On June 9, 2015, the Competition Bureau (“the Bureau”) released, for public comment, an updated draft of its Intellectual Property Enforcement Guidelines (“the Guidelines”) proposing a number of substantive revisions. This update follows two earlier versions published in April 2014 and September 2014. The first two updates sought to address the 2009 amendments to the Competition Act (the “Act”) and implement the Bureau’s enforcement experience regarding product-switching conduct in the pharmaceutical industry respectively. The current update deals primarily with the Bureau’s proposed approach to the exercise of intellectual property (“IP”) rights in the context of settlement of proceedings under the Patented Medicines (Notice of Compliance Regulations)(“the NOC Regulations”) and business conduct involving patents that are essential to an industry standard.  Further detail on the application of the Act to conduct involving representations made in the context of asserting patents has also been proposed.

The focus of the present post is to outline the amendments proposed in the Guidelines concerning settlement of proceedings under the NOC Regulations.

Overview of the Bureau Enforcement Position

The Bureau continues to identify two broad categories of circumstances in which it may apply the Act to conduct involving IP rights:

• Those involving the mere exercise of an IP right (i.e. unilateral conduct, such as a refusal to license a patent) and nothing else, which will be dealt with under the special remedies provided in section 32 of the Act; and
• Those involving something more than the mere exercise of the IP right, which will be dealt with under the general provisions of the Act, which include civil and criminal provisions.

Under this framework, the Bureau proposes to apply its enforcement position with regard to settlement of proceedings under the NOC Regulations as further discussed below.

Settlement of Proceedings under the NOC Regulations

The proposed approach to settlement proceedings follows the initiatives set forth in the white paper regarding reverse-payment settlements in pharmaceutical litigation, published on September 23, 2014, and provides additional details.  Because settlements involve at least two parties, the conduct is not unilateral, so the general provisions of the Act will be applied.

According to the Bureau, settlements that do not involve consideration paid by an innovator pharmaceutical company (“the BRAND”) to a generic pharmaceutical company (“the GENERIC”) (other than allowing the GENERIC to enter the market before patent expiry) will not be reviewed by the Bureau.  It appears that this excludes the possibility of payment of even the GENERIC’s legal costs as a condition of settlement.

Instead, a settlement that involves payment of consideration by the BRAND (in addition to early market entry) will trigger a review of the settlement under the general provisions of the Act. This review could be undertaken under either the criminal or civil review provisions of the Act.  The Bureau’s view is that the vast majority of these cases will be reviewed under the civil provisions namely section 90.1 (agreement which lessen competition) and section 79 (abuse of dominant position), unless the payment is made with the intent to fix prices, allocate markets or restrict output (which will be dealt with under the criminal provisions of the Act).

Both sections 90.1 and 79 of the Act require the Bureau to establish that a settlement has the effect of causing a substantial prevention or lessening of competition.  According to the Guidelines, the Bureau would likely determine whether a settlement caused harm to competition by adopting a “but‑for” test: determining what would likely have occurred but for the settlement (including whether the BRAND and GENERIC would have been likely to compete earlier than the generic entry date specified in the settlement and whether entry would have resulted in a lower cost drug alternative). Note that the consideration need not be a simple monetary transfer; payment by the BRAND for provision of services by the GENERIC as part of the settlement would also be reviewed by the Bureau. The Bureau will also consider possible efficiencies that may be realized when reviewing a settlement under section 90.1 of the Act and possible business justifications when reviewing a settlement under section 79 of the Act.

A settlement where there is evidence that the intent of the payment was to fix prices, allocate markets or restrict output may be  pursued under the criminal provisions of the Act, namely section 45 (criminal conspiracy). More specifically, the Bureau provides two examples of circumstances where it would consider the matter under section 45:

• A settlement with monetary payment to the generic providing the brand with an additional two years of protection from competition from the generic beyond patent expiry.
• A settlement with monetary payment to the generic for its delayed entry on the market, when both parties recognized that the patent was invalid, but the brand nevertheless challenged the generic’s Notice of Allegation.

The proposed revisions to the Guidelines with regard to patent settlement of proceedings under the NOC Regulations are substantive. They clearly signal an enforcement priority for the Bureau as regards the prevention of anticompetitive conduct in the pharmaceutical industry.

Public Consultation

The Bureau has invited interested parties to submit comments on the draft Guidelines before August 10, 2015.

Given the importance of the topics discussed in the Guidelines, the public consultation period, is a key window to present observations and comments to the Bureau. Once adopted, the Guidelines will significantly alter the competition law framework for pharmaceutical companies in Canada.

In this regard, we would be happy to discuss any questions or comments you may have regarding the new draft Guidelines or the public consultation process.