Episode 37: What innovators need to know about the Competition Bureau

Lisa Desjardins (Lisa): You're listening to Canadian I.P. Voices, a podcast where we talk intellectual property with a range of professionals and stakeholders across Canada and abroad. Whether you are an entrepreneur, artist, inventor or just curious, you will learn about some of the real problems and get real solutions for how trademarks, patents, copyrights, industrial designs and trade secrets work in real life. I'm Lisa Desjardins, and I'm your host. The views and opinions expressed in this podcast are those of the individual podcasters and do not necessarily reflect the official policy or position of the Canadian Intellectual Property Office.

The Competition Bureau is a federal organization in Canada that makes sure that businesses in Canada compete fairly and honestly. It protects us as consumers and helps create a marketplace where Canadian businesses can compete fairly. The Bureau administers and enforces laws like the Competition Act, the Consumer Packaging and Labelling Act, and if businesses don't follow these laws, the Bureau takes actions against them, and makes sure that businesses tell the truth in their advertisements. The Bureau can also investigate if businesses make secret agreements that hurt competition.

When it comes to I.P., the Bureau has the power to take action against businesses that use their patents, trademarks, copyrights and other I.P. rights, in a way that limits competition. But more specifically, what are the kinds of I.P. matters that the Bureau deals with, and when does it decide to step in? To learn more, I'm joined by Alan Gunderson, who is a Senior Economist and Coordinator at the Economic Analysis Directorate at the Competition Bureau. Welcome Alan, I'm really excited to meet with you and have this interview. Could you tell us a little bit about the Competition Bureau and the kind of work that you do there?

Alan Gunderson (Alan): Certainly, yes. So thanks very much for inviting me and the Bureau to participate. The Competition Bureau is an independent law enforcement agency of the Federal Government. We're headed up by the Commissioner of Competition, who is appointed by Cabinet. And essentially our mandate is to protect and promote competition in Canada. So we have about approximately 400 staff, our main office is here in Gatineau, Quebec, and we also have 3 regional offices in Vancouver, Toronto and Montreal. So our annual operating budget is in the neighbourhood of $60 million. We are a law enforcement agency, as I mentioned, so the acts that we enforce, the main one is the Competition Act, and that's the one I'll primarily focus on. We do also enforce labelling statutes, you mentioned the Consumer Packaging and Labelling Act, there is also the Precious Metals Marking Act and the Textiles Labelling Act. I'll mostly talk about the Competition Act since that's the one that has the interaction with I.P.

Just a quick overview of what the Bureau does. So with the Competition Act, there's really 4 main areas that we're involved in. First is the review of mergers and acquisitions, so the Bureau has the authority to review every merger that happens in Canada to assess whether there's going to be any harm to competition and for firms of a sufficient size or transactions of a sufficient size such as firms that exceed 93 million in assets or revenues or the overall transaction exceeds 400 million, then they have to provide notice for the Bureau. So we'll get an official filing and the firms have to pay I believe it's around $83,000 or the filing to notify us of the transactions and to give us a chance to review it. So we typically receive about 200 merger notifications in a given year. So just as an example of the mergers we did, we have challenged a number of them recently, probably the one most people have heard about is Rogers Shaw that went to the Competition Tribunal. Ultimately we were not successful—the Tribunal allowed the transaction to go through and they felt that Shaw's sale of Freedom Mobile to Vidéotron was one of the key factors that made the merger be such that it wouldn't harm competition.

So another major area where we work is what we call "abuse of dominance." This is basically activity or conduct by large firms in the market, firms basically that control 50 percent of the market, say, that maybe lock up consumers with exclusive contracts, or they engage in selling practices where they sell one product conditional on consumers buying another product, things like that nature. So we investigate conduct such as that to see if there's an impact on competition there. We've examples back in 2000, I guess there it was in 2011, where we challenged some practices of Toronto Real Estate Board. The third area is cartels, you know firms fixing prices, allocating markets or restricting output, and there's also bid rigging, which is essentially fixing bids in tendering processes. So those are criminal matters. We investigate but then we refer matters to the public prosecution service of Canada which ultimately decides whether to bring charges. So an example, we did have a prosecution of Canada Bread Company, and they were fined $50 million by the Ontario Superior Court for fixing the wholesale price of fresh commercial bread. As far as I know, that's the highest price-fixing fine imposed by a Canadian court to date.

