SEPs and the Swinging Pendulum

American IP scholar Mark Lemley aptly characterized the dynamic relationship between IP and competition law as a swinging pendulum, in which antitrust enforcement of IP has cycled from under-protection to over-protection since the enactment of the Sherman Act in 1890. The United States Supreme Court’s recent affirmation of antitrust scrutiny in patent litigation indicated that the pendulum might once again swing toward bolstering antitrust enforcement. Canada’s Competition Bureau (the “Bureau”) continued this momentum by implementing Phase 1 of their Intellectual Property Enforcement Guidelines’ (IPEGs) update and by issuing a white paper on patent litigation settlements.

 

The Bureau recently indicated that Phase 2 of the IPEGs update could address anti-competitive activity surrounding standard essential patents (SEPs). SEPs are patents that are considered essential to implement an industry standard and are common within the technology industry. The European Commission (EC) explains that competition concerns arise from SEP holders gaining market power once a standard has been adopted by competing rivals. This makes ensuring fair, reasonable and non-discriminatory (FRAND) licensing commitments particularly important. Google/Motorola and Apple’s recent SEP litigation coupled with the corresponding enforcement by the EC and the United States Federal Trade Commission (FTC) raises questions as to how the Bureau will position the pendulum toward SEP activity.

 

The Competition Bureau’s Current Approach to Anti-Competitive SEP Activity

While not directly addressed, the Bureau’s IPEGs note one example in which the Bureau would target anti-competitive SEP activity through section 32 of the Competition Act. Section 32 allows the Federal Court, on the advice of the Attorney General, to issue an order that remedies an anti-competitive act occurring from the mere use of an IP right. The IPEGs imply that the Bureau must first establish that the SEP holder dominates the relevant market and that refusing to licence the SEP prevents other firms from effectively competing in the relevant market. Second, the Bureau must establish that invoking section 32 against the SEP holder would not adversely affect the incentives to invest in research and development.

Section 32’s procedurally cumbersome requirements partially explain why it hasn’t been used for decades. The section requires the Attorney General to apply to the Federal Court. The Commissioner is also required to meet the “undue lessening” standard that was removed from other Competition Act provisions due to its outdated language.

 

Potential New Approaches to Target Anti-Competitive SEP Activity

The Bureau might characterize anti-competitive SEP activity as an abuse of dominance. The EC recently decided that Motorola’s efforts to seek injunctive relief against Apple’s use of a smartphone SEP constituted an illegal abuse of dominance pursuant to Article 102 TFEU. The Bureau could argue that similar conduct is an abuse of dominance under section 78 of the Competition Act. However, unlike Article 102, section 79(5) explicitly exempts “an act engaged in pursuant only to the exercise of any right…under the…Patent Act”. The Competition Tribunal held in Tele-Direct that the refusal to licence an IP right falls under the section 79(5) exemption. Therefore, the Bureau might refrain from characterizing the activity as an abuse of dominance unless it argued that the SEP holder’s breach of its FRAND commitments was something more than a mere refusal to licence.

The Bureau might instead choose to characterize anti-competitive SEP activity as an unfair trade practice. The United States FTC recently targeted Google/Motorola’s FRAND commitment breach through section 5 of the FTC Act, which prohibits unfair deceptive acts involving commerce. There currently does not seem to be a provision in the Competition Act synonymous with section 5 of the FTC Act. The Bureau could instead argue that such conduct constitutes an illegal refusal to deal pursuant to section 75(1) of the Competition Act, which might allow the Tribunal to order the supplier of a product (the SEP) to sell to a party within usual trade terms (the FRAND commitment). However, the Tribunal held in Warner that the term “product” in section 75 was not intended for licences of intellectual property, making it much less likely that the Bureau could use section 75 to target breaches of FRAND commitments.

Finally, a uniquely Canadian solution would entail amending section 32’s procedural obstacles outlined above to target SEP activity. Amending these obstacles, which is supported by the former head of the Bureau, could improve the provision’s functionality while ensuring common ground with the EC and FTC’s competitive analyses by preserving the IPEGs’ mandated balancing of competitive effects. Overall, the Bureau has some significant provisions with which to target SEP activity. Whichever route they take, however, evidence suggests that the pendulum will continue moving toward antitrust enforcement.


Peter Neufeld is a JD Candidate at Osgoode Hall Law School and is enrolled in Osgoode’s Intellectual Property Law Intensive Program. As part of the program requirements, students were asked to write a blog on a topic of their choice.

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