TPP - Competition Issues

The recently leaked draft shows that Trans-Pacific Partnership treaty has the potential to have a major impact on patent law, to a significantly greater extent than CETA or ACTA, as a number of issues that are both fundamental and controversial are being negotiated. In this and subsequent posts I will highlight some of these proposed provisions, with some suggestions as to their potential implications. This post will deal with issues related to competition law. I should emphasize that all my comments are tentative, both because I may not be interpreting the provision properly, and because I have not had time to fully assess the law to the extent necessary to provide a thorough commentary. Nor are my comments a comprehensive review of the draft treaty. I will deal with those provisions which strike me as particularly interesting. There are a number of proposals which may be both controversial and of a significant practical impact, which I will not discuss. In the extracts below I have edited the draft provisions for clarity, sometimes omitting substantive material. Consequently, the excerpts and my discussion may not fully reflect the proposal or the position of the parties. Please refer to the original leaked draft before drawing your own conclusions.

Anticompetitive Abuse of IP Rights

Article QQ.A.9: {Implementation of this Chapter}

1. Nothing in this Chapter shall prevent a Party from adopting appropriate measures to prevent:

(a) the abuse of intellectual property rights by right holders or the resort to practices that unreasonably restrain trade or adversely affect the international transfer of technology; and

(b) anticompetitive practices that may result from the abuse of intellectual property rights;,

provided that such measures are consistent with this Agreement.

This provision is proposed by all parties, except the US and JP, which oppose. Canada’s position in supporting this is consistent with current Canadian law.

One effect of para (b) of this provision would be to entrench the holding of the USSC in FTC v Actavis 2013 USSC, that reverse payment settlements are not immune from antitrust scrutiny. To the extent that there is something else in the Chapter which would conflict with that holding (which is not clear to me at this point), opposing this provision would reverse that holding in favour of the position taken by Roberts CJ in dissent, that actions are within the scope of the patent are not subject to antitrust scrutiny. It does seem clear, at least, that the US negotiating position is diametrically contrary to the FTC’s position that such settlements should be illegal per se. While I am not enamored of all the details of the USSC decision – see here – and I have no firm position on the specific issue of reverse payment settlements, in my view it is clear that the exercise of IP rights should be subject to competition law. The exercise of property rights generally is subject to competition law – cornering the market in a traditional commodity and then charging a monopoly price is nothing but the exercise of property rights – and I see no reason why IP rights should be any different. Even if reverse payment settlements in particular should not be subject to antitrust review, immunizing any kind of anticompetitive abuse of IPRs from antitrust review is an excessive response. If some other concern is driving US opposition to this provision, I am very curious as to what it might be.

Para (a) is a slightly different matter. Many jurisdictions, including US and Canada (codified, at least partially, in ss 65-71), have patent (and copyright) misuse doctrines, but these are generally poorly defined. It might not be unreasonable to abolish the IP doctrine of abuse of rights, on the basis that any real abuse will be caught by competition law scrutiny, which has a much better developed analytic framework for dealing with the substantive issues. The obvious counter-argument is that there may be abuses of IPRs that are contrary to sound public policy which are not caught by competition law; to resolve that debate would require a thorough analysis of the relationship between the two bodies of law. That is a major undertaking (see Hovenkamp et al IP and Antitrust, Ch 3), which is beyond the scope of this note. But in any event, that argument that IP misuse should be abolished because competition law does a better job requires embracing para (b) as a condition for rejecting para (a).

In my view, Canada’s position on this Article is sound.

Remedies for Abuse of IP Rights

            Article QQ.E.3

[1] Each Party shall provide that a patent may be cancelled, revoked or nullified only on grounds that would have justified a refusal to grant the patent. A Party may also provide that fraud, misrepresentation, or inequitable conduct may be the basis for cancelling, revoking, or nullifying a patent or holding a patent unenforceable.

