PART III: ALTERNATIVES TO IP REGULATION; NATIONAL AND TRANSNATIONAL ASPECTS OF GOVERNANCE

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  IP laws and competition policy are related b/c they affect the dvlpt and diffusion of innovations
  
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  Traditional view is that there is inherent tension btwn them  IP rights grant monopoly and thereby stifle competition whereas competition policy seeks to foster competition and shut down monopoly.
  
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  Today, they are complementary instruments b/c there is growing willingness to restrict short-term competition in order to protect increased efficiency and productivity arising from innovation in the future. The challenge facing policy makers is to coordinate IP instruments and competition instruments so as to achieve efficient allocation of resources.
  

1. 
   There should be no presumption that an IPR creates market power
   
2. 
   Competition policy should acknowledge the basic rights granted under patent (IP) law
   
3. 
   A licensing restriction should be permitted if it is not anticompetitive relative to the outcome that would result if the license were proscribed; otherwise, an evaluation of potential efficiency effects of the restriction on the pricing and diffusion of the IPR should be made.
   

Trebilock defines the roles of IPRs and competition policy as follows: IP law defines the rights that encourage innovation; competition policy prevents the anticompetitive transfer and use of technology while respecting the basic exclusive rights as laid out by patent law.

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  Horizontal: contracts that coordinate activities among horizontal competitors in a market resulting in reduced competition
  
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  Vertical: Contracts that coordinate the incentives of a downstream licensee with the interests of an upstream producer or licensor.
  

1. 
   Tied sales and extensions of IPRs
   

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  Tie: supply of one product (the tying product) either on condition that the buyer also take a second product (the tied product) or on terms that induce the buyer to take the second product in addition to the first.
  
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  May be of two types: bundling (e.g. bundling of patents in licensing Ks) and requirements tying (buyer’s right to buy one product is tied to the obligation to buy all requirements of a 2^nd product exclusively from the same seller
  
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  *e.g. Microsoft IE case – MS refused to license OS unless PC manufacturers agreed not to alter the OS and its interaction with the browser; also made it impossible for user to remove IE
  
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  *e.g. Royalty payments beyond the patent life – Cdn case in which party argued that this was an illegal attempt to extend patent rights and thus a restraint of trade; court rejected arg b/c parties agreed to it and the agreement was not unreasonable.
  
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  *e.g. Trademark as the tying product (Nutrasweet aspartame case) – NutraSweet tied the use of its logo and trademark to its aspartame.
  
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  Under Competition Act, tying is prohibited under s. 77(2) only where three requirements are met
  

2. 
   Refusal to License
   

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  Under PA and CA, compulsory licensing can be used if innovation is not being worked to an adequate degree (particularly if some licensing is in the public interest).
  
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  Court may construe unreasonable royalties as refusal to license where those royalties are so unreasonable that the patent could not be worked except by the patent holder. Showing of anti-competitive effects not necessary
  

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  Courts have generally held that mere exercise of IPRs (e.g. refusal to license a TM) does not constitute an anti-competitive act. A party’s reasonable refusal to license their TM falls squarely w/in their rights.
  
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  Tele-Direct case (refusal to license yellow pages TM): selectivity in licensing is fundamental to the rationale behind protecting TM
  

3. 
   Resale Price Restrictions
   

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  s. 61 Competition Act: IPRs cannot be used directly or indirectly to attempt to influence upward or to discourage a reduction in price of the product
  
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4. 
   Exclusivity Restrictions
   

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  here the distinction mtwn horizontal and vertical becomes most relevant (see def’ns above)
  
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  Restrictions motivated by horizontal effects tend to be inefficient while Ks with vertical effects tend to be efficient.
  

1. 
   Territorial Restrictions
   

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  Always a vertical restraint
  
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  Restrict the territory in which the licensee can produce and sell
  
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  Usually a restriction on the licensor (cannot license others in the specified territory) and the licensee (cannot operate outside the designated area)
  
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  Open-territory restrictions don’t protect against competition from licensees outside the territory, while closed-territory restrictions do
  
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  Exclusive territory restrictions can give rise to grey markets (occurs when price differential exists between two areas and marketer buys in lower price region and undercuts exclusive distributor in higher price region) [Breck’s and Heinz]
  
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  In EU, there is policy of exhaustion (removal of rights of IP owners to control parallel imports of legitimately mfed foreign versions of their products). This doctrine doesn’t apply in Canada.
  