So the last area that we, on the enforcement side, that we get involved in, is the misleading advertising and deceptive marketing area, and this essentially involves policing claims that firms make about their products and making sure that any claims, for example on performance claims, that they're backed up with adequate testing and evidence that substantiates the claim. So just as an example here, the Bureau had an investigation of True Sports Inc.'s performance claims of one of its hockey helmets. And the Bureau concluded that the claim that the company was making wasn't adequately backed up by the evidence. There was a consent agreement reached and that at the end of that investigation so that the company stopped making the claims and they made a donation to support hockey youth sports. So that's the main enforcement categories. Just to finish off, there's also the advocacy pillar that the Bureau does, because we do have a mandate to promote competition.

In terms of regulatory matters that where competition becomes a focus and a good example here is the Canadian Radio-television and Telecommunications Agency, C.R.T.C., has various hearings that explore various issues having to do with obviously the telecommunications sector such as mobile wireless services, so the Bureau, we often make submissions into those regulatory proceedings, for example, and reviewing mobile wireless services in November 2019. We also issue reports, market study reports, such as just this past June, where we released the market study into the retail grocery sector.

And we also provide information out there for consumers and businesses. So in particular, let's say in March is anti-fraud month, so the Bureau participates with the R.C.M.P. and the Canadian Anti-Fraud Centre for fraud prevention for the month of March, and we basically provide information about various types of scams that are out there such as the subscription traps. There's this thing called the "C.E.O. scam" that people are trying to send emails to finance people at firms claiming to be the C.E.O. to direct funds to certain areas. And just general invoice scams, you know, sending invoices to companies hoping that they would just go ahead and pay it without doing a due diligence check. And then, of course, compliance with the Act. We provide information to companies to make sure that they can enact in-house compliance programs to make sure that they are compliant with the Competition Act and the labelling statutes.

Lisa: What are the laws in respect to I.P. that the Competition Bureau can actually enforce?

Alan: The main law that we do enforce for competition is the Competition Act. I'll just mention there's a few sections in there that do explicitly mention I.P. and I think there's 2 main ones. One is in what's called section 32. It's in our special remedies part of the Competition Act. It's an interesting provision, and I guess I have to say right from the start because it's a very old provision. It was enacted in a form I think back in 1910, but I think the current language I think reflects the last kind of amendment to it, I believe was made in the late 1940s, but it's a provision that's been around a long time. But we do not have any judicial interpretation of it. There was 2 cases long time ago like in ‘69 and 1971, I think that were settled, so there was no judicial interpretation of the law.

It's the provision in the Act, the Competition Act, that directly bears on I.P. because it basically allows for if there's an I.P. owner just using the I.P., what we call the mere exercise the I.P., which we consider to be, for example, the right to refuse others to license the I.P. Like if you have a patent, and you refuse someone else access to it, and you're simply exercising your I.P. right, Section 32 allows for the possibility that that because of the competition concern that that creates, it allows the federal court make a special remedy to solve that competition issue. So they could do a wide, the remedies are quite wide. They can declare any agreement or license using the I.P. as void, they can order a licensing of the I.P. right, everything except trademarks. They can revoke a patent or expunge a patent. The powers are quite broad. And it's not the Commissioner of Competition who brings that case. The Commissioner would refer a matter to the Attorney General, and it would be the Attorney General bringing the matter to the federal court. And like I said, it has not been used, but it is a provision that directly bears on I.P. and the use of I.P. It's a provision that when we're talking about how the Competition Act applies to firms' use of I.P., that provision was obviously of interest to various stakeholders because it was what would be the circumstances where the Bureau would bring such a case. So that's the main provision. But like I mentioned it hasn't been used. It's a very, I guess stark provision because it basically, if someone looks at it, they can say well, if this is used, overused it kind of undermines what the rationale or one of the rationales for I.P. rights, which is obviously to provide incentives for people to invest in creative things, so it's a provision that I think a lot of people look at and kind of surprised at.