There is nothing particularly controversial here, and E.3[1] appears to have unanimous support. The provision then continues:

[2] A Party may also provide that a patent may be cancelled, revoked or nullified on the basis that the patent is used in a manner determined to be anti-competitive in a judicial proceeding

The US and Japan oppose this provision, which is consistent with their position re Art A.9, just discussed. All others support it or are neutral. Supporting A.9 does not entail also supporting E.3. For countries accepting Art A.9, the question is as to remedy: should patent revocation be available for patent misuse (as is possible in Canada under the existing s 66(1)(d)), or only compulsory licensing or unenforceability in the specific case? The difficulty with E.3[2] is that it may be a draconian remedy. Even if we accept that patent misuse may occur, we should also recognize that the courts may sometimes err in their determination as to whether there has been an abuse; and even if there has been an abuse, revocation of the patent may be a penalty disproportionate to the extent of the abuse. A compulsory licence can stop the abuse without destroying the right, which makes it a much safer remedy. On the other hand, where the right is being systematically abused, a remedy limited to a particular party, such as a compulsory licence, might require multiple accused infringers to defend themselves, and SMEs in particular, may choose to settle instead. This suggests that revocation may sometimes be necessary. Several countries, including Canada, propose in effect that revocation would only be available where the grant of a compulsory licence would be inadequate to remedy the abuse, reaffirming Art 5A(3) of the Paris Convention on this point. Canada's position on this Article strikes me as a reasonable middle ground, which recognizes that revocation should be resorted to only in exceptional circumstances.

The US proposes that E.3[1], which it supports, would begin by stating that the article operates “Without prejudice to Article 5A (3) of the Paris Convention.” Since E.3[1] says revocation is available only on the listed grounds, which do not include abuse, and Art 5A(3) of the Paris Convention is phrased in the negative – forfeiture shall not be available except where necessary to prevent abuse – not in the positive – forfeiture shall be available in cases of abuse – it looks to me like the US “without prejudice” proposal would formally reconcile, but with the practical effect that revocation would never be available for abuse.

Exhaustion

Article QQ.A.12: {International Exhaustion of Rights}

The Parties are encouraged to establish international exhaustion of rights.

This general statement, in Part A, “General Provisions” is proposed by seven states, with the US, Japan and two others opposing. Canada’s position is not noted. There are also three separate parallel provisions, all using the “encouraged” language, aimed at trademarks (Art C.11), patents (Art E.X) and (apparently) copyright (Art G.17). For example, the patent provision states:

Article QQ.E.X: {Exhaustion of Rights}

The Parties are encouraged to establish international exhaustion of patent rights. For this purpose, the registration of a patent shall not entitle its holder to prevent third parties from making, using, offering for sale, selling or importing a product protected by that patent, which has been put in the market in any country by the patent holder or with his consent.

I say “apparently” with respect to copyright, as proposed provision G.17 in Chapter G dealing with copyright simply repeats the general provision of A.12, without specific reference to copyright, but I presume that it would be elaborated in a final version, if accepted.

Curiously, the position of the various nations on the specific exhaustion provisions do not line up exactly with their position on the general statement, or with each other. Canada is noted as supporting only the trademark provision, which is opposed only by the US and Japan. Only Chile proposes the patent provision, and no other positions are noted. Only the US and Australia oppose the copyright provision, though Canada reserves its position pending the outcome of discussions elsewhere in the Copyright chapter. With respect to the copyright provision, Canada also proposed that “Nothing in this Chapter shall affect the freedom of the Parties to determine whether and under what conditions the exhaustion of copyright and related rights applies.” This is a curious provision, as it has the potential to undermine the basic rule. It seems that Canada may not have a clear position, except on trademarks.

While I do not have a firm position, I am inclined to be a skeptic on exhaustion generally, as I am largely persuaded by the arguments made by Professor Hovenkamp in articles such as “The First Sale Doctrine in Perspective” (2010) 66 NYU Ann Surv Am L 487. At the very least, there is a real debate as to the policy merits of exhaustion doctrine. To that extent, Canada’s apparent non-position is reasonable enough, though it is not obvious to me why trademarks should be treated differently from copyright and patents.