Canada: Patent Settlement Agreements And The Competition Act — "Something More" Required For Conspiracy

The Federal Court of Appeal recently confirmed that patent settlement agreements may be subject to the provisions of the Competition Act; however, "something more" than a mere assertion of patent rights is required to amount to conspiracy under the Act.

In its decision in Apotex Inc. v. ADIR, the Federal Court of Appeal upheld the Federal Court's ruling that the mere assertion of patent rights does not amount to a conspiracy under the Act. Although the Federal Court and Federal Court of Appeal concluded that the evidence in this case did not support a finding of conspiracy, the ruling leaves the possibility open that a patent settlement could, in some instances, violate the Act, when the settlement or actions by the relevant parties include "something more" than the mere assertion of patent rights.

In this case, ADIR, an innovator pharmaceutical company and owner of the patent for perindopril (an ACE-inhibitor, blood pressure-lowering drug), and Servier Canada Inc., the Canadian licensee, had commenced a patent infringement action against generic producer Apotex Inc. Apotex defended the action on a number of grounds. In addition to claiming that the patent was invalid, Apotex filed a counterclaim claim for damages under Section 36 of the Act alleging that ADIR had obtained the patent in breach of Section 45, the Act's conspiracy provision. The basis of Apotex's counterclaim was a settlement agreement entered into by ADIR and two other parties in a conflict proceeding involving co-pending patent applications. The proceeding was resolved, with the patent being awarded to ADIR on consent of the parties.

Apotex alleged that ADIR (and the other parties in the conflict proceedings) had entered into the settlement agreement to avoid the result that either (i) no claims covering perindopril would issue, or (ii) there would be overlapping claims for the drug awarded to multiple parties. Apotex asserted that the acquisition of the patent unduly lessened competition in the ACE-inhibitor market, contrary to Section 45, thereby injuring Apotex and entitling it to damages pursuant to Section 36 of the Act.

At trial, Justice Snider of the Federal Court found that the patent was valid and that Apotex had infringed the patent. Justice Snider dismissed Apotex's counterclaim seeking damages under Section 36 of the Act, finding that every step in the conflict proceedings and the issuance of the patent had been in accordance with and permitted under the Patent Act or the Federal Courts Rules, and there was nothing more involved than the mere assertion of patent rights. Justice Snider stated that without "something more," the mere assertion of patent rights cannot be a violation of Section 45 of the Act. Justice Snider further noted that by issuance of the patent, Servier, the licensee of the ADIR patent, had only as much market power as was inherent in the patent, and was merely exercising rights provided under the Patent Act.

The Federal Court of Appeal found no fault with the trial judge's conclusions on the conspiracy claim, which were based on factual determinations. However, Justice Layden-Stevenson for the unanimous court left it open that a patent settlement could constitute an offence under the Act:

This is not to say there might never be circumstances where a settlement agreement could constitute the "something more" [but i]t is not the situation here. I have 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.

McCarthy Tétrault Notes:

Although there was insufficient evidence in this case to support a finding of conspiracy under the Act, the Federal Court of Appeal reinforced the possibility that a patent settlement may raise concerns under the Act where there is something beyond the mere exercise of patent rights. So-called "reverse payment settlements," under which a patent holder pays an alleged infringer to delay market entry, could be an example of "something more" than the mere exercise of patent rights.

It should be noted that this case was decided under the old criminal conspiracy provision of the Act. Under that provision, the Crown (and civil plaintiffs) has to demonstrate that an agreement is likely to lessen competition "unduly." Amendments coming into force in March 2010 will remove that requirement for so-called "hard-core" cartels (i.e., agreements among competitors to fix prices, allocate markets or restrict supply). Instead, those agreements will be subject to criminal prosecution and civil damages claims upon proof of the existence of the agreement. The burden of proof will then shift to the parties to an agreement to prove the arrangement is ancillary and necessary to a broader agreement that is not within an impugned hard-core category.

Although this amendment could make it easier for both the Crown and civil plaintiffs to prove conspiracies, the conclusions of the Federal Court of Appeal in the present case — that there needs to be "something more" than the mere exercise of intellectual property rights to demonstrate a conspiracy — will still be relevant and applicable.

Under the March 2010 amendments, a new civil review provision (Section 90.1) will also be added to the Act. We expect that the Competition Bureau will be more likely to review patent settlements under this provision, rather than the criminal conspiracy provision of the Act. This new provision will allow the Commissioner of Competition to seek remedies from the Competition Tribunal in connection with agreements between competitors that prevent or lessen competition substantially in a market.

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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