Intellectual rights at risk
July 1999
The federal Competition Bureau is out to reconcile
competition laws and owner’s rights to exploit their
intellectual property. But its proposals seem to favour
competition at the expense of those rights
Authors: Lawson A.W. Hunter, Q.C.,
and D. Jeffrey Brown
The rise of the “information economy” has fuelled concerns about managing the interface
between laws that promote competition and those that protect intellectual property. The
object of competition law is to foster competition and efficiency, and prevent monopolies.
Intellectual property laws, on the other hand, generally protect creative endeavours by
conferring exclusive rights, usually for a finite period of time, through devices such as
copyrights for songs, books and software, patents for products such as pharmaceuticals, and
trademarks for commercial products.
Potential conflict between these two legal worlds – between legal protection of exclusivity
and the legal pursuit of legal competition – is at the heart of the Microsoft case in the United
States. As the economy changes, similar issues are likely to arise with increasing regularity,
not only in the U.S. but also in Canada.
Unfortunately, recent proposals by the federal Competition Bureau to bridge the perceived
divide between competition and intellectual property laws run the risk of significantly
restricting intellectual property rights. In draft Intellectual Property Enforcement Guidelines
(Draft IPEGs) released last month, the bureau appears to be shifting the balance toward
competition, at the expense of traditional exclusive rights conferred by Parliament in such
statutes as the Copyright Act, the Patent Act and the Trademarks Act.
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The Competition Bureau hopes its guidelines will remove uncertainty about how it will apply
the Competition Act to intellectual property rights. While this objective is laudable, the
bureau’s attempt to bring certainty to the competition/intellectual property interface falls
short in certain important respects. It raises, without answering, fundamental questions
about the extent to which Parliament intended to give the bureau power to use the
Competition Act, a statute of general application, to restrict rights conferred in other statutes
dealing specifically with intellectual property.
Faced with what it considers anti-competitive conduct involving intellectual property, the
Competition Bureau may challenge this conduct:

Under Section 32 of the Competition Act, the only provision in the act that expressly
contemplates using competition law to deal with anti-competitive uses of intellectual
property, if the conduct is “inherent” in the intellectual property rights being exercised
(for example, the exclusive right to exploit one’s intellectual property); or

Under the other so-called general provisions of the Competition Act, if the conduct is
“beyond” the intellectual property rights being exercised.
The Competition Bureau under states that it will challenge conduct under Section 32 only in
“rare circumstances”, where certain conditions are met. However, Section 32 likely will be
of little concern to intellectual property owners. Although it has been part of the
Competition Act for decades, it has almost never been used. The position set out in the
Draft IPEGs is unlikely to change this.
Instead, the Competition Bureau anticipates that the “majority of circumstances” in which
the Competition Act will be applied to intellectual property will involve its general
provisions. It is the applications of these provisions that is most likely to concern
intellectual property owners.
The Competition Bureau’s proposed use if the act’s general provisions have significant
potential impact on the rights of intellectual property owners. On its face, the bureau’s
proposal is not objectionable: It applies only to conduct that is “beyond” the scope of an
intellectual property right. But how does one determine what is inherent and what is
beyond an intellectual property right? This distinction is fundamental to the Competition
Bureau’s approach, and yet the Draft IPEGs offer very little in guidance to assist in this
determination.
What is clear, however, is that the bureau’s view of what is inherent in an intellectual
property right is narrower than most owners of intellectual property would expect.
According to the bureau, such inherent rights consist of the “exclusive rights to either use,
license, transfer, or sell” intellectual property – which, in its view means that “it is only the
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[intellectual property] owner who can determine whether or not to license, transfer or sell
the IP” (emphasis added).
An intellectual property owner, therefore, is free to choose not to license, transfer or sell its
intellectual property, but once it does so, the Competition Act applies to ensure that the
licensing, transfer or sale will not offend any of its provisions. Instead, the Competition
Bureau makes it clear that it would not hesitate to require compulsory licensing to remedy an
exclusive license where, in its view, it is necessary to have more than one license to ensure a
competitive environment. In doing so, it would undermine what intellectual property
owners (and, in turn, their licensees) have regarded as their statutory right to maximize
returns on their intellectual property.
That the Competition Bureau may seek to dictate to whom an intellectual property owner
may license its intellectual property will no doubt concern owners. Arguably, the bureau’s
position also increases uncertainty, insofar as the bureau offers no justification for its
distinction between what is inherent and what is beyond an intellectual property right.
Moreover, even if it can be said to foster certainty, it would seem to do so at the expense of
intellectual property owners: If the Competition Bureau would remove from their inherent
rights something so fundamental as the right to choose a licensee, what else it will decide is
not within those inherent rights?
In fact, the Competition Bureau’s view on this issue is at odds with those of the
Competition Tribunal, the quasi-judicial body charged with adjudicating certain general
provisions of the Competition Act, and from whom one would expect the bureau to be
taking guidance. In 1997, the Competition Tribunal refused an application by the
Competition Bureau’s director (now the commissioner of competition) to grant a
compulsory licence for a trademark. According to the Competition Tribunal, “[i]nherent in
the very nature of the right to license a trademark is the right for the owner of the trademark
to determine whether or not, and to whom, to grant a licence” (emphasis added). The
Competition Tribunal reiterated this view in a subsequent case dealing with copyright
licensing.
The Competition Bureau maintains that the Draft IPEGs do not signal a change in its
enforcement approach with regard to intellectual property. This being the case, it is
troubling to see so little in the Draft IPEGs addressing the legal relationship between the
Competition Act and the federal intellectual property statutes.
While the Competition Bureau states that it regards competition and intellectual property
laws as complementary policy instruments, this speaks only to their underlying economic
theories. In practice, it is clear that they are not entirely complementary; conflicts between
competition and intellectual property laws can and do arise. Moreover, when Parliament
speaks about the same subject matter through more than one statute, it is not sufficient to
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rely on economic theory alone to reconcile them; Parliament’s intentions with regard to each
statute must be reconciled using tools of legal analysis.
Such analysis, which strikes at the heart of the bureau’s authority over intellectual property
rights, is remarkably absent form the Draft IPEGs. Indeed, it is open to serious question
whether the bureau’s broad assertion of authority over intellectual property rights is
consistent with the exclusive rights conferred on intellectual property owners by Parliament
in other statutes.