, the Competition Bureau released a set of guidelines in which it articulated how it approaches the interface between competition policy and intellectual property rights. While the Intellectual Property Enforcement Guidelines do not have the force of law, given the Competition Bureau s central role in the administration of the Competition Act, the Guidelines represent the starting point for assessing the relationship between the rules of competition and intellectual property rights in Canada. The following comments 1

2 will review, generally, the Competition Bureau s views regarding the application of the Competition Act to conduct involving intellectual property rights. The Guidelines indicate that a key consideration by the Competition Bureau in determining whether it should intervene is whether the intellectual property rights holder has market power in the relevant market. Even if an intellectual property owner has market power, the Bureau will not consider the intellectual property owner s conduct as contravening the Competition Act if it attained that market power solely by possessing a superior quality product or process, introducing an innovative business practice or other reasons for exceptional performance. Additionally, the Competition Bureau will not consider a licensing arrangement with respect to intellectual property rights to be anti-competitive unless the arrangement reduces competition to a level below that which would have existed in the absence of the licence. Generally, the Bureau views licensing as being pro-competitive. With respect to the application of the general provisions of the Competition Act, the Guidelines state that the mere exercise of an intellectual property right (defined in the guidelines as the owner s right to unilaterally exclude others from using the intellectual property, including the right to use the intellectual property, the right to not use the intellectual property, and the right to refuse others the use of the intellectual property ) will not cause concern, regardless of the degree to which competition is affected. The general provisions of the Act will apply only when there is something more than this mere exercise of the intellectual property rights. For example, if an intellectual property owner licenses, transfers, or sells the intellectual property to a third party that would have been an actual or potential competitor without the arrangement, and the arrangement creates, enhances or maintains the intellectual property owner s market power, the Bureau indicates that it may seek to challenge that arrangement under the Act. With respect to section 32, the Guidelines indicate that the Competition Bureau will only intervene as a result of the mere exercise of an intellectual property right (the unilateral exercise of an intellectual property right as defined above) if the circumstances in that section are met and the alleged competitive harm stems directly from the exercise of that right and nothing else. Section 32 requires that there be proof of an undue restraint of trade or lessened competition. The Guidelines indicate that the Bureau expects such enforcement action would only be required in certain narrowly defined circumstances or only in the rarest of circumstances. In this regard, the Competition Bureau will apply a two step approach. First, the intellectual property owner s mere exercise of its intellectual property right (e.g. refusal to licence) must have substantially, adversely affected competition in a relevant market that is different or larger than the subject matter of the intellectual property. In this regard, the Competition Bureau will determine if the intellectual property owner is in a dominant market position and whether the presence of the intellectual property prevents others from entering the market. Second, the Competition Bureau will determine whether invoking a remedy pursuant to section 32 against the intellectual property owner would not adversely alter the incentives to invest in research and development in the economy. It is only if both criteria are satisfied that the Competition Bureau would conclude that section 32 should be applied. It is important to note that to-date, the authors are not aware of any instance where the Competition Bureau has taken steps against an IPR owner pursuant to the above-noted guidelines. 2) The Groups are invited to indicate if previous to the adoption of the TRIPS, the legislation of their country knew the exceptions in particular founded on article A.4 of the Paris Union Convention, to the exclusive rights of patents, designs and models or copyright. The Groups must also describe the conditions and the effects of these exceptions. Finally, do the Groups have to indicate the justification of these exceptions and in particular if these exceptions were justified by requirements of the freedom of competition? 2

3 Previous to the adoption of TRIPS, Section 65 of the Canadian Patent Act provided the Commissioner of Patents with the power to grant licences, or in extreme circumstances, to revoke a patent, where the exclusive rights granted under the patent had been abused. Such abuse was deemed in the following circumstances: a) if the patented invention, being one capable of being worked within Canada is not being worked within Canada on a commercial scale, and no satisfactory reason can be given for that non-working; b) if the working of the invention within Canada on a commercial scale is being prevented or hindered by the importation from abroad of the patented article by the patentee or persons claiming under him, by persons directly or indirectly purchasing from him or by other persons against whom the patentee is not taking or has not taken any proceedings for infringement; c) if the demand for the patented article in Canada is not being met to an adequate extent and on reasonable terms; d) if, by reason of the refusal of the patentee to grant a licence or licences on reasonable terms, the trade or industry of Canada or the trade of any person or class of persons trading in Canada, or the establishment of any new trade or industry in Canada, is prejudiced, and it is in the public interest that a licence or licences should be granted; e) if any trade or industry in Canada, or any person or class of persons engaged therein, is unfairly prejudiced by the conditions attached by the patentee, whether before or after the passing of this Act, to the purchase, hire, licence, or use of the patented article or to the using or working of the patented process; or f) if it is shown that the existence of the patent, being a patent for an invention relating to a process involving the use of materials not protected by the patent or for an invention relating to a substance produced by such a process, has been utilized by the patentee so as unfairly to prejudice in Canada the manufacture, use or sale of any materials. The abuse provisions are, to a certain degree, motivated by the protection of free competition. As noted in an early Court decision: [A patentee] cannot hold its patent for the sole purpose of blocking trade; it must sell or grant a license on reasonable terms. While the object and spirit of the Patent Act is to give a monopoly, yet the statute provides also a remedy to overcome any abuse of such monopoly. The statute provides measures to put a stop to any act which would work as a restraint on business or which would be incompatible with the best interests of trade and commerce. The abuse provisions of the Patent Act were substantially amended as a result of Canada entering into the North American Free Trade Agreement (NAFTA) with the United States and Mexico. Notably, the provisions deeming abuse in the circumstances enumerated as (a) and (b) above were repealed. 3) The Groups are invited to indicate if articles 13, 30 and 31 of the treaty TRIPS gave place to the establishment of legal rules defining the exceptions being able to be brought to exclusive rights of copyright, patent, designs. The Groups should in this case indicate the conditions for application of these exceptions and their consequences. And the Groups should indicate the justification of these exceptions and in particular if these exceptions were justified by requirements of the freedom of competition. Articles 13 and 30 of TRIPS have not lead to the establishment of further exceptions to the exclusive rights of copyright, patent or designs. 3

