|
Competition Bureau
Intellectual Property
Enforcement guidelines
PREFACE
Intellectual property and intellectual property rights are
increasingly important in today's knowledge-based economy. In such
an environment, there has been interest in how the Competition
Bureau will deal with competition issues involving intellectual
property.
Accordingly, the Bureau has made it a priority to provide
increased clarity on this subject. In publishing these Guidelines,
the Bureau articulates how it approaches the interface between
competition policy and intellectual property rights. The Guidelines
describe how the Bureau will determine whether conduct involving
intellectual property raises an issue under the Competition
Act. The Guidelines also explain how the Bureau
distinguishes between those circumstances that warrant a referral to
the Attorney General under section 32 of the Competition Act,
and those that will be examined under the general provisions.
These Guidelines reflect an extensive consultation process which
involved two solicitations of written submissions and two series of
cross country round-table discussions with interested stakeholders.
Konrad von Finckenstein
Commissioner of Competition
Part
1: Introduction
Part
2: Overview of IP Law and Competition Law
Part
3: Interface Between IP and Competition Law
Part
4: Applying the Competition Act to Conduct Involving IP
Part
5: The Analytical Framework in the Context of IP
Part
6: Competition Policy Advocacy
Part
7: Application of Competition Law to IP: Hypothetical Examples
Competition
Bureau Contacts
Part 1: Introduction
Today's economy is increasingly based on knowledge and innovation
and driven by rapid advancements in information and communications
technologies. New technologies create economic, cultural, social and
educational opportunities for people to put ideas to work in
innovative ways that increase productivity and create employment and
wealth. Adequate protection of intellectual property (IP) plays an
important role in stimulating new technology development, artistic
expression and knowledge dissemination, all of which are vital to
the knowledge-based economy.1 In
this context, IP becomes a valuable asset that firms can use
strategically to lessen or prevent competition.
Owners of IP, like owners of any other type of private property,
profit from property laws that define and protect owners' rights to
exclude others from using their private property. The special
characteristics of IP have made it necessary in many instances for
governments to develop laws that confer property rights to IP
comparable to those for other kinds of private property.
IP laws and competition laws are two complementary instruments of
government policy that promote an efficient economy. IP laws provide
incentives for innovation and technological diffusion by
establishing enforceable property rights for the creators of new and
useful products, technologies and original works of expression.
Competition laws may be invoked to protect these same incentives
from anti-competitive conduct that creates, enhances or maintains
market power or otherwise harms vigorous rivalry among firms. Given
that competition law may result in limitations on the terms and
conditions under which the owners of IP rights may transfer or
license the use of such rights to others, and on the identity of
those to whom the IP is transferred or licensed, Guidelines seek to
clarify the circumstances under which the Bureau would consider such
intervention to be appropriate and also illustrate situations that
would not call for intervention under the Competition
Act.
The Bureau has received an increasing number of requests for
information on its treatment of IP under the Competition Act.
This document, the Intellectual Property Enforcement Guidelines,
sets out how the Competition Bureau views the interface between IP
law and competition law. It also explains the analytical framework
that the Bureau uses to assess conduct involving IP.
The Guidelines discuss the circumstances in which the Bureau,
under the Competition Act, would seek to restrain
anti-competitive conduct associated with the exercise of IP rights
in order to maintain competitive markets. The approach elaborated in
this document is based on the premise that the Competition
Act generally applies to conduct involving IP as it applies to
conduct involving other forms of property.
The Bureau's overall approach to the application of the
Competition Act to IP is as follows:
- The circumstances in which the Bureau may apply the
Competition Act to conduct involving IP or IP rights fall
into two broad categories: those involving something more than the
mere exercise of the IP right, and those involving the mere
exercise of the IP right and nothing else. The Bureau will use the
general provisions of the Competition Act to address the
former circumstances and section 32 (special remedies) to address
the latter.
- In either case, the Bureau does not presume that the conduct
is anti-competitive, violates the general provisions of the
Competition Act or should be remedied under section 32.
- The analytical framework that the Bureau uses to determine the
presence of anti-competitive effects stemming from the exercise of
rights to other forms of property is sufficiently flexible to
apply to conduct involving IP, even though IP has important
characteristics that distinguish it from other forms of property.
- When conduct involving an IP right warrants a special remedy
under section 32, the Bureau will act only in the very rare
circumstances described in this document and when the conduct
cannot be remedied by the relevant IP statute.
Circumstances will determine how the Bureau uses its enforcement
discretion to respond to any alleged contravention of the
Competition Act. Therefore, individuals contemplating a
business arrangement involving IP should either consult qualified
legal counsel or contact the Bureau when evaluating the risk of the
arrangement contravening the Competition Act. The final
interpretation of the law rests with the Competition Tribunal and
the courts.
When developing these Guidelines, the Bureau considered the
current global economic and technological environment and, in
particular, the rapid rate of technological change occurring in many
industries. The Bureau also took into account its past enforcement
experience, Canadian case law, and the approaches taken in the
Antitrust Guidelines for the Licensing of Intellectual Property
issued by the U.S. Department of Justice and the Federal Trade
Commission in 1995, and in other jurisdictions, including the
European Union.
The remainder of this document is organized into six parts:
- Part 2 discusses the purpose of IP laws and lists the various
statutes that deal with IP, and reviews the purpose of competition
law and lists the principal provisions of the Competition
Act that relate to IP;
- Part 3 discusses the interface between IP law and competition
law;
- Part 4 outlines the principles underlying the application of
the general provisions and section 32 of the Competition
Act to business arrangements involving IP;
- Part 5 describes the Bureau's analytical framework, which is
sensitive to the particular characteristics of IP;
- Part 6 discusses the Bureau's mandate to promote competition,
which may include intervening in proceedings in which IP rights
are being defined, strengthened or extended inappropriately; and
- Part 7 presents a series of hypothetical scenarios to
illustrate how the Bureau would apply the Competition Act
to a wide variety of business conduct involving IP.
back to
contents
Part 2: Overview of IP Law and Competition Law
2.1 IP Law
Intellectual property laws create legally enforceable private
rights that protect to varying degrees the form and/or content of
information, expression and ideas. The primary purpose of these laws
is to define the scope of these rights and determine under what
circumstances they have been infringed upon or violated. By
protecting exclusive rights, the IP laws provide an incentive to
pursue scientific, artistic and business endeavors which might not
otherwise be pursued.
In the Guidelines, IP rights include rights granted under the
Copyright Act, the Patent Act, the Trade-Marks Act,2 the
Industrial Design Act, the Integrated Circuit Topography Act and the
Plant Breeders' Rights Act.
- The Copyright Act confers upon the creator of an original
work, for a limited term, exclusive rights to reproduce or
communicate that work.
- The Patent Act protects an inventor by granting, for a fixed
term, the exclusive right to prevent others from making, selling
or using an invention.
- The Trade-Marks Act allows the registration of distinctive
marks and confers upon the owner the exclusive right to use that
mark.
- Upon registration of a design, the Industrial Design Act
confers on the owner the right to limit the production and sale of
articles that incorporate the design.
- The Integrated Circuit Topography Act confers similar rights
for a topography, which is a design for the disposition of an
integrated circuit product.
The term IP rights also encompasses the protection afforded IP
under common law and the Quebec Civil Code, including that given to
trade secrets and unregistered trade-marks.
2.2 Competition Law
The principle underlying competition law is that the public
interest is best served by competitive markets, which are socially
desirable because they lead to an efficient allocation of resources.
Competition law seeks to prevent companies from inappropriately
creating, enhancing or maintaining market power that undermines
competition without offering offsetting economic benefits. Market
power refers to the ability of firms to profitably cause one or more
facets of competition, such as price, output, quality, variety,
service, advertising or innovation, to significantly deviate from
competitive levels for a sustainable period of time.3
However, a firm would not contravene the Competition Act if
it attains its market power solely by possessing a superior product
or process, introducing an innovative business practice or other
reasons for exceptional performance.4
The provisions of the Competition Act that set out when it
may be necessary for the Bureau to inter-vene in a business
arrangement, including an arrangement involving IP, fall into two
categories: those that cover criminal offenses and those that cover
reviewable (civil) matters. Many provisions state that the Bureau
must, before it intervenes show that the conduct either
substantially or unduly lessens or prevents competition.
Criminal offenses include conspiracy (section 45), bid-rigging
(section 47), price maintenance (section 61), price discrimination
and predatory pricing (section 50), and some forms of misleading
adver-tising and related deceptive marketing practices (sections 52
to 55).5
The provisions on reviewable (civil) matters deal with conduct
that is generally pro-competitive but that may, in certain economic
circumstances, significantly constrain competition. Reviewable
matters include abuse of dominant position (section 79), exclusive
dealing, tied selling and market restriction (section 77), refusal
to deal (section 75), mergers (section 92), and misleading
advertising and related deceptive marketing practices (section 74).
As a rule, the Competition Tribunal may order remedies under these
provisions if the conduct is likely to substantially lessen or
prevent competition.6
When a court determines that a firm has contravened the criminal
provisions of the Competition Act, it can impose fines,
imprisonment and prohibition orders.7 In
addition, parties may bring private actions seeking damages. With
respect to reviewable (civil) matters, the Competition Tribunal may
issue a variety of remedial orders, some of which restrict private
property rights. For example, the Tribunal has, in the past, ordered
merging firms to divest themselves of assets, including IP, when it
concluded that the proposed merger was likely to substantially
lessen or prevent competition, thereby overriding the rights of
property owners to acquire or dispose of their private
property.8
Similarly, remedies under the abuse-of-dominant-position provisions
have involved orders affecting IP.9
Section 32, which is in the special remedies part of the
Competition Act, gives the Federal Court the power, when
asked by the Attorney General, to make remedial orders if it finds
that a company has used the exclusive rights and privileges
conferred by a patent, trade-mark, copyright or registered
integrated circuit topography to unduly restrain trade or lessen
competition (see section 4.2 of this document for circumstances in
which the Bureau may seek to have the Attorney General bring an
application under section 32).