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  Trebilock outlines a number of incentives for setting up exclusive territorial restrictions and justifications for cutting back on grey marketing:
  
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    Provides an incentive to the distributor to invest in GW (e.g. marketing, building product quality and reputation) without fear of free-riding. Grey-marketers free ride. If investments in GW are not protected, there will be no incentives to make them in the first place.
    
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    Parallel importing could frustrate the objectives of TM protection, i.e. preventing consumer confusion and protecting a firm’s goodwill
    
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  On the other hand,
  
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    grey marketing/parallel importing offers more choice and lower prices to consumers
    
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    Grey goods are typically of identical quality to the TM owner’s goods
    
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  IP Regimes such as Patent Act and Trademark Act can be used to claim infringement against parallel importation of goods embodying the IP; Competition Act can be used to challenge territorial arrangements. There have been patent and TM infringement cases but no challenges under the Competition Act.
  

2. 
   Exclusive licensing
   

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  The assignment of exclusive rights to the use of an IPR to a single party for a specified period of time. The exclusive transfer of IP rights is not necessarily an offence under either IP law or competition law.
  
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  …
  

3. 
   Exclusive dealing
   

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  Under an exclusive dealing K, the licensee is required not to engage in the use or sale of the technology or products of other licensors’ work.
  

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  There are explicit references in the Act that ensure that conduct that goes b/y the exercise of inherent IPRs falls w/in the Act. There are specific provisions designed to deal with abuse of IPR. There are also other sections that references can be drawn to IPR abuses (ss. 45, 75, 77 as examples)
  
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  Section 32 allows the A-G (attorney-general) to apply to the Fed Crt of Cda (FC) for various remedial orders to address the abuse of IPRs.
  
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  The remedial powers of the FC are broad: revocation of the patent, declaration of the K’ual arrangement as void, imposition of compulsory L’ing
  
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  Provides that where the exclusive rights & privileges conferred by patents, TM, CR have been used to
  

1. 
   Limit unduly the facilities for transporting, producing, manufacturing, supplying, storing, or dealing in any article or commodity that my be subject to trade & commerce
   
2. 
   Restrain or injure unduly trade or commerce in relation to any such article or commodity
   
3. 
   Prevent, limit, or lessen unduly the manufacture or production of any such article or commodity or unre’bly enhance the price thereof
   
4. 
   Prevent or lessen unduly competition in production, manu, purchase, barter, sale, transport, or supply of any such article of commodity then the FC may:
   
   1. 
      Declare void, in whole or part, any agreement, L, arrangement relating to the use of the IPR in Q
      
   2. 
      Restrain any person from carrying/exercising any or all of the terms/provisions of the agreement, L, or arrangement
      
   3. 
      Direct the grant of licenses under the IPR to persons on terms & conditions determined by the Crt or if the grant/other remedies is insufficient to prevent such anticompetitive use, revoke the patent
      
   4. 
      Direct that registration of TM in the register of TMs be expunged or amended
      
   5. 
      Direct that such other acts be done or omitted as the crt deems necessary to prevent anticompetitive use
      

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  Section 32 also has the reprisal that no remedial order shall be made that would be a variance w/ any treaty or arrangement respecting IPRs to which Cda is a party to.
  
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  Want to leave room for IPR to work, to abuse IPR you have to go beyond the bounds of what was awarded to you. Say you have an IPR and you implement it, you need to existence of IPR in your hands to be tainted.
  

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  Competition policy should be based on the efficiency merits of the practice as opposed to whether licensing generates too much or too little reward for the innovator’s research efforts. The basic exclusive rights provided by the patent grant should be respected at all points of the analysis.
  

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  IP differs from other property in its public goods nature – which leads to a different application of competition law in certain instances. Also consider the horizontal-vertical nature of the rel’ships b/t competitors w/ regard to licensing
  
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  In many cases the application of the law may be the same as in non-patent cases but certain criteria characteristic of innovations (ex. uncertainty & specific investments) may justify the use of restrictive practices. IP cases may get more leniency than non-IP cases when applying the same laws
  
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  Competition law should not attempt to take on the mandate of patent policy in encouraging innovation. Nor should patent law attempt to rule on anticompetitive practices.
  
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  Competition policy should work w/ patent policy to provide adequate incentives for innovators to share their discoveries w/ others when this is efficient. Patent & competition laws should be complimentary to strike a balance b/t dynamic & allocative efficiencies.