4 As a result of article 31 of TRIPS, and article 1709(10) of NAFTA (the North American Free Trade Agreement), Canada made substantial amendments to the provisions in its patent legislation respecting use of patented inventions by the government. Previously, there was no specified procedure for the government to use patented inventions, with the Patent Act requiring only that the government, upon using any patented invention, pay reasonable compensation to the patentee. Under the amended provision, the government must first obtain authorization from the Commissioner of Patents before using a patented invention. Before the Commissioner can grant authorization, the government must establish that it has first made efforts to obtain from the patentee the right to use the invention on reasonable commercial terms, but has been unsuccessful. The Commissioner can also grant authorization in cases of national emergency or extreme urgency or where the use is a public non-commercial use. In accordance with article 31(c) of TRIPS, the Commissioner may not authorize any use of semiconductor technology other than a public non-commercial use. The exception to infringement for use by government pre-dated NAFTA and TRIPS, and was narrowed as a result of these international agreements. The exception does not appear to have as its justification freedom of competition. It should also be noted that other exceptions to the patent right were also removed or restricted as a result of the obligations imposed by NAFTA and TRIPS, notably: The provisions in the Canadian Patent Act which provided for compulsory licences relating to, in particular, pharmaceuticals patents were repealed to meet the obligations imposed by NAFTA article 1709(7) and TRIPS article 27(1) which require that patents be available and patent rights enjoyable without discrimination as to the field of technology. As noted above, the provisions in Section 65 of the Canadian Patent Act which deemed there to be abuse of the patent right where the patentee had failed to work a patented invention in Canada on a commercial scale were repealed to meet the obligations imposed by NAFTA article 1709(7) and TRIPS article 27(1) which requires that Canada not discriminate on the basis of whether or not a product is imported. 4) The Groups are invited to indicate if such limitations apply as regards to trademarks and which are the conditions, the consequences and the possible justification. As discussed under (1), above, the Canadian Competition Act will in certain circumstances impose restrictions on the exercise of trade-mark rights. Unlike the Patent Act there are no specific abuse provisions in the Trade-marks Act. 5) The Groups are invited to inform if the existence of intellectual property rights constitutes a justification to some practise regarded in general as anti-competing, such as the refusal to sell or others? Certain provisions of the Canadian Competition Act provide exceptions in circumstances where the conduct involves intellectual property rights. In the provision of the Competition Act which addresses refusal to deal, for the purposes of that provision, an article is not a separate product in a market only because it is differentiated from other articles in its class by a trade-mark, proprietary name or the like, unless the article so differentiated occupies such a dominant position in that market as to substantially affect the ability of a person to carry on business in that class of articles unless that person has access to the article so differentiated. The provision of the Competition Act which addresses abuse of dominant position seeks to address conduct which includes engaging in a practice of anti-competitive acts. Anti-competitive acts are defined in the Act, and include such conduct as the use of fighting brands to eliminate a competitor, buying up products to prevent the erosion of existing price levels, etc. 4