When the Federal Court determines that a special remedy is
warranted under section 32, it may issue a remedial order declaring
any agreement or license relating to the anti-competitive use void,
ordering licensing of the IP right (except in the case of
trade-marks), revoking the right or directing that other things be
done to prevent anti-competitive use. This provision provides the
Attorney General with the statutory authority to intervene in a
broad range of circumstances to remedy an undue lessening or
prevention of competition involving the exercise of statutory IP
rights. In practice, the Attorney General likely would seek a
remedial order under the Competition Act only on the
recommendation of the Bureau.
back to
contents
Part 3: Interface between IP and Competition
Law
3.1 Property Rights
Private property rights are the foundation of a market economy.
Property owners must be allowed to profit from the creation and use
of their property by claiming the rewards flowing from it. In a
market system this is accomplished by granting owners the right to
exclude others from using their property, and forcing those wishing
to use it to negotiate or bargain in the marketplace for it, thereby
rewarding the owner. This creates incentives to invest in
developing, and leads to the exchange of, private property, thus
contributing to the efficient operation of markets.
3.2 IP Law
IP has unique characteristics that make it difficult for owners
to physically restrict access to it and, therefore, exercise their
rights over it. The owner of physical property can protect against
its unauthorized use by taking appropriate security measures, such
as locking it away, but it is difficult, if not impossible, for the
creator of a work of art to prevent his or her property from being
copied once it has been shown or distributed. This is exacerbated
because IP, while often expensive to develop, is often easy and
inexpensive to copy. IP is also typically non-rivalrous C that is,
two or more people can simultaneously use IP. The fact that a firm
is using a novel production process does not prevent another firm
from simultaneously using the same process. In contrast, the use of
a physical property by one firm prevents concurrent use by
another.10
Accordingly, IP laws confer on an IP owner the right to
unilaterally exclude others from using that property. While each IP
statute grants this right to varying degrees and the right may be
subject to limitations that vary across statutes, it allows the
owners of the IP to maximize its value through trade and exchange in
the marketplace. This claim on the rewards flowing from IP enhances
the incentive for investment and future innovation in IP as it does
for other forms of private property. With the exception of the
protections afforded unregistered trade-marks and other common law
rights, the legal protection of IP is a function of and does not
exist outside the ambit of IP statutory regimes.
3.3 Competition Law
Since the right to exclude, which is the basis of private
property rights, is necessary for efficient, competitive markets,
the enforcement of the Competition Act rarely interferes with
the exercise of this basic right. Enforcement action under the
Competition Act may be warranted when anti-competitive
conduct creates, enhances or maintains market power.
3.4 Interface
IP and competition laws are both necessary for the efficient
operation of the marketplace. IP laws provide property rights
comparable to those for other kinds of private property, thereby
providing incentives for owners to invest in creating and developing
intellectual property and encouraging the efficient use and
dissemination of the property within the marketplace. Applying the
Competition Act to conduct associated with IP may prevent
anti-competitive conduct that impedes the efficient production and
diffusion of goods and technologies and the creation of new
products. The promotion of a competitive marketplace through the
application of competition laws is consistent with the objectives
underlying IP laws.
back to
contents
Part 4: Applying the Competition Act
toConduct Involving IP
4.1 Overview
In general, the Bureau's analysis for determining whether
competitive harm would result11
from a particular transaction or type of business conduct comprises
five steps:
- identifying the transaction or conduct;12
- defining the relevant market(s);
- determining if the firm(s) under scrutiny possess market power
by examining the level of concentration and entry conditions in
the relevant market(s), as well as other factors;
- determining if the transaction or conduct would unduly or
substantially lessen or prevent competition in the relevant
market(s); and,
- considering, when appropriate, any relevant efficiency
rationales.
This analysis applies to all industries and all types of business
transactions and conduct, and is sufficiently flexible to
accommodate differences among the many forms of IP protection, as
well as between IP and other types of property. For example, the
Bureau takes differences among the various forms of IP protection
into account when defining the relevant market and determining
whether a firm has market power. In addition, although IP rights to
a particular product or process are often created and protected by
statute and are thus different from other forms of property rights,
the right to exclude others from using the product or process does
not necessarily grant the owner market power. It is only after it
has defined the relevant market and examined factors such as
concentration, entry barriers and technological change that the
Bureau can conclude whether an owner of a valid IP right possesses
market power. The existence of a variety of effective substitutes
for the IP and/or a high probability of entry by other players into
the market (by "innovating around" or "leap-frogging over" any
apparently entrenched position) would likely cause the Bureau to
conclude that the IP has not conferred market power on its owner.
The Bureau's analysis may reveal that an IP owner does indeed
have market power. In general, to violate the Competition Act
a firm must engage in anti-competitive conduct that creates,
enhances or maintains market power. Again, consistent with its
approach with respect to all forms of property, the Bureau does not
consider an owner of IP to have contravened the Competition
Act if it attained market power solely by possessing a superior
quality product or process, introducing an innovative business
practice or other reasons for exceptional performance.
Licensing is the usual method by which the owner of IP authorizes
others to use it. In the vast majority of cases, licensing is
pro-competitive because it facilitates the broader use of a valuable
IP right by additional parties.13
In assessing whether a particular licensing arrangement raises a
competition issue, the Bureau examines whether the terms of the
license serve to create, enhance or maintain the market power of
either the licensor or the licensee. The Bureau will not consider
licensing agreements involving IP to be anti-competitive unless they
reduce competition substantially or unduly relative to that which
would have likely existed in the absence of the license.
4.2 Enforcement Principles
Specific reference is made to IP rights in a number of provisions
of the Competition Act.14
The circumstances in which the Bureau may apply the Competition
Act to anti-competitive conduct involving IP or IP rights fall
into two broad categories: those involving anti-competitive conduct
that is something more than the mere exercise of the IP right, and
those involving the mere exercise of the IP right and nothing else.
The general provisions of the Competition Act address the
former, while section 32 (special remedies) addresses the latter.
The Bureau's approach is consistent with subsection 79(5), which
acknowledges that the mere exercise of an IP right is not an
anti-competitive act,15
while acknowledging the possibility that under the very rare
circumstances set out in section 32 the mere exercise of an IP right
might raise a competition issue.16
4.2.1 General Provisions
The mere exercise of an IP right is not cause for concern under
the general provisions of the Competition Act. The Bureau
defines the mere exercise of an IP right as the exercise of the
owner's right to unilaterally exclude others from using the IP. The
Bureau views an IP owner's use or non-use of the IP also as being
the mere exercise of an IP right.
The unilateral exercise of the IP right to exclude does not
violate the general provisions of the Competition Act no
matter to what degree competition is affected. To hold otherwise
could effectively nullify IP rights, impair or remove the economic,
cultural, social and educational benefits created by them and be
inconsistent with the Bureau's underlying view that IP and
competition law are generally complementary.
The Bureau applies the general provisions of the Competition
Act when IP rights form the basis of arrangements between
independent entities, whether in the form of a transfer, licensing
arrangement or agreement to use or enforce IP rights, and when the
alleged competitive harm stems from such an arrangement and not just
from the mere exercise of the IP right and nothing else.
Applying the Competition Act in this way may limit to whom
and how the IP owner may license, transfer or sell the IP, but it
does not challenge the fundamental right of the IP holder to do so.
If an IP owner licenses, transfers or sells the IP to a firm or a
group of firms that would have been actual or potential competitors
without the arrangement, and if this arrangement creates, enhances
or maintains market power, the Bureau may seek to challenge the
arrangement under the appropriate section of the Competition
Act.17
Part 7 of this document provides a series of hypothetical examples
to illustrate how the Bureau would examine the licensing, transfer
or sale of IP under the Competition Act.
This approach is consistent with the Competition Tribunal's
decisions in both Tele-Direct18
and Warner19
in which the Tribunal held that the mere exercise of the
IP right to refuse to license a complainant was not an
anti-competitive act. In its decision in Tele-Direct, the Tribunal
indicated that competitive harm must stem from something more than
just the mere refusal to license.20
Underlying this enforcement approach is the view that market
conditions and the differential advantages IP provides should
largely determine commercial rewards flowing from the exploitation
of an IP right in the market to which it relates. If a company uses
IP protection to engage in conduct that creates,
When joint conduct of two or more firms lessens or prevents
competition, the competitive harm clearly flows from something more
than the mere exercise of the IP right to refuse. To the extent that
conduct such as conspiracy,21
bid-rigging, joint abuse of dominance, market allocation agreements
and mergers restricts competition among firms actually or
potentially producing substitute products or services, the presence
of IP should not be a mitigating factor. Such conduct would be
subject to review under the appropriate general provision of the
Competition Act.
A transfer of IP rights that lessens or prevents competition is a
further example of a situation in which competitive harm results
from something more than the mere exercise of the IP right to
refuse. Two examples of this are when a licensor ties a
non-proprietary product to a product covered by its IP right, and
when a firm effectively extends its market power beyond the term of
its patent through an exclusive contract. In either case, if the
conduct leads to the creation, enhancement or maintenance of market
power so as to substantially lessen or prevent competition, the
Bureau may intervene.
