Many companies depend on the exercise of intellectual property rights for success. IP law provides a regulated form of exclusivity to IP owners, by restricting certain types of unauthorized conduct in the marketplace to ensure that owners can benefit from their creations or inventions. But at what point does this exclusivity violate principles of competition law and result in potential liability for the rights holder? And at what point can competition law provide remedies to a business facing problems as a result of another company’s exercise of IP rights?
These topics were canvassed at the November 22, 2017 panel discussion on “Driving Competition: The Interface between Competition and Intellectual Property Law” organized by the OBA’s Information Technology and Intellectual Property Law section (program information can be found here).
In a stimulating discussion moderated by Sangeetha Punniyamoorthy of DLA Piper (Canada) LLP, John Bodrug of Davies Ward Phillips & Vineberg LLP and Nikiforos Iatrou of WeirFoulds LLP provided an overview of the intersections between these two areas of law, as well as examples of cases where these areas have intersected in practice. Below are some highlights from the discussion.
The Subtle Relevance of the Competition Act to IP
The speakers noted that only one section of the Competition Act, section 32, specifically deals with IP. Section 32 provides a special remedy where a party is misusing IP. However, for a lawyer who is unfamiliar with competition law, the speakers cautioned that that section may be a misleading starting point for considering competition law issues with respect to IP.
Section 32, as Mr. Iatrou noted, is rarely used. Rather, the Competition Act is more often invoked in relation to IP where the allegations concern refusal to deal, exclusive dealing or abuse of a dominant position, all of which are prohibited under the Act.
Though these causes of action are not specific to the exercise of IP rights, they can provide recourse to businesses that find themselves engaged in disputes involving IP. And because there is not a well-developed body of case law on these causes of action (or the case law may be dated), Mr. Iatrou commented that there is a lot of room for competition lawyers to make new and creative arguments.
When to Consider Competition Law in an IP Matter
Mr. Bodrug suggested that IP lawyers consider consulting with a competition lawyer in cases where the exercise of IP rights affects competitors in the marketplace or where the conduct in question goes beyond the mere unilateral exercise of an IP right. For illustration, the speakers highlighted the Competition Tribunal decision of Canada (Director of Investigation and Research) v NutraSweet Company from 1990 (Case Number CT-1989-002).
NutraSweet was a major producer of the sweetener aspartame, which it marketed under the brand name NutraSweet. NutraSweet had a trademark display policy, which provided customers who displayed its trademarked brand name and logo on their product packaging with a 40% discount. The Tribunal found that NutraSweet had abused its dominant position through this policy. The Tribunal also found that the practice amounted to a prohibited exclusivity discount because it effectively forced customers to use NutraSweet’s aspartame and discouraged them from trying out competitors’ artificial sweeteners.
A very recent decision of the US Federal Trade Commission, In the Matter of 1-800 Contacts, Inc (docket no. 9372), provided further food for thought. This case involved a settlement between competitors who had agreed to apply negative key words in internet searches such that competitor’s products would not be displayed in search results. This form of market allocation was found by the Commission to have violated US antitrust laws. The decision serves as a reminder to IP lawyers of the importance of considering competition law when settling an IP dispute with a competitor: such settlements may be found as an unreasonable restraint of competition and therefore in violation of competition law.
Both a Sword and a Shield
The speakers also canvassed the ways in which competition law can be used both as a sword and a shield in IP disputes. As a shield, a business may defend against an IP infringement claim by asserting that the claimant was exercising its IP rights in violation of competition law. As a sword, a business may bring a case before the Competition Tribunal to stop an IP owner from using its rights to unduly stifle competition.
In addition, the speakers discussed complaints to the Competition Bureau and Competition Bureau investigations as another possible avenue for the pursuit of complaints involving a competitor’s use of IP. And as a proactive measure for businesses that may be concerned about Bureau investigations being pursued against them, Mr. Iatrou noted the importance of documenting the reasons for particular uses of IP and memorializing legitimate reasons for refusing to grant IP licenses to parties seeking such licenses.
Finally, Mr. Bodrug and Mr. Iatrou provided an overview of the Competition Bureau’s recently-updated “Intellectual Property Enforcement Guidelines” (updated March 31, 2016, which can be found here). Among other things, these Guidelines provide specific examples of conduct involving exercises of IP rights and how the Bureau would view the competition law implications of such conduct. The Guidelines are, therefore, a useful resource and helpful starting point for considering competition law implications of IP. However, as Mr. Bodrug cautioned, businesses and lawyers should not take excessive comfort in these Guidelines, as they are exactly that – guidelines, not the law. The Bureau is not the ultimate decision-maker in these cases, and a business would be well-served to consult a competition lawyer when it has an IP issue that might engage competition law.
About the author
Kelsey K. Gordon is currently an Articling Student at WeirFoulds LLP.