Intellectual property is an area of law that has more impact on our daily lives than many people realize. At a seminar series held at Blakes, Cassels & Graydon LLP on June 23rd, I learned that in order to fully understand intellectual property, it is important to consider other areas of law, such as insolvency and competition. At the outset, it seems as though these specialized fields of law would have little impact upon, for example, a pharmaceutical company that is trying to patent a drug, but in reality it is important to consider the broad implications of intellectually property rights in order to thrive in the business world.
In the past, when an IP licensor became bankrupt in the United States, the trustee has the ability to terminate licences or sell the intellectual property underlying these licenses to a third party. Thissituation is exactly what occurred in the 1985 US case Lubrizol Enterprises, Inc. v. Richmond Metal Finishes, Inc. The decision was a shock to many in the American legal community, so much so that Congress passed legislation to correct the “problem” of Lubrizol. The result was s. 365(n) of the US Bankruptcy Code (USBC). In Canada, we have not enacted a provision similar to s. 365(n), which creates several risks in Canadian law. Canadians face similar problems that occurred in Lubrizol. These executory contracts are viewed as being “onerous” on the state and thus are able to be disclaimed by trustees. S. 65.11(7) of Bill C-12, An Act to Amend the Bankruptcy and Insolvency Act, aims to remedy the situation in Canadian law by stating that in the event a trustee disclaims an IP license, this does not affect a party’s right to use of intellectual property in the event of insolvency so long as the party performs its obligations under the agreement regarding the use of the intellectual property. However, Bill C-12 fails to define “right to use.” As well, the trustee is not prevented from assigning the IP to another party who may not fulfill licence obligations.
There are some ways, however, that the gaps in Bill C-12 can be addressed. One can assign ownership of IP rights to the licensee, treat the licences as property rights by including items such as purchasing options or rights of first refusal, create escrow arrangements to transfer property interests, or create security over the IP so as to move the licensee into the secured creditor category.
The changes to Canada’s Competition Act will also alter the intellectual property landscape. Significant amendments to the Act came into force on March 12, 2009, in response to recommendations by the federal government’s Competition Policy Review Panel. The main focus of these changes was to converge with antitrust law in the United States. In March 2010, agreements between competitors can be enforced by the government in both criminal and civil law. In the criminal aspect, section 45 states that it is per se illegal to enter into an agreement that “unduly lessens competition”, therefore some tangible impact upon the marketplace must occur. Agreements that are found to violate section 45 can result in a 14 year prison sentence or a fine of $25 million. Civil remedies are not as severe and include prohibition orders. It is easy to see how agreements which include intellectual property rights could be categorized as “unduly lessening competition” and thus could be found in violation of section 45.
Criminal prohibitions have been repealed for pricing and distribution practices, including predatory pricing, price discrimination, and resale price maintenance. Civil abuse of dominance provisions have replaced these criminal prohibitions. A requirement of an “adverse effect on competition” has been added to the civil provisions regarding resale price maintenance. Penalties can be up to $10 million for abuse of dominance and $15 million for repeat offences. Concerns about constitutionality have been raised due to the severity of the punishment for a civil law offence. Some people argue that it may have a chilling effect on competition. Some pharmaceutical companies have been accused of predatory pricing in the past, but perhaps the changes in the provisions will make it harder to find companies liable. Depending on the circumstances, this change can be both beneficial and detrimental to patent holders.
Lastly, the new merger review process is similar to the procedures in the United States. There is an initial 30-day waiting period followed by a possible Supplementary Information Request (SIR). Transactions cannot be closed until 30 days after compliance with SIR have passed, and even then the bureau can issue an injunction. Foreign investment review can now be undertaken for national security purposes under the Investment Canada Act; however, the term “national security” has yet to be defined.
One of the main problems in having intellectual property laws vary so widely between jurisdictions is the issues it creates when problems arise out of agreements that cross international borders. Multi-jurisdictional litigation inevitably takes a lot of time, money and resources in order to be managed successfully. Morguard Investments v. De Savoye is still the basic standard in Canadian law for determining if there is a “real and substantial connection” between the jurisdiction and the parties involved in a dispute so that the court will assume jurisdiction. Muscutt v. Courcelles outlined the eight factors used to assess jurisdiction under the “real and substantial connection” test. Balancing eight separate factors is often tricky to do, and in combination with attornment, forum selection clauses, and anti-suit injunctions, jurisdictional issues can become complicated. For multi-national companies that invest in intellectual property in different countries, or innovators seeking to take market their product globally, cross-border issues are very important to consider before taking any steps in the international marketplace.
When I think about intellectual property, I often focus my thoughts solely on the laws regarding patents, copyright and trademarks. However, I now realize that it is important to take a broader perspective on IP issues. In the same light, it is important for lawyers to understand the global impact that IP law has on virtually every other field of law. Seeing the connections between the various fields of law will increasingly become important as technology makes international business opportunities easier to achieve.
Special thanks to Monica Sharma, Navin Joneja, and J. Alan Aucoin of Blakes, Cassels & Graydon LLP for providing the information for this article during their presentations at Blakes. I would also like to thank Blakes for allowing me to attend the seminar, “Hot-Button Topics in Intellectual Property Law.”