Sometimes upon examination, what appears to be just a refusal to
license or to grant others access to a firm's IP rights turns out to
have included conduct which goes beyond such a refusal. The conduct
which goes beyond the unilateral refusal to grant access to the IP
could warrant enforcement action under the general provisions of the
Competition Act. For instance, if a firm acquires market
power by systematically purchasing a controlling collection of IP
rights and then refuses to license the rights to others, thereby
substantially lessening or preventing competition in markets
associated with the IP rights, the Bureau could view the acquisition
of such rights as anti-competitive and review the matter under
either section 79 (abuse of dominance) or section 92 (mergers) of
the Competition Act. Without the acquisitions, the owner's
mere refusal to license the IP rights would have been unlikely to
cause concern (see example 7).
4.2.2 -Matters Outside the General Provisions C Section
3222
Only section 32, in the special remedies part of the
Competition Act, contemplates the possibility that the mere
exercise of an IP right may cause concern and result in the Bureau
seeking to have the Attorney General bring an application for a
special remedy to the Federal Court.
The Bureau will seek a remedy for the unilateral exercise of the
IP right to exclude under section 32 only if the circumstances
specified in that section are met and the alleged competitive harm
stems directly from the refusal and nothing else. Such circumstances
require the Federal Court to balance the interests of the system of
protection for IP (and the incentives created by it) against the
public interest in greater competition in the particular market
under consideration. Generally, the Bureau would recommend to the
Attorney General that an application be made to the Federal Court
under section 32 when, in the Bureau's view, no appropriate remedy
is available under the relevant IP statute.
Enforcement under section 32 requires proof of undue restraint of
trade or lessened competition. The Bureau expects such enforcement
action would be required only in certain narrowly defined
circumstances. The Bureau determines whether the exercise of an IP
right meets this threshold by analyzing the situation in two steps.
In the first step, the Bureau establishes that the mere refusal
(typically the refusal to license IP) has adversely affected
competition to a degree that would be considered substantial in a
relevant market that is different or significantly larger than the
subject matter of the IP or the products or services which result
directly from the exercise of the IP. This step is satisfied only by
the combination of the following factors:
i) the holder of the IP is dominant in the relevant market;
and,
ii) the IP is an essential input or resource for firms
participating in the relevant market C that is, the refusal to
allow others to use the IP prevents other firms from effectively
competing in the relevant market.
In the second step, the Bureau establishes that invoking a
special remedy against the IP right holder would not adversely alter
the incentives to invest in research and development in the economy.
This step is satisfied if the refusal to license the IP is stifling
further innovation.
If factors i) and ii) are present then the IP is the source of
dominance in a relevant market and other competitors would be able
to participate in the relevant market only by having access to that
IP. If the refusal is stifling further innovation then the Bureau
would conclude that incentives to invest in research and development
have been harmed by the refusal and a special remedy would help
realign these incentives with the public interest in greater
competition.
The Bureau recognizes that only in very rare circumstances would
all three factors be satisfied. A case in which they could arise is
in a network industry,23
when the combination of IP protection and substantial positive
effects associated with the size of the network could create or
entrench substantial market dominance. In such a situation, IP
rights and network externalities can interact to create de facto
industry standards. Standardization means that the protected
technology is necessary for a competitor's products to be viable
alternatives. IP protection can effectively exclude others from
entering and producing in the market.24
However, the Bureau still would have to be satisfied that a refusal
is stifling further innovation and not simply preventing the
replication of existing products before seeking to recommend that
the Attorney General bring an application for a special remedy to
the Federal Court (see Example 8).
4.2.3 Matters Outside the Competition Act
An illegitimate extension of an IP right could include
anti-competitive behavior. This might involve a patent holder
claiming that its patent covers products that are not within the
scope of its patent. Alternatively, the Bureau may receive
complaints that infringement of a legitimate IP right should be
justified on competition grounds. Such disputes are best resolved by
the appropriate IP authority under the appropriate IP statute (see
Example 1).
As outlined in section 4.1 above, the Bureau's analytical
approach is sufficiently flexible to accommodate the specific
characteristics of IP and the differences in the scope and length of
protection extended to different IP rights. The following
information highlights how the Bureau takes these factors into
account when analyzing a transaction or business conduct involving
IP.
back to
contents
Part 5: The Analytical Framework in the
Context of IP
5.1 Relevant Markets
Relevant markets provide a practical tool for assessing market
power.25
When the anti-competitive concern is prospective (that is, the
conduct is likely to have a future anti-competitive effect),26
relevant markets are normally defined using the hypothetical
monopolist test.27
When the anti-competitive concern is retrospec-tive28
(that is, the conduct has already had an anti-competitive
effect), applying the hypothetical monopolist test could lead to
erroneous conclusions about the availability of substitutes and the
presence of market power. Accordingly, the Bureau takes into account
the impact of any alleged anti-competitive conduct that may have
preceded the investigation when determining the relevant market. In
this context, the Bureau analyzes market definition and competitive
effects concurrently (see Example 2).
For transactions or conduct involving IP, the Bureau is likely to
define the relevant market based on one of the following: the
intangible knowledge or know-how that constitutes the IP, processes
that are based on the IP rights, or the final or intermediate goods
resulting from, or incorporating, the IP.
Defining a market around intangible knowledge or know-how is
likely to be important when IP rights are separate from any
technology or product in which the knowledge or know-how is used.
For example, consider a merger between two firms that individually
license similar patents to various independent firms that, in turn,
use them to develop their own process technologies. Such a merger
may reduce competition in the relevant market for the patented
know-how if the two versions of that know-how are close substitutes
for each other, if there are no (or very few) alternatives that are
close substitutes for the know-how and if there are sufficient
barriers that would prevent the development of conceptual approaches
that could replace the know-how of the merging firms. This last
condition may hold if the scope of the patents protecting the
merging firms' know-how is sufficiently broad to prevent others from
"innovating around" the patented technologies, or if the development
of such know-how requires specialized knowledge or assets that only
the two merging firms possess and that potential competitors could
not develop or obtain in less than two years.
In cases involving the licensing of IP, the Bureau generally
treats the license as the terms of trade under which the licensee is
entitled to use the IP. The Bureau does not define a relevant market
around a license, but rather focuses on what the legal rights
granted to the licensee actually protect.
The Bureau does not define markets based on research and
development activity or innovation efforts alone. The Bureau usually
concentrates on price or output effects. Conduct that directly
reduces the innovation effort of the firms under scrutiny or
restricts or prevents the innovation efforts of others may be
anti-competitive. The appropriate relevant market definition or
definitions will depend specifically on the knowledge or know-how,
process, or final or intermediate good toward which the innovation
effort is directed.
5.2 Market Power
Whether a transaction or conduct involving IP results in an
increase in market power in the relevant market depends on a number
of factors, including the level of concentration, entry conditions,
the rate of technological change, the ability of firms to "leap-frog
over" seemingly entrenched positions and the horizontal effects, if
any, on the market.29
The order in which the Bureau assesses these factors may vary
depending on the section of the Competition Act under which
the Bureau is examining the transaction or conduct and on the
circumstances of the relevant market.
5.2.1 Market Concentration
The Bureau examines the degree of market concentration to get a
preliminary indication of the competitiveness of the relevant
market. In general, the more firms there are in the relevant market,
the less likely it is that any one firm acting unilaterally, or any
group of firms acting cooperatively, could enhance or maintain
market power through the transaction or conduct being examined.
However, a high degree of concentration is not enough to justify the
conclusion that the transaction or conduct will create, enhance or
maintain market power. This is particularly true of industries with
low barriers to entry, a high rate of technological change and a
pattern of firms "innovating around" or "leap-frogging over"
technologies that had previously controlled a dominant share of a
market.
To measure concentration in markets for intermediate or final
goods, the Bureau typically calculates the market shares of the
firms identified as actual participants in the relevant market.
These include the firms identified as offering products that are
demand substitutes as well as those that represent potential supply
substitutes (i.e., firms that are likely to respond to a price
increase in the relevant market within one year with minimal
investment).30
Firms that are unable to respond within one year or whose entry
requires significant investment are not considered to be part of the
relevant market for purposes of defining the relevant market and
assessing market concentration. That said, the potential competitive
influence of such firms may be considered as part of the assessment
of whether the conduct in question is likely to lessen or prevent
competition substantially.
The Bureau generally does not challenge the conduct of a firm (or
a group of firms acting together) that possesses less than a 35
percent market share. (Market shares of more than 35 percent are not
considered evidence of market power or anti-competitive effect, but
merely of circumstances that may warrant further review.) Market
share may be calculated based on the firms' entire actual output,
total sales (dollars or units) or total capacity (used and
unused).31, 32
However, some of these factors may be difficult to assess in cases
involving IP. Accordingly, the Bureau's assessment of market power
is likely to focus on qualitative factors such as conditions of
entry into the relevant market, whether IP development is resulting
in a rapid pace of technological change, the views of buyers and
market participants, and industry and technology experts.
5.2.2 Ease of Entry
The Bureau also examines how easily firms can enter the relevant
market to determine whether new entrants have the ability to
restrain any creation, enhancement or maintenance of market power
that may result from a transaction or conduct involving IP. When
assessing effects in markets involving IP, conditions of entry are
often more important than market concentration. For instance,
evidence of a rapid pace of technological change and of the prospect
of firms being able to "innovate around" or "leap-frog over" an
apparently entrenched position is an important consideration that
may, in many cases, fully address potential competition law
concerns.
