Canada: The Competition Bureau’s Interest In Patent Litigation Settlement

Last Updated: May 5 2015
Article by Michael Burgess

The Competition Bureau published a white paper in Fall 2014 discussing how it intends to consider patent litigation settlements in the future, particularly in the pharmaceutical sector. Entitled Patent Litigation Settlement Agreements: A Canadian Perspective,1 the white paper canvasses a variety of competition law issues that have arisen, notably, in the United States in the context of patent settlements, and discusses how the Competition Bureau may react to similar developments in Canada.

Generally, the United States Federal Trade Commission ("FTC") has taken the position that American antitrust laws are not violated by settlement agreements that merely set a date for a generic pharmaceutical manufacturer's market entry. Pay-for-delay agreements (where a brand pharmaceutical company pays the generic pharmaceutical company to delay market entry), on the other hand, can align the interests of brand and generic competitors, and can be seen to violate U.S. antitrust laws.

In Canada, under the Patented Medicine (Notice of Compliance) Regulations, a generic company can seek damages – referred to as section 8 damages – from a brand company for its losses resulting from being kept off the market by virtue of the 24 month stay provided under the regulatory framework. The situation with respect to settlements relating to section 8 damages has been less clear than the U.S. FTC's approach. Where a pay-for-delay agreement involves a payment that is greater in value than the generic's potential section 8 damages, it is likely that the Competition Bureau will now view the agreement as anti-competitive. However, where the payment has less value than the section 8 damages, a more detailed consideration of all of the circumstances will be required to determine the impact on competition.

Three Competition Act provisions will be relevant to the Competition Bureau's section 8 damages analysis. Section 45, the criminal provision, can apply to pay-for-delay agreements, and the Competition Bureau opines in its white paper that a "payment" can take many forms, including "cash, a promise not to launch an authorized generic, or provision of services". Sections 79 and 90.1 of the Competition Act, the civil abuse of dominance and competitor agreement prohibition provisions, may be triggered by intellectual property settlement agreements that substantially prevent or lessen competition. "If, but for the settlement, the parties would have been likely to compete, disciplining the exercise of market power and leading to lower cost alternatives for consumers, the settlement may be found to be causing" a substantial prevention or lessening of competition. Considering the civil provisions of the Competition Act in the context of PM(NOC) proceedings, the Competition Bureau suggests it is more likely to conclude that the agreement substantially prevents or lessens competition if the value of the brand's payment exceeds the total of the section 8 damages and the brand's actual litigation costs.2

The Competition Bureau has, it should be noted, already been monitoring the pharmaceutical industry for potential anticompetitive conduct. In 2012, for example, the Bureau began investigating Alcon Canada Inc. for abuse of dominance in an alleged product switching scheme. The Competition Bureau was concerned that Alcon may have intentionally disrupted the supply of Patanol, which is used to treat conjunctivitis, in order to force consumers to start using a newer Alcon drug that was protected under another patent. Ultimately, the Bureau dropped its inquiry in March of 2014, and no findings of wrongdoing were made. In a statement about the inquiry released after the investigation was dropped, the Bureau warned:

Strategies that include supply disruptions for the purpose of forcibly switching demand, including terminating, repurchasing or recalling market supply or any other attempt to frustrate supply of a product under patent challenge by potential generic drug competitors, are likely to raise concerns of an abuse of dominance.3

Although anti-competitive settlement agreements seem to have been less prevalent in Canada than other jurisdictions, given the recent publication of the white paper, the Alcon investigation, and the Competition Bureau's "keen interest in patent litigation settlement agreements between brand and generic drug manufacturers", special consideration should be given to intellectual property litigation settlement agreements in the pharmaceutical sector to ensure they are compliant with Canadian competition law.

Footnotes

1 Patent Litigation Settlement Agreements: A Canadian Perspective (White Paper released at the Global Antitrust Institute, George Mason University School of Law Conference: Global Antitrust Challenges for the Pharmaceutical Industry, 23 September 2014), published online: Competition Bureau Technical Guidance Document http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03816.html .

2 This and the preceding paragraphs summarize the position advocated in the Patent Litigation Settlement Agreements white paper.

3 Competition Bureau, Position Statement, "Competition Bureau Statement Regarding the Inquiry into Alleged Anti-Competitive Conduct by Alcon Canada Inc." (13 May 2014) online: Competition Bureau Media Centre http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03686.html .

Previously published in the April 2015 edition of the Toronto Law Journal

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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