Northern exposure?

In comparison to the United States, there has been little antitrust enforcement activity in the Canadian pharmaceutical industry. However, a recently disclosed investigation by the Canadian Competition Bureau into whether a temporary disruption by an innovative pharmaceutical company of the supply of an older version of one of its drugs, for which the patent was shortly to expire, violated the abuse of dominance provision in Section 79 of the Competition Act, and recent statements by Commissioner of Competition John Pecman suggest that the pharmaceutical industry may now be squarely on the bureau's enforcement agenda.

Aggressive antitrust enforcement in the United States
Aggressive enforcement of US federal antitrust laws in the healthcare sector has been a top priority of the Federal Trade Commission (FTC) for many years. One of the highest priorities in this area has been "reverse payment" patent litigation settlements between innovative and generic pharmaceutical companies. The impugned settlements involve monetary payments (or other consideration) by the innovative company in return for the generic company's agreement not to enter the market until a specified date. The FTC argues that such settlements should be treated as presumptively anti-competitive and unlawful. The US Supreme Court is expected to determine this issue in an appeal which was heard on 25th March 2013.

The FTC is also focusing on "product switching" or "product hopping". As described by the FTC, "product switching" refers to strategies allegedly used by innovative drug manufacturers to switch demand in a market from a drug for which the underlying patent(s) will soon expire (eg, by limiting supply or raising prices for the old product) to a new product which enjoys ongoing patent protection. Because under US substitution laws a generic drug must have the same dosage and form as the reference brand product in order for pharmacists to be able to substitute it, moving demand to the new product for which there is no generic substitute may reduce demand for the generic entrant and make generic entry in respect of the old product infeasible.

The FTC contends that "product reformulations constitute an unlawful means of preserving monopoly power in violation of Section 2 of the Sherman Act". For their part, the innovative drug companies respond that "[e]very manufacturer that introduces a new drug seeks to 'switch' customers to the new product. This switching is called competition".

A different approach in Canada – until now?
In Canada, by contrast, there has been no similar enforcement activity by the Competition Bureau, and there is uncertainty as to whether the bureau considers the Competition Act to be the appropriate vehicle for addressing complaints about alleged misuses of Canada's drug patent laws.

However, on 14th November 2012 the bureau commenced an inquiry to determine whether Alcon Canada Inc had engaged in conduct contrary to the abuse of dominance provisions in Sections 78 and 79 of the Competition Act. Section 79(1) prohibits dominant firms in a market from engaging in a practice of "anti-competitive acts" (a non-exhaustive list of which appears in Section 78), whose purpose is an intended negative effect on a competitor that is predatory, exclusionary or disciplinary, and that has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market.

Alcon manufactures and sells Patanol® and Pataday®. Both are prescription allergy eye drops used to treat allergic conjunctivitis (sometimes referred to as "pink eye"). But Pataday is a "successor product" to Patanol and, "because of the higher concentration of olopatadine [in Pataday]", the new drug need only be taken once a day, rather than twice a day like Patanol.

The bureau's investigation is focusing on whether Alcon abused a dominant position by seeking to switch the market from Patanol, whose patent term ended in November 2012, to Pataday, which is protected by patent until 2022. In particular, the bureau alleges that Alcon disrupted the supply of Patanol as of July 2012, in order to prevent Apotex Inc, which was approved to commence selling “generic Patanol” in Canada starting on 22nd November 2012, from entering the market. According to the bureau, the purpose of the supply disruption was to "attempt to habituate physicians, who are accustomed to writing prescriptions for Patanol, to writing prescriptions for Pataday, a drug for which there is no current or foreseeable generic substitute on the market".

Alcon has countered that:

"[a] temporary cessation in the supply of a supplier's own product to the end consumer is neither captured by section 78, nor is it analogous to any of the anti-competitive acts contained therein, as it is plainly not 'one whose purpose is an intended negative effect on a competitor that is predatory, exclusionary or disciplinary'... This is especially true in this context when the supplier is making available a better product for the same price per dose."

The Alcon case could set a precedent as the first abuse of dominance case by the bureau in connection with alleged anti-competitive conduct in the pharmaceutical industry. Even if the inquiry does not make it that far, recent comments by Pecman suggest that Alcon is highly unlikely to be the bureau's last foray into the pharmaceutical industry. In December 2012, Pecman stated that the bureau was "working to identify... sectors for focus". In a speech two months later, he identified three sectors of interest to the bureau, including the "health sector".

The developments described above suggest that the pharmaceutical industry may be facing increased antitrust risk in Canada. They also raise important questions about the appropriate limits of competition law and policy in the face of the careful statutory balance embodied in Canada's patented medicines regime between the need for effective protection of innovators' IP rights and timely entry by generic manufacturers. Thus, these developments should be closely monitored.

This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight

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