Antitrust Law Daily Wrap Up, ANTITRUST NEWS: ABA recommends revising updates to Canada Competition Bureau’s IP guidelines, (Aug 12, 2015)

By Linda O’Brien, J.D., LL.M.

The American Bar Association’s (ABA) Sections of Antitrust Law, International Law, and Intellectual Property have recommended that the draft update to the guidelines for the use of intellectual property be revised regarding the issues of product switching, the treatment of patent assertion entities, reverse payment settlements, and enforcement involving standard essential patents. The recommendations appeared in a joint comment submitted on August 10 to the Canada Competition Bureau.

Product switching. The updated guidelines specify that the Bureau will apply a standard competition law analysis to product switching—defined as a brand name manufacturer seeking to switch demand from a drug product, with expiring patent protection, to another drug product, which has a longer term of patent protection.

The comment noted that the treatment of product switching under the antitrust laws is not settled in the United States and the Bureau’s analysis appeared to track the reasoning of the Second Circuit decision in State of New York v. Actavis plc, No. 14-4624 (May 2015), in which the defending drug company announced that it would discontinue one drug and urged health care providers to switch to another drug. The court held that this type of “hard switch” may violate the Sherman Act by forcing patients to switch to a new product and impede generic competition without a legitimate business justification. Although the court did not specifically indicate what would be permissible product switching, it strongly suggested that a “soft switch”—aggressively attempting to persuade patients and doctors to switch to another product while the first product was on the market—would not violate the antitrust laws.

Several U.S. district courts have addressed pharmaceutical product switches. Most recently in Mylan Pharmaceuticals, Inc. v. Warner Chilcott Public Limited Co., No. 12-3824 (April 2015), the court focused on the risks imposed by broad theories of product switching, liability, and slowing pharmaceutical innovation and found that product switching was essentially lawful per se. From the experience of the U.S. courts, caution is needed in analyzing product reformulations in innovation intensive markets and the Bureau’s approach must account for potential differences between the applicable statutory and regulatory regimes in the U.S. and Canada, the comment noted.

Patent assertion entities. The ABA Sections recommended that the Bureau include guidance of patent assertion entity (PAE) conduct that might violate the Competition Act. The updated guidelines provide that infringement notices may violate the Act if they contain materially false or misleading representations to the public in support of a business interest or if the false and misleading representation is made knowingly or recklessly. However, the Act does not have a provision prohibiting deceptive conduct. In light of the ongoing uncertainty about the law surrounding PAEs and the potential procompetitive benefits of clearly defined patents, the Bureau was cautioned against taking too broad of an approach to conduct involving PAEs that could chill legitimate enforcement of patent rights. Additionally, further guidance is required with regard to precisely the type of conduct by PAEs that Bureau would consider to be false or misleading under the Act, as opposed to the sending of legitimate demand letters related to potential patent infringement.

Reverse payment settlements. The guidelines articulate limited circumstances in which the Bureau may consider criminal prosecution regarding reverse payment settlements in patent litigation. The comment urged the Bureau to consider further clarifying and restricting circumstances in which criminal prosecution might be undertaken. Offering additional guidance would be consistent with the Bureau’s intent to focus its enforcement resources on “naked restraints” as opposed to legitimate business collaborations.

Standard essential patents. According to the comment, the Bureau should consider revising the guidelines to acknowledge the procompetitive benefits of standards developing organizations (SDOs). Both the FTC and Department of Justice have noted that “industry standards are widely acknowledged to be one of the engines of the modern economy.” Expressly acknowledging these procompetitive benefits would give comfort to SDO participants that discussions among intellectual property holders on licensing terms are often permissible if the procompetitive benefits are preserved. It would also be helpful to stakeholders if the Bureau were to similarly discuss the benefits of SDOs and provide examples of non-problematic conduct, the comment noted.

News: Antitrust