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Does The Law Tolerate a Vacuum?IP and Competition Law in Canada

INNOVATIVE TO ABUSE? EXPLORING THE INTERACTIONS BETWEEN INTELLECTUAL PROPERTY AND

COMPETITION LAWOctober 29, 2008

D. Martin Low, Q.C.McMillan LLP

Toronto, Canada

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A Story of Tension

• “If you start from the proposition that antitrust and intellectual property are inevitably in conflict, and that the very purpose of the intellectual property is to create monopoly, you are bound to end up with one of two answers: either one trumps the other or they have to be confined to their respective spheres.”– Will Tom: “Licensing and Antitrust: Common

Goals and Uncommon Problems” (1998)

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The IP Trump Card

[T]he general rule is absolute freedom in the use or sale of rights under the patent laws of the United States. The very object of these laws is monopoly, and the rule is, with few exceptions, that any conditions which are not by their very nature illegal with regard to this kind of property, imposed by the patentee and agreed to by the licensee for the right to manufacture or use or sell the article, will be upheld by the courts. The fact that the conditions in the contracts keep up the monopoly or fix prices does not render them illegal.

E. Bennett & Sons v. National Harrow Co., 186 U.S. 70 (1902)

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IP Trump Diminished in the US

• No one in the United States today would use the kind of language that the Bennett Court did.

• Using the broad language of the Sherman Act, s 2, the US Courts have developed a more calibrated balancing act to manage the interaction between the aggressive assertion of IP rights and the management of the public interests in competitive markets and consumer welfare.

• See cases like Microsoft and Rambus, the pharmaceutical patent settlement cases and other categories of s.2 cases involving IP rights

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No Trump in Europe

• With Article 82 cases like Magill, IMS and Microsoft, no one could suggest that deference to IP rights invariably predominates in Europe.

• However, the cases will be rare, and brought under very exceptional conditions, according to the Commission.

• The Commission considers IP & competition law to have same aims: innovation, economic growth, and consumer benefit.

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A Lack of Cards in Canada• Since the inception of competition laws in Canada,

there has been little recourse by public agencies to competition law to smooth out any tensions between the interests of IP rights holders and others – whether competitors, consumers, or the competitive process.

• But outside the public enforcement context the Courts generally offer the nostrum that measures to extend IP rights cannot provide shelter from competitive forces:

Kraft Canada v Euro-Excellence [2007] 3 S.C.R. 20Kirkbi A.G. v Ritvik Holdings Inc. [2005] 3 S.C.R. 302, at para 69, per Lebel, J.

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The Formal Position in Canada

• “IP and competition laws are both necessary for the efficient operation of the marketplace. IP laws provide property rights comparable to those for other kinds of private property, thereby providing incentives for owners to invest in creating and developing intellectual property and encouraging the efficient use and dissemination of the property within the marketplace. Applying the Competition Act to conduct associated with IP may prevent anti-competitive conduct that impedes the efficient production and diffusion of goods and technologies and the creation of new products. The promotion of a competitive marketplace through the application of competition laws is consistent with the objectives underlying IP laws.”– IPEGs para 3.4: The Interface

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The Formal Position in Canada

• For “something more than the mere exercise of IP rights” the Bureau will use general provisions of the Act to intervene.

• Where the circumstances involve the mere exercise of such rights and nothing else, the Bureau will invoke section 32, but those cases will be “very rare” and only where no remedy exists under the relevant IP statute.

IPEGs, Introduction

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The Practical Position in Canada

• A lack of tools: – Abuse of dominance: s. 79 has been effectively

ruled out, except perhaps in obvious cases: • DIR v. Tele-Direct (Publications) Inc., (1997), 73

C.P.R. (3d).1 But see DIR v Nutrasweet (1990),32 C.P.R. 1

– Refusal to deal: s. 75 provides no jurisdiction to resolve anti-competitive conduct arising out of a refusal to grant a licence: • DIR v. Warner Music, (1997), 78 C.P.R. 321

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DIR v. Tele-Direct: s.79 is Trumped

“The respondents’ refusal to licence their trade-marks falls squarely within their prerogative. Inherent in the very nature of the right to license a trade-mark is the right for the owner of the trade-mark to determine whether or not, and to whom, to grant a licence; selectivity in licensing is fundamental to the rationale behind protecting trademarks. …The refusal to license a trade-mark is distinguishable from a situation where anti-competitive provisions are attached to a trade-mark licence…The respondents’ legitimate desire to protect the value of the goodwill vested in their trademarks by refusing to licence them does not amount to an anti-competitive act”:

DIR v. Tele-Direct, (1997), 73 C.P.R. (3d) 1 at 32-33.

