Canada: Patent Settlement Agreements: Federal Court Of Appeal Keeps Door Open For Competition Act Challenges In Canada

In June 2009, the Federal Court of Appeal (FCA) upheld the Federal Court of Canada's decision in Laboratoires Servier v. Apotex Inc.¹, a patent infringement case. In its decision, the trial Court had dismissed a counterclaim by the defendant, Apotex, alleging that the settlement agreement leading to the patent's issuance constituted a conspiracy to lessen competition and an offence under Canada's Competition Act. While the trial Court held that the defendant had failed to support its allegations with sufficient evidence, it nevertheless allowed that a patent settlement agreement could amount to a conspiracy under the Competition Act in some circumstances. The FCA agreed.

Background

The Canadian Competition Bureau (Bureau), has taken the position that the general provisions of the Competition Act, which consist of criminal (e.g. conspiracy and bid-rigging) and civilly reviewable conduct (e.g., 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 (IPR). The Bureau defines the "mere exercise" of an IPR 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 IPRs, the Bureau's view is that the Competition Act's general provisions may apply.

The FCA took a similar approach in an earlier decision, namely Eli Lilly v. Apotex.² In that case, 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, as such, not beyond the application of the Competition Act's 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" and confirmed the correctness of the Bureau's approach.³

Laboratoires Servier v. Apotex Inc.

In Laboratoires Servier v. Apotex Inc., the plaintiffs ADIR and Servier Canada Inc. brought an action for patent infringement against Apotex. As part of its defence and counterclaim, Apotex alleged that a settlement agreement that had led to the issuance of the patent in question violated the conspiracy provision in the Competition Act.

The patent was issued following lengthy conflict proceedings involving patent applications filed by ADIR, Schering Corporation (Schering) and Hoechst Aktiengesellschaft (Hoechst). These parties became involved in Federal Court proceedings in which they were granted the right to contest any aspect of the Commissioner of Patents' determinations regarding their 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 as being anticompetitive on the basis that, according to Apotex, ADIR entered into the agreement to avoid the result that either no claims would issue to it or that overlapping claims to multiple parties would issue. It argued that, had the conflict proceedings been decided by the Court rather than settled, ADIR may never have obtained any exclusive patent rights, giving rise to a "probability", in Apotex's view, that the settlement resulted in ADIR being granted greater market power than it would otherwise have had.

In the first instance, the Federal Court of Canada rejected Apotex's counterclaim in a decision dated July 2, 2008.⁴ In doing so, the Federal Court noted that it was agreed by counsel that there must be "something more" beyond the mere assertion of patent rights for a violation of s. 45 of the Competition Act to occur, and it went on to conclude that, in this case, ADIR had done nothing more than exercise its rights under the Patent Act and the Federal Court Rules in reaching the settlement agreement with Schering and Hoechst. However, the Federal Court also distinguished the case from prior jurisprudence, which had held that an assignment of patent rights that added to a party's existing ownership of patent rights could be "something more" than the mere exercise of patent rights. In this case, the Federal Court noted, the settlement agreement preceded the grant of patents to ADIR, and "[u]ntil and unless the patents issued, there could be no market power held by ADIR and no impairment of competition."⁵

The FCA subsequently rejected Apotex's appeal of the Federal Court decision. The FCA concluded that Apotex had not provided any evidence of the alleged probability that the settlement agreement resulted in greater market power than would otherwise have existed and noted that the Federal Court could have awarded the claims in issue precisely as they were allocated in the settlement agreement. Moreover, noting again that all parties before the Federal Court had "agreed that the proposition emanating from the jurisprudence is that there must be 'something more' beyond the mere assertion of patent rights to sustain a finding of contravention of section 45 of the Competition Act", the FCA reiterated the Federal Court's finding that every step of the process leading to the settlement -the applications of each of the parties, 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."

At the same time, the FCA was careful to keep the door for potential Competition Act challenges to settlement agreements involving IPRs open, saying there could be "circumstances where a settlement agreement could constitute the 'something more' contemplated in the Eli Lilly cases." The FCA left it to future courts, however, to consider what these circumstances might be.

Footnotes

1 Laboratoires Servier v. Apotex Inc. [2008] F.C.J. No. 1094, 67 C.P.R. (4th) 241 (F.C.), aff'd [2009] F.C.J. No. 821, 2009 FCA 222.
2 [2004] F.C.J. No. 1049, 2004 FCA 232.
3 Apotex Inc. v. Eli Lilly & Co., [2005] F.C.J. No. 1818, 2005 FCA 361, at para. 14.
4 [2008], F.C.J. No. 1094.
5 Id., at para. 475.

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.