Canada: Competition Bureau Signals Increased Scrutiny Of Patent Litigation Settlement Agreements

Patent litigation settlement agreements took centre stage in a speech by the Commissioner of Competition (Commissioner) and related White Paper – Patent Litigation Settlement Agreements: A Canadian Perspective – issued by the Competition Bureau (Bureau) on September 23, 2014. In the most detailed guidance provided to date regarding the application of the Competition Act to patent litigation settlement agreements, the White Paper indicates that such agreements may potentially be reviewed under the criminal provisions of the Competition Act, in contrast to the approach adopted by the U.S. Supreme Court. In addition, the Commissioner called for the introduction of a notification regime for all patent settlements, a change that would almost certainly require legislative amendment and would arguably expand the Commissioner's role from enforcer to industry-specific regulator.


Antitrust scrutiny of patent litigation settlement agreements (also referred to as reverse payment settlements) has been a high profile and controversial topic among competition law enforcers in the United States and Europe for years, though the Competition Bureau (Bureau) had been notably silent on the issue until this year.

The June 2013 decisions of the U.S. Supreme Court in Federal Trade Commission v. Actavis, Inc.1 (Actavis) and the European Commission in Lundbeck2increased the demand by Canadian practitioners and the pharmaceutical industry for further clarity regarding the Bureau's views on patent litigation settlement agreements. The U.S. Supreme Court found that patent litigation settlement agreements are not presumptively unlawful and imposed a "rule of reason" standard for determining whether such agreements are likely to result in unjustified anticompetitive harm. In doing so, the U.S. Supreme Court explicitly rejected the Federal Trade Commission's call for considering such agreements to be per se illegal. (For further information regarding the Actavis decision, see our June 2013 Osler Update.) The European Commission applied a stricter "restriction by object" standard for analyzing patent litigation settlement agreements (akin to the U.S. per se standard, which means it did not find it necessary to demonstrate any actual negative competitive effects), though its approach has recently been strongly criticized by the European Court of Justice.

In Canada, pharmaceutical companies have faced a lack of clarity regarding the application of the Competition Act to patent litigation settlement agreements, due to the absence of any judicial consideration or material public guidance from the Bureau. Throughout the past year, the Bureau has considered patent litigation settlement agreements at a Workshop on Antitrust Issues in the Pharmaceutical Sector and in its Submission to the OECD Competition Committee Roundtable on Competition Issues in the Distribution of Pharmaceuticals, though the White Paper provides the most detailed view to date of the Bureau's current approach to patent litigation settlement agreements.

White Paper – Articulating the Bureau's Preliminary Views

The Bureau's stated goal in issuing the White Paper was to "provide some background on Canada's regulatory system governing generic entry, its competition legislation, and the Bureau's preliminary views as to how the Canadian competition law could apply to settlements," suggesting that the Bureau may continue to refine its views. 3

Despite the fact that many practitioners and industry experts have argued that the substantial differences between the Canadian and U.S. pharmaceutical regulatory regimes reduce the rationale for subjecting most patent litigation settlements to antitrust scrutiny in Canada, 4 the White Paper considers some of these differences and concludes that they "neither merit reduced concern over the possible impacts of these settlements nor call for a less vigorous enforcement approach than that adopted in the US or Europe."

Consistent with statements the Bureau has made throughout the past year at the workshop and in its submission to the OECD, the White Paper leaves open the possibility of enforcement action under both the criminal (section 45) and civil (sections 79 and 90.1) provisions of the Competition Act.

Criminal Enforcement

The White Paper provides that the Commissioner would likely pursue a settlement between competitors under the criminal provisions of the Competition Act in the following circumstances:

  1. if the settlement includes conduct with respect to markets or products that are not the focus of the patent litigation or the conduct is beyond the scope of the patent, such as fixing a generic entry date beyond the term of the patent; or
  2. if the Bureau finds direct or circumstantial evidence that indicates that a settlement is a vehicle for a "naked restraint" on competition that is not implemented in furtherance of a legitimate collaboration or was motivated by factors beyond the issues associated with the litigation.

Outside of these circumstances, the White Paper indicates that the Commissioner will use his "enforcement discretion" to decide whether to pursue the settlement under the criminal conspiracy provisions or the civil provisions of the Competition Act. Factors that may inform the Commissioner in the exercise of his enforcement discretion include the type and value of consideration flowing from the brand to the generic for an agreed upon generic entry date and the amount of time until generic entry. The suggestion that a patent litigation settlement is not immune from criminal prosecution where the elements in (a) and (b) above are not present distinguishes the Canadian approach from the U.S. Supreme Court's explicit rejection of a per se standard in Actavis. The Commissioner appears unwilling to constrain his enforcement discretion in this important sector, and industry players should expect the possibility of rigorous enforcement by the Commissioner.