The Bureau also considers the extent to which the transaction or
conduct itself erects or has erected barriers to entry or,
alternatively, induces or has induced competitors to exit the market
(see Examples 3.2 and 4).33
Entry into markets in which IP is important may be difficult because
of the sunk costs associated with developing assets that comprise
specialized knowledge. Additionally, IP rights can serve to increase
barriers to entry independent of any conduct.34
5.2.3 Horizontal Effects
In evaluating the competitive effects of conduct that involves an
IP right, whether it is a merger transaction, licensing arrangement
or other form of contractual arrangement, the Bureau focuses on
whether the conduct will result in horizontal anti-competitive
effects C consequences for firms producing substitutes or firms
potentially producing substitutes (see Examples 3.1, 3.2 and
3.3).
Even though an arrangement may be vertical, such as the
acquisition of a retail shoe outlet by a shoe manufacturer or the
licensing of the right to use a particular food additive to a food
producer, it can still have horizontal effects in a relevant market
(see Example 4). If an arrangement is vertical, the Bureau considers
whether it is likely to result in horizontal effects among either
sellers or buyers.
5.3 Anti-competitive Effects
A transaction or conduct must create horizontal effects for the
Bureau to conclude that it is anti-competitive. In this regard, the
Bureau analyzes whether the transaction or conduct facilitates a
firm's ability to exercise market power, either unilaterally or in a
coordinated manner, in the areas such as pricing and output.
Anti-competitive horizontal effects may arise if the transaction
or conduct increases competitors' costs. For example, a transaction
can prevent, or raise the cost of, competitors' access to important
inputs. IP licensing arrangements that involve one firm selling the
right to use IP to another are inherently vertical, but can have
horizontal effects, particularly if the licensor and licensee would
have been actual competitors in the absence of the licensing
arrangement. In addition, a transaction or conduct that reduces
innovation activity could be anti-competitive if it prevents future
competition in a prospective product or process market.
5.4 Efficiency Considerations
A fundamental objective of competition law is to ensure the
efficient use of resources through vigorous competition. However,
there may be instances in which restrictions on competition can lead
to a more efficient use of resources. This may be particularly true
of arrangements and transactions involving IP that are inherently
vertical and combine complementary factors. Moreover, there may be
instances when creating or increasing market power is justified
because of the efficiencies created. Indeed, this principle is
consistent with the protection afforded by IP laws, which foster
dynamic efficiency and competition by facilitating the creation of
valuable works or processes that result in long-term increases in
product selection, quality, output and productivity. In providing
incentives for investment, IP laws grant exclusivity to the
protected works that may result in temporary market power.
Consequently, the Bureau considers both the short-term and long-term
efficiency implications of conduct or a transaction when analyzing
efficiencies in cases involving IP. Efficiencies are explicitly
recognized in section 96 of the Competition Act in the
context of mergers.35
In addition, under the abuse-of-dominant-position (section
79) and exclusive dealing, tied selling and market restriction
(section 77) provisions,36
efficiency rationales and business justifications may be relevant to
determining whether conduct is, on balance, anti-competitive.37
If the Bureau concludes that a merger is likely to substantially
lessen or prevent competition in a relevant market, it next
considers whether the merger generates efficiencies that offset the
anti-competitive effect. The Bureau then determines, in the manner
more fully described in the Merger Enforcement Guidelines, the net
effect in the relevant market(s) by assessing whether the efficiency
benefits are sufficient to offset the anti-competitive effects.
In assessing whether conduct involving IP substantially lessens
or prevents competition under the abuse-of-dominant-position or
exclusive dealing, tied selling and market restriction provisions,
the Bureau considers any pro-competitive effects (efficiencies or
business justification) generated by or associated with the conduct.
For example, a licensing arrangement between an IP owner and a
distributor may restrict intra-brand competition, but at the same
time further inter-brand competition. A licensing arrangement
between two potential competitors may result in a new product being
developed that would not otherwise have been developed. In each
case, the level of competition in the market would be
enhanced.38
The Bureau also considers whether the firms could have used
commercially reasonable means to achieve efficiencies that are or
were less harmful to competition. If such alternatives exist, the
Bureau would compare the anti-competitive effect of the transaction
or conduct to such alternatives. In making this comparison, the
Bureau does not attempt to uncover all of thetheoretically possible
alternatives for achieving the efficiencies. It considers only those
means that are commercially reasonable and consistent with the
firm's IP rights. The Bureau also considers the impact that using an
alternative would have on the firm's ability to exercise its IP
rights.
Part 6: Competition Policy Advocacy
The Bureau may use its mandate to promote competition and the
efficient allocation of resources to intervene in policy discussions
and debates regarding the appropriate scope, definition, breadth and
length of IP rights. The Bureau may also intervene in Federal Court
and Superior Court cases when it believes it is important to bring a
competition perspective to proceedings that will not be brought by
the parties. In other proceedings, when the Bureau believes that IP
rights could potentially be defined, strengthened or extended
inappropriately, the Bureau may intervene to make representations
concerning the scope of the protection that should be accorded IP
rights.
Part 7 of this document sets out hypothetical situations to
illustrate the Bureau's enforcement approach.
back to
contents
Part 7: Application of Competition Law to IP:
Hypothetical Examples
Example 1: Alleged Infringement of an IP Right
TAX is a software company that produces and distributes a
sophisticated and complex tax management program to help households
with their tax planning. As is customary in the software industry,
TAX assigns a serial number to each copy of the program that it
distributes. A customer may register with TAX by providing the
serial number listed on the packaging along with certain personal
information. TAX offers upgrades to its software from time to time
to respond to changes in the tax code and technology advances, and
users need to be registered to receive these upgrades at low prices.
If TAX finds that a serial number has been used more than once, it
knows that its software has been illegally reproduced. TAX realizes
that serial numbers do not prevent duplication but do provide a
mechanism for detection, thus weakening incentives to copy. TAX has
been selling its product for a number of years and is now widely
recognized as a leading producer of tax management software.
More than two years ago, a key member of TAX's software
engineering team left the company to start her own software
business, called UPSTART. Recently, UPSTART began to market its own
tax management program to be used in conjunction with TAX's product.
UPSTART designed its program to operate as a graphical user
interface to TAX's software. Furthermore, relatively minor changes
in the tax code can be incorporated into UPSTART's product. As a
consequence, for users who already own TAX's product, there is no
longer a need to get upgrades from TAX. Instead, they can purchase
UPSTART's product for a much lower price and can continue to buy
upgrades from UPSTART.
TAX has publicly alleged that UPSTART must have infringed TAX's
copyright because it would have been impossible for UPSTART to have
created its program without having copied TAX's source code. Despite
its claims, TAX has not filed a suit against UPSTART. Instead, TAX
has made a formal complaint to the Bureau that UPSTART's conduct is
predatory since it has undermined TAX's serial number policy by
making it less valuable for users to become registered with TAX. TAX
claims that since UPSTART's product came on the market, there has
been widespread piracy of TAX's program and, consequently, the
market for its product has evaporated.
Analysis
The Bureau would likely conclude that the underlying issue in
this case is the possibility that UPSTART infringed TAX's copyright.
Therefore, the Bureau would inform TAX that the Bureau does not view
the matter as raising any issues under the Competition Act
and would suggest that TAX seek legal advice on other remedies, if
any, that might be available.
Example 2: Price Fixing
Three firms, each of which has developed and owns a patented
technique, offer competing cosmetic surgical procedures to treat a
particular condition. All three procedures involve several visits to
a private clinic over six months, produce no side effects and have
approximately equal success rates. The only existing alternative to
the three procedures is an expensive medication that causes
undesirable side effects in some patients. The three firms have
agreed on a minimum price at which each will perform the procedure
as well as a minimum fee to license each procedure to third parties.
Prior to entering into the agreement, the procedures cost
approximately $5,000 each. After the agreement, prices increased to
approximately $8,000 on average.
Analysis
The Bureau would likely examine this agreement under the
conspiracy provision in section 45 of the Competition
Act.
To determine the relevant market, the Bureau would consider,
along with other factors, direct evidence of the exploitation of
market power, such as the fact that prices increased by $3,000
following the parties' agreement. The Bureau may view this change in
price as direct evidence that the three medical procedures are part
of the same relevant market and of the parties' collective market
power.
The Bureau would also look for evidence that the three firms
intended to enter into the agreement, knew its terms and either knew
or should have known that it would unduly lessen competition. The
Bureau would also seek to assess the effect of the agreement,
specifically to determine the extent to which it had added to the
market power that the three firms could exercise together. If the
Bureau determined that the three firms accounted for 100 percent of
the relevant market and that their patents provided effective
barriers that would prevent others from entering this market, it
would likely conclude that the objective intent and likely effect of
the minimum price agreement was to increase or create market power.
Given evidence of the parties' intent to enter into the agreement
and the market power resulting from the agreement, the Bureau would
likely refer the matter to the Attorney General for prosecution
under section 45 of the Competition Act.
Example 3.1: Exclusive Licensing
SHIFT recently developed a new gear system for mountain bikes.
Two other firms manufacture systems that compete with SHIFT's. All
three of these firms manufacture several varieties of bicycle gear
systems and are engaged in research and development to improve gear
system technology. SHIFT grants licenses for the use of its patented
gear system technology to manufacturers of mountain bikes as it does
not have the ability to manufacture mountain bikes itself. Demand
for mountain bikes is supplied by three large firms, which account
for approximately 80 percent of sales, plus six smaller firms. SHIFT
has just granted ADVENTURE, the largest mountain bike manufacturer
(accounting for 30 percent of sales), an exclusive license to use
its new patented gear system technology on its mountain bikes.
ADVENTURE does not own or have the ability to develop gear system
technology. Although SHIFT's new gear system offers a number of
features not available on other current products, the demand for
mountain bikes with these new features is uncertain. In addition,
ADVENTURE expects to incur significant expense developing and
promoting mountain bikes that use SHIFT's new gear system
technology. SHIFT has refused requests from other mountain bike
manufacturers for a license for this technology. As a result of
ongoing research and development, alternative gear system
technologies are likely to become available in the future.