The other provision in the Competition Act is when I mentioned abuse of dominance and conduct of large firms. That's our Section 79, and there's various elements that have to be met and proven before the court, in that case, the Competition Tribunal, to make an order and one of those is like you have to show that the firm was engaging in an anti-competitive act or practice of anti-competitive acts. And there there's a specific Subsection of 79, 79(5), which states that an act engaged in pursuant only to the exercise of any right, any I.P. right, that can't be an anti-competitive act. So that basically exempts making the mere use of their I.P. right, it can't be seen as an anti-competitive act under the abuse of dominant positions.

So those are I think the 2 main provisions that speak to I.P. in the Competition Act just to emphasize that the Commissioner of Competition when we investigate matters, we can't unilaterally order firms to change their conduct. If we feel that there's a firm that violates the act, we have to gather evidence and bring a case typically like for civil matters, we bring the case to the Competition Tribunal, which is a special court. The legal members are federal court judges, but they also have lay members. Typically like business persons or economists that are there to help with questions of fact. That helps out the legal expert when they make a ruling. So where you have to take on the role of litigant and bring evidence and it's then the Competition Tribunal who interprets the law and if it feels that the evidence is there they make the order against the party.

Lisa: The laws can be quite complicated to read and to understand, and I'm not sure that the listeners are going to actually read the sections that you mentioned. But, take it from the point of an entrepreneur, like, if I'm an entrepreneur, what other documents should I read about competition in Canada? And why is this important that we educate people about the work you do?

Alan: Yeah, no that's a good question. So one of the Bureau's goals is to promote transparency. So we obviously want to make people aware of our work and make it transparent to people because obviously we want them to know what the Act is and how we will enforce it, so they don't inadvertently contravene the Act. So I just mention off the top, we do issue guidelines. So as I was talking about mergers, so we do have merger enforcement guidelines. We do have guidelines specific for abuse provisions and as I mentioned we do have guidelines specific on I.P., that kind of shows how the Bureau views the interface between competition and I.P. And we do have that. Now I have to admit, if you're have, say entrepreneurs, small business owners, they might consider some of those guidelines like a tough read because they're really targeted, I think, especially the I.P. guidelines, they're targeted to the practitioners, legal counsel of business firms, that type of thing, so people that are really immersed in competition and I.P. law. For general viewing, on our website, we do provide general overview information of competition law in practice so in particular there's 2 sections there, one on education and outreach, and one on compliance and enforcement. And on the education side, we put together a number of compliance boot camps, so these are basically a series of learning modules. They don't take a lot of time, but they provide very valuable information for people can go through those and see what they have to do to avoid deceptive marketing, avoid bid rigging and price fixing, preventing market abuse, and they also covered the labelling laws as well. So they know what those are about. So that's important. And we also provide advice to businesses on how to build a credible and effective compliance program so that they have the internal resources or program in place, so that the business people at the firm have sufficient information about the Competition Act so they don't it inadvertently engage in activity that would contravene any provisions of the Act. So there's a lot of materials there, and I would encourage people to kind of take a look there. So it's all targeted for people that are not lawyers. They just kind of want to know the basic facts. It's easily accessible and digestible.

Lisa: That's fantastic. We're going to put links to this in the description of this episode. Could you walk us through some hypothetical examples that the guidelines contain?