Given the significant stakes associated with IP settlements and increasing frequency with which costly follow-on class proceedings are initiated even where the Commissioner does not pursue the matter, it is disappointing that the Commissioner has not clarified his rationale for this position. Private plaintiffs can be expected to capitalize on this pronouncement in the White Paper, as section 36 of the Competition Act provides a private right of action for damages to any person (on a individual or class basis) who has allegedly suffered harm as a result of conduct violating the criminal provisions of the Competition Act.

Civil Enforcement

The White Paper also provides insight into the approach that will be taken where the Commissioner determines that a patent litigation settlement will be reviewed under the civil provisions of the Competition Act rather than section 45. In such circumstances, the settlement will be analyzed under:

  1. section 90.1, which applies to an agreement between actual or potential competitions that is likely to substantially lessen or prevent competition; and/or
  2. section 79, which applies to a practice of anticompetitive acts engaged in by a dominant firm or firms that is likely to substantially lessen or prevent competition.

The Competition Tribunal (Tribunal) has the discretion to issue a remedial order where it finds that all elements of either provision are established, although only the Commissioner may apply to the Tribunal for a remedial order under these provisions (there is no private right of action). Under section 79, the Tribunal may order payment of an administrative monetary penalty (AMPs) not exceeding $10,000,000 for a first order, or $15,000,000 for a subsequent order. AMPs are not an available remedy under section 90.1. Both civil provisions require that the agreement has had, is having or is likely to have a substantial lessening or prevention of competition on the relevant market impacted by the patent settlement agreement, requiring substantive and detailed analysis of the actual or likely impact on competition.

The White Paper notes that, as part of this analysis, the Bureau will examine the expected date of generic entry "but for" the settlement and the agreed entry date, and the difference between the prices that would have been expected to prevail in each case. The patentee's potential liability for section 8 damages is "another factor that would have to be considered" and "[a]ll else being equal, the greater the value transfer from the brand to the generic, the greater the likelihood of a substantial lessening or prevention of competition."

It is unfortunate that the White Paper does not comment on (i) the explicit immunity in section 79(5) for an act engaged in pursuant only to the exercise of any right or enjoyment of any interest derived under any of the federal statutes regulating intellectual property (including the Patent Act), or (ii) the relevance of the prescribed "regulatory control over entry" factor in section 90.1(2)(c)(iii) that the Tribunal may consider when determining whether an arrangement is likely to lessen competition substantially in a market. These provisions suggest that, in the case of patent settlements, the Tribunal should consider whether any lessening or prevention of competition results from the settlement agreement, or whether it merely flows from the patentee's exercise of its intellectual property rights or applicable regulatory provisions, in which case it should not be subject to censure under these provisions of the Competition Act. Hopefully the Commissioner will elaborate on this as he refines his views on the application of the Competition Act to patent litigation settlements.

Call for Introduction of a Settlement Notification Regime

Significantly, the Commissioner called for the introduction of a settlement notification regime in Canada, similar to the U.S. requirement to notify the Federal Trade Commission of all pharmaceutical patent litigation settlement agreements. Such a notification regime would almost certainly require legislative amendment. Implementation of such a notification regime would arguably expand the Commissioner's role from enforcer to regulator and introduce industry-specific provisions back into the Competition Act, a troubling trend against which past Commissioners had aggressively advocated.


1. 570 U.S. 756 (2013).

2. Case COMP/AT. 39226. See European Commission press release of June 19, 2013.

3. In this regard, the Bureau also recently issued revised Intellectual Property Enforcement Guidelines (IPEGs) to reflect amendments to the Competition Act made in 2009. The revised IPEGs completed stage one of the Bureau's update; the Bureau plans to address in a second stage of revisions patent settlement agreements, along with analysis of conduct of patent assertion entities and activity related to standard essential patents. For further information regarding changes made to the IPEGs see our April 2014 Osler Update – Competition Bureau Releases Draft Updated Intellectual Property Enforcement Guidelines.

4. In particular, the White Paper considered the following substantial differences between the Canadian and U.S. pharmaceutical regulatory regimes:

  • the fact that proceedings under the Canadian Patented Medicines (Notice of Compliance) Regulation do not ultimately determine patent validity or infringement which may, in turn, result in dual litigation;
  • the potential for generics to receive from brands damages related to lost sales in Canada (referred to as "section 8 damages"); and
  • the absence in Canada of a 180-day period of exclusivity for the first generic to challenge a brand's 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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