Analysis
The Bureau is likely to examine the conduct of both firms under
the abuse-of-dominant-position provision (section 79) of the
Competition Act.
SHIFT and ADVENTURE relate as supplier and customer, and are
neither actual nor potential competitors in the markets for gear
systems or mountain bikes. Since the firms do not compete, the
exclusive license would likely not lessen competition between the
two firms. The Bureau would nonetheless examine the markets for gear
systems and mountain bikes to determine if the exclusive license
lessened or prevented competition substantially in either or both of
those markets.
Even though SHIFT's technology is not available to ADVENTURE's
two principal rivals and the markets for gear systems and mountain
bikes are concentrated, SHIFT's rivals in the gear system market may
still sell to ADVENTURE. Furthermore, the other mountain bike
manufacturers have access to other gear systems from SHIFT and to
gear systems from other suppliers. The exclusive license may have
been granted in consideration for ADVENTURE's agreement to incur
significant expense in the development and promotion of mountain
bikes that use SHIFT's technology.
In the course of its assessment, the Bureau would consider the
competitiveness of the mountain bike market before and after the
license. Since SHIFT is not a mountain bike manufacturer and has no
obligation to license its gear system to a mountain bike
manufacturer, any licensing agreement would enhance competition. In
this case, the technology license mandated the development and
promotion of mountain bikes using the technology, thereby enhancing
competition without in any way limiting the ability of other
mountain bike manufacturers to access or use competing technologies.
Consequently, the Bureau would conclude, given the facts of this
case, that the exclusive license arrangement did not raise any
competition issues.
Example 3.2: Foreclosure by Purchaser
Consider a variation on the situation described in Example 3.1,
in which ADVENTURE's business has grown to represent approximately
70 percent of mountain bike sales. ADVENTURE has taken advantage of
its increasing sales share to independently negotiate long-term
exclusive licenses and supply arrangements with the three competing
suppliers of mountain bike gear systems. The inability of the
competing manufacturers to obtain suitable gear system technology
has put a number of them out of business and has substantially cut
into the sales of the remaining firms. ADVENTURE has raised the
prices of its mountain bikes by 25 percent. Although alternative
gear system technologies are under development, it appears unlikely
that a viable technology will be tested and in production in less
than 36 months.
Analysis
The Bureau is likely to examine ADVENTURE's conduct under the
abuse-of-dominant-position provision (section 79) of the
Competition Act.
The Bureau would initially determine whether mountain bikes
comprised a relevant market and assess whether ADVENTURE
substantially or completely controlled the supply of product within
that relevant market. The Bureau would likely view the apparent lack
of good substitutes and ADVENTURE's high sales share and ability to
successfully impose a 25 percent price increase as evidence that
ADVENTURE substantially controlled the mountain bike business and
that mountain bikes comprise a relevant market.
The Bureau would then consider whether ADVENTURE's exclusive
license agreements, through which it precluded its competitors from
obtaining an adequate supply of gear systems, constituted
anti-competitive conduct. While an exclusive licensing arrangement
may enhance competition, as was apparent in Example 3.1, the use of
an exclusive licensing arrangement to effectively control the supply
of a competitively essential input may be anti-competitive. The
Bureau would likely view as anti-competitive the systematic manner
in which ADVENTURE prevented its competitors from obtaining access
to this vital input through the execution of long-term exclusive
licenses with each supplier.
The Bureau would then assess the impact of the exclusive licenses
on competition. It would likely conclude that the adverse impact on
the ability of other mountain bike manufacturers to compete that
resulted from ADVENTURE preventing them from gaining access to
proven gear system technology and the manner in which ADVENTURE
successfully imposed substantial price increases constituted
evidence that ADVENTURE substantially lessened or prevented
competition. In the absence of compelling efficiency benefits or
business justifications, neither of which are apparent in this case,
the Bureau would likely seek to have the exclusive licenses
voluntarily terminated. Failing that, the Bureau would likely bring
an application before the Competition Tribunal seeking to terminate
these licenses.
Example 3.3: Foreclosure by Suppliers
A variation on the situation described in Example 3.2 sees the
gear system suppliers, concerned about ADVENTURE's growing
purchasing power, enter into an agreement to subdivide the market
for mountain bike systems among themselves. To make it easier to
monitor compliance, the firms agree to enter into exclusive license
agreements, at premium prices, with ADVENTURE. The result of this
arrangement is as described in Example 3.2.
Analysis
The Bureau is likely to examine this matter under section 45 as a
conspiracy case against the gear system suppliers or under section
79 as a joint abuse-of-dominance case against the gear system
suppliers.
A number of factors would influence the Bureau's initial decision
to examine and possibly challenge these arrangements, including the
existence of any legitimate business justification or efficiency
rationale, whether ADVENTURE had been told about the arrangement and
the business rationale for it and whether the parties had behaved
covertly. If the agreement was a blatant market allocation scheme
implemented in a covert manner, the Bureau would likely investigate
it under the conspiracy provision. A specialization arrangement,
under which each supplier publicly agrees to focus on a particular
gear system technology that the parties disclosed to and discussed
with ADVENTURE, would likely be investigated as joint abuse of
dominance.
The Bureau would initially determine whether gear systems
comprised a relevant market and assess whether the gear system
suppliers either had market power or completely controlled the
supply of product within that relevant market. The Bureau would view
the apparent lack of good substitutes for gear systems, and the
suppliers' and ADVENTURE's high sales shares and ability to
successfully impose price increases as evidence that the gear system
suppliers had market power or substantially controlled the gear
systems business and that gear systems comprise a relevant
market.
If the Bureau was investigating the matter under the conspiracy
provision, it would then assess whether the requirements of that
section, discussed in Example 2, had been satisfied. If the Bureau
was investigating the matter under the abuse-of-dominance provision,
it would then assess whether the requirements of that section,
discussed in Example 3.2, had been satisfied in terms of the impact
of the arrangement on the market for gear system technology and/or
the market for mountain bikes. For the reasons discussed in Example
3.2, and in view of the facts of the case, it seems likely that the
Bureau would conclude that the arrangement had either unduly or
substantially lessened or prevented competition. It would then
either refer the matter to the Attorney General (in the case of an
investigation under the conspiracy provision) or seek to terminate
the market allocation agreement and the exclusive licenses (in the
case of an investigation under the abuse-of-dominance provision).
Example 4: Exclusive Contracts
SPICE, by virtue of its international patents, is the sole
supplier of Megasalt, a unique food additive that has effectively
replaced salt in certain prepared foods in most countries. SPICE's
Canadian patent recently expired; however, SPICE still has valid
patent protection throughout much of the rest of the world. Shortly
before its Canadian patent expired, SPICE signed five-year
contracts, which included exclusive supply rights, with its two
principal Canadian buyers. These contracts prevent the two buyers,
which use Megasalt in specially prepared foods for hospitals and
other health care institutions, from combining Megasalt with any
other salt substitute on the same product line. SPICE does not have
long-term exclusive supply contracts with other buyers of Megasalt
in Canada or elsewhere. Recently, NUsalt, a firm that has developed
a potential alternative to Megasalt, filed a complaint with the
Bureau alleging that SPICE's contracts are preventing NUsalt from
manufacturing and marketing its product in Canada. NUsalt claims
that SPICE's contracts have "locked up" a substantial part of the
market, thereby precluding NUsalt from profitably entering Canada
Analysis
The NUsalt allegations suggest that SPICE, as a result of its
contracts with its two largest buyers, is currently exploiting
market power within the market for salt substitutes. The Bureau
would likely investigate these allegations under the exclusive
dealing provision (section 77) or the abuse-of-dominance provision
(section 79).
The Bureau would initially determine whether salt substitutes
comprise a relevant market. This would entail determining whether
salt substitutes are subject to effective competition from other
substances (for example, salt) or whether salt substitutes have
specific properties and functional characteristics that make salt
ineffective as a substitute. The Bureau would then seek to determine
whether SPICE substantially controlled the market in which its salt
substitutes competed, and then assess SPICE's share of sales and
barriers to entry to this market. Among others, the Bureau would
consider all of the factors currently preventing alternative
suppliers from offering their products to customers in Canada,
including the effect of the exclusive supply contracts on the
ability of alternative suppliers to obtain sales from a critical
mass of customers. Assuming that the Bureau had determined that salt
substitutes constitute a relevant market, it would likely conclude
that SPICE substantially controlled that market.
The Bureau would then consider whether the exclusive supply
contracts, through which SPICE had precluded its principal customers
from obtaining salt substitutes from alternative suppliers,
constituted exclusive dealing or abuse of dominance. The Bureau
would likely conclude that the exclusive supply contracts
constituted exclusive dealing. In order to assess whether the
formation of these contracts was an anti-competitive act, the Bureau
would examine the circumstances surrounding their negotiation and
settlement and the extent to which they were exclusionary and
intended to erect barriers to effective competition in the relevant
market. If the Bureau found that the contracts in this case were
intended to hold back a sufficient amount of market demand from
potential entrants so that the remaining demand would provide an
insufficient volume of sales to cover the cost of entry and future
operating costs in Canada, then the Bureau would likely view the
execution of the long-term exclusive licenses as
anti-competitive.
The Bureau would then assess the impact of the exclusive
contracts on competition. In this regard, the adverse impact on the
ability of other suppliers of salt substitutes to compete in Canada
would be assessed to determine whether the contracts had
substantially lessened or prevented competition. If the relevant
market is narrowly defined as salt substitutes and SPICE's contracts
are preventing the entry of potential salt substitute producers, the
Bureau may conclude that the exclusive contracts have substantially
lessened competition. By deterring firms from attempting to supply
alternative salt substitutes in Canada, the exclusive contracts may
cause other buyers in Canada not under contract with SPICE to pay
higher prices than they would if SPICE faced effective competition.
