Canada

• Pages: 73-108

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Chapter III

CANADA

A. Introduction

Canadian law recognizes inherent tension between intellectual

property (IP) laws, which confer exclusive rights and privileges that can

create “monopolies,” and competition laws, which seek to eliminate

“monopolies.” The resolution of a conflict between IP and competition

laws requires balancing the public and private interests in IP protection

against the public interest in free competition. This balancing requires

due regard for the role that the rewards attendant to exclusive IP rights

play in fostering innovation.

Canadian courts and competition authorities have struggled with the

dividing line between the legitimate scope of IP rights and the

anticompetitive use of such rights. Judicial decision makers have

recognized that for there to be either a criminal or civil wrong, a

violation of competition law requires something more than the mere

exercise of a valid IP right. Competition regulators have indicated a low

tolerance for actions of an IP rights holder that are perceived to be an

attempt to extend the duration or scope of the IP rights. In addition,

recent judicial pronouncements signal that competition law will now play

a much more significant role in patent assignment and licensing

transactions.

B. The Sources and Basics of Antitrust Law

1. Overview

The Competition Act 1 is designed to maintain and encourage

competition in Canada by preventing individuals and corporations from

engaging in various kinds of anticompetitive conduct. The Competition

Act is administered by the Competition Bureau (Bureau), headed by the

Commissioner of Competition (Commissioner).

The Competition Act distinguishes between conduct that is criminal,

subject to fines and/or imprisonment regardless of its actual impact on

1. Competition Act, R.S.C., ch. C-34 [Competition Act].

74 Antitrust Issues in International IP Licensing Transactions

competition, and conduct that is a civil reviewable practice, subject to a

remedial order and, in respect to abuse of dominance, administrative

monetary penalties if the conduct is found to be anticompetitive. 2

Criminal offenses include agreements between competitors for the

purpose of (a) fixing prices (b) allocating markets or customers and/or

(c) controlling supply or production, as well as bid-rigging agreements.3

Civil reviewable practices include competitor agreements, which,

although not specifically subject to the criminal per se prohibition, may

be subject to a prohibition order if they are found to substantially lessen

or prevent competition.4 They also include mergers and acquisitions,

price maintenance, abuse of dominant position, refusal to deal, tied

selling, market restriction and exclusive dealing.5

Criminal offenses are dealt with by the courts of criminal jurisdiction

(federal or provincial). Civil reviewable matters are dealt with by the

Competition Tribunal (Tribunal)6 upon application by the Commissioner.

With leave of the Tribunal, an affected party may also initiate an

application to the Tribunal for refusal to deal, tied selling, market

restriction, exclusive dealing and price maintenance; all other

applications—i.e., anticompetitive agreements, mergers and acquisitions

and abuse of dominant position—may be instituted only by the

Commissioner.7 The Competition Act also provides a private right of

action (including class actions) for recovery of actual damages caused by

activity proscribed by its criminal provisions.8 No such private right

exists with respect to the civil reviewable practices. Unlike the United

States, treble damages are not available in Canada.

Section 32 of the Competition Act specifically contemplates

situations where the owners of IP rights might unfairly use them. This

rarely used section gives the court wide-ranging powers to compel

licensing, expunge trademarks or otherwise revoke the IP rights.9

2. Id.

3. Id. § 45(1).

4. Id. pt. VIII.

5. Id. §§ 75-78, 91.

6. The Competition Tribunal is a hybrid administrative tribunal composed

of judges and lay experts, constituted under the Competition Tribunal

Act, R.S.C, ch. 19 (1985).

7. Competition Act § 10.

8. Id. § 36.

9. Id. § 32.

Canada 75

The application of the Competition Act to competitor agreements,

mergers and acquisitions, and abuse of a dominant position is

summarized below, together with the application of Section 32.

2. Agreements Between Competitors

Historically, Section 45 of the Competition Act imposed a criminal

prohibition against all agreements that “unduly lessened competition”.

In March 2009, the Competition Act underwent significant

amendments. Chief among them was a revision of the conspiracy section.

Amendments to the Competition Act create a dual track (criminal and

civil)10 approach to agreements between competitors.

The criminal track (Section 45) targets hardcore cartel activity. It

imposes a per se prohibition of agreements between competitors for the

purpose of: (a) fixing prices; (b) allocating sales, territories, customers

or markets; and/or (c) fixing or controlling the production or supply of a

product. 11 Agreements contrary to Section 45 carry the risk of

significant fines and imprisonment.12

The civil track (Section 90.1) applies to any agreement between

competitors that is not outright prohibited by Section 45 but might

nonetheless be likely to substantially lessen or prevent competition.13

Agreements contrary to Section 90.1 carry only the risk of cease and

desist orders.14

The Bureau must elect at the outset which track it wants to pursue. It

can select only one track.15 Given the lack of any case law to date, there

is considerable uncertainty as to how the Bureau will enforce these new

provisions. In December 2009, the Bureau issued final Competitor

Collaboration Guidelines. These guidelines indicate that the Bureau

intends to apply the criminal track narrowly:

10. The amendments were adopted in March 2009 but do not come into

effect until March 2010.

11. Competition Act § 45.

12. Id.

13. Id. § 90.1.

14. Id.

15. COMPETITION BUREAU, INDUSTRY CANADA, COMPETITOR

COLLABORATION GUIDELINES (DRAFT FOR PUBLIC CONSULTATION) 3-7

(2009), available at http://www.competitionbureau.gc.ca/eic/site/cb-

bc.nsf/vwapj/Competitor-Collaboration-Guidelines-e-2009-12-

22.pdf/$FILE/Competitor-Collaboration-Guidelines-e-2009-12-22.pdf