Under the auspices of John Pecman, Commissioner of Competition, the Competition Bureau has issued a draft of the revised Intellectual Property Enforcement Guidelines (the Draft Guidelines). While the Draft Guidelines will be subject to public consultation until August 10, 2015, they offer guidance as to how the Bureau might apply the Competition Act (the Act) to owners of intellectual property (IP) in the future. More particularly, the Draft Guidelines give numerous examples and illustrate both the Bureau’s approach and its theoretical underpinnings.
Owners of IP in telecommunications and information technology should read the Draft Guidelines with great interest, as issues particularly present in these fields are discussed by the Bureau. Indeed, patent pooling schemes as well as the impact of having committed IP rights to technological standards are analyzed by the Bureau in the Draft Guidelines.
Standard-setting processes and their impacts on consumers are at the forefront of much publicized disputes, as evidenced by recent developments in the EU and in the United States involving high-profile manufacturers of smart phones. Through its suggested analysis of patent pooling arrangements, the Bureau explains several factors that may help IP-owners in illustrating that pooling arrangements indeed have pro-competitive impacts.
For example, the Bureau states that the presence of independent experts to evaluate the essentiality to a particular standard of licensed patents, as well as licensee’s rights to have such evaluations independently reviewed, would be looked upon favourably by the Bureau. Periodic reassessment of the essentiality of patents to the standard are also stated as evidence of the pro-competitive nature of pooling arrangements. If the Draft Guidelines are adopted as is, they will surely become required reading for any IP owner participating in a pooling arrangement.
The Bureau’s approach is very much fact-based, and while the Draft Guidelines provides hint at how the Act could be applied in certain situations, the realities of IP owners are however much more complex. Particular relationships between both pool members and prospective licensees go beyond some of the factors presented by the Bureau as relevant to the assessment of the potential anti-competitive nature of pooling arrangements, and it remains to be seen it what form the Draft Guidelines will be adopted, let alone how they will be ultimately interpreted and applied by the Bureau.
The Draft Guidelines also comment on the impact on IP-owners of having contributed IP rights to technological standards. Technological standards typically favour interoperability and network effects, and thus lower transaction costs. With that in mind, the Bureau comments at great length the standard setting process, and describes precise circumstance that are likely to arise once IP assets have been contributed to a standard in order to maintain the pro-competitive nature of standard setting.
The Bureau first provides guidance for the standard-setting process itself. The general approach to standard-setting is that IP owners avoid the “ambushing” of firms having adopted a technological standard, for example by subsequently (and not timely) disclosing the existence of IP inputs they own. This patent “hold-up” discussed by the Bureau, but likely overestimates firm’s capacities and resources to fully identify IP inputs that can be essential to a particular standard.
The Bureau also offers insight as to in what circumstances IP owners could renege on pre-existing licensing commitments without triggering liability under the Act. In this context, the Bureau also deals with the essential question of whether IP owners can seek injunctive relief against prospective licensees or third parties.
These questions have been the topic of much debate and case law in recent years. The United States and Europe provide some concrete illustrations of how injunctive relief sought on the basis of standard essential IP rights can lead to more precise guidance from courts. As they are currently drafted, IP owners may feel that the public consultation could be an occasion to prompt the Bureau for more fulsome explanations as to the circumstances where seeking injunctive relief would be considered anti-competitive by the Bureau. At present, the Draft Guidelines offer only two clear cases where the Bureau would be inclined towards a finding of anti-competitive conduct: (i) where the would-be licensee refuses to pay the IP owner despite a binding ruling from a court or arbitrator; and (ii) when the would-be licensee refuses to engage in licensing negotiations.
IP-owners active in the field of telecommunications and information technology should be aware that the Bureau routinely integrates dynamic competition concerns in its analysis: the impact of arrangements to be reviewed on incentives to innovate in a given market is central to the analysis under the Act. In telecommunications and information technology, both determining freedom to operate and investing in R&D can be formidable investments from IP owners. Regarding complex consumer goods where there are numerous IP inputs, such as smartphones, the Bureau hints that it would consider the relative value of an IP input compared to the product or service it is a component of. That said, the Draft Guidelines do not at present offer objective factors for this assessment.
The Bureau also describes the extent to which patent assertion could lead to Bureau investigations as to whether this assertion is deceptive or misleading. IP owners can expect to have guidance in the finalized guidelines on the context in which patent assertion would be considered misleading. On this, the Bureau makes headway into a topic of extensive media coverage – i.e. wide and far-reaching assertion of IP rights. As such practices have garnered public awareness as early as the “Sewing Machine Wars” of the 1850s, it remains to be seen as to whether finalized guidelines will prove to be sufficiently clear to help IP owners understand the contexts and actions that could be deemed anti-competitive assertion of IP rights.
The Draft Guidelines make for dense but fascinating reading. Numerous examples and fact-based case studies help the reader grasp more concretely how the Bureau could apply the Act for the use and exercise of IP rights. In turn, the public consultation period is the perfect time for IP owners to audit their practices from a competition law perspective, and ideally, take advantage of the window for public and confidential comment on the Draft.