The magnitude of the decrease in competition would depend on the
extent to which the contracts prevent entry and the expected degree
of substitution that would exist between Megasalt and alternative
salt substitutes, such as NUsalt, if the exclusive contracts did not
exist. In general, if the contracts are determined to be the
principal barrier to new entry and the new entrants' products are
likely to be close substitutes for Megasalt, then the Bureau is
likely to conclude that the contracts have substantially lessened
competition. However, if the Bureau determines that, notwithstanding
the contracts, there is still sufficient demand in Canada or the
rest of the world to support effective competitive entry in Canada,
then SPICE's exclusive contracts would not be considered to have
substantially lessened or prevented competition.
The Bureau would also consider whether there are efficiency
reasons or a compelling business justification for SPICE's exclusive
contracts. For example, SPICE may have signed these contracts in
order to ensure that it would have sufficient sales to justify
investing in enough productive capacity to realize economies of
scale. Also, the restriction preventing buyers from combining
Megasalt with other salt substitutes could have a safety or quality
rationale. If the Bureau concludes that SPICE's contracts
substantially lessen competition, but that there is also a strong
efficiency rationale or business justification for those contracts
that could not be achieved without them being exclusive, the Bureau
would not likely challenge the practice under sections 77 or 79 of
the Competition Act. However, if there is no compelling
efficiency rationale or business justification for the exclusivity
provisions, the Bureau would likely seek to have SPICE's exclusive
licenses voluntarily terminated. Failing that, the Bureau would
likely bring an application before the Competition Tribunal seeking
to terminate these licenses.
Example 5: Output Royalties
MEMEX currently holds a patent for the design of a memory
component it manufactures for use in personal home computers. MEMEX
does not manufacture personal computers, but instead sells its
memory components and licenses the use of its technology to computer
manufacturers. Historically, MEMEX's licensing contracts required
that the licensee pay a fee for each MEMEX memory component it
installed in a computer. Because of its patent, MEMEX currently
faces no competition from other memory component producers wishing
to use a similar design; however, MEMEX's patent is to expire within
a year and there is speculation that once it expires other firms
will begin manufacturing and selling memory components based on
MEMEX's design. MEMEX has recently introduced a new license
agreement. Under the new agreement, MEMEX grants non-exclusive
licenses for the use of its technology and memory components to all
personal computer manufacturers for a royalty on every computer
shipped, regardless of whether the computer included a MEMEX memory
component, and a further fee for every MEMEX memory component the
manufacturer installs. MEMEX claims that the previous licensing
policy had the unintentional effect of encouraging computer
manufacturers to install too few MEMEX memory components, which
detracted from computer performance. MEMEX claims that the new
licensing practice makes it less expensive for manufacturers to
install a more appropriate quantity of memory in computers. To
offset the loss in revenue, MEMEX charges a royalty on every
computer sold.
Analysis
The Bureau would investigate this case under the
abuse-of-dominance provision (section 79).
The Bureau would first determine whether memory components that
employ the MEMEX's technology comprise a relevant market and then
assess whether MEMEX substantially or completely controls the supply
of product within that market. In view of the rapid rate of
technological development and intense competition in the production
of integrated circuit devices, the Bureau may conclude that the
MEMEX technology competes with other memory technologies, that
barriers to entry are sufficiently low that the scope of the
relevant market extends beyond the MEMEX technology, or that MEMEX
is unable to substantially control the supply of products within the
specified relevant market. If the Bureau determines that MEMEX faces
substantial, effective competition from other suppliers of memory
components then it would likely conclude that further investigation
is not warranted. If, on the other hand, the Bureau concluded that
the memory components supplied by the alternative suppliers are not
considered good substitutes and would not allow computer
manufacturers to build computers that could compete with those using
MEMEX's memory component, the Bureau might determine that further
inquiry was warranted.
Assuming that the Bureau determined that the MEMEX technology
defines the relevant market and MEMEX substantially controls that
market, the Bureau would then consider whether MEMEX's use of its
new licensing arrangements constituted anti-competitive conduct.
This determination would depend on the specific terms of the
contracts and the likely effect they would have on competition in
the relevant market. While MEMEX's licensing contracts do not
expressly prohibit computer manufacturers from using memory
components based on technology other than MEMEX's, they effectively
impose a tax on computer manufacturers who use memory components
from both MEMEX and another supplier.39
The imposition by a dominant supplier of long-term
licensing contracts containing such provisions could preclude
competition and maintain the supplier's market power. Accordingly,
the Bureau would determine whether these contracts are in widespread
use and their duration, and whether the per computer royalty is
sufficient to deter computer manufacturers from buying memory
components from alternative suppliers.
If the Bureau determined the relevant market to be memory
components based on the MEMEX technology and found MEMEX to have
market power, then the Bureau would assess the likely impact of
MEMEX's new licensing practice on competition and the price of
memory components. If the Bureau determines that this practice would
permit MEMEX to exercise a significantly greater measure of market
power after its patent expired than would otherwise have been the
case, the Bureau would consider MEMEX's efficiency rationale and any
other business justification for charging the per computer royalty.
In the absence of offsetting efficiency benefits or business
justifications, the Bureau would likely seek to have the new
licensing practice voluntarily terminated. Failing that, it would
likely bring an application before the Competition Tribunal seeking
to terminate this practice.
Example 6: A Patent Pooling Arrangement
ABC and ZENIX have each developed a revolutionary new X-ray
imaging machine to help diagnose cancer. Each firm has been granted
a series of patents on certain components of their respective
machines, and the machines themselves are functionally
interchangeable. ABC's machine does not infringe on any of ZENIX's
patents; however, the design of one of the components of the ZENIX
machine may infringe on one of ABC's patents. ABC has threatened to
sue ZENIX for patent infringement if ZENIX begins marketing its
machine without getting a license from ABC to use the component.
ZENIX disputes ABC's claim of patent infringement. However, to avoid
a messy court battle, the companies have placed their various
patents in a patent pool. The pool has established a $500 licensing
fee, which is to be paid to the pool each time an X-ray imaging
machine produced by either firm is used in a medical diagnosis. The
proceeds from the license fees are split between the two firms
according to a predetermined formula. As a result, neither firm is
likely to charge medical practitioners less than $500 per
procedure.
Analysis
The Bureau would examine this case under the conspiracy provision
(section 45) of the Competition Act.
The Bureau recognizes that a patent pooling arrangement may
provide pro-competitive benefits by, among other things, clearing
blocking patents, avoiding costly infringement litigation,
integrating complementary technologies and reducing transaction
costs. If a firm is blocked from using its technology because it
infringes on another firm's patent, and if it is not possible to
"invent around" the blocking patent, then these firms cannot be
considered to be horizontal competitors. In this case, ABC claims
that a component of the ZENIX machine infringes on one of its
patents; ZENIX does not claim that any part of ABC's machine
infringes on any of its own patents. Therefore, ABC would be able to
use its machine with or without reaching any agreement, including a
patent pooling arrangement, with ZENIX. For this reason, the patent
pooling arrangement is not necessary in order for the new X-ray
imaging machine to be used in the marketplace. A competitively
preferable alternative would have ABC simply license the use of its
infringed patent to ZENIX. If the patent were truly blocking, a
licensing agreement would provide ZENIX with an incentive to
innovate around the blocking patent (in order to reduce its costs).
ABC, on the other hand, may well wish to license the blocking patent
in order to realize greater revenues from its development work and
to eliminate the possibility that its patent could be found by the
court to be invalid (and therefore of no value). However, if the
patent was not blocking, then ZENIX would have no incentive to enter
a licensing agreement since, the license fees would represent a net
cost to ZENIX which, unlike the patent pooling arrangement, provide
no offsetting revenue benefits.
Based on the above analysis, the Bureau would view the patent
pool as an unnecessary and anti-competitive commercial arrangement
which was not required in order for the new technology to enter the
market. The Bureau would assess the strength of ABC's claim that a
component on ZENIX's machine infringed on one of its patents. If
ABC's claim had merit and ZENIX could not easily "invent around"
ABC's patent, then the Bureau would not likely challenge the patent
pooling arrangement as it would not lessen competition.If ABC's
claim was baseless or if ZENIX could easily "invent around" ABC's
patent, the Bureau would challenge the patent pooling arrangement
under the conspiracy section of the Competition Act (section
45) as the patent pool would be, in substance, an agreement to
prevent price competition between ZENIX and ABC.
Example 7: Agreement to Foreclose Complementary Products
There are five major record labels. The largest two, ROCKCO and
POPCO, which together account for more than 65 percent of total
sales and 70 percent of all major label artists, have formed a joint
venture (DISCO) to develop, produce and market a new generation of
digital playback devices. The DISCO technology provides a level of
sound quality and other features far superior to those offered by
existing technologies. DATCO has also developed a digital sound
technology with similar high-fidelity qualities, but which is also
portable and allows users to record. The costs of the two
technologies are similar, but the technologies themselves are
incompatible: music digitally encoded in DISCO format must be
re-encoded for playback on DATCO's player. Under the terms of their
joint venture agreement, ROCKCO and POPCO agree to not release, or
license any other person to release, their copyrighted recordings in
a digital format other than the DISCO format. Consistent with that
agreement, ROCKCO and POPCO have declined DATCO's request for a
license to convert and release ROCKCO and POPCO recordings in the
DATCO format. The other three record labels predict C correctly C
that consumers will be reluctant to purchase the DATCO technology if
they are unable to obtain music from either ROCKCO or POPCO in that
format. The other record companies are willing to release their
recordings in the DATCO format, but find that there is no market for
it and are compelled by popular demand to license the DISCO
technology in order to release their recordings in the DISCO format.
