Canada: For Your Attention January 2000: Competition Bureau Draft IP Enforcement Guidelines

For Your Attention

The Competition Bureau, the federal government agency responsible for enforcing the Competition Act, has released Draft Intellectual Property Guidelines in an effort to promote transparency in the enforcement of the Competition Act and to increase the level of certainty in business matters involving intellectual property (IP) issues. Once final, the Guildelines will not have the force of law, but they will provide important insight as to how the Competition Bureau will apply competition law to IP in Canada.

The Guidelines explain the analytical approach the Bureau proposes to use to determine if conduct involving IP is anti-competitive, based upon the following broad framework:

• in general, the majority of circumstances pertaining to IP will be dealt with under the general provisions of the Competition Act and the Bureau will only take enforcement action if the owner of the IP right engages in conduct that is beyond the statutory and common law IP rights and the conduct is anti-competitive;
• the exercise of an IP right is not considered anti-competitive in and of itself;
• while IP has important characteristics that distinguish it from other forms of property, the same competition analysis can be applied to conduct involving IP as to conduct involving other forms of property; and
• if an IP owner engages in conduct inherent in its statutory IP rights (e.g., refusal to license), the Bureau would take action under section 32 of the Competition Act only in certain rare circumstances articulated in the Guidelines when no other remedy is provided for by the relevant IP statute.

Some highlights in the draft Guidelines regarding the proposed enforcement of the general provisions of the Competition Act are as follows:

• The Bureau views the exclusive right to use, license, transfer or sell intellectual property as inherent in statutory and common law IP rights. There may, however, be circumstances in which conduct involves more than just exercising this "exclusive right" S conduct which has the effect of increasing, creating or preserving market power. In such instances, the Bureau may take enforcement action.
• The Bureau interprets "the exclusive right to use, license, transfer or sell the IP" to mean that it is only the owner of the property who can do so as no other individual has this right. However, if an IP owner licenses, transfers or sells the IP to a firm or a group of firms that, absent the arrangement, would have been actual or potential competitors, and if this arrangement creates, enhances or preserves market power, the Bureau may seek to nullify the arrangement under the appropriate section of the Competition Act.
• In enforcing the criminal and civil provisions of the Act, the Bureau will challenge behaviour or conduct that is beyond the inherent statutory and common law IP rights and that substantially or unduly lessens or prevents competition in a market.
• IP protection cannot be used as a leverage or as an advantage to engage in conduct that distorts market conditions by creating, preserving or increasing market power.
• There is no presumption that an IP owner’s exclusive right to its property necessarily gives the owner market power. To violate the Act, a firm must engage in conduct not inherent in its IP rights that creates or enhances its market power.
• Licensing agreements dealing with IP, which are common business practice and often pro-competitive, will only be considered anti-competitive if they reduce competition to a level below that which would have existed in the absence of the licence.
• In evaluating the competitive effects of conduct that involves an IP right, the Bureau’s assessment focuses on whether the conduct will result in horizontal anti-competitive effects, i.e., if it has consequences for firms producing substitutes or firms potentially producing substitutes. Such effects may arise if the conduct or arrangement increases competitors’ costs. Additionally, behaviour that results in a reduction in innovation activity could be anti-competitive and harmful if it prevents future competition in some product or process market.
• The Bureau will consider whether efficiency benefits are sufficient to offset anti-competitive effects in instances where arrangements and transactions involving IP can lead to a more efficient use of resources.

The Competition Bureau has now completed its first round of consultations regarding the Draft Guidelines (which is available through the Strategis database at http://strategis.ic.gc.ca/engdoc/main.html). Revised Guidelines are expected sometime this year.

Because the Guidelines cannot provide guidance with respect to the exercise of discretion in every situation, individuals are advised to "consult with qualified counsel or [to] contact the Bureau when evaluating the competition law risk associated with any contemplated business arrangement involving IP."

William Vanveen is a Partner in the Ottawa Gowlings office. He can be reached by e-mail at vanveenw@gowlings.com.

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.