Alan: Sure, we have a number of them in our I.P. enforcement guidelines. In fact, it's in our Section 7 of that document, there's 18 hypotheticals there, and they talk about various circumstances for the small business owners. I think one of the important things to remember and I think that's just example one and it's an example not where we intervene, it's the kind of an example where we would not intervene. In that circumstances, you have a firm that makes software. It sues another firm from a former employee that is making a software that competes with it and it sues for copyright infringement, and the firm that is getting sued complains to the Bureau, because we do have complaints like this from time to time where a firm says well being sued, it's frivolous litigation. They're just suing me to put me out of business, it's a competition issue. Well, in that type of case if you have frivolous and vexatious litigation, that could conceivably be something that could contravene the Competition Act. But in this type of circumstance where the main focus of the dispute is the copyright being infringed or not, we wouldn't see that as a competition issue. Typically, we would allow, you know, that would see that as really the I.P. issues that should be resolved in court where the hearing about whether the I.P. was really a copyright is really infringed or not. That's not a matter of to make it a competition issue. So for those types of things we would typically would not be involved. And so that would cover a patent too, if some firm was claiming someone else was infringing a patent and suing them, the act of suing them and pursing that, even though someone may see that as quite frivolous, it's something that would be handled by the court. We feel it's an I.P. issue, and so we would not bring out of these sorts of investigation under the Competition Act.

The second example I wanted to go to was price fixing. We want to respect I.P. rights and in our I.P. guidelines, we make that clear that you know the I.P. rights performs a very important special role because you need to have that in many cases the I.P. right to provide incentives for people to invest in the creative arts or invest in innovation. So that's necessary and you don't see the Competition Act being in opposition to I.P. We see them as complementary instruments. So in terms of I.P. when it comes to joint conduct, mergers or in the example 2 in our hypotheticals is price fixing example where you have 3 firms, they all have a patented technique for a medical procedure, a cosmetic medical procedure, and those cosmetic procedures are the next best substitutes to each other, so they're competitors, but they're all have separate I.P. covering their respective procedure. If they nonetheless get together, and they fix, they agree on a minimum price at which each will perform the procedure or a minimum fee on which they license, that's a joint conduct of where they're setting fees and that's something that we would investigate under the cartel provisions. We see that as price fixing, so the fact that it has to do with I.P. doesn't make it immune from prosecution under the cartel provisions. So we would look at that. And if we did think, you know, it met the terms of our criminal conspiracy we'd be would refer the matter to the Director of Public Prosecutions at the Department of Justice.

So that's 2 examples of the hypotheticals in the I.P. guidelines. The example I find that one of the most interesting and really gets at the heart of whether where does competition and I.P., you know where do they come to loggerheads and it's example 9A in our IPEGs. It's product switching and it has to do with the pharmaceutical industry. Product switching or sometimes it's called product hopping. And this is a scenario where you have a brand name pharmaceutical firm. It has 2 drugs on the market : an older drug and a newer drug, and both drugs treat the same type of condition. So one, the older drug, Drug A, it's an older drug, so it's going to come off patent protection fairly soon, and when it does, there's going to be competition from generics. And the other drug, the newer drug, Drug B, it was introduced after the Drug A, it's not really making significant inroads with doctors or with patients. Right, So it's there. It's arguably an improvement over A but it's not much to really cause doctors to prescribe Drug B over Drug A. So what happens in that case is the pharmaceutical company knows that the generic is coming on stream for Drug A, so what it does is it pulls Drug A off the market. It buys back inventories, and it just no longer supplies it, it notifies doctors that Drug A is no longer available. And so the physician prescribes, then Drug B in its place. And so now patients have prescriptions for Drug B, and that's what they go to the pharmacist. So now for the generic comes on the market. Typically when generics they do gain a large market share quite quickly, typically. And it's the pharmacist substitution laws that allow that to happen, because typically, when someone has a prescription for a brand, they go to the pharmacy, the pharmacy can just switch it for the generic. So that's if there was a prescription for Drug A, the pharmacist could switch the generic for that. But when it's the prescription for Drug B, that is no longer an automatic substitution, so the generic for Drug A would not be substitute for a prescription for Drug B. So the concern with that type of activity is that the pharmaceutical firm pulling Drug A from the market is a way to in some ways prolong the market power in the drug because it takes away the power of the generic to compete with the Drug A and what you have is the pharmaceutical firm basically keeping its market power because it has no generic competition for Drug B.

