In Canada, the Competition Act largely defers to the
Patent Act. For example, the Act's abuse of dominance
provision (s. 79 — Canada's equivalent to s. 2 of the
Sherman Act and Article 102 of the Treaty of
Rome), establishes a complete defence for a practice that is
engaged in only (more on this term later) pursuant to the
exercise of a right conferred by the Patent Act.
Nonetheless, there are a number of issues that arise frequently
in the context of patents held by life sciences businesses. This
article briefly highlights five issues:
Differential patent expiry dates;
Strategies for the patent expiry period; and
Settling patent challenges.
When a patent holder considers licensing a patented product, one
question that often arises is: "what terms can we include in
the license?" The short answer is that a patent holder may
include any term that would be considered to be a
"normal" term of patent licence (this is when the term
"only" described above, comes into play). At this point,
the patent lawyer's input to the competition team is helpful.
Patent lawyers see many licensing agreements and assist in
determining whether a provision is the normal exercise of a patent
right or is an attempt to leverage the patent to gain an advantage
outside of, or in addition to, the rights conferred by the
Patent Act. Terms that would require careful scrutiny
before being adopted include:
terms that impose resale restrictions;
terms that require additional purchases of other products (see
terms that extend the contract beyond the life of the patent
Competition lawyers are often asked about bundling products. The
bundle could consist of a patented and a non-patented product, or
it could consist of two patented products.
Normally, the offering of product bundles is unobjectionable.
Bundles can raise issues, however, when the pricing of the bundles
forecloses competition for one of the products (most often the
unpatented product in the bundle). This typically happens in one of
two ways: either the products are only offered in a bundle in the
territory, or all of the profit is loaded into the patented product
in the bundle and the unpatented product is priced at or below
cost. The simplest solution in this case is to ensure that the
bundled products are available individually and that the pricing of
each product in the bundle exceeds the cost of the product.
Sometimes these simple solutions are not feasible; in those
circumstances, a bundling strategy should be carefully reviewed for
possible competition law risk.
Differential Patent Expiry Dates
On occasion, a U.S. patent on a product will be extended while
the Canadian patent will not. It is an anti-competitive practice in
that situation for the patent holder to use the negotiating
leverage afforded by the U.S. patent to secure a competitive
advantage in Canada (this was the essence of the first abuse of
dominance case, NutraSweet). In this scenario, the
Canadian business must recognize that its patent protection has
expired and plan accordingly.
Strategies for Patent Expiry
Patent holders are understandably concerned about retaining as
much profitability in their products as possible after their
patents expire. NutraSweet made it clear that a patent
holder cannot artificially extend the life of its patent by
entering into long-term exclusive contracts. This doesn't
necessarily mean, however, that the patent holder cannot enter into
any exclusive contracts; it means that a careful analysis of the
market should be undertaken. Depending on the structure of the
market and the nature of emerging competition in that market,
exclusive contracts may be entered into with some customers without
materially lessening or preventing competition. In addition, the
analysis may differ if the exclusive supply is the product of a
Settling Patent Challenges
Reverse payments made by patent holders to generic manufacturers
remain a hot topic in U.S. antitrust law. A detailed discussion of
the topic requires much more space than is available in this note.
Suffice it to say that the author has experience in designing a
monetary settlement of a patent challenge to a patented drug, where
the settlement was acceptable to the Competition Bureau. The
structure of such a settlement must be carefully crafted in light
of the particular market and the nature of the patent
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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