Canada: Canada Receives Updated Guidance From The Competition Bureau On Patent Litigation Settlements

The Competition Bureau has released updated Intellectual Property Enforcement Guidelines (IPEGs), as well as a white paper on patent litigation settlement agreements.

A. New Intellectual Property Enforcement Guidelines (IPEGs) for Canada

In last year's Life Signs Legal Trends we reported on how Canada's Competition Bureau was updating their Intellectual Property Enforcement Guidelines (IPEGs) for the first time since 2000.1A draft was released on April 2, 2014, and on September 18, 2014 the final version was released.2

Interested parties were asked to comment on the draft IPEGs, and to indicate if there were other competition/IP issues that they believe the Bureau should address. As a result of the submissions, there were "clarifications on the circumstances when the non-use of an IP right could create a competition issue and the Bureau's enforcement approach to patent pooling arrangements, a particular type of business agreement among firms."

Continued updates will be forthcoming to address issues such as: patent litigation settlement agreements, the conduct of patent assertion entities, and activity related to standard essential patents.

B. White Paper on Patent Litigation Settlement Agreements

The Competition Bureau on September 23, 2014 also released a white paper on Patent Litigation Settlement Agreements.3This was accompanied by remarks from the Commissioner of Competition.4The Bureau noted that there are differences between the regulatory regimes found within Canada and the United States. This includes:

  1. The lack of a notification system in Canada: The Bureau does not have a system to be made aware of settlements between brands and generics. This contrasts with the United States where all potential pay-for-delay settlements are reported to the antitrust agencies.
  2. The absence in Canada of a 180-day period of exclusivity for the first generic to challenge a brand's patent: The first generic challenger in the United States is rewarded with a 180-day exclusivity period. This is thought to facilitate pay-for-delay settlements because any delay would ultimately affect all generic challengers.
  3. Particularities to the Canadian PM(NOC) Regulation prohibition proceedings: Canadian prohibition proceedings do not determine whether the patent is valid or infringed, rather they are summary proceedings designed to determine whether the generic's allegation is justified. The ability to sue for infringement after the generic has entered the market imposes risk on the generic, and the possibility of section 8 damages imposes risk on the innovator.

However, the Bureau does not believe that these differences diminish the role of competition analysis in reviewing potentially anticompetitive settlements, nor do they call for a less vigorous enforcement approach in Canada.

The Bureau noted that in the US and EU, settlements involving a compromise on the generic's entry date tend to reflect the odds of the parties' success in litigation. The more likely that the patent is to be found valid and infringed, the later in the patent term that the generic entry can be expected. In the United States, pure entry-date agreements do not violate antitrust laws because it generally reflects a compromise of litigation expectations. However, payments to the generic may run contrary to US antitrust laws.

The Commissioner of Competition has stated that the Bureau will take the position that the Competition Act applies even in cases where the settlement allows for generic entry prior to the patent expiry. The Bureau will not "operate from the assumption that a patent is valid and infringed."

In general, Canada has lower brand prices and higher generic prices compared to the United States. This lower gap may reduce the incentive for pay-for-delay settlements, but the Bureau does not feel it eliminates it. Guidance from the Bureau indicates that if a brand pays more than the generic could have obtained from the PM(NOC) Regulation proceeding, that is less likely to be justified. On the other hand, it might not attract scrutiny if the payment falls within the realm of what can be expected in litigation where the brand faces section 8 damages liability.

The Bureau will look to apply criminal or civil liabilities depending on the conduct. For example, a settlement with respect to markets or products that are not the focus of the patent litigation, or fixing a generic entry date later than the term of the patent, may attract criminal sanctions. Other settlements will be subject to the discretion of the Bureau, taking into consideration the type and value of consideration flowing from the brand to the generic for an agreed upon generic entry date; the amount of time until generic entry; and any other available evidence.

Conclusion

The release of the updated IPEGs and white paper shows the recent interest the Competition Bureau has shown in the pharmaceutical sector. While Canada's approach to patent litigation settlement agreements has not been finalized, mandatory reporting of settlement agreements may be forthcoming.

Footnotes

1. http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/01286.html

2. http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03808.html

3. http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03816.html

4. http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03817.html

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