A Rare Example Perhaps of “More Than Mere Exercise of Patent Rights” – a Recent Competition Bureau Inquiry Into Pharmaceutical “Product Hopping”

There is an obvious inherent tension between competition principles and intellectual property (“IP”), including patents. A recent Competition Bureau inquiry into alleged market manipulation by Alcon provides a good illustration of how these principles can intersect.

By their very nature patents may be considered exclusionary and anti-competitive. The Competition Act (s. 32) specifically empowers the court to prevent use of a patent only if it “unduly” lessens competition. Otherwise there must be “something more” than the mere exercise of patent rights to be anti-competitive. The Competition Bureau has provided enforcement guidelines to evaluate when IP rights may be used in an anti-competitive way (“IPEG 2000”) and more recently has provided an updated report on the relevant issues at play at the competition/IP interface (2006). According to IPEG 2000, IP and competition principles are “complementary” and “promote an efficient economy”.

Although the Competition Bureau has provided guidance on the IP/patent interface, there are few applicable Canadian cases. There are some examples where patent infringers have unsuccessfully argued that a patentee engaged in anti-competitive activities. Such an “unclean hands” defence could deny the patentee equitable relief like an injunction or an accounting of profits. Apotex argued Lilly engaged in a conspiracy that unduly lessened competition by buying up all patent rights to the methods to make an antibiotic. Although this claim was not considered on its merits because it was time barred, the court (in preliminary proceedings) accepted that patent assignments may “unduly” lessen competition where “the assignment increases the assignees’ market power in excess of that inherent in the patent rights assigned” (Eli Lilly v Apotex 2009 FC 991 at para. 750, 881, aff’d 2010 FCA 240; see also Apotex v Eli Lilly 2005 FCA 361).

The courts have consistently held that “something more” than merely an exercise of patent rights is required, and have failed to find this unattainable “something more”. The Competition Tribunal can consider much broader types of conduct like an abuse of dominant position (and is not limited to criminal conduct as a patent infringer would be in patent litigation between private parties). The Tribunal found patent-related contraventions when NutraSweet artificially extended its patent protection by effectively compelling consumers to continue to buy its non-patented product (by giving large allowances and other incentives) [Canada (Director of Investigation & Research) v. NutraSweet Co. (1990), 32 C.P.R. (3d) 1 at 34 (Competition Trib.)].

The Commissioner of Competition (“Commissioner”) has recently initiated proceedings against Alcon that may provide another actual example of the “something more”. In particular Alcon has been ordered to produce various documents to the Commissioner regarding allegations they have abused their dominant position by “Product Switching” that disrupted the “supply of Patanol for the purpose of deterring the entry of generic [in particular Apotex] versions of Patanol” (Federal Court File No. T-2223-12). The Commissioner defines “Product Switching” as “a strategy undertaken by a Brand Name Pharmaceutical Company whereby it introduces a product line extension to an existing Branded Drug in anticipation of, or in response to, generic competition in respect of the existing Branded Drug”.

According to section 79 of the Competition Act, the “abuse of dominant position” violation is open-ended in its definition (although some examples are provided at section 78):

(a) a party “substantially or completely control[s] …a class or species of business”

(b) the party has engaged in, or are engaging in “a practice of anticompetitive acts”, and

(c) “the practice has had, is having or is likely to have the effect of preventing or lessening

competition substantially in a market,”

In addition to prohibiting the impugned practice, the Tribunal may order any other “reasonable” and “necessary” actions including divestiture; and may order “an administrative monetary penalty” of up to $10 million.

Over the past 10 years the Competition Bureau has only initiated similar formal “document/information requests” to less than 10 other brand pharmaceutical companies (often relating to mergers, price fixing, and often resulting in consent judgements or agreements).

In fact there are 2 proceedings pending as a result of Alcon’s alleged Product Switching:

  • Apotex first brought a claim against Alcon in October 2012 seeking damages for conspiracy, anti-competitive conduct, unjust enrichment (Ontario CV-12-465558)
  • the Commissioner later initiated an inquiry in November 2012 and filed its ex parte motion for disclosure pursuant to section 11 of the Competition Act; resulting in a December 21, 2012 Order compelling disclosure from Alcon by early March 2013

The allegations in both cases outline possible conduct by Alcon to carefully manipulate the marketplace for its eye drugs (in particular for the treatment of “allergic conjunctivitis”), to effectively “switch” demand from its genericized/non-patented product to a patented product (protected for another 4 years until 2016).

In particular, the Commissioner’s submissions to the court allege that:

  • Alcon sent letters to doctors/pharmacies advising that Drug (1) “Patanol” was on “backorder” and this was likely to cause increased demand for Drug (2) “Pataday”. These drugs both have the same active ingredient (olopatadine), but different strengths.
  • “Alcon has intentionally disrupted the supply of Patanol in Canada in an attempt to habituate physicians who are accustomed to writing prescriptions …[for Drug (1)] to writing prescriptions … [for Drug (2)].
  • There is no “foreseeable generic substitute” for Drug (2), such that Alcon will have “excluded effective generic competition”.
  • “[T]here is reason to believe Alcon’s disruption of the supply of Patanol … is more than a mere exercise of its patent rights”.

Interestingly, Alcon had argued that the Commissioner’s inquiry was moot because Alcon planned to resume supply of Drug (1) “at an unknown date”. Both the Commissioner and the court found there was still a bona fide basis for an anti-competitive act even if there was only a temporary disruption of the supply of Drug (1). The Commissioner has indicated that they still need to determine whether the “generic market [for Drug (1)] is restored.” Apotex had advised the Commissioner that they were waiting until Patanol was back on the market before they would launch. At present, both Patanol and Apotex’s generic are listed on the Ontario formulary (as of January 29, 2013). We will need to wait and see whether the Commissioner nonetheless proceeds with its inquiry and initiates a proceeding with the Competition Tribunal.

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