As a result of the foregoing, DATCO's digital sound technology,
which reviewers have generally viewed as superior to the DISCO
technology, is being withdrawn and DISCO is substantially increasing
both the price of the playback equipment that it sells and the
royalties charged to the other record companies for the use of the
DISCO technology to release recordings in the DISCO format.
Analysis
The Bureau would examine this case under the merger provision
(section 92) and/or the abuse-of- dominance provision (section 79)
of the Competition Act.
As a first step, the Bureau would consider whether the alleged
anti-competitive conduct, namely the refusal of ROCKCO and POPCO to
license the reproduction of their copyrighted recordings in the
DATCO format, was a mere exercise of their IP rights or involved
something more. In this case, the Bureau would likely determine that
the terms of the DISCO joint venture agreement and the refusal to
license lessen competition and would seek to review that arrangement
under either the merger provision or the abuse-of-dominance
provision of the Competition Act.
If the Bureau elected to review the joint venture agreement under
the merger provision on the basis that the joint venture was, for
the purposes of the digital sound business, in substance a merger of
the musical recording assets of ROCKCO and POPCO, the review would
be carried out in accordance with the Merger Enforcement Guidelines.
If, on the other hand, the Bureau elected to review the joint
venture agreement under the abuse-of-dominance provision, on the
basis that the joint venture agreement established and provided for
the joint abuse of a dominant position, the review would be carried
out in accordance with the framework and criteria for abuse of
dominance outlined in the previous examples. In either case, the
Bureau would have to establish the affected relevant market or
markets, consider barriers to entry and evidence of market power or
dominance, demonstrate a substantial prevention or lessening of
competition and assess any business justification or efficiency
rationale.
If the Bureau were to proceed under section 79, it would have to
establish that the DISCO joint venture has substantial market power
in either the market for digital sound technology or digital
playback equipment. In addition, it would have to find that the
DISCO joint venture had engaged in anti-competitive conduct that
substantially lessens or prevents competition. The anti-competitive
acts in this case would relate to the acquisition and foreclosure by
the DISCO joint venture of access by its competitors to the music in
the ROCKCO and POPCO music libraries. Foreclosure of access to these
materials is apparently preventing alternative sound recording
technologies from acquiring the critical mass of desirable music
content required for them to achieve viability. It appears that this
conduct may be substantially preventing or lessening competition and
leading to the monopolization or the creation of dominance in the
markets for digital sound technology and/or digital playback
equipment sound reproduction. The foreclosure of other technologies
creates market power for DISCO in these markets and is inefficient,
as it reduces consumer choice, leads to increases in the royalties
paid by the record companies to use this type of technology and
increases the price of playback devices. The Bureau would likely
seek an order requiring that ROCKCO and POPCO divest themselves of
DISCO or that ROCKCO and POPCO license their works for release in
alternative formats.
Example 8: Refusal to License a Standard
ABACUS and two other firms were the first to market a spreadsheet
for personal computers. Electronic spreadsheet software was one of
the applications that established personal computers as an essential
tool for business. In the first five years, ABACUS out-sold its
nearest competitor nearly two to one and its installed base
(cumulative sales) grew to 50 percent. In the next two years, its
annual market share grew to more than 75 percent and one of the
other original firms left the market. At about the same time and
after three years of programming, CALCULATOR introduced spreadsheet
software that had a number of innovative features not found in
ABACUS. However, CALCULATOR soon ran into financial difficulties
despite the innovative features and a lower price. CALCULATOR
approached ABACUS and requested a licence to copy the words and
layout of its menu command hierarchy (for the purpose of this
example assume that permission was required since ABACUS had valid
IP rights in these works). With permission, CALCULATOR could have
relaunched its product with an emulation mode and a key reader,
which would have given CALCULATOR the ability to read ABACUS files
and ensured compatibility between the two products. ABACUS refused
to grant a licence and publicly announced that it would enforce its
IP rights against CALCULATOR if it copied the ABACUS hierarchy. In
light of this, several other prominent software makers announced
that they were discontinuing their spreadsheet development programs.
An important characteristic of spreadsheets that determines their
benefits to a purchaser is network effects. Network effects exist if
the value of a product increases with the number of others who
purchase compatible spreadsheets. Network effects for spreadsheets
arise since the greater the size of the network (the installed base
of compatible spreadsheets), the greater the number of individuals
with whom files can be shared, the greater the variety of
complementary products (utilities, software enhancements and
macros), the more prevalent consulting and training services and the
greater the number of compatible data files.
Analysis
Given the circumstances surrounding this case, ABACUS's refusal
to license its IP would constitute a "mere exercise" of its IP
rights and would, therefore, be subject to review only under section
32 of the Competition Act.
To establish whether ABACUS's refusal created an undue restraint
of trade or lessened competition, the Bureau would determine whether
the refusal adversely affected competition in a relevant market that
was different or significantly larger than the subject matter of
ABACUS's IP rights or the products or services which result directly
from the exercise of such IP rights. In this case, competitive harm
is alleged in the market for ABACUS-compatible spreadsheets.
Whether the relevant market is determined to be ABACUS-compatible
spreadsheets depends on the extent and importance of network effects
and switching costs. If network effects are important, consumers
that have never purchased a spreadsheet may still purchase the more
expensive ABACUS product. Consumers who are already on the ABACUS
network may be locked in by the switching costs of joining a new
spreadsheet network (for example, their sunk investments in
training, files and complementary products) and the loss in network
benefits. If network effects and switching costs are material, then
existing consumers are likely to stay and new consumers to choose
ABACUS even if it is priced above competitive levels.
If the relevant market is determined to be ABACUS-compatible
spreadsheets, then ABACUS would be the only producer and thus have
100 percent control of this market. If, in addition, entry barriers
were found to be high, which is likely in an industry experiencing
network effects, the Bureau would conclude that ABACUS is dominant.
In determining whether the installed base of ABACUS contributes
materially to entry barriers, the Bureau would consider the pace of
innovation and the potential for a new technology to "leap-frog
over" ABACUS despite its advantages (that is, its installed base and
the switching costs). The Bureau would also endeavor to determine
whether there are other efficient avenues for creating compatibility
that would not infringe on the IP rights of ABACUS.
If the relevant market is determined to be ABACUS-compatible
spreadsheets and the Bureau concluded that the relevant market was
significantly larger than the subject matter of ABACUS's IP, and the
products which result directly from the exercise of such IP rights,
then the Bureau would likely conclude that ABACUS is dominant in the
relevant market and that the IP is an essential input for firms
participating in the relevant market. On this basis, ABACUS's
refusal satisfies the first step of the Bureau's two-step analysis
to determine whether it would seek to have an application brought
under section 32.
In the second step, the Bureau determines whether ABACUS's
refusal to licence its IP would adversely alter firms' incentives to
invest in research and development in the economy. In this case, the
facts suggest that it is possible that ABACUS's ability to impose
incompatibility may have a chilling effect on the development of
more advanced spreadsheets. In addition, the choice by ABACUS of the
words and layout of its menu hierarchy was likely arbitrary and
likely involved little innovative effort and had little value
relative to other substitutes. In the absence of an installed base
and switching costs, ABACUS's terms and menu hierarchy would be no
better or worse than CALCULATOR's (or any other). It is only after
consumers make sunk investments and adoption creates an installed
base that ABACUS spreadsheets become the market or standard and that
its choice of words and menu interface C required for compatibility
with the ABACUS network C creates unintended and unwarranted market
power, a situation that can be corrected through enforcement action
under section 32. On this basis, the Bureau would likely conclude
that a special remedy invoked under section 32 would restore
incentives for other firms to engage in research and the development
of competing compatible spreadsheet programs.
If the facts of the case suggest potential enforcement under
section 32, the Bureau would seek a special remedy that would allow
other spreadsheet firms to gain access to the words and layout of
ABACUS's menu hierarchy.
back to
contents
COMPETITION BUREAU CONTACTS
For more information, or for copies of this publication, please
contact the Competition Bureau's Information
Centre.
Tel.: (819) 997-4282
Toll-free: 1-800-348-5358
TDD (for
hearing impaired): 1-800-642-3844
Fax: (819) 997-0324
Web
site: http://www.competition.ic.gc.ca/
Konrad von Finckenstein
Commissioner of Competition
Tel.:
(819) 997-3301
Fax: (819) 953-5013
E-mail: vonfinckenstein.konrad@ic.gc.ca
Gaston Jorr
Senior Deputy Commissioner
Mergers
Tel.:
(819) 994-1863
Fax: (819) 953-6169
E-mail: jorre.gaston@ic.gc.ca
Robert A. Morin
Deputy Commissioner
Compliance and
Operations
Tel.: (819) 953-7942
Fax: (819) 953-3464
E-mail:
morin.robert.a@ic.gc.ca
Gwillym Allen
Acting Deputy Commissioner
Economics and
International Affairs
Tel.: (819) 953-7218
Fax: (819)
953-6400
E-mail: allen.gwillym@ic.gc.ca
Andr Lafond
Deputy Commissioner
Civil Matters
Tel.:
(819) 997-1209
Fax: (819) 953-8546
E-mail: lafond.andre@ic.gc.ca
Deputy Commissioner
Criminal Matters
Tel.: (819)
997-1208
Fax: (819) 997-3835
E-mail: chandler.harry@ic.gc.ca
Johanne D'Auray
Deputy Commissioner
Fair Business
Practices
Tel.: (819) 997-1231
Fax: (819) 953-4792
E-mail:
dauray.johanne@ic.gc.ca
Nicole Ladouceur
Assistant Deputy Commissioner
Amendments
Unit
Tel.: (819) 997-2868
Fax: (819) 953-8535
E-mail: ladouceur.nicole@ic.gc.ca
Dianne Clarke
Acting Director
Communications
Tel.:
(819) 994-4994
Fax: (819) 953-1877
E-mail: clarke.dianne@ic.gc.ca
Tandy Muir-Warden
Director
Management Policy and
Services
Tel.: (819) 997-1073
Fax: (819) 994-7588
E-mail:
muirwarden.tandy@ic.gc.ca
back to
contents
FOOTNOTES
1 The Canadian Intellectual
Property Office (CIPO) defines intellectual property and summarizes
the role of IP rights as follows:
"Ideas, designs, creativity... [that] help us [Canadians] work
better, to make finer products and to compete more effectively in
world trade. A brisk and orderly exchange of ideas is as important
to our economy as the flow of money or goods and services. To
promote this exchange, while protecting owners' rights, the
Government of Canada considers certain kinds of creative endeavors
>intellectual property.' You can receive legal recognition for
these endeavors in much the same way as you receive title to a
piece of land."
