Canada: Competition Bureau Discontinues "Product Hopping" Investigation

The Competition Bureau, Canada's competition watchdog, announced in May 2014 that it was dropping its investigation into the life cycle management strategy used by Alcon Canada Inc. in connection with its Patanol and Pataday products.  The Bureau commenced an inquiry in November 2012 to examine whether Alcon was dominant in a relevant market and if so, "whether it had intentionally disrupted the supply of its prescription ocular anti-allergy drug, Patanol, as part of a strategy to switch patients to a second generation formula of the drug and hinder meaningful competition from generic drug companies."1  After a thorough review, the Bureau ended its investigation upon concluding that the competitive dynamic had returned in the market and that Alcon's strategy did not appear to have delayed generic entry.

By law, the Bureau is required to conduct its inquiries in private.2 However, this matter came to light when the Bureau sought a court order under section 11 of the Competition Act compelling Alcon to produce records and written responses to its questions in December 2012.  As well, upon the conclusion of its inquiry, the Bureau issued a press release and position statement explaining the nature of its inquiry and the reasons for discontinuing its investigation.  Product hopping has been investigated by a number of competition agencies around the world, and the Bureau's position statement provides helpful guidance for pharmaceutical firms in Canada contemplating such conduct.

Conduct at issue

The Bureau learned that, beginning around July 2012, Alcon adopted a strategy that involved suspending the supply of Patanol from the Canadian market, which they allege was designed to switch prescriptions for Patanol to a new Alcon product, Pataday, a second generation reformulation of the drug found in Patanol.  The medicinal ingredient in Patanol was protected by patent until November 2012, whereas the medicinal ingredient in Pataday was patent protected until 2022.  

Apotex Inc. sought to introduce a generic version of Patanol, and served a Notice of Application on Alcon in February 2010.  Alcon contested the application, and Alcon's application contesting Apotex's allegations was heard by the Federal Court in early 2012.  In April 2012, based on a settlement Alcon believed it had reached with Apotex, Alcon discontinued the Federal Court litigation.  Health Canada issued a Notice of Compliance to Apotex for its generic version of Patanol on November 22, 2012, the day after the patent on the medicinal ingredient expired.

With the limited availability of Patanol in the Canadian market in the summer of 2012, doctors moved many Patanol patients to Pataday.  The Bureau was concerned that generic competition could be delayed or prevented as a result of Alcon's conduct because the automatic substitution rules for generic drugs can only be relied upon where the original brand name drug is being prescribed.  Pharmacists could not automatically substitute generic Patanol if Patanol was not being prescribed by doctors.

Result of the Bureau's inquiry

Alcon resumed supplying Patanol to the Canadian market in January 2013 after the Bureau's inquiry was started.  By May 2013, it was observed that sales of Patanol were back where they had been before the supply disruption.  As well, generic versions of Patanol entered the market and did gain significant market share.  For these reasons, the Commissioner ended his inquiry as "the competitive dynamic appears to have been restored."  

Implications the inquiry

The Bureau's statement makes clear that the Bureau does not consider life-cycle management strategies to be "inherently anti-competitive."  They note that these strategies may bring "significant advancements in health care for the benefit of consumers."  However, they emphasize that life-cycle management strategies that are "designed to impede competition from generic drug companies, such as product switching strategies, may cause significant harm to competition."  The following conduct is flagged as raising likely concerns under the abuse of dominance provisions: disrupting supply to forcibly switch demand, including terminating, repurchasing, or recalling market supply; or other attempts to frustrate supply of a product under patent challenge by a potential generic competitor.  It thus appears that the Bureau's investigation in Alcon focused on whether limiting supply to move prescriptions from Patanol to Pataday prior to the entry of a generic version of Patanol resulted in anti-competitive effects.

However, the Bureau's statement does not discuss in what circumstances the removal of an old product and its replacement by a new version (for which a separate patent was obtained) can amount to an "anti-competitive act" under the abuse of dominance provisions.  Is the simple discontinuation of supply of a product to replace it by a new, improved one with increased therapeutic benefits enough?  When does a limitation of supply amount to an intended predatory, exclusionary or disciplinary negative effect on a competitor?  There are issues that remain to be determined. Although the Competition Bureau is not the final arbiter of misconduct under the Act – the Commissioner must prove his case before the Competition Tribunal – firms are well advised to heed the views expressed in the position statement as a reflection of the enforcement policies and priorities of the Commissioner and its increased interest in the pharmaceutical industry.  The Tribunal is authorized to impose administrative monetary penalties on a corporation of up to $10 million for the violation of the abuse of dominance provisions, with subsequent violations subject to a  maximum penalty of $15 million.

Link to Competition Bureau announcement

Competition Bureau discontinues its investigation of Alcon Canada Inc.

Footnotes

1 Competition Bureau Statement Regarding the Inquiry into Alleged Anti-Competitive Conduct by Alcon Canada Inc., May 13, 2014.

2 Competition Act, R.S.C. 1985, c. C-34, s. 10.

Norton Rose Fulbright Canada LLP

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