Canada: Door Still Open For Competition Act Challenges To Patent Settlement Agreements

In June 2009, the Federal Court of Appeal (FCA) upheld the Federal Court of Canada's decision in the patent infringement case of Laboratoires Servier v. Apotex Inc., ([2008] F.C.J. No. 1094, aff'd [2009] FCA 222). In its decision, the Court dismissed a counterclaim by the defendant, Apotex, alleging that the settlement agreement leading to the relevant patent's issuance constituted a conspiracy to lessen competition and an offence under Canada's Competition Act. Although in this case the Court held that the defendant had failed to support its allegations with sufficient evidence, it specifically contemplated that under the right circumstances, a patent settlement agreement might amount to a conspiracy under the Competition Act.

The relevant patent in the Laboratoires Servier case was issued following lengthy conflict proceedings involving patent applications filed by ADIR, Schering Corporation (Schering) and Hoechst Aktiengesellschaft (Hoechst). The parties all became involved in Federal Court proceedings in which they were granted the right to contest any aspect of the Commissioner of Patents' determinations regarding the parties' respective rights in relation to the subject matter of the conflict claims. Following examinations for discovery, the parties entered into Minutes of Settlement resolving the actions, and a Federal Court order was issued on consent, allocating the claims among ADIR, Schering and Hoechst. The result of the claims awarded to ADIR was the patent that Apotex allegedly infringed.

Apotex argued that the settlement agreement was unlawful because it was entered into specifically to avoid the result that either no relevant claims would be issued or that overlapping claims would be issued. Apotex also argued that had the conflict proceedings been decided by the Court rather than settled, ADIR might never have obtained any exclusive patent rights, and therefore that the issuance of the patent probably granted ADIR greater market power than it would otherwise have had.

Both the Federal Court and the FCA rejected Apotex's arguments as speculative. Apotex had not provided any evidence of the alleged probability that the agreement resulted in greater market power than would otherwise have existed. The FCA noted that the Federal Court could have awarded the claims in issue precisely as they were allocated in the settlement agreement. More importantly, every step of the process-from the applications of each of the parties, through the settlement process, the order allocating the claims, and the issuance of ADIR's patent-was in accordance with ADIR's rights under the Patent Act and the Federal Courts Rules. The FCA had "some difficulty conceptualizing that an agreement effecting a remedy that was open to the court to grant and was placed before the court for its approval could constitute an offence under the Competition Act."

Despite this holding, the FCA was careful to keep the door open for potential Competition Act challenges to settlement agreements involving intellectual property, saying there could be "circumstances where a settlement agreement could constitute the 'something more' contemplated in the Eli Lilly cases."

In the Eli Lilly cases, the FCA reinstated a counterclaim by Apotex that had been previously struck by the Federal Court of Canada. In doing so, the FCA characterized the facts at issue [i.e. an assignment of patent rights alleged by Apotex to result in an undue lessening of competition contrary to the Competition Act's conspiracy provision (s. 45)] as including "evidence of something more than the mere exercise of patent rights" and therefore not beyond the application of the conspiracy provision. In a separate decision later in the same case, the FCA again concluded that "the assignment of a patent may, as a matter of law, unduly lessen competition."

It is interesting to note that the FCA's approach is similar to that of Canada's Competition Bureau. The Competition Bureau has taken the position that the general provisions of the Competition Act (such as criminal conspiracy and bid-rigging, as well as civilly reviewable conduct such as abuse of dominance, tied selling, market restriction, exclusive dealing, resale price maintenance and refusal to deal), apply to conduct that involves "something more" than the "mere exercise" of an intellectual property right. The Bureau defines the "mere exercise" of an intellectual property right as the "exercise of the owner's right to unilaterally exclude others from using the IP, as well as the use or non-use of IP by the owner." Once conduct ceases to be unilateral, including, for example, the assignment or licensing of intellectual property rights, the Competition Bureau has advised that the Competition Act's general provisions may apply.

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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