On June 9, 2015, the Competition Bureau released draft updated Intellectual Property Enforcement Guidelines (IPEGs) for comment. The IPEGs describe how the Bureau will determine whether conduct involving IP raises an issue under the Competition Act (Act). This latest release follows the Bureau’s September 2014 release of the present IPEGs. Also in September 2014, the Bureau released a white paper titled Patent Litigation Settlement Agreements: A Canadian Perspective, as previously reported here and here.
Of particular interest to the pharmaceuticals industry is all-new subsection 7.2, titled “Settlements of Proceedings under the Patented Medicines Notice of Compliance Regulations.”
Subsection 7.2 includes a discussion and hypothetical examples “designed to illustrate the analytical framework that would be applied by the Bureau in conducting its review of settlements between brand and generic pharmaceutical companies of proceedings under the Patented Medicines Notice of Compliance ("PMNOC") regulations.” Importantly, the draft IPEGs state that “the Bureau would not premise its analysis on the assumption that the brand company’s patent was valid and infringed and, therefore, would not assume that any settlement that did not expand the exclusionary scope of the brand company’s patent rights was lawful.”
The draft IPEGs provide the following summary of the Bureau’s enforcement approach to settlements:
- A settlement in which consideration is limited to generic entry prior to patent expiry (an “entry-split settlement”) will not pose an issue under the Act;
- A settlement with a payment to the generic pursuant to which the generic firm enters the market prior to patent expiry will be reviewed under section 90.1 (relating to civil agreements generally) or possibly section 79 (relating to abuse of dominance); and
- A settlement may be reviewed under section 45 (criminal provisions) only where there is evidence that the intent of the payment was to fix prices, allocate markets or restrict output, i.e., a “naked restraint” on competition.
Examples regarding the above three types of settlements are provided in the draft IPEGs, along with examples and explanations of the various factors that the Bureau would take into consideration in determining whether a settlement is off-side the Act.
At a high level, for a settlement with a payment (category #2, above), the form of payment, whether a simple monetary transfer or a payment for services, does not change the fundamental analysis as to whether the payment is for delay purposes. The Bureau will consider whether the payment was commensurate with the services provided and, in determining whether the payment was for the purpose of delaying a generic firm’s entry, would take into account factors such as:
- the fair market value of any goods or services provided by the generic firm;
- the magnitude of the brand company’s section 8 damages exposure under the PMNOC regulations; and
- the brand company’s expected remaining litigation costs absent settlement, including costs of any subsequent infringement/impeachment actions and potential adverse costs awards.
According to the draft IPEGs, the Bureau anticipates that circumstances leading to a review of a settlement under the criminal conspiracy provision, section 45, would occur on a limited basis. The following types of settlements would likely be referred to the Director of Public Prosecutions for criminal prosecution:
- a settlement with a payment that blocks generic entry until after patent expiry;
- a settlement with a payment, and there is convincing documentary evidence that both parties recognized that the patent was not valid but the innovator company nonetheless challenged the generic’s notice of allegation, and the brand company paid the generic company to stay out of the market.
Interestingly, there is no commentary in the draft IPEGs about a reporting mechanism for settlement agreements. The white paper had stated that the Bureau plans to advocate for a settlement notification system.
According to the Bureau’s news release, interested parties may provide comments until August 10, 2015.
The preceding is intended as a timely update on Canadian intellectual property and technology law. The content is informational only and does not constitute legal or professional advice. To obtain such advice, please communicate with our offices directly.