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. STIKEMAN ELLIOTT 2 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 STIKEMAN ELLIOTT 3 [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 STIKEMAN ELLIOTT 4 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.