The Bureau actually had a real life case on this, it's Alcon. Well, this is back in July 2012 and the drugs there were Pataday and Patanol. Patanol was the older drug. They were eyedrops to treat dry eye and Patanol, someone had to put in Patanol twice a day, but Pataday, a person could only put it in one a day. So it was somewhat, it was easier, but Patanol was really the one that was prescribed and Alcon on these four, there was generics that were poised to come on the market and Alcon took it off the market and forced physicians to switch to Pataday, so to make a long story short that we did investigate that, and fortunately, there was no litigation. Alcon resupplied Patanol and basically when they resupplied it, that drug was re-adopted and the generics were allowed to come in, they entered the market. They gain market share. They offered competition, and so we felt that the competition had been restored. And so we didn't pursue the matter any further than that. But I think that's the case where I would say I.P. and competition, that's the difficult area because a pharmaceutical firm can say, well, you know, I have a patent on Drug A, let's say or Patanol in Alcon's case, and simply says, well, I have a right to use the drug or not use the drug. I choose to withdraw it, and why does that create a competition issue, and in that case we would see it is a competition issue as I mentioned because you could see it as extending market power in the particular market for those drugs, so it's an issue. I think it's an area that is really interesting, and it's kind of at the I guess at the forefront of the competition/I.P. type interface, but I use that as a last example. And I just throw that out there so.

Lisa: If you met with an entrepreneur who was just about to launch the business, what would you tell them?

Alan: I would say, in terms of the I.P., I think if they're an entrepreneur, small business, we would not see them as really having typically would have market power, so I wouldn't think they should have a concern that if they have a patent, if they have I.P. that they're going to somehow run afoul of competition law in what they use that I.P. I think that would be pretty remote. What I would encourage them to do is seek information from the Bureau. And I'm thinking in particular on the misleading and deceptive marketing. And make sure that they have an understanding there so they don't, you know if they're going to make a performance claim. For instance, they make sure that they have evidence to support that performance claim, environmental claims that they're making, some claim about their product as being very helpful for the environment, making sure that they can back that up with scientific evidence. And you know, one of these other areas is fake online reviews and so that type of thing, avoid having the fake online reviews. So I think that's kind of the thing that I would highlight. Also, you know, I understand, as I mentioned, we do issue guidelines, and some of those could be I think tough for the layman to perhaps get through, but it's important to know I think just what abuse of dominance might be and what might constitute abuse of dominant position just so an entrepreneur, if they feel they've been targeted, let's say by a larger firm, or certain conduct is hurting them from expanding or winning customers that they can identify that and kind of see if there's a potential violation of the abuse of dominant position of the Act, and it just makes them more aware of the alternatives that they might have. The other thing is, as I mentioned, the Bureau has an advocacy element, part of mandate is to promote competition. So if the entrepreneur, especially if they're in an industry that has regulations, a lot of regulations and they see all those regulations are really favouring incumbents. Or they're hurting that an entrant, feel free to kind of make that known to us because we do have market study powers, and we're trying to promote competition and make it easier for firms. So if there's some area where regulations are too restrictive, being overly burdensome to entrepreneurs we'd like to know that because we like to look at that. And, you know, study that and make recommendations. And so we do have as you mentioned the Bureau website, there's an online form there. So if people want to launch a complaint, they can do it online, fill out the online form. They can seek information on any topic, or they can just call the helpline if they want the information in person. So I guess that's my advice to someone just starting out.

Lisa: Thank you so much, this is so interesting to have you on the podcast and being the face outwards from the Competition Bureau. We do some work side by side, so this is really, really interesting. So Alan, thank you. Thank you so much for coming to the podcast today and sharing your expertise. It's been great.

Alan: Yes, it's been my pleasure. And thanks very much for having me.

Lisa: You've listened to Canadian I.P. Voices where we talk intellectual property. In this episode we've met with Alan Gunderson at the Competition Bureau. Alan explained the role of the Competition Bureau in light of laws like the Competition Act, which does mention I.P. rights. Although simply exercising I.P. rights are not anti-competitive acts, Alan explained that the Bureau can investigate matters of I.P. rights if their owners use these rights for things like price fixing, product switching or other anti-competitive outcomes. To learn more about the work of the Bureau, and some of the examples that Alan discussed, open the description to this episode where you will find links to their I.P. enforcement guidelines.