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DIR v. Tele-Direct: s 79

• “The Tribunal is in agreement with the Director that there may be instances where a trade-mark may be misused. However in the Tribunal's view, something more than the mere exercise of statutory rights, even if exclusionary in effect, must be present before there can be a finding of misuse of a trade-mark.“

DIR v. Tele-Direct, (1997), 73 C.P.R. (3d) 1

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DIR v. Warner Music Canada: s.75

• The application in Warner sought to allege that there was “something more” in the licence refusal than the “mere exercise” of copyright.

• The allegations referred to the prior monopoly, new entry by the complainant, the dramatic effect on price and choice in Canada, the normal condition of cross–licencing between the same parties in other (competitive) markets, the dealings between those parties in relation to Canada, the impending failure, and the permanent effect in Canada of restoration of the monopoly.

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DIR v. Warner Music Canada: s.75

• Both the anti-competitive purpose and effect of the refusal were clearly outlined, but:

“…when considered in the context of sections 32 and 79(5) of the Act, the term “product” in section 75 cannot be read to include …copyright licences… The Tribunal has concluded that section 75 of the Act does not give it jurisdiction to make the order sought…”

DIR v. Warner Music 78 C.P.R. (3d) 321

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No Judge-made Law

“… the Tribunal adopts Rothstein J’s response to the Director’s argument about dire policy consequences in his decision regarding the Tribunal’s jurisdiction over certain undertakings made to the Director pursuant to the consent order in the Imperial Oil case:

“The Competition Act does not confer open-ended jurisdiction on the Tribunal to deal with any and all competition issues. It is given specific powers

which are set out in the Competition Act and in the Competition Tribunal Act. It may only act where it has been given the power to do so.”

DIR v. Imperial Oil Limited, cited in Warner

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Section 32: A “Special” Remedy

• Section 32 of the current Competition Act was found in the Combines Investigation Act, 1927. It created a “special remedy” for abuses of IP rights.

• No proceedings have ever been taken under s.32.• There has been no academic or other writing on

the section.• On the modernisation of the Competition Act in

1986, very limited verbal changes were made to the core text of s. 32.

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Conditions for the s.32 Remedy

• Applicable to patents, trade-marks, copyright, or RICT

• Purpose/intent requirement: “(i) use [of IP] (ii) has been made (iii) so as to…” – limit unduly dealing in article/commodity in trade

or commerce; – restrain or injure unduly trade or commerce, – limit unduly manufacture or production, or – prevent or lessen unduly, competition,

in relation to any “article or commodity.”

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Types of s.32 Remedy

• An order “for the purpose of preventing any use...of the exclusive rights or privileges…” to– Declare void any agreement or licence relating

to that use;– Restrain exercise of rights under a

licence/agreement;– Direct the grant or revocation of licences

(patent, copyright, RICT)– Direct that registration of trade marks be

expunged

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Section 32: An Outdated Remedy?

• Institutionally outmoded: – carriage is with the AG, not the Commissioner of

Competition; – jurisdiction is with the Federal Court, not the

Competition Tribunal• Focus is on intent, not effect, and only operates

post facto• Uses old Criminal Code language and procedure:

– “restrain or injure, unduly, trade or commerce”– on an “information exhibited” by the Attorney

General

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Areas of Hypothetical Concern

• Authorized generics• Patent litigation settlements: Cipro case• Patent ambushes• Warner circumstances• Tying/bundling/extension efforts

• And lots more, for creative IP rights-holders

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A Projection

• Recourse to the Competition Act to address IP concerns might be possible, but has not happened since the IPEGs were issued in 2000.

• The existence of s. 32 impedes reliance on other provisions of the Competition Act: see Warner.

• The “mere exercise” condition does not by itself permit recourse to s. 32.

• S. 32’s language, institutional focal points and evidentiary burdens make it unworkable.

• In an era of rapid evolution toward the knowledge economy, the Competition Bureau’s hands will continue to be tied or severely restricted.

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A Modest Proposal

• Reliance on remedies under the IP statutes implies public competition enforcement agencies have little role in balancing IP and broader competition interests

• A broad review of s. 32 should be undertaken; statutory revision would be desirable– to confer authority on the Bureau and the Tribunal– to identify the circumstances that justify intervention today– to clarify the proper intersection between s.32 and other

civil remedies n the Act or the IP statutes– to establish a transparent and realistic evidentiary test to be

met.

• A modern s. 32 would be beneficial for innovators, for efficiency interests, for competition and for consumer welfare.