Competition guidelines may be a game-changer for patent-intensive industries

The Competition Bureau is in the midst of a two-stage process to update its Intellectual Property Enforcement Guidelines. The guidelines describe the bureau’s approach to the interface between competition law and IP rights and its enforcement approach to conduct involving the exercise of IP rights.

In April 2014, in the first stage of the amendment process, the bureau issued a draft update for public consultation. While that update consisted primarily of administrative revisions to reflect amendments to the Competition Act since the guidelines were issued in September 2000, certain substantive changes were also proposed relating to, among other things, so-called 'product-switching' strategies by innovator pharmaceutical companies.

In September 2014 the bureau announced that the first stage of the guideline amendment process had come to an end and released an update of its guidelines (available here).

A second, more substantive update is expected to be issued for public consultation this week. The new update will centre on how Canadian competition law could be applied by the bureau in several areas, including issues of particular importance to technology companies and firms in patent-intensive industries – namely, those relating to conduct involving standard-essential patents (ie, a patent that claims an invention that must be used in order to conform to a standard adopted by a standard-setting organisation (SSO)) and the activities of patent assertion entities (ie, companies whose business model is asserting patents although they do not manufacture or sell products or services related to such patents). 

Conduct involving standard-essential patents and patent assertion entities, and technology-related patent issues generally, has garnered antitrust attention in the United States and the European Union for some time. The bureau's only recently announced interest in these issues is likely a reaction to, among other things:

• an explosion of patent assertion entity activity in the United States (which has in some cases targeted Canadian companies operating south of the border);
• the entry of some patent assertion entities in Canada; and
• in the case of standard-essential patents, recognition of the importance of interoperability standards in certain industries.

Conduct involving standard-essential patents
At present, there is no administrative guidance in Canada addressing potential competition concerns arising from and related to SSOs and the standard-setting process. The issues to be addressed in the second stage of the guideline amendment process will likely include:

• the circumstances in which the activities of SSOs, including joint ex ante royalty discussions, could raise issues under the Competition Act;
• whether a failure to disclose patents essential to a standard or breaches by a standard-essential patent owner of a voluntary commitment to license on fair, reasonable and non-discriminatory (FRAND) terms to those implementing the standard could properly attract antitrust liability;
• what royalty rates constitute FRAND terms; and
• whether competition law imposes any limits on the right of owners of FRAND-encumbered standard-essential patents to seek injunctive relief when their patents are allegedly infringed by implementers.

Conduct involving patent assertion entities
As in the United States, there is a debate in Canada over the effect of patent assertion entities and whether competition law should be used to regulate patent assertion entity activity. The second stage update is expected to provide guidance on the circumstances in which conduct involving patent assertion entities might trigger scrutiny by the bureau and under what provisions of the Competition Act. In this regard, a key issue will likely be the appropriate enforcement approach to the practice by certain operating companies, known as 'privateering', of transferring patents to patent assertion entities to increase their rivals' costs through litigation and to evade FRAND licensing commitments.

The second stage update promises to raise a number of important and novel (at least in Canada) issues at the intersection of IP and competition law, and will define the bureau's enforcement approach to these issues for many years to come. Companies that stand to be affected by the new enforcement guidelines (eg, firms in patent-intensive industries, including computing, networking and communications) and other stakeholders should give serious consideration to participating in the ensuing public consultation process.