5 However, the provision expressly excludes an act engaged in pursuant only to the exercise of any right or enjoyment of any interest derived under an intellectual property right. 6) The Groups are invited to indicate if some of the attributes of the intellectual property rights, such as the duration of these rights, are considered in their country as raising problems from the point of view of the exercise of the freedom of competition. In Canada, as in many countries, the existence and duration of intellectual property rights is not without controversy. A recurring debate is the scope of patent protection in the area of medicine and pharmaceuticals, where the presence of patents, some argue, serves to raise the cost of healthcare. However, to date, opposition to intellectual protection in the field of pharmaceuticals and other areas has not resulted in any significant effort to amend the attributes of intellectual property rights in view of anti-competitive concerns. 7) The Groups are finally invited to formulate any other observation concerning the relationship which may exist in the substantive law of their country between the exclusive rights of the intellectual property and the rules relating to the respect of the freedom of competition. To date, competition concerns have played only a limited role in relation to intellectual property rights. In contrast with the situation in the United States, the jurisdiction with which Canadian laws are most often compared, the circumstances in which competition concerns will temper the exercise of intellectual property rights are relatively few. This is likely due, in part, to the limited use which private litigants may make of competition offences. For example, the authors are not aware of any reported Canadian cases in which a defendant in intellectual property litigation has successfully asserted a defence based on the anti-competitive conduct of the intellectual property right owner. In the result, if competition law is to play a greater role it will be because the Competition Bureau has indicated a willingness to become more proactive in its enforcement actions in relation to activities involving the exercise of intellectual property rights. II) PROPOSALS FOR THE FUTURE Summary In Canada, the laws governing the control of competition are found primarily in the Federal Competition Act. The Competition Act is administered by the Competition Bureau, which is a government agency within Industry Canada, a department of the Canadian Federal Government. Pursuant to Section 32 of the Competition Act, if the exclusive rights of a patent, trade-mark, copyright, or integrated circuit topography right, are used in a manner to unduly limit or restrain trade in an article or commodity, the Federal Court of Canada can, among other things, declare void a licence agreement with respect to that intellectual property right or expunge the right itself. Other, general provisions of the Competition Act, such as price maintenance, misleading advertising, exclusive dealing, tied selling, abuse of dominant position, etc. may also apply as a result of improper use by a party of its exclusive intellectual property rights. There are also provisions in the Canadian Patent Act pursuant to which the Commissioner of Patents may licences or revoke a patent, where the exclusive rights granted under the patent have been abused. Résumé Au Canada, les lois régissant le contrôle de la concurrence se trouvent principalement dans la Loi sur la concurrence. La Loi sur la concurrence est administrée par le Bureau de la concurrence, qui 5

6 est un organisme gouvernemental au sein d Industrie Canada, ministère du gouvernement fédéral canadien. En vertu de l article 32 de la Loi sur la concurrence, si les droits exclusifs concernant un brevet, une marque de commerce, un droit d auteur ou une topographie de circuit intégré sont utilisés de manière à limiter ou à restreindre indûment le commerce autour d un article ou d une marchandise, la Cour fédérale du Canada peut, entre autres, déclarer nul un contrat de licence relativement à ce droit de propriété intellectuelle ou radier le droit comme tel. D autres dispositions générales de la Loi sur la concurrence, notamment en ce qui a trait aux régimes de prix imposés, aux annonces trompeuses, aux ventes exclusives, aux ventes liées, à l abus d une position dominante, etc., peuvent également s appliquer en raison de l utilisation inappropriée, par une partie, de ses droits de propriété intellectuelle exclusifs. Certaines dispositions de la Loi sur les brevets prévoient aussi que le commissaire aux brevets peut octroyer une licence ou révoquer un brevet dans le cas où on aurait abusé des droits octroyés en vertu du brevet. Zusammenfassung In Kanada sind die Bestimmungen über Wettbewerbsbeschränkungen hauptsächlich im Wettbewerbsgesetz des Bundes (Federal Competition Act) zu finden. Geregelt wird die Anwendung des Wettbewerbsgesetzes durch das Competition Bureau, einer dem staatlichen Industrieministerium (Industry Canada) unterstellten Regierungsbehörde. Wenn die ausschliesslichen Rechte eines Patent, Warenzeichen-, Urheber- oder integrierten Schaltkreistopographienrechts so genutzt werden, dass sie den Handel eines Artikels oder einer Ware auf unangemessene Weise beschränken oder hemmen, kann der kanadische Bundesgerichtshof gemäss 32 des kanadischen Wettbewerbsgesetzes unter anderem eine Lizenzvereinbarung hinsichtlich dieses geistigen Eigentumsrechts für ungültig erklären oder das Recht selbst aufheben. Bei unzulässiger Nutzung von geistigen Eigentumsrechten seitens einer Partei finden möglicherweise weitere allgemeine Bestimmungen des Wettbewerbsgesetzes Anwendung, beispielsweise über Preisbindung, irreführende Werbung, Ausschliesslichkeitsregelungen, Koppelungsgeschäfte oder Missbrauch der vorherrschenden Stellung. Das kanadische Patentgesetz (Patent Act) enthält ausserdem Bestimmungen, gemäss denen das Patentamt ein Patent entweder zulassen oder, sollten die ausschliesslichen Rechte unter diesem Patent missbraucht worden sein, widerrufen kann. 6