For more information, see the CIPO Web site
(
http://strategis.ic.gc.ca/sc_mrksv/cipo/help/faq_ip-e.html).
2 Although the same general
competition law principles apply to trade-marks as to other forms of
IP, the Guidelines are generally concerned with technology transfer
and innovation related issues. Consequently, when applying its
enforcement approach to trade-marks, the Bureau will additionally
consider in its analysis the source and quality differentiation
issues that arise in respect of trade-marks.
3 R. v. Nova Scotia
Pharmaceutical Society et al., [1992] 2 S.C.R. (606), defines market
power as the ability to behave relatively independently of the
market." DIR v. The NutraSweet Co., (1990) 32 C.P.R. (3d) 1(Comp.
Trib.), defines it as the ability to maintain prices above
competitive levels for a considerable period.
4 In the Abuse of Dominance
provision of the Act, subsection 79(4) provides that superior
competitive performance is a consideration in determining whether a
practice has an anti-competitive effect in a market.
5 With the exception of those for
conspiracy and predatory pricing, these provisions do not require
proof of market power or anti-competitive effects.
6 The refusal-to-deal provision
(section 75) does not require proof of substantial lessening or
prevention of competition. However, it does require that the
person's inability to obtain adequate supply is the result of
insufficient competition among suppliers.
7 See DIR, Program of Compliance,
Information Bulletin No. 3 (Revised), March 1993, for a detailed
discussion of case resolution alternatives.
8 See DIR v. Southam Inc. (1997),
71 C.P.R. (3d) 417 (S.C.C.), and (1995), 63 C.P.R. (3d) 67 (F.C.A.),
aff'd (1992), 47 C.P.R. (3d) 240 (Comp. Trib.).
9 See DIR v. D&B Companies of
Canada Ltd. (1995), 64 C.P.R. (3d) 216 (Comp. Trib.) (hereafter
referred to as Nielsen).
10 In order to enforce common
law property rights, it must be possible to identify the property's
owner and to clearly delineate the boundaries of the property. Both
tasks can prove problematic in the case of IP. For other kinds of
private property, possession can generally be seen as an indication
of ownership. However, since many individuals can possess IP
simultaneously, it may be difficult to establish the identity of the
original creator and true owner of the IP. Furthermore, since IP is
generally intangible, it is often difficult to clearly delineate the
boundaries of the property. Without a legal delineation of these
boundaries, IP owners may have difficulty showing that others have
infringed on their property.
11 For ease of discussion, and
unless otherwise indicated, competitive harm is prospective. Note,
however, that in many cases competitive harm may be occurring at the
time the Bureau is conducting an investigation or may have occurred
sometime in the past.
12 Some of the transactions and
conduct that could involve IP include mergers, pooling of licenses,
setting standards for products, tied selling and exclusive
dealing.
13 Licensing is a means by which
owners trade IP, and it signals the willingness of IP holders to
participate in the marketplace. This ability of owners to exchange
and transfer IP can enhance the IP's value and increase the
incentive for its creation and use. Licensing arrangements also
promote the efficient use of IP by facilitating its integration with
other components of production, such as manufacturing and
distribution.
14 Refer to sections 32, 61, 77,
79 and 86.
15 Subsection 79(5) reads: "For
the purpose of this section, an act engaged in pursuant only to the
exercise of any right or enjoyment of any interest derived under the
Copyright Act, Industrial Design Act, Integrated Circuit Topography
Act, Patent Act, Trade-marks Act or any other Act of Parliament
pertaining to intellectual or industrial property is not an
anti-competitive act."
16 The remedies in section 32
are more extensive than those under the general provisions.
17 This analysis would use the
concept of a relevant market as discussed in section 5.1.
18 DIR v. Tele-Direct
(Publications) Inc. and Tele-Direct (Services) Inc. (1997), 73
C.P.R. (3d).
19 DIR v. Warner Music Canada
Ltd. (1997), 78 C.P.R. (3d) 321.
20 In Tele-Direct the
Competition Tribunal stated that, "The Tribunal is in agreement with
the Director that there may be instances where a trade-mark may be
misused. However in the Tribunal's view, something more than the
mere exercise of statutory rights, even if exclusionary in effect,
must be present before there can be a finding of misuse of a
trade-mark."
21 The Copyright Act provides
that section 45 of the Competition Act not apply to any
royalties or related terms and conditions arising under certain
collective agreements filed with the Copyright Board.
22 The special remedies provided
for under section 32 include declaring any agreement or license
relating to the challenged right void, ordering licensing of the
right (except in the case of trade-marks), revoking a patent,
expunging or amending a trade-mark, or directing that other such
acts be done or omitted as deemed necessary to prevent the
challenged use.
23 A network industry is an
industry that exhibits network effects. These effects exist when the
value or benefit derived from using a product increases with the
number of other users. For example, fax machines exhibit network
effects because the value of owning a fax machine clearly depends on
the number of compatible fax machines in use.
24 This does not suggest that
markets subject to network effects will inevitably be monopolized.
Often, firms form alliances and make a new technology "open" to gain
acceptance and build an installed base. These activities tend to be
procompetitive if firms that participate in the standard-setting
process freely compete with each other in the market.
25 The market definition
exercise focuses primarily on demand substitution factors (i.e.,
possible consumer responses). The Bureau considers the potential
constraining influence of firms that can participate in the market
through a supply response (i.e., a possible production response)
after it has defined the relevant market.
26 This is generally the case
with mergers.
27 See sections 3.2 and 3.3 of
the Competition Bureau's Merger Enforcement Guidelines.
28 This is generally the case
with alleged abuse of dominant position or conspiracy.
29 Part 4 of the Merger
Enforcement Guidelines provides a list of other factors the Bureau
considers when it assesses market power. These include foreign
competition, business failure and exit, the availability of
acceptable substitutes, effective remaining competition, removal of
a vigorous and effective competitor, and change and innovation.
30 The following factors are
relevant to determining when a firm will divert sales within one
year in response to a price increase: the cost of substituting
production in the relevant market for current production (i.e.,
switching costs), the extent to which the firm is committed to
producing other products or services, and the profitability of
switching from current production.
31 If the actual participants in
the market include firms that, within one year, represent potential
sources of supply for the market, then market shares, even in terms
of production capacities, may be difficult to accurately estimate.
Accordingly, it must be recognized that the market shares attributed
to firms whose products are actually sold within the relevant market
will overstate the relative market position of these firms in such
circumstances.
32 The Competition Tribunal
stated in DIR. v. Laidlaw Waste Systems Ltd. (1992), 40 C.P.R. (3d)
289 (Comp. Trib.) (hereafter Laidlaw), that market share
calculations based on sales may overstate market power when the
market is characterized by excess capacity.
33 The fact that
anti-competitive conduct can create barriers to entry was recognized
by the Competition Tribunal in Laidlaw.
34 Of course, the purpose of
providing innovators with IP rights is to foster the development of
new products. In this sense, IP rights may encourage firms to
participate in environments in which technology changes very
rapidly.
35 Section 95 provides a
specific exemption under the merger provisions to research and
development joint ventures that satisfy certain criteria outlined in
the provision.
36 While there is no explicit
recognition of efficiencies in the conspiracy provisions (section
45) of the Competition Act, there are 12 specific defenses to
agreements between competitors that may encompass
efficiency-enhancing arrangements involving IP. Among these, the
following may be more likely to apply to agreements involving IP:
the exchange of statistics, the definition of product standards, the
size and shapes of product packaging, cooperation in research and
development, restrictions on advertising or promotion, measures to
protect the environment, and export consortia or specialization
agreements as defined in section 85(f).
37 In Tele-Direct, the
Competition Tribunal stated that, "[w]hat the Tribunal must decide
is whether, once all relevant factors have been taken into account
and weighed, the act in question is, on balance, 'exclusionary,
predatory or disciplinary'. Relevant factors include evidence of the
effects of the act, of any business justification and of subjective
intent which, while not necessary, may be informative in assessing
the totality of the evidence. A 'business justification' must be a
'credible efficiency or pro-competitive' business justification for
the act in issue. Further, the business justification must be
weighed 'in light of any anti-competitive effects to establish the
overriding purpose' of the challenged act..."
38 In Nielsen, the Competition
Tribunal held that even if there is some justification for the
alleged anti-competitive conduct, this must be weighed against any
anti-competitive effects.
39